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 - Internal Control Over Financial Reporting			63
Report of Independent Registered Public Accounting Firm - Financial Statements			64
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2019 and 2018			67
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017			68
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017			69
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017			70
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2019, 2018 and 2017			71
Notes to Consolidated Financial Statements			72

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 United States generally accepted accounting principles ("GAAP"). The Company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) 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, 2019. 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, 2019.

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, 2019. The report is included herein.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors 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, 2019, 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, 2019, 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, 2019 and 2018, the related consolidated statements of operations, comprehensive income, cash flows, and stockholders' equity, for each of the three years in the period ended December 31, 2019 of the Company and the related notes, and our report dated February 11, 2020 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 11, 2020

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors 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, 2019 and 2018, the related consolidated statements of operations, comprehensive income, cash flows, and stockholders’ equity, for each of the three years in the period ended December 31, 2019, 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, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 11, 2020 expressed an unqualified opinion thereon.

Adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842)

As discussed in Note 2 to the financial statements, the Company changed its method for accounting for leases due to the adoption of ASU No. 2016-02, Leases (Topic 842), and the amendments in ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, on January 1, 2019 using a modified-retrospective approach.

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.


						Accounting for the Loyalty Program
Description of the Matter						The Company recognized $239 million of revenues during the year ended December 31, 2019 and had deferred revenue of $396 million as of December 31, 2019 associated with the Hilton Honors guest loyalty and marketing program (the “Loyalty Program”). As discussed in Note 4 to the consolidated financial statements, the Company has a performance obligation to provide or arrange for the provision of goods or services for free or at a discount to Hilton Honors members in exchange for the redemption of points earned based on their spending at participating properties and through participation in affiliated partner programs. The consideration for the Loyalty Program is received from hotel properties or other program partners at the time points are earned by Hilton Honors members. Such amounts are recognized as revenue when points are redeemed and the related performance obligation is met based upon the estimated standalone selling price per point. Auditing Loyalty Program results is complex due to: (1) the complexity of models and high volume of data used to monitor and account for the Loyalty Program results, and (2) the complexity of estimating the standalone selling price per Loyalty Program point, including the estimated breakage rate of Loyalty Program points. Such estimates are complex given the significant estimation associated with redemption activity.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for the Hilton Honors during the year. For example, we tested controls over management’s review of the assumptions and data inputs utilized by outside actuaries in assisting the Company with estimating the ultimate estimated redemption cost and breakage rate of Loyalty Program points and management's review of monthly activity and data inputs to their accounting model. To test the recognition of revenues and costs associated with the Loyalty Program, we involved specialists on our team and performed audit procedures that included, among others, testing the clerical accuracy and consistency with US GAAP of the accounting model developed by the Company to recognize revenue and costs associated with the Loyalty Program, and testing significant inputs into the accounting model, including the estimated standalone selling price and recognition of points earned and redeemed during the period whereby we involved our actuarial professionals to assist in our testing procedures. We evaluated management’s methodology for estimating the breakage of Loyalty Program points, as well as tested underlying data and actuarial assumptions used in estimating the breakage rate.

						Accounting for Income Taxes
Description of the Matter						The Company recognized income tax expense of $358 million during the year ended December 31, 2019, and unrecognized tax benefits of $395 million as of December 31, 2019. As discussed in Note 13 to the consolidated financial statements, the Company’s unrecognized tax benefits relate to, among others, uncertainty regarding affirmative refund claims submitted to the Internal Revenue Service during 2019, calculations of certain tax deductions claimed, and the valuation of certain tax assets in the United States and the United Kingdom. Further, as discussed in Note 13 to the consolidated financial statements, the Company has recognized tax positions of $817 million as of December 31, 2019 for which the Internal Revenue Service has made proposed adjustments through the issuance of a Revenue Agents Report, for which the Company has reserved $58 million. Auditing the accounting for income taxes is complex as a result of: (1) operations in multiple foreign tax jurisdictions and international restructuring transactions, (2) the judgment and estimation associated with both the identification and measurement of the Company's unrecognized tax benefits, including its evaluation of the technical merits related to matters for which no reserves or partial reserves have been recorded, and (3) the significant estimation associated with the measurement of unrecognized tax benefits outstanding as of the balance sheet date.


How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for income taxes, including unrecognized tax benefits, during the year. For example, we tested management’s controls over the review of tax positions taken by the Company to determine whether they met the threshold for recognition within the consolidated financial statements. To test the recognition of the Company’s unrecognized tax benefits and measurement of unrecognized tax benefits, we involved tax professionals with specialized skills and knowledge to assess the technical merits of the Company’s tax positions and performed audit procedures that included, among others, evaluation of communications with relevant taxing authorities, evaluation of whether management appropriately considered new information that could significantly change the recognition, measurement or disclosure of the unrecognized tax benefits, and testing the assumptions used by management in estimating the valuation of any associated liability.

						Accounting for Other Expenses from Managed and Franchised Properties and General and Administrative Expenses
Description of the Matter						The Company recognized Other expenses from managed and franchised properties of $5,763 million and General and administrative expenses of $441 million during the year ended December 31, 2019. As discussed in Note 2 to the consolidated financial statements, the Company incurs certain direct and indirect expenses that are for the benefit of, and contractually reimbursable from, hotel owners. Such amounts (“Cost Reimbursements”) are recorded in the period in which the expense is incurred as Other expenses from managed and franchised properties and the accounting for indirect cost reimbursements includes judgment with respect to the allocation of certain costs between reimbursable and non-reimbursable. Auditing the classification of indirect reimbursements recognized within Other expenses from managed and franchised properties and General and administrative expenses is complex as a result of: (1) judgment associated with testing management’s conclusions regarding the allocation of costs between reimbursable and non-reimbursable expenses, presented as Other expenses from managed and franchised properties and General and administrative expenses, respectively, (2) the complexity associated with allocating indirect expenses due to the high volume of data utilized by management in establishing and maintaining allocations for indirect expenses, and (3) incentives for management to limit the growth in General and administrative expenses due to the impact on publicly disclosed earnings metrics.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for Cost Reimbursements, General and administrative expenses, and the process for allocating indirect reimbursement expenses during the year. For example, we tested management’s controls over the review of the allocation of certain indirect costs to determine if they were appropriately classified. To test the recognition of Cost Reimbursements for appropriate classification, we performed audit procedures that included, among others: testing a sample of transactions that were classified within Other expenses from managed and franchised properties in order to evaluate the appropriate accounting treatment and reasonableness of classification; comparing budgeted amounts to prior allocations and evaluating the reasonableness of any resulting material changes to allocations of indirect expenses; performing analytic procedures over Other expenses from managed and franchised properties and General and administrative expenses in order to identify indicators of material errors in the classification of expenses based on established trends and expectations; and testing material manual journal entries made to Other expenses from managed and franchised properties and General and administrative expenses.

/s/ Ernst & Young LLP

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

Tysons, Virginia

February 11, 2020

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)


	December 31,
	2019		2018
ASSETS
Current Assets:
Cash and cash equivalents	$	538	$	403
Restricted cash and cash equivalents	92		81
Accounts receivable, net of allowance for doubtful accounts of $44 and $42	1,261		1,150
Prepaid expenses	130		160
Other	72		189
Total current assets (variable interest entities – $100 and $90)	2,093		1,983
Intangibles and Other Assets:
Goodwill	5,159		5,160
Brands	4,877		4,869
Management and franchise contracts, net	780		872
Other intangible assets, net	421		415
Operating lease right-of-use assets	867		—
Property and equipment, net	380		367
Deferred income tax assets	100		90
Other	280		239
Total intangibles and other assets (variable interest entities – $179 and $178)	12,864		12,012
TOTAL ASSETS	$	14,957	$	13,995
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other	$	1,703	$	1,549
Current maturities of long-term debt	37		16
Current portion of deferred revenues	332		350
Current portion of liability for guest loyalty program	799		700
Total current liabilities (variable interest entities – $64 and $56)	2,871		2,615
Long-term debt	7,956		7,266
Operating lease liabilities	1,037		—
Deferred revenues	827		826
Deferred income tax liabilities	795		898
Liability for guest loyalty program	1,060		969
Other	883		863
Total liabilities (variable interest entities – $260 and $263)	15,429		13,437
Commitments and contingencies – see Note 19
Equity (Deficit):
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of December 31, 2019 and 2018	—		—
Common stock, $0.01 par value; 10,000,000,000 authorized shares, 333,159,770 issued and 278,985,125 outstanding as of December 31, 2019 and 332,105,163 issued and 294,815,890 outstanding as of December 31, 2018	3		3
Treasury stock, at cost; 54,174,645 shares as of December 31, 2019 and 37,289,273 shares as of December 31, 2018	(4,169)		(2,625)
Additional paid-in capital	10,489		10,372
Accumulated deficit	(5,965)		(6,417)
Accumulated other comprehensive loss	(840)		(782)
Total Hilton stockholders' equity (deficit)	(482)		551
Noncontrolling interests	10		7
Total equity (deficit)	(472)		558
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	14,957	$	13,995

See notes to consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)


	Year Ended December 31,
	2019		2018		2017
Revenues
Franchise and licensing fees	$	1,681	$	1,530	$	1,321
Base and other management fees	332		321		324
Incentive management fees	230		235		222
Owned and leased hotels	1,422		1,484		1,432
Other revenues	101		98		105
	3,766		3,668		3,404
Other revenues from managed and franchised properties	5,686		5,238		4,727
Total revenues	9,452		8,906		8,131

Expenses
Owned and leased hotels	1,254		1,332		1,269
Depreciation and amortization	346		325		336
General and administrative	441		443		439
Other expenses	72		51		56
	2,113		2,151		2,100
Other expenses from managed and franchised properties	5,763		5,323		4,899
Total expenses	7,876		7,474		6,999

Gain on sale of assets, net	81		—		—

Operating income	1,657		1,432		1,132

Interest expense	(414)		(371)		(351)
Gain (loss) on foreign currency transactions	(2)		(11)		3
Loss on debt extinguishment	—		—		(60)
Other non-operating income, net	3		28		29

Income before income taxes	1,244		1,078		753

Income tax benefit (expense)	(358)		(309)		336

Net income	886		769		1,089
Net income attributable to noncontrolling interests	(5)		(5)		(5)
Net income attributable to Hilton stockholders	$	881	$	764	$	1,084

Earnings per share:
Basic	$	3.07	$	2.53	$	3.34
Diluted	$	3.04	$	2.50	$	3.32

Cash dividends declared per share	$	0.60	$	0.60	$	0.60

See notes to consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)


	Year Ended December 31,
	2019		2018		2017
Net income	$	886	$	769	$	1,089
Other comprehensive income (loss), net of tax benefit (expense):
Currency translation adjustment, net of tax of $(8), $6 and $32	(4)		(70)		162
Pension liability adjustment, net of tax of $3, $3 and $(8)	(9)		(9)		22
Cash flow hedge adjustment, net of tax of $15, $(8) and $(7)	(45)		22		13
Total other comprehensive income (loss)	(58)		(57)		197

Comprehensive income	828		712		1,286
Comprehensive income attributable to noncontrolling interests	(5)		(5)		(5)
Comprehensive income attributable to Hilton stockholders	$	823	$	707	$	1,281

See notes to consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	Year Ended December 31,
	2019		2018		2017
Operating Activities:
Net income	$	886	$	769	$	1,089
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of contract acquisition costs	29		27		17
Depreciation and amortization	346		325		336
Gain on sale of assets, net	(81)		—		—
Loss (gain) on foreign currency transactions	2		11		(3)
Loss on debt extinguishment	—		—		60
Share-based compensation	154		127		121
Amortization of deferred financing costs and other	16		16		15
Distributions from unconsolidated affiliates	2		4		1
Deferred income taxes	(20)		(14)		(729)
Contract acquisition costs	(90)		(103)		(75)
Changes in operating assets and liabilities:
Accounts receivable, net	(105)		(161)		(204)
Prepaid expenses	6		(39)		(11)
Other current assets	15		13		(24)
Accounts payable, accrued expenses and other	99		148		(17)
Change in operating lease right-of-use assets	43		—		—
Change in operating lease liabilities	(80)		—		—
Change in deferred revenues	(17)		(18)		334
Change in liability for guest loyalty program	191		207		29
Change in other liabilities	(14)		(53)		(95)
Other	2		(4)		5
Net cash provided by operating activities	1,384		1,255		849
Investing Activities:
Capital expenditures for property and equipment	(81)		(72)		(58)
Payments received on other financing receivables	3		50		7
Proceeds from asset disposition	120		—		—
Capitalized software costs	(124)		(87)		(75)
Other	(41)		(22)		(21)
Net cash used in investing activities	(123)		(131)		(147)
Financing Activities:
Borrowings	2,200		1,676		1,824
Repayment of debt	(1,547)		(1,005)		(1,860)
Debt issuance costs and redemption premium	(29)		(21)		(69)
Dividends paid	(172)		(181)		(195)
Cash transferred in spin-offs	—		—		(501)
Repurchases of common stock	(1,538)		(1,721)		(891)
Share-based compensation tax withholdings and other	(27)		(44)		(31)
Other	—		(4)		(1)
Net cash used in financing activities	(1,113)		(1,300)		(1,724)

Effect of exchange rate changes on cash, restricted cash and cash equivalents	(2)		(10)		8
Net increase (decrease) in cash, restricted cash and cash equivalents	146		(186)		(1,014)
Cash, restricted cash and cash equivalents, beginning of period	484		670		1,684
Cash, restricted cash and cash equivalents, end of period	$	630	$	484	$	670

See notes to consolidated financial statements. For supplemental disclosures, see Note 21: "Supplemental Disclosures of Cash Flow Information."

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(in millions)


	Equity (Deficit) 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, 2016	329	$	3	$	—	$	10,220	$	(3,545)	$	(1,001)	$	(50)	$	5,627
Net income	—	—		—		—		1,084		—		5		1,089
Other comprehensive income, net of taxes:
Currency translation adjustment	—	—		—		—		—		162		—		162
Pension liability adjustment	—	—		—		—		—		22		—		22
Cash flow hedge adjustment	—	—		—		—		—		13		—		13
Other comprehensive income	—	—		—		—		—		197		—		197
Dividends	—	—		—		—		(196)		—		—		(196)
Repurchases of common stock	(14)	—		(891)		—		—		—		—		(891)
Share-based compensation	2	—		—		77		—		—		—		77
Distributions	—	—		—		—		—		—		(1)		(1)
Spin-offs of Park and HGV	—	—		—		—		(4,323)		63		49		(4,211)
Cumulative effect of the adoption of ASU 2016-09	—	—		—		1		(1)		—		—		—
Balance as of December 31, 2017	317	3		(891)		10,298		(6,981)		(741)		3		1,691
Net income	—	—		—		—		764		—		5		769
Other comprehensive income (loss), net of taxes:
Currency translation adjustment	—	—		—		—		—		(70)		—		(70)
Pension liability adjustment	—	—		—		—		—		(9)		—		(9)
Cash flow hedge adjustment	—	—		—		—		—		22		—		22
Other comprehensive loss	—	—		—		—		—		(57)		—		(57)
Dividends	—	—		—		—		(184)		—		—		(184)
Repurchases of common stock	(23)	—		(1,721)		—		—		—		—		(1,721)
Share-based compensation	1	—		(13)		77		—		—		—		64
Distributions	—	—		—		—		—		—		(1)		(1)
Acquisition of noncontrolling interest	—	—		—		(3)		—		—		—		(3)
Cumulative effect of the adoption of ASU 2018-02	—	—		—		—		(16)		16		—		—
Balance as of December 31, 2018	295	3		(2,625)		10,372		(6,417)		(782)		7		558
Net income	—	—		—		—		881		—		5		886
Other comprehensive loss, net of taxes:
Currency translation adjustment	—	—		—		—		—		(4)		—		(4)
Pension liability adjustment	—	—		—		—		—		(9)		—		(9)
Cash flow hedge adjustment	—	—		—		—		—		(45)		—		(45)
Other comprehensive loss	—	—		—		—		—		(58)		—		(58)
Dividends	—	—		—		—		(173)		—		—		(173)
Repurchases of common stock	(17)	—		(1,544)		—		—		—		—		(1,544)
Share-based compensation	1	—		—		117		—		—		—		117
Cumulative effect of the adoption of ASU 2016-02	—	—		—		—		(256)		—		—		(256)
Deconsolidation of a variable interest entity	—	—		—		—		—		—		(2)		(2)
Balance as of December 31, 2019	279	$	3	$	(4,169)	$	10,489	$	(5,965)	$	(840)	$	10	$	(472)

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 and licensing its brands and intellectual property ("IP"). As of December 31, 2019, we managed, franchised, owned or leased 6,110 hotels and resorts, including timeshare properties, totaling 971,780 rooms in 119 countries and territories.

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").

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

Basis of Presentation

These consolidated financial statements present the consolidated financial position of Hilton as of December 31, 2019 and December 31, 2018 and results of operations for the years ended December 31, 2019, 2018 and 2017.

Principles of Consolidation

Our consolidated financial statements include the accounts of our wholly owned subsidiaries and entities in which we have a controlling financial interest, including variable interest entities ("VIEs") for which we are the primary beneficiary. Entities in which we have a controlling financial interest generally comprise majority owned real estate ownership 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 evaluate 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 other than VIEs when we own more than 50 percent of the voting shares of a company or otherwise have a controlling financial interest.

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

Use of Estimates

The preparation of financial statements in conformity with United States ("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

On January 1, 2019, we adopted the requirements of Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASU 2016-02") using a modified-retrospective approach. The presentation of financial information for periods prior to January 1, 2019 remains unchanged and in accordance with Leases (Topic 840). See "Leases" and "Recently Issued Accounting Pronouncements" below for additional information.

Revenue Recognition

Revenues are primarily derived from management and franchise contracts with third-party hotel and resort owners, as well as from our owned and leased hotels. The majority of our performance obligations are a series of distinct goods or services, for which we receive variable consideration through our management and franchise fees or fixed consideration through our owned and leased hotels. We allocate the variable fees to the distinct services to which they relate applying the prescribed variable consideration allocation guidance, and we allocate fixed consideration to the related performance obligations based on their estimated standalone selling prices.

We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which it is in substantially all cases. Additionally, we do not typically include extended payment terms in our contracts with customers.

Management and franchise revenues

We identified the following performance obligations in connection with our management and franchise contracts:

*•*IP licenses grant the right to access our hotel system IP, including brand IP, reservations systems and property management systems.

Hotel management services include providing day-to-day management services of the hotels for the property owners.

*•*Development services include providing consultative services (e.g., design assistance and contractor selection) to the property owner to assist with the construction of the hotel prior to the hotel opening.

*•*Pre-opening services include providing services (e.g., advertising, budgeting, e-commerce strategies and food and beverage testing) to the property owner to assist in preparing for the hotel opening.

*•*Substantive rights for free or discounted goods or services to hotel guests are satisfied at the earlier point in time of either when the substantive right expires or the underlying free or discounted good or service is provided to the hotel guest.

Each of the identified performance obligations is considered to be a series of distinct services transferred over time. While the underlying activities may vary from day to day, the nature of the commitments are the same each day, and the property owner can independently benefit from each day's services. Management and franchise fees are typically based on the sales or usage of the underlying hotel, with the exception of fixed upfront fees, which usually represent an insignificant portion of the transaction price.

Franchise and licensing fees represent fees earned in connection with the licensing of one of our brands, usually under long-term contracts with the property owner, and may also include fees from a licensing agreement for the use of certain Hilton marks and IP, and include the following:

Royalty fees are generally based on a percentage of the hotel's monthly gross room revenue and, in some cases, may also include a percentage of gross food and beverage revenues and other revenues, as applicable. These fees are typically billed and collected monthly, and revenue is generally recognized as services are provided.
Application, initiation and other fees are charged when: (i) new hotels enter our system; (ii) there is a change of ownership of a hotel; or (iii) contracts with properties already in our system are extended. These fees are typically fixed and collected upfront and are recognized as revenue over the term of the franchise contract. We do not consider this advance consideration to include a significant financing component, since it is used to protect us from the property owner failing to adequately complete some or all of its obligations under the contract.
Licensing fees are earned from: (i) a license agreement with HGV to use certain Hilton marks and IP in its timeshare business, which are typically billed and collected monthly, and revenue is generally recognized at the same time the fees are billed and (ii) co-brand credit card arrangements, which are recognized as revenue when points for our guest loyalty program, Hilton Honors, are issued, generally as spend on the co-branded credit card occurs; see further discussion below under "Hilton Honors."

Consideration paid or anticipated to be paid to incentivize hotel owners to enter into franchise contracts with us is amortized over the life of the applicable contract as a reduction to franchise and licensing fees.

Management fees represent fees earned from hotels that we manage, usually under long-term contracts with the property owner, and include the following:

Base management fees are generally based on a percentage of the hotel's monthly gross revenue. Base fees are typically billed and collected monthly, and revenue is generally recognized as services are provided.
Incentive management fees are generally based on a percentage of the hotel's operating profits and, in some cases, may be subject to a stated return threshold to the property owner, normally over a one-calendar year period (the "incentive period"). Incentive fee revenue is recognized on a monthly basis, but only to the extent the cumulative fee earned does not exceed the probable fee for the incentive period. Incentive fee payment terms vary, but they are generally billed and collected monthly or annually upon completion of the incentive period.

Consideration paid or anticipated to be paid to incentivize hotel owners to enter into management contracts with us is amortized over the life of the applicable contract as a reduction to base and other management fees.

We do not estimate revenues expected to be recognized related to our unsatisfied performance obligations for our: (i) royalty fees, since they are considered sales-based royalty fees recognized as hotel room sales occur in exchange for licenses of our brand names over the terms of the franchise contracts and (ii) base management fees and incentive management fees, since they are allocated entirely to the wholly unsatisfied promise to transfer management services, which form part of a single performance obligation in a series, over the term of the individual management contract.

Other revenues from managed and franchised properties represent amounts that are contractually reimbursed to us by property owners, either directly as costs are incurred or indirectly through fees billed and collected in advance related to certain costs and expenses of the related properties, and include the following:

Direct reimbursements include payroll and related costs and certain other operating costs of the managed and franchised properties' operations, which are contractually reimbursed to us by the property owners as expenses are incurred. Revenue is recognized based on the amount of expenses incurred by Hilton, which are presented as other expenses from managed and franchised properties in our consolidated statements of operations, that are then reimbursed to us by the property owner typically on a monthly basis, which results in no net effect on operating income (loss) or net income (loss).
Indirect reimbursements include marketing expenses and other expenses associated with our brand programs and shared services, which are paid from program fees collected by Hilton from the managed and franchised properties. Indirect reimbursements are typically billed and collected monthly, based on the underlying hotel's sales or usage (such as gross room revenue and number of reservations processed), and revenue is generally recognized as services are provided. System implementation fees charged to property owners are deferred and recognized as revenue over the term of the management or franchise contract. The corresponding expenses are expensed as incurred and are presented as other expenses from managed and franchised properties in our consolidated statements of operations and are expected to equal the revenues earned from indirect reimbursements over time.

The management and franchise fees and reimbursements from third-party hotel owners are allocated to the performance obligations and the distinct services to which they relate using their estimated standalone selling prices. The terms of the fees earned under the contract relate to a specific outcome of providing the services (e.g., hotel room sales) or to Hilton's efforts (e.g., costs) to satisfy the performance obligations. Using time as the measure of progress, we recognize fee revenue and indirect reimbursements in the period earned per the terms of the contract and revenue related to direct reimbursements in the period in which the cost is incurred.

Owned and leased hotel revenues

We identified the following performance obligations in connection with our owned and leased hotel revenues, for which revenue is recognized as the respective performance obligations are satisfied, which results in recognizing the amount we expect to be entitled to for providing the goods or services:

Cancellable room reservations or ancillary services are typically satisfied as the good or service is transferred to the hotel guest, which is generally when the room stay occurs.
Noncancellable room reservations and banquet or conference reservations represent a series of distinct goods or services provided over time and satisfied as each distinct good or service is provided, which is reflected by the duration of the reservation.
Substantive rights for free or discounted goods or services are satisfied at the earlier of when: (i) the substantive right expires or (ii) the underlying free or discounted good or service is provided to the hotel guest.
Other ancillary goods and services are purchased independently of the room reservation at standalone selling prices and are considered separate performance obligations, which are satisfied when the related good or service is provided to the hotel guest.
Components of package reservations for which each component could be sold separately to other hotel guests are considered separate performance obligations and are satisfied as set forth above.

Owned and leased hotel revenues primarily consist of hotel room sales, 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 non-wholly owned hotel properties. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided. Owned and leased hotel revenues are reduced upon issuance of Hilton Honors points for Hilton Honors members' paid stay transactions and are recognized when Hilton Honors points are redeemed for a free stay at an owned or leased hotel (see the "Hilton Honors" section below for additional information).

Although the transaction prices of hotel room sales, goods and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected to be provided to the customer. For package reservations, the transaction price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each component. On occasion, the hotel may also provide the customer with a substantive right to a free or discounted good or service in conjunction with a room reservation or banquet contract (e.g., free breakfast and free room night for every four nights booked). These substantive rights are considered separate performance obligations to which a portion of the transaction price is allocated based on the estimated standalone selling prices of the good or service, adjusted for the likelihood the hotel guest will exercise the right.

Other revenues

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 hotels.

Taxes and fees collected on behalf of governmental agencies

We are required to collect certain taxes and fees from customers on behalf of governmental 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 our measurement of transaction prices. We have elected to present revenue net of sales taxes and other similar taxes. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.

Cash and Cash Equivalents

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

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents include cash balances established as security for certain guarantees, ground rent and property tax escrows, insurance, including self-insurance collateral, 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.

Contract Assets

Contract assets relate to incentive management fees for which the period of service has passed, but for which our right to consideration is conditional upon completing the requirements of the incentive fee period. Contract assets are included in other current assets in our consolidated balance sheets and are reclassified to accounts receivable when our right to consideration becomes unconditional.

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. In connection with the October 24, 2007 transaction whereby we became a wholly owned subsidiary of affiliates of The Blackstone Group Inc. (formerly known as The Blackstone Group L.P.) ("Blackstone") (the "Merger"), we recorded goodwill representing the excess purchase price over the fair value of the other identified assets and liabilities.

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 value. We evaluate goodwill for potential impairment by comparing the carrying values of our reporting units to their fair values. Our reporting units are the same as our operating segments as described in Note 18: "Business Segments." 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 less than its carrying value. If we cannot determine qualitatively that the fair value is not more likely than not less than its carrying value, or if 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 to 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 would be recognized in other expenses in our consolidated statements of operations in an amount equal to the excess of the carrying value over the fair value, limited to the total amount of goodwill allocated to that reporting unit.

Brands

We manage, franchise, own and lease 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. At the time of the Merger, our portfolio consisted of Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton, Embassy Suites by Hilton, Hilton Garden Inn, Hampton by Hilton, Homewood Suites by Hilton and our timeshare brand, Hilton Grand Vacations. As a result of the Merger, these brands were assigned a fair value using the relief from royalty valuation approach or the excess earnings method, depending on the contract type. All brands that were launched post-Merger, including LXR Hotels & Resorts, Canopy by Hilton, Signia by Hilton, Curio by Hilton, Tapestry Collection by Hilton, Motto by Hilton, Tru by Hilton, Home2 Suites by Hilton and, our newest brand, Tempo by Hilton, 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 indefinite lived brands intangible assets for impairment on an annual basis or at other times during the year 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 the brand intangible asset is less than its carrying value. If we cannot determine qualitatively that the fair value is not more likely than not less than its carrying value, or if we decide to bypass the qualitative assessment, we perform a quantitative analysis. The estimated fair value is based on internal projections of expected future cash flows. If a brand intangible asset’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 other expenses in our consolidated statements of operations as an 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 Hilton Honors guest loyalty program. Additionally, we capitalize consideration paid to incentivize hotel owners to enter into management and franchise contracts with us as contract acquisition costs and the incremental costs to obtain or fulfill the contracts as development commissions and other, both of which are generally fixed. We also capitalize costs incurred to develop internal-use computer software and costs to acquire software licenses, as well as internal and external costs incurred in connection with the development of upgrades or enhancements that result in additional information technology functionality.

Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives, which for contract acquisition costs and development commissions is the contract term, including any renewal periods that are at our sole option. These estimated useful lives are generally as follows: management contracts recorded at the Merger (13 to 16 years); management contract acquisition costs and development commissions (20 to 30 years); franchise contracts recorded at the Merger (12 to 13 years); franchise contract acquisition costs and development commissions (10 to 20 years); leases (12 to 35 years); Hilton Honors (16 years); and capitalized software costs (3 years). In our consolidated statements of operations, the amortization of these intangible assets, excluding contract acquisition costs, is included in depreciation and amortization expense, and the amortization of contract acquisition costs is recognized as a reduction to franchise and licensing fees and base and other management fees, depending on the contract type. Costs incurred prior to the acquisition of a contract, such as external legal costs, are expensed as incurred and included in general and administrative expenses in our consolidated statements of operations. Cash flows for contract acquisition costs and development commissions are included as operating activities in our consolidated statements of cash flows, and cash flows for capitalized software costs are included as investing activities.

We review all finite-lived intangible assets for impairment when indicators of impairment exist. 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 carrying value of the asset group. If the carrying value of the asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the estimated fair value in other expenses 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 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 carrying value of the asset group. If it is determined that the expected undiscounted future cash flows are less than the net carrying value of the asset group, the excess of the net carrying value over the estimated fair value is recognized as an impairment loss in other expenses in our consolidated statements of operations.

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.

Leases

We determine if a contract is or contains a lease at the inception of the contract, and we classify that lease as a finance lease if it meets certain criteria or as an operating lease when it does not. We reassess if a contract is or contains a leasing

arrangement upon modification of the contract. For a contract, in which we are a lessee, that contains fixed payments for both lease and non-lease components, we have elected to account for the components as a single lease component, as permitted.

At the commencement date of a lease, we recognize a lease liability for future fixed lease payments and a right-of-use ("ROU") asset representing our right to use the underlying asset during the lease term. The lease liability is initially measured as the present value of the future fixed lease payments that will be made over the lease term. The lease term includes lessee options to extend the lease and periods occurring after a lessee early termination option, only to the extent it is reasonably certain that we will exercise such extension options and not exercise such early termination options, respectively. The future fixed lease payments are discounted using the rate implicit in the lease, if available, or our incremental borrowing rate. Upon adoption of ASU 2016-02, we elected to use the remaining lease term as of January 1, 2019 in our estimation of the applicable discount rate for leases that were in place at adoption. For the initial measurement of the lease liability for leases commencing after January 1, 2019, we use the discount rate as of the commencement date of the lease, incorporating the entire lease term. Additionally, we elected not to recognize leases with lease terms of 12 months or less at the commencement date in our consolidated balance sheets. Current maturities and long-term portions of operating lease liabilities are classified as accounts payable, accrued expenses and other and operating lease liabilities, respectively, and current maturities and long-term portions of finance lease liabilities are classified as current maturities of long-term debt and long-term debt, respectively, in our consolidated balance sheets.

The ROU asset is measured at the amount of the lease liability with adjustments, if applicable, for lease prepayments made prior to or at lease commencement, initial direct costs incurred by us, deferred rent and lease incentives. We evaluate the carrying value of ROU assets if there are indicators of impairment and review the recoverability of the related asset group. If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, we record an impairment loss in other expenses in our consolidated statements of operations. ROU assets of operating leases are included in operating lease right-of-use assets and ROU assets of finance leases are included in property and equipment, net in our consolidated balance sheets.

Our operating leases require: (i) fixed lease payments, or minimum payments, as contractually stated in the lease agreement; (ii) variable lease payments, which, for our hotels, are generally based on a percentage of the underlying asset's revenues or profits, or are dependent on changes in an index; or (iii) lease payments equal to the greater of the fixed or variable lease payments. In addition, during the term of our hotel leases, we may be required to pay some, or all, of the capital costs for furniture, equipment and leasehold improvements in the hotel property. For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term, and lease expense related to variable payments is expensed as incurred, with amounts recognized in owned and leased hotel expenses, general and administrative expenses and other expenses from managed and franchised properties in our consolidated statements of operations. For finance leases, the amortization of the asset is recognized over the shorter of the lease term or useful life of the underlying asset within depreciation and amortization expense and other expenses from managed and franchised properties in our consolidated statements of operations. The interest expense related to finance leases, including any variable lease payments, is recognized in interest expense in our consolidated statements of operations.

Contract Liabilities

Contract liabilities relate to: (i) advance consideration received from hotel owners at contract inception for services considered to be part of the contract's performance obligations, such as application, initiation and other fees; (ii) advance consideration received for certain indirect reimbursements, such as system implementation fees; and (iii) amounts received when points are issued under Hilton Honors, but for which revenue is not yet recognized, since the related points are not yet redeemed. Contract liabilities related to advance consideration received for fees and certain indirect reimbursements are recognized as revenue over the term of the related contract. Contract liabilities related to amounts received for Hilton Honors are recognized as revenue when the points are redeemed for a free good or service by the Hilton Honors member, which, on average, occurs within two years of points issuance. Contract liabilities are included in deferred revenues in our consolidated balance sheets.

Hilton Honors

Hilton Honors is our guest loyalty program provided to our hotel and resort properties. Nearly all of our managed, franchised, owned and leased 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, they are provided with a substantive right to free or discounted goods or services in the future upon accumulation of the required level of Hilton Honors points. Points 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.

As points are issued to a Hilton Honors member, the property or program partner pays Hilton Honors based on an estimated cost per point for the costs of operating the program, which include marketing, promotion, communication and administrative expenses, as well as the estimated cost of award redemptions. When these payments are received we record amounts equal to the estimated cost per point of the future redemption obligation within liability for guest loyalty program and any amounts received in excess of the estimated cost per point within deferred revenues in our consolidated balance sheets. For the Hilton Honors fees that are charged to the participating properties, we allocate such fees to the substantive right created by the Hilton Honors points that are issued using the variable consideration allocation guidance, since the fees are directly related to the issuance of Hilton Honors points to the Hilton Honors member and Hilton's efforts to satisfy the future redemption of those Hilton Honors points. We engage outside actuaries to assist in determining the fair value of the future redemption obligation using statistical formulas that project future point redemptions based on factors that include historical experience, an estimate of points that will eventually be redeemed, which includes an estimate of "breakage" for points that will never be redeemed, and the cost of reimbursing properties and other third parties with respect to other redemption opportunities available to Hilton Honors members. When points are issued as a result of a stay at an owned or leased hotel, we recognize a reduction in owned and leased hotel revenues, since we are also the program sponsor.

The transaction prices for the Hilton Honors points issued are reduced by the expected payments to the third parties that will provide the free or discounted room or service using the actuarial projection of the cost per point. The remaining transaction price is then further allocated to the points that are expected to be redeemed, adjusting the points that are issued for estimated breakage, and recognized when those points are redeemed. While the points are outstanding, both the estimate of the expected payments to third parties (cost per point) and the estimated breakage are reevaluated, and the combined estimate that yields the amount of revenue recognized when each point is ultimately redeemed is adjusted so that the final amount allocated to the substantive right of the customer to use the point is reflective of the amount retained by Hilton Honors for providing the free or discounted goods and services, net of the payments to third parties and points not redeemed.

We also earn licensing fees from co-brand credit card arrangements (see "Management and franchise revenues" within the "Revenue Recognition" section above). The co-brand license fee is allocated between two performance obligations based on their estimated standalone selling prices: (i) an IP license using the relief-from-royalty valuation method and (ii) substantive rights for free or discounted goods or services to the credit card customers using a cost plus method based on an evaluation of other third-party administrators.

We satisfy our performance obligation related to points issued under Hilton Honors when points are redeemed for a free or discounted good or service by the Hilton Honors member, and we satisfy our remaining performance obligations over time as the customer simultaneously receives and consumes the benefits of the goods or services provided. Hilton Honors reimburses participating properties and applicable third parties when points are redeemed by members, at which time the redemption obligation is reduced and the related deferred revenue is recognized in other revenues from managed and franchised properties in our consolidated statements of operations. Additionally, when Hilton Honors members redeem award certificates at our owned and leased hotels, we recognize room revenue, included in 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.

We do not elect the fair value measurement option for any of our financial assets or liabilities.

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: (i) a hedge of a forecasted transaction or the variability of cash flows to be paid ("cash flow hedge"); (ii) a hedge of the fair value of a recognized asset or liability ("fair value hedge") or (iii) a hedge of our investment in a foreign operation ("net investment hedge"). Changes in the fair value of a derivative that is qualified and designated as a cash flow hedge or net investment hedge are recorded in other comprehensive income (loss) in our consolidated statements of comprehensive income 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 and designated 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. 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, 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.

We perform an initial prospective assessment of hedge effectiveness on a quantitative basis between the inception date and the earlier of the first quarterly hedge effectiveness date or the issuance of the financial statements that include the hedged transaction. 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 U.S. dollar ("USD") is our reporting currency and is the functional currency of our entities operating in the U.S. The functional currency for our 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 foreign currency exchange rate for the period. Gains and losses from foreign currency 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 within 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 currency exchange rate changes are recognized within other comprehensive income (loss) in our consolidated statements of comprehensive income.

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 insurance 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 we expect these amounts to 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 the Hilton 2017 Omnibus Incentive Plan, we award time-vesting restricted stock units and restricted stock (collectively, "RSUs"), nonqualified stock options ("options") and performance-vesting RSUs ("performance shares") to our eligible employees:

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 per share is equal to the closing stock price on the date of grant.
Options vest over three years from the date of grant in equal annual installments 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 stock price on the date of grant. The grant date fair value per share is estimated using the Black-Scholes-Merton option-pricing model.
Performance shares are settled at the end of a three-year performance period with: (i) 50 percent of the awards subject to achievement based on the compound annual growth rate ("CAGR") of the Company's earnings before interest expense, a provision for income taxes and depreciation and amortization ("EBITDA"), adjusted to exclude certain items ("Adjusted EBITDA"), referred to as EBITDA CAGR, and (ii) 50 percent of the awards subject to achievement based on the Company’s free cash flow ("FCF") per share CAGR, referred to as FCF CAGR. The total number of performance shares that vest related to each performance measure is based on an achievement factor that ranges from a zero percent to 200 percent payout, with 100 percent being the target. The grant date fair value per share is equal to the closing stock price on the date of grant.

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, respectively. The measurement objective for these equity awards is the estimated fair value at the date of grant 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, which 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 as of the reporting date) in the fair value of the instrument for each reporting period for such liability awards. 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. Additionally, we have a retirement provision whereby we recognize total compensation expense of the awards for eligible participants through the date their awards are fully vested. We recognize share-based

compensation expense in owned and leased hotel expenses, general and administrative expenses or other expenses from managed and franchised properties in our consolidated statements of operations.

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 the 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.

In December 2017, H.R.1, known as the Tax Cuts and Jobs Act of 2017 (the "TCJ Act"), was signed into law and included widespread changes to the Internal Revenue Code including, among other items, the creation of new taxes on certain foreign earnings. The TCJ Act subjects a U.S. stockholder to current tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. In addition, the TCJ Act provides for foreign derived intangible income ("FDII") to be taxed at a lower effective rate than the statutory rate by allowing a tax deduction against the income. Interpretive guidance on the accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to recognize the current tax on GILTI as an expense in the period the tax is incurred. We include the current tax impact of both GILTI and the FDII deduction in our effective tax rate. See Note 13: "Income Taxes" for additional information on the effects of the TCJ Act on our consolidated financial statements.

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

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-15 ("ASU 2018-15"), Intangibles – Goodwill and Other – Internal-use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns guidance for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with guidance for capitalizing implementation costs to develop or obtain internal-use software. Capitalized implementation costs will be amortized over the term of the arrangement and presented in the same line item in the statement of operations as the fees associated with the service contract. We elected, as permitted by the standard, to early adopt ASU 2018-15 on a prospective basis as of January 1, 2019. The adoption did not have a material effect on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02*,* 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 of lessees as ROU assets and lease liabilities, with certain practical expedients available. Subsequent to ASU 2016-02, the FASB issued related ASUs, including ASU No. 2018-11 ("ASU 2018-11"), Leases (Topic 842): Targeted Improvements, which provides for another transition method in addition to the modified retrospective approach required by ASU 2016-02. This option allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative adjustment to the opening balance of retained earnings in the period of adoption.

As described above, we adopted ASU 2016-02 on January 1, 2019 and applied the package of practical expedients included therein, as well as utilized the transition method included in ASU 2018-11. By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, the presentation of financial information for periods prior to January 1, 2019 remain unchanged and in accordance with Leases (Topic 840). On January 1, 2019, we recognized a $256

million cumulative adjustment to accumulated deficit, net of taxes of $81 million related to a decrease to our deferred tax liability, as a result of the impairment of ROU assets that occurred in periods prior to the adoption date.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13 ("ASU 2016-13"), Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The provisions of this ASU, and subsequent ASUs that were issued to clarify its application, are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and are to be applied using a prospective approach with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We will adopt ASU 2016-13 on January 1, 2020. The presentation of credit losses for periods prior to January 1, 2020 will remain unchanged and in accordance with Receivables (Topic 310). We do not expect the adoption of this ASU or its application in future periods to have a material effect on our consolidated financial statements.

Note 3: Disposal

In September 2019, we completed the sale of the Hilton Odawara Resort & Spa for a price of 13 billion Japanese yen (equivalent to $122 million as of the closing date) and subsequently entered into a 30-year management contract with the purchaser of the hotel. As a result of the sale, we recognized a pre-tax gain of $81 million included in gain on sale of assets, net in our consolidated statement of operations for the year ended December 31, 2019.

Note 4: Revenues from Contracts with Customers

Contract Liabilities

The following table summarizes the activity of our contract liabilities during the year ended December 31, 2019:


	(in millions)
Balance as of December 31, 2018	$	1,060
Cash received in advance and not recognized as revenue(1)	413
Revenue recognized(1)	(288)
Other(2)	(144)
Balance as of December 31, 2019	$	1,041

(1)Includes $239 million related to Hilton Honors.

(2)Primarily the result of changes in estimated transaction prices for our performance obligations related to points issued under Hilton Honors, which had no effect on revenues.

We recognized revenues that were previously deferred as contract liabilities of $229 million and $132 million during the years ended December 31, 2018 and 2017, respectively.

Performance Obligations

As of December 31, 2019, we had $396 million of deferred revenues related to unsatisfied performance obligations related to Hilton Honors that will be recognized as revenues when the points are redeemed, which we estimate will occur over the next two years. Additionally, we had $645 million of deferred revenues related to application, initiation and licensing fees, which are expected to be recognized as revenues in future periods over the terms of the related contracts.

Note 5: Consolidated Variable Interest Entities

As of December 31, 2019 and 2018, we consolidated two VIEs that lease hotel properties and, as of December 31, 2018, we also consolidated one VIE that was a management company. We consolidated these VIEs since we are the primary beneficiary, having 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.

In June 2019, the VIE that was a management company sold its assets. As a result of the sale, we deconsolidated $7 million of assets and $3 million of liabilities, as we no longer had the power to direct the activities that most significantly affect the VIE's economic performance. See our consolidated statements of stockholders' equity (deficit) for additional information.

Our consolidated balance sheets included the assets and liabilities of the VIEs that we consolidated as of the respective periods, which primarily comprised the following:


	December 31,
	2019		2018
	(in millions)
Cash and cash equivalents	$	81	$	71

Accounts receivable, net	15		15
Property and equipment, net	69		68
Deferred income tax assets	48		53
Other non-current assets	61		58
Accounts payable, accrued expenses and other	49		41
Long-term debt(1)	194		205
Other long-term liabilities	17		15

(1)Includes finance lease liabilities of $177 million and $187 million as of December 31, 2019 and 2018, respectively.

We did not provide any financial or other support to any consolidated VIEs that we were not previously contractually required to provide during the years ended December 31, 2019, 2018 and 2017.

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, 2017	$	104	$	5,086	$	5,190
Foreign currency translation	(5)		(25)		(30)
Balance as of December 31, 2018	99		5,061		5,160
Foreign currency translation	(1)		—		(1)
Balance as of December 31, 2019	$	98	$	5,061	$	5,159

(1)Amounts for the ownership reporting unit include gross carrying values of $438 million, $439 million and $444 million as of December 31, 2019, 2018 and 2017, respectively, and accumulated impairment losses of $340 million as of December 31, 2019, 2018 and 2017.

(2)There were no accumulated impairment losses for the management and franchise reporting unit as of December 31, 2019, 2018 and 2017.

Intangible Assets

Changes to our brands intangible assets from December 31, 2018 to December 31, 2019 were due to foreign currency translations.

Finite-lived intangible assets were as follows:


	December 31, 2019
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
	(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger(1)	$	2,163	$	(1,974)	$	189
Contract acquisition costs	604		(121)		483
Development commissions and other	127		(19)		108
	$	2,894	$	(2,114)	$	780

Other intangible assets:
Leases(1)	$	290	$	(176)	$	114
Capitalized software costs	625		(399)		226
Hilton Honors(1)	338		(257)		81
Other(1)	34		(34)		—
	$	1,287	$	(866)	$	421


	December 31, 2018
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
	(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger(1)	$	2,228	$	(1,873)	$	355
Contract acquisition costs	525		(101)		424
Development commissions and other	108		(15)		93
	$	2,861	$	(1,989)	$	872

Other intangible assets:
Leases(1)	$	288	$	(161)	$	127
Capitalized software costs	503		(321)		182
Hilton Honors(1)	338		(236)		102
Other(1)	38		(34)		4
	$	1,167	$	(752)	$	415

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

Amortization of our finite-lived intangible assets was as follows:


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Recognized in depreciation and amortization expense(1)	$	286	$	271	$	277
Recognized as a reduction of franchise and licensing fees and base and other management fees	29		27		17

(1)Includes amortization expense of $202 million, $204 million and $206 million for the years ended December 31, 2019, 2018 and 2017, respectively, associated with assets that were initially recorded at their fair value at the time of the Merger.

We estimate future amortization of our finite-lived intangible assets as of December 31, 2019 to be as follows:


	Recognized in Depreciation and Amortization Expense		Recognized as a Reduction of Franchise and Licensing Fees and Base and Other Management Fees
Year	(in millions)
2020	$	276	$	30
2021	126		28
2022	103		26
2023	62		25
2024	19		25
Thereafter	132		349
	$	718	$	483

Note 7: Property and Equipment

Property and equipment were as follows:


	December 31,
	2019		2018
	(in millions)
Land	$	11	$	12
Buildings and leasehold improvements	382		391
Furniture and equipment	356		356
Construction-in-progress	20		24
Finance lease right-of-use assets	120		65
	889		848
Accumulated depreciation	(509)		(481)
	$	380	$	367

Depreciation expense on property and equipment was $60 million, $54 million and $59 million during the years ended December 31, 2019, 2018 and 2017, respectively.

Note 8: Accounts Payable, Accrued Expenses and Other

Accounts payable, accrued expenses and other were as follows:


	December 31,
	2019		2018
	(in millions)
Accrued employee compensation and benefits	$	554	$	532
Accounts payable	303		283
Insurance reserves, current	95		199
Operating lease ROU liabilities	133		—
Other liabilities and accrued expenses(1)	618		535
	$	1,703	$	1,549

(1)Includes deposit liabilities related to hotel operations and application fees, promotional liabilities and income taxes payable, as well as accrued expenses related to taxes, interest and other.

Note 9: Debt

Long-term Debt

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of December 31, 2019, were as follows:


	December 31,
	2019		2018
	(in millions)
Senior secured revolving credit facility with a weighted average rate of 2.98%, due 2024	$	195	$	—
Senior secured term loan facility with a rate of 3.54%, due 2026	2,619		3,119
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		900
Senior notes with a rate of 5.125%, due 2026	1,500		1,500
Senior notes with a rate of 4.875%, due 2027	600		600
Senior notes with a rate of 4.875%, due 2030	1,000		—
Finance lease liabilities with a weighted average rate of 5.83%, due 2020 to 2030	245		225
Other debt with a rate of 3.08%, due 2026	17		17
	8,076		7,361
Less: unamortized deferred financing costs and discount	(83)		(79)
Less: current maturities of long-term debt(1)	(37)		(16)
	$	7,956	$	7,266

(1)Represents current maturities of finance lease liabilities.

Senior Notes

In June 2019, we issued $1.0 billion aggregate principal amount of 4.875% Senior Notes due 2030 (the "2030 Senior Notes") and incurred $15 million of debt issuance costs. Interest on the 2030 Senior Notes is payable semi-annually in arrears on January 15 and July 15 of each year, beginning January 2020. We used a portion of the net proceeds from the issuance to repay $500 million outstanding on our senior secured term loan facility (the "Term Loans") and to repay $225 million outstanding under our senior secured revolving credit facility (the "Revolving Credit Facility"). See "Senior Secured Credit Facilities" below for additional information.

In April 2018, we issued $1.5 billion aggregate principal amount of 5.125% Senior Notes due 2026 (the "2026 Senior Notes") and used the net proceeds, together with borrowings under our Revolving Credit Facility and available cash, to repurchase $1,171 million of shares of our common stock from HNA Tourism Group Co., Ltd and repay $500 million outstanding on our Term Loans. See "Senior Secured Credit Facilities" below for additional information.

In March 2017, we used the proceeds from the issuances of the 4.625% Senior Notes due 2025 (the "2025 Senior Notes") and the 4.875% Senior Notes due 2027 (the "2027 Senior Notes"), to redeem in full $1.5 billion of Senior Notes due 2021. In connection with the repayment, we paid a redemption premium of $42 million and accelerated the recognition of $18 million of unamortized deferred financing costs, which were included in loss on debt extinguishment in our consolidated statement of operations for the year ended December 31, 2017.

The 4.250% Senior Notes due 2024 (the "2024 Senior Notes"), 2025 Senior Notes, 2026 Senior Notes, 2027 Senior Notes and 2030 Senior Notes are collectively referred to as the Senior Notes and are guaranteed jointly and severally on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic restricted subsidiaries. See Note 22: "Condensed Consolidating Guarantor Financial Information" for additional information.

Senior Secured Credit Facilities

Our senior secured credit facilities consist of the Revolving Credit Facility and Term Loans. The obligations of our senior secured credit facilities are unconditionally and irrevocably guaranteed by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries.

In June 2019, we amended the Revolving Credit Facility to increase the borrowing capacity to $1.75 billion, $250 million of which is available in the form of letters of credit, and extended the maturity date to June 2024. In connection with this amendment, we incurred $7 million of debt issuance costs, which were included in other non-current assets in our consolidated balance sheet as of December 31, 2019. As of December 31, 2019, in addition to the $195 million outstanding under the Revolving Credit Facility, we had $60 million of outstanding letters of credit, resulting in an available borrowing capacity under the Revolving Credit Facility of $1.50 billion. 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 June 2019, we also amended the Term Loans to extend the maturity date to June 2026 with a discount of 0.25 percent. In connection with the amendment and the 2019 repayment of the Term Loans, we recognized $10 million of fees and unamortized deferred financing costs and discount, which were included in other non-operating income, net in our consolidated statement of operations for the year ended December 31, 2019.

In December 2018, we repaid an additional $300 million outstanding under our Term Loans and reduced the interest rate on the remaining balance by 25 basis points to LIBOR plus 175 basis points. In connection with the 2018 repayments, we accelerated $8 million of unamortized deferred financing costs and discount, which were included in other non-operating income, net in our consolidated statement of operations for the year ended December 31, 2018.

Debt Maturities

The contractual maturities of our long-term debt as of December 31, 2019 were as follows:


Year	(in millions)
2020	$	37
2021	30
2022	22
2023	20
2024	1,217
Thereafter	6,750
	$	8,076

Note 10: Other Liabilities

Other long-term liabilities were as follows:


	December 31,
	2019		2018
	(in millions)
Pension obligations	$	134	$	145
Other long-term tax liabilities	369		395
Deferred employee compensation and benefits	118		113
Insurance reserves(1)	178		146
Other	84		64
	$	883	$	863

(1)Obligations related to insurance claims are expected to be satisfied, on average, over the next three years.

Note 11: Fair Value Measurements

The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below:


	December 31, 2019
			Hierarchy Level
	Carrying Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Cash equivalents	$	117	$	—	$	117	$	—
Restricted cash equivalents	32		—		32		—
Liabilities:
Long-term debt(1)	7,731		5,230		—		2,834
Interest rate swaps	37		—		37		—


	December 31, 2018
			Hierarchy Level
	Carrying Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Cash equivalents	$	87	$	—	$	87	$	—
Restricted cash equivalents	18		—		18		—
Interest rate swaps	16		—		16		—
Liabilities:
Long-term debt(1)	7,040		3,809		—		3,039

(1)The carrying values include unamortized deferred financing costs and discount. The carrying values and fair values exclude finance lease liabilities 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, 2019 and 2018. 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.

We measure our interest rate swaps at fair value, which were estimated using a discounted cash flow analysis that reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs of similar instruments, including interest rate curves, as applicable. Our interest rate swaps are included in other non-current assets or other long-term liabilities in our consolidated balance sheets depending on their value to us as of the balance sheet date.

Note 12: Leases

We lease hotel properties, land, corporate office space and equipment used at hotels and corporate offices, with our most significant lease liabilities related to hotel properties. As of December 31, 2019, we leased 52 hotels under operating leases and six hotels under finance leases, two of which were the liabilities of consolidated VIEs and were non-recourse to us. Our hotel leases expire at various dates, with varying renewal and termination options.

Supplemental balance sheet information related to leases as of December 31, 2019 was as follows:


	(dollars in millions)
Operating leases:
Operating lease right-of-use assets	$	867
Accounts payable, accrued expenses and other	133
Operating lease liabilities	1,037

Finance leases:
Property and equipment, net	$	52
Current maturities of long-term debt	37
Long-term debt	208

Weighted average remaining lease term:
Operating leases	12.8 years
Finance leases	8.6 years

Weighted average discount rate:
Operating leases	3.76		%
Finance leases	5.83		%

The components of lease expense for the year ended December 31, 2019 were as follows:


	(in millions)

Operating lease expense for fixed payments	$	144
Finance lease expense:
Amortization of ROU assets	30
Interest on lease liabilities	14
Variable lease expense(1)	168

(1)Includes amounts related to operating leases and interest payments on finance leases.

Lease expense for our operating leases for the years ended December 31, 2018 and 2017 included $225 million and $183 million, respectively, of fixed lease expense and $142 million and $101 million, respectively, of variable lease expense.

Supplemental cash flow information related to leases for the year ended December 31, 2019 was as follows:


	(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	187
Financing cash flows from finance leases	42
ROU assets obtained in exchange for lease liabilities in non-cash transactions:
Operating leases	48
Finance leases	61

Our future minimum lease payments as of December 31, 2019 were as follows:


	Operating Leases		Finance Leases
Year	(in millions)
2020	$	178	$	51
2021	172		42
2022	143		33
2023	128		30
2024	107		29
Thereafter	790		134
Total minimum lease payments	1,518		319
Less: imputed interest	(348)		(74)
Total lease liabilities	$	1,170	$	245

Note 13: Income Taxes

Income Tax Provision

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


	Year Ended December 31,
	2019		2018		2017
	(in millions)
U.S. income before tax	$	867	$	881	$	632
Foreign income before tax	377		197		121
Income before income taxes	$	1,244	$	1,078	$	753

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


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Current:
Federal	$	190	$	210	$	239
State	60		53		59
Foreign	128		60		95
Total current	378		323		393
Deferred:
Federal	(61)		(52)		(667)
State	(5)		(14)		(35)
Foreign	46		52		(27)
Total deferred	(20)		(14)		(729)
Total provision (benefit) for income taxes	$	358	$	309	$	(336)

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,
	2019		2018		2017
	(in millions)
Statutory U.S. federal income tax provision	$	261	$	226	$	264
State income taxes, net of U.S. federal income tax benefit	47		37		19
Impact of foreign operations	31		26		4
Effects of the TCJ Act	—		13		(600)
Corporate restructuring	—		9		—
Changes in deferred tax asset valuation allowances	13		(6)		(48)
Provision for uncertain tax positions	16		16		38
Other, net	(10)		(12)		(13)
Provision (benefit) for income taxes	$	358	$	309	$	(336)

Restructuring

During the year ended December 31, 2018, our controlled foreign corporations ("CFC") distributed the stock of certain subsidiaries (the "Distributions"). Subsequent to the Distributions, the distributed subsidiaries were included in our U.S. federal and state income tax filings. As a result of the Distributions, we incurred deferred income tax expense of $9 million for the year ended December 31, 2018, including: (i) recording U.S. deferred tax liabilities related to the distributed subsidiaries of $12 million and (ii) remeasuring our existing deferred tax assets and liabilities and other tax liabilities at the effective tax rates at which they will reverse in future periods, resulting in a reduction of liabilities of $3 million.

Tax Cuts and Jobs Act of 2017

We recognized a provisional benefit as of December 31, 2017 of $600 million, of which $569 million was the result of the remeasurement of U.S. deferred tax assets and liabilities and other tax liabilities. As of December 31, 2018, we made adjustments to the provisional amounts recorded as of December 31, 2017, as described below.

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 as of December 31, 2017 related to the remeasurement of our deferred tax assets and liabilities, uncertain tax position reserves and other tax liabilities were income tax benefits of $452 million, $33 million and $84 million, respectively. However, this remeasurement was 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. Upon completing our analysis of the TCJ Act and associated regulations, we adjusted our provisional amount by recording an additional tax benefit of $10 million during the year ended December 31, 2018, which was included in income tax expense in our consolidated statement of operations.
Foreign taxation changes. A one-time transition tax was applied to foreign earnings previously not subjected to U.S. tax, based on our total post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes, but 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. We previously recorded a federal deferred tax liability for our deferred earnings at the statutory 35 percent rate, and the application of the transition tax results in these earnings being subjected to a lower rate, resulting in a provisional income tax benefit as of December 31, 2017 of $15 million. As a result of additional guidance issued by the U.S. Treasury Department, we refined our calculations and recorded an additional tax benefit of $2 million during the year ended December 31, 2018. Additionally, we had not recorded certain deferred tax assets, primarily related 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 an income tax benefit of $16 million during the year ended December 31, 2017.
Outside basis differences. With the changes made to the U.S. taxation of foreign entities, including the change to a territorial system of taxation, the introduction of a dividend participation exemption and the changes to the current taxation of GILTI, we determined our current method of calculating CFC outside basis should be revised to

incorporate the TCJ Act changes. As a result, we recorded additional deferred tax liabilities of $31 million during the year ended December 31, 2018 within income tax expense (benefit) in our consolidated statement of operations.

Our accounting for the effects of the TCJ Act was complete as of December 31, 2018.

Deferred Income Taxes

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 taxes were as follows:


	December 31,
	2019		2018
	(in millions)
Deferred tax assets:
Foreign net operating loss carryforwards	$	386	$	389
Compensation	138		118
Reserves	33		18
Operating and finance lease liabilities	404		75
Deferred income	260		258
Foreign tax credit carryforwards	49		—
Other	51		42
Total gross deferred tax assets	1,321		900
Less: valuation allowance	(501)		(399)
Deferred tax assets	820		501
Deferred tax liabilities:
Brands	(1,133)		(1,123)
Finite-lived intangible assets	(140)		(157)
Investment in foreign subsidiaries	(32)		(29)
Operating and finance lease ROU assets	(210)		—
Deferred tax liabilities	(1,515)		(1,309)
Net deferred taxes	$	(695)	$	(808)

As of December 31, 2019, we had foreign net operating loss carryforwards of $1.6 billion, which resulted in deferred tax assets of $386 million for foreign jurisdictions. Approximately $16 million of our deferred tax assets as of December 31, 2019 related to net operating loss carryforwards that will expire between 2020 and 2039 with less than $1 million of that amount expiring in 2020. Approximately $370 million of our deferred tax assets as of December 31, 2019 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 $376 million as of December 31, 2019 on the deferred tax assets relating to the foreign net operating loss carryforwards.

During the year ended December 31, 2019, we provided a valuation allowance of $18 million on certain foreign deferred tax assets generated during the current year and released valuation allowances of $5 million on foreign deferred tax assets in other jurisdictions. In both cases, management determined whether we were more likely than not to realize the benefit of these assets by considering all available positive and negative evidence to determine whether sufficient future taxable income will be generated to permit use of the deferred tax assets. Additionally, total valuation allowances increased by another $89 million due to three current year changes that resulted in no net income tax expense or benefit: (i) the adoption of ASU 2016-02; (ii) the generation of deferred tax assets for U.S. foreign tax credit carryforwards; and (iii) revaluations of certain existing deferred tax assets. In connection with the adoption of ASU 2016-02, additional U.S. and foreign deferred tax assets relating to operating and finance lease liabilities were recorded. We do not believe that it is more likely than not that we will be able to realize the benefit of these foreign deferred tax assets in certain foreign entities, primarily due to limitations on the tax deductibility of losses, and have provided a valuation allowance of $51 million on these deferred tax assets. Both the deferred tax assets related to lease liabilities and their associated valuation allowances were recorded through a cumulative adjustment to accumulated deficit upon adoption of the standard. We generated $49 million of deferred tax assets for U.S. foreign tax credit carryforwards during the current year, but we believe that it is unlikely that we will be able to realize the benefit of these deferred tax assets due to foreign source income limitations. We provided a valuation allowance of $49 million on these deferred tax assets, resulting in no net tax benefit being recognized in the current year for these carryforwards. Revaluations of certain existing

deferred tax assets and their associated valuation allowances due to tax rate changes and foreign exchange rate changes resulted in no net income tax expense in the current year but decreased total valuation allowances by $11 million. Overall, our total valuation allowance increased by $102 million during the year ended December 31, 2019.

Tax Uncertainties

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 Internal Revenue Service ("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. As of December 31, 2019, we remain subject to federal and state examinations of our income tax returns for tax years from 2005 through 2018 and foreign examinations of our income tax returns for tax years from 1996 through 2018.

Reconciliations of the beginning and ending amounts of unrecognized tax benefits were as follows:


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Balance at beginning of year	$	318	$	283	$	174
Additions for tax positions related to prior years	67		37		3
Additions for tax positions related to the current year	13		16		126
Reductions for tax positions related to prior years	(3)		(15)		(10)
Settlements	1		—		(9)
Lapse of statute of limitations	(2)		(3)		(2)
Currency translation adjustment	1		—		1
Balance at end of year	$	395	$	318	$	283

The changes to our unrecognized tax benefits during the year ended December 31, 2019 were primarily related to uncertainty regarding affirmative refund claims submitted to the IRS during 2019, as well as the addition of reserves related to our Hilton Honors guest loyalty program. The changes to our unrecognized tax benefits during the year ended December 31, 2018 were primarily related to uncertainty regarding the calculations of tax deductions claimed in tax returns filed during the year, as well as the addition of reserves related to our Hilton Honors guest loyalty program. 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. We recognize interest and penalties accrued related to uncertain tax positions in income tax expense (benefit) in our consolidated statements of operations. During the years ended December 31, 2019, 2018 and 2017, we recognized income tax expense related to interest and penalties of $12 million, $6 million and $3 million, respectively, in our consolidated statements of operations. As of December 31, 2019 and 2018, we had accrued approximately $52 million and $40 million, respectively, for interest and penalties related to our unrecognized tax benefits in our consolidated balance sheets. Included in the balances of unrecognized tax benefits as of December 31, 2019 and 2018 were $380 million and $310 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate.

In April 2014, we received 30-day Letters from the IRS and the Revenue Agents Report ("RAR") for the 2006 and October 2007 tax years. We disagreed with several of the proposed adjustments in the RAR and filed a formal appeals protest with the IRS. 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. In January 2016, we received a 30-day Letter from the IRS and the RAR for the December 2007 through 2010 tax years, which included proposed adjustments that reflect the carryover effect of the three protested issues from 2006 through October 2007. These proposed adjustments are also being protested in appeals, and formal appeals protests have been submitted. In April 2016, we requested a Technical Advice Memorandum ("TAM") from the IRS with respect to the treatment of the foreign currency gains and losses on loans issued by our Luxembourg subsidiary. We received a taxpayer favorable TAM in October

2018, and this issue is no longer being pursued by IRS Appeals for any of the open tax years. In September 2018, we received a 30-day Letter from the IRS and the RAR for the 2011 through 2013 tax years, which reflects proposed adjustments for the carryover effect of the two remaining protested issues from 2006 through October 2007. The adjustments for tax years 2011 through 2013 will also be protested in appeals, and formal protests have been submitted. After receipt of the TAM relating to the Luxembourg subsidiary, in total, the two remaining proposed adjustments sought by the IRS for the tax years with open audits would result in additional U.S. federal tax owed of approximately $817 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, as of December 31, 2019, we had recorded $58 million of unrecognized tax benefits related to these issues.

Note 14: Employee Benefit Plans

We sponsor multiple domestic and international employee benefit plans (the "pension plans"), and the benefits are based upon years of service and compensation.

The employee benefit plan in the U.S. (the "Domestic Plan") 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.

The employee benefit plans covering many of our international employees 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 income (loss), net of taxes.

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


	Domestic Plan						U.K. Plan						International Plans
	2019		2018		2019		2018		2019		2018
	(in millions)
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year	$	357	$	384	$	375	$	443	$	83	$	86
Service cost	—		—		2		3		1		2
Interest cost	14		12		10		9		2		2
Prior service cost (credit)(1)	—		—		(3)		4		—		—
Actuarial loss (gain)	37		(14)		62		(39)		6		—
Settlements and curtailments	(2)		(2)		—		—		(1)		(1)
Effect of foreign currency exchange rates	—		—		13		(25)		—		(1)
Benefits paid	(24)		(23)		(14)		(20)		(4)		(5)
Benefit obligation at end of year	$	382	$	357	$	445	$	375	$	87	$	83

Change in Plan Assets:
Fair value of plan assets at beginning of year	$	274	$	306	$	340	$	386	$	63	$	65
Actual return on plan assets, net of expenses	53		(23)		57		(14)		6		(1)
Employer contributions	17		16		9		10		4		4
Settlements	(2)		(2)		—		—		(1)		—
Effect of foreign currency exchange rates	—		—		12		(22)		—		—
Benefits paid	(24)		(23)		(14)		(20)		(4)		(5)
Fair value of plan assets at end of year	318		274		404		340		68		63
Funded status at end of year (underfunded)	(64)		(83)		(41)		(35)		(19)		(20)
Accumulated benefit obligation	$	382	$	357	$	445	$	375	$	87	$	83

(1)Relates to U.K. pension equalization requirements.

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


	Domestic Plan						U.K. Plan						International Plans
	2019		2018		2019		2018		2019		2018
	(in millions)
Other non-current assets	$	—	$	—	$	—	$	—	$	10	$	7
Other liabilities	(64)		(83)		(41)		(35)		(29)		(27)
Net amount recognized	$	(64)	$	(83)	$	(41)	$	(35)	$	(19)	$	(20)

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


	Domestic Plan										U.K. Plan								International Plans
	2019		2018		2017		2019		2018		2017		2019		2018		2017
	(in millions)
Net actuarial loss (gain)	$	(3)	$	22	$	(15)	$	29	$	(14)	$	13	$	3	$	3	$	—
Prior service cost (credit)	(4)		(4)		(3)		(3)		4		—		—		—		—
Amortization of net loss	(3)		(3)		(3)		(3)		(4)		(4)		(1)		(1)		—
Net amount recognized	$	(10)	$	15	$	(21)	$	23	$	(14)	$	9	$	2	$	2	$	—

The estimated unrecognized prior service cost and net loss that will be amortized into net periodic pension cost (credit) during the year ended December 31, 2020 are as follows:


	Domestic Plan		U.K. Plan		International Plans
	(in millions)
Unrecognized prior service cost(1)	$	4	$	—	$	—
Unrecognized net loss	4		4		1
Amount unrecognized	$	8	$	4	$	1

(1)Unrecognized prior service cost amounts for the U.K. Plan and International Plans are less than $1 million.

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


	Domestic Plan										U.K. Plan								International Plans
	2019		2018		2017		2019		2018		2017		2019		2018		2017
	(in millions)
Service cost	$	6	$	6	$	8	$	2	$	3	$	2	$	2	$	2	$	2
Interest cost	14		12		12		10		9		10		2		2		2
Expected return on plan assets	(19)		(19)		(19)		(19)		(21)		(19)		(3)		(3)		(3)
Amortization of prior service cost	4		3		3		—		—		—		—		—		—
Amortization of net loss	3		3		3		3		4		4		1		1		—
Net periodic pension cost (credit)	$	8	$	5	$	7	$	(4)	$	(5)	$	(3)	$	2	$	2	$	1

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


	Domestic Plan						U.K. Plan						International Plans
	2019		2018		2019		2018		2019		2018
Discount rate	3.2	%	4.3	%	2.1	%	3.1	%	2.2	%	3.3	%
Salary inflation	N/A		N/A		1.6		1.8		2.2		2.2
Pension inflation	N/A		N/A		2.8		3.0		1.9		1.8

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


	Domestic Plan										U.K. Plan								International Plans
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Discount rate	4.3	%	3.6	%	4.0	%	3.1	%	2.6	%	2.8	%	3.1	%	2.9	%	3.0	%
Expected return on plan assets	7.0		7.0		7.0		5.5		5.5		5.5		4.3		4.6		4.3
Salary inflation	N/A		N/A		N/A		1.8		1.8		1.9		2.2		2.2		2.1
Pension inflation	N/A		N/A		N/A		3.0		3.0		3.1		1.8		1.8		1.7

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, 2019 and 2018, was 80 percent in funds that invest in equity securities and 20 percent in funds that invest in debt securities. The target asset allocation for the U.K. Plan and the International Plans, as a percentage of total plan assets, as of December 31, 2019 and 2018, was 75 percent in funds that invest in equity and debt securities and 25 percent in bond funds.

The following tables present the fair value hierarchy of total plan assets measured at fair value by asset category:


	December 31, 2019
	Domestic Plan		U.K. Plan		International Plans
	(in millions)
Level 1
Cash and cash equivalents	$	—	$	25	$	12
Equity funds	—		61		2
Bond funds	2		40		—
Alternative investments	—		169		—
Level 2
Equity funds	—		—		4
Bond funds	—		—		6
Net asset value(1)
Bond funds	—		54		—
Common collective trusts	316		—		44
Other	—		55		—
	$	318	$	404	$	68


	December 31, 2018
	Domestic Plan		U.K. Plan		International Plans
	(in millions)
Level 1
Cash and cash equivalents	$	—	$	34	$	11
Equity funds	—		33		2
Bond funds	—		39		—
Alternative investments	—		140		—
Level 2
Equity funds	—		—		4
Bond funds	—		—		6
Net asset value(1)
Bond funds	—		44		—
Common collective trusts	274		—		40
Other	—		50		—
	$	274	$	340	$	63

(1)Certain investments are measured at net asset value per share as a practical expedient and, therefore, have not been classified in the fair value hierarchy.

We expect to contribute approximately $13 million, $10 million and $4 million to the Domestic Plan, the U.K. Plan and the International Plans, respectively, in 2020.

As of December 31, 2019, 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)
2020	$	33	$	15	$	12
2021	27		15		5
2022	27		15		5
2023	26		16		5
2024	26		16		6
2025-2029	119		83		23
	$	258	$	160	$	56

In January 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, 2019 and 2018, the multiple employer plan had combined plan assets of $345 million and $297 million, respectively, and a projected benefit obligation of $407 million and $380 million, respectively.

We also have various employee defined contribution investment plans whereby we contribute matching percentages of employee contributions. The aggregate expense under these plans totaled $17 million, $16 million and $15 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Note 15: Share-Based Compensation

We recognized share-based compensation expense of $154 million, $127 million and $121 million during the years ended December 31, 2019, 2018 and 2017, respectively, which included amounts reimbursed by hotel owners. The total tax benefit recognized related to share-based compensation expense was $41 million, $42 million and $49 million for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018, we accrued $16 million and $15 million, respectively, in accounts payable, accrued expenses and other in our consolidated balance sheets for certain awards settled in cash.

As of December 31, 2019, unrecognized compensation costs for unvested awards were approximately $122 million, which are expected to be recognized over a weighted-average period of 1.6 years on a straight-line basis. As of December 31, 2019, there were 14.2 million shares of common stock available for future issuance under the Hilton 2017 Omnibus Incentive Plan, plus any shares subject to awards outstanding under the 2013 Omnibus Incentive Plan, which will become available for issuance under the Hilton 2017 Omnibus Incentive Plan if such outstanding awards expire or are terminated or are canceled or forfeited.

RSUs

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


	Year Ended December 31,
	2019		2018		2017
	(in millions, except per share data)
Number of shares granted	1.0		0.9		1.5
Weighted average grant date fair value per share	$	83.47	$	79.31	$	58.80
Aggregate intrinsic value of shares vested	$	92	$	123	$	78

The following table summarizes the activity of our RSUs during the year ended December 31, 2019:


	Number of Shares	Weighted Average Grant Date Fair Value per Share
	(in millions)
Outstanding as of December 31, 2018	2.0	$	64.88
Granted	1.0	83.47
Vested	(1.1)	59.90
Forfeited	(0.1)	76.01
Outstanding as of December 31, 2019	1.8	77.35

Options

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


	Year Ended December 31,
	2019		2018		2017
	(in millions, except per share data)
Number of options granted	0.8		0.6		0.7
Weighted average exercise price per share	$	83.11	$	79.36	$	58.40
Weighted average grant date fair value per share	$	21.08	$	23.72	$	13.96

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


	Year Ended December 31,
	2019		2018		2017
Expected volatility(1)	23.51	%	27.91	%	24.00	%
Dividend yield(2)	0.81	%	0.74	%	0.92% - 1.03%
Risk-free rate(3)	2.47	%	2.73	%	1.93% - 2.03%
Expected term (in years)(4)	6.0		6.0		6.0

(1)Estimated using historical movement of Hilton's stock price.

(2)For the years ended December 31, 2019 and 2018, estimated based on the quarterly dividend and the three-month average stock price at the date of grant; for the year ended December 31, 2017, estimated based on the expected annualized dividend payment at the date 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 terms of the options.

The following table summarizes the activity of our options during the year ended December 31, 2019:


	Number of Shares	Weighted Average Exercise Price per Share
	(in millions)
Outstanding as of December 31, 2018	2.4	$	58.50
Granted	0.8	83.11
Exercised	(0.4)	52.37
Outstanding as of December 31, 2019(1)	2.8	65.72
Exercisable as of December 31, 2019(2)	1.4	53.93

(1)The aggregate intrinsic value was $129 million and the weighted average remaining contractual term was 7 years.

(2)The aggregate intrinsic value was $83 million and the weighted average remaining contractual term was 6 years.

Performance Shares

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


	Year Ended December 31,
	2019		2018		2017
	(in millions, except per share data)
EBITDA CAGR:
Number of shares granted	0.2		0.2		0.2
Weighted average grant date fair value per share	$	83.11	$	79.36	$	58.40

FCF CAGR:
Number of shares granted	0.2		0.2		0.2
Weighted average grant date fair value per share	$	83.11	$	79.36	$	58.40

There were no performance shares vested for the year ended December 31, 2019. The aggregate intrinsic value of performance shares vested for the years ended December 31, 2018 and 2017 was less than $1 million.

The following table summarizes the activity of our performance shares during the year ended December 31, 2019:


	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
	(in millions)			(in millions)
Outstanding as of December 31, 2018	0.4	$	69.53	0.4	$	69.53
Granted	0.2	83.11		0.2	83.11
Outstanding as of December 31, 2019	0.6	74.46		0.6	74.46

As of December 31, 2019, we determined that the performance conditions for the 2017, 2018 and 2019 performance shares are probable of achievement, and we recognized compensation expense, for both our outstanding EBITDA CAGR and FCF CAGR performance shares, at the maximum achievement percentage for the 2017 and 2018 performance shares and at target for the 2019 performance shares.

In connection with the spin-offs, we converted previously outstanding performance shares to time-vesting RSUs and recognized incremental expense of $2.3 million and $3.3 million during the years ended December 31, 2018 and 2017, respectively.

Note 16: Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share ("EPS"):


	Year Ended December 31,
	2019		2018		2017
	(in millions, except per share amounts)
Basic EPS:
Numerator:
Net income attributable to Hilton stockholders	$	881	$	764	$	1,084
Denominator:
Weighted average shares outstanding	287		302		324
Basic EPS	$	3.07	$	2.53	$	3.34

Diluted EPS:
Numerator:
Net income attributable to Hilton stockholders	$	881	$	764	$	1,084
Denominator:
Weighted average shares outstanding	290		305		327
Diluted EPS	$	3.04	$	2.50	$	3.32

Approximately 1 million shares related to share-based compensation were excluded from the computation of diluted EPS for the years ended December 31, 2019, 2018 and 2017, because their effect would have been anti-dilutive under the treasury stock method.

Note 17: 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, 2016	$	(738)	$	(251)	$	(12)	$	(1,001)
Other comprehensive income (loss) before reclassifications	161		15		(4)		172
Amounts reclassified from accumulated other comprehensive loss	1		7		17		25
Net current period other comprehensive income	162		22		13		197
Spin-offs of Park and HGV	63		—		—		63
Balance as of December 31, 2017	(513)		(229)		1		(741)
Other comprehensive income (loss) before reclassifications	(70)		(18)		17		(71)
Amounts reclassified from accumulated other comprehensive loss	—		9		5		14
Net current period other comprehensive income (loss)	(70)		(9)		22		(57)
Cumulative effect of the adoption of ASU 2018-02	38		(22)		—		16
Balance as of December 31, 2018	(545)		(260)		23		(782)
Other comprehensive loss before reclassifications	(5)		(17)		(35)		(57)
Amounts reclassified from accumulated other comprehensive loss	1		8		(10)		(1)
Net current period other comprehensive loss	(4)		(9)		(45)		(58)
Balance as of December 31, 2019	$	(549)	$	(269)	$	(22)	$	(840)

(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 losses in our consolidated statements of operations:


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Currency translation adjustment:
Liquidation of investments in foreign entities(1)	$	(1)	$	—	$	(1)
Total currency translation adjustment reclassifications for the period, net of taxes	(1)		—		(1)

Pension liability adjustment:
Amortization of prior service cost(2)	(4)		(3)		(3)
Amortization of net loss(2)	(7)		(8)		(7)
Tax benefit(3)	3		2		3
Total pension liability adjustment reclassifications for the period, net of taxes	(8)		(9)		(7)

Cash flow hedge adjustment:
Interest rate swaps(4)	10		(6)		(26)
Forward contracts(5)	2		—		—
Tax benefit (expense)(3)	(2)		1		9
Total cash flow hedge adjustment reclassifications for the period, net of taxes	10		(5)		(17)
Total reclassifications for the period, net of taxes	$	1	$	(14)	$	(25)

(1)Amounts are net of gains on the related net investment hedges and were reclassified to gain (loss) on foreign currency transactions in our consolidated statements of operations upon liquidation of the related entities for the years ended December 31, 2019 and 2017. The related tax benefits reclassified to income tax benefit (expense) in our consolidated statements of operations for the years ended December 31, 2019 and 2017 were less than $1 million.

(2)Reclassified to other non-operating income, net in our consolidated statements of operations.

(3)Reclassified to income tax benefit (expense) in our consolidated statements of operations.

(4)Reclassified to interest expense in our consolidated statements of operations.

(5)Reclassified to franchise and licensing fees, base and other management fees and other revenues from managed and franchised properties in our consolidated statements of operations. The amounts for the years ended December 31, 2018 and 2017 were less than $1 million.

Note 18: 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, 2019, this segment included 703 managed hotels and 5,287 franchised hotels consisting of 942,307 total rooms. This segment also earns licensing fees from HGV and strategic partnerships for the right to use certain Hilton marks and IP, as well as fees for managing properties in our ownership segment.

As of December 31, 2019, the ownership segment included 65 properties totaling 20,557 rooms, comprising 57 hotels that we wholly owned or leased, one hotel owned by a consolidated non-wholly owned entity, two hotels leased by consolidated VIEs and five hotels owned or leased by unconsolidated affiliates.

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

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


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Franchise and licensing fees	$	1,691	$	1,537	$	1,326
Base and other management fees(1)	394		385		379
Incentive management fees	230		235		222
Management and franchise	2,315		2,157		1,927
Ownership	1,422		1,484		1,432
Segment revenues	3,737		3,641		3,359
Amortization of contract acquisition costs	(29)		(27)		(17)
Other revenues	101		98		105
Direct reimbursements from managed and franchised properties(2)	3,110		2,881		2,572
Indirect reimbursements from managed and franchised properties(2)	2,576		2,357		2,155
Intersegment fees elimination(1)	(43)		(44)		(43)
Total revenues	$	9,452	$	8,906	$	8,131

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

(2)Included in other revenues from managed and franchised properties in our consolidated statements of operations.

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


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Management and franchise(1)	$	2,315	$	2,157	$	1,927
Ownership(1)	125		108		120
Segment operating income	2,440		2,265		2,047
Amortization of contract acquisition costs	(29)		(27)		(17)
Other revenues, less other expenses	29		47		49
Net other expenses from managed and franchised properties	(77)		(85)		(172)
Depreciation and amortization	(346)		(325)		(336)
General and administrative	(441)		(443)		(439)
Gain on sale of assets, net	81		—		—
Operating income	1,657		1,432		1,132
Interest expense	(414)		(371)		(351)
Gain (loss) on foreign currency transactions	(2)		(11)		3
Loss on debt extinguishment	—		—		(60)
Other non-operating income, net	3		28		29
Income before income taxes	$	1,244	$	1,078	$	753

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

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


	December 31,
	2019		2018
	(in millions)
Management and franchise	$	11,455	$	11,362
Ownership	1,610		927
Corporate and other	1,892		1,706
	$	14,957	$	13,995

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


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Ownership	$	38	$	42	$	32
Corporate and other	43		30		26
	$	81	$	72	$	58

Total revenues by country were as follows:


	Year Ended December 31,
	2019		2018		2017
	(in millions)
U.S.	$	7,423	$	6,848	$	6,046
All other	2,029		2,058		2,085
	$	9,452	$	8,906	$	8,131

Other than the U.S., there were no countries that individually represented more than 10 percent of total revenues for the years ended December 31, 2019, 2018 and 2017.

Property and equipment, net by country was as follows:


	December 31,
	2019		2018
	(in millions)
U.S.	$	145	$	109
United Kingdom	84		75
Japan	71		106
Germany	38		40
All other	42		37
	$	380	$	367

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, 2019 and 2018.

Note 19: 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, 2019, we had four performance guarantees, with expirations ranging from 2023 to 2039, and possible cash outlays totaling approximately $20 million. Our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee. As of December 31, 2019 and 2018, we accrued current liabilities of $3 million and $12 million, respectively, for one performance guarantee related to a hotel owned by a VIE for which we were not the primary beneficiary. The performance guarantee period for the contract for which amounts have been accrued ended on December 31, 2019. We may enter into new contracts containing performance guarantees in the future, which could increase our possible cash outlays. We do not have any letters of credit pledged as collateral against our performance guarantees.

As of December 31, 2019, we guaranteed two loans for three hotels that we franchise or will franchise for a total of $30 million. One of the loans has an initial maturity date in 2022 with two one-year extension options and the other loan will mature in 2023. Although we believe it is unlikely that material payments will be required under these guarantees, there can be no assurance that this will be the case. We do not have any letters of credit pledged as collateral against these guarantees.

We hold interests in VIEs, for which we are not the primary beneficiary, that have entered into loan agreements with third parties. Under the terms of our contractual arrangements with certain of these VIEs, we may provide financial support to such

entities under specified circumstances, including default of such a VIE under a third-party loan agreement, and may have the option to acquire a controlling financial interest in such an entity at a predetermined amount. In a circumstance that we provide financial support or exercise our option to acquire an additional interest in a VIE, we may be required to reassess whether we are the primary beneficiary of the VIE. If we determine that we are the primary beneficiary of the VIE, we would be required to consolidate the total assets, liabilities and results of operations of the VIE, which may be material upon consolidation.

We have entered into agreements with owners of certain hotels that we currently manage or will franchise to finance capital expenditures at the hotels. As of December 31, 2019, we had remaining possible cash outlays of approximately $13 million, which we expect to fund in 2020.

We receive fees from managed and franchised properties to operate our marketing, sales and brand programs on behalf of

hotel owners. As of December 31, 2019 and 2018, we had collected an aggregate of $350 million and $375 million in excess of amounts expended, respectively, across all programs.

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include 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, 2019 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Note 20: Related Party Transactions

Equity Investments

We hold unconsolidated equity investments in entities that own or lease properties that we manage. Amounts included in our consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 related to these management contracts primarily included: (i) management and franchise fees of $9 million, $10 million and $10 million, respectively; (ii) other revenues from managed and franchised properties of $12 million, $22 million and $22 million, respectively; and (iii) other expenses from managed and franchised properties of $12 million, $22 million and $22 million, respectively. Our consolidated balance sheet as of December 31, 2018 primarily included $19 million, of management and franchise contracts, net, related to one of the management contracts.

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. As a result of their sales of Hilton common stock, Blackstone was no longer considered a related party of Hilton as of October 1, 2017. For the year ended December 31, 2017, amounts included in our consolidated statement of operations related to these management and franchise contracts, for the period of time Blackstone was considered a related party, included: (i) management and franchise fees of $24 million; (ii) other revenues from managed and franchised properties of $113 million; and (iii) other expenses from managed and franchised properties of $113 million. Additionally, our consolidated statements of cash flows included $11 million of contract acquisition costs related to these management and franchise contracts for the year ended December 31, 2017.

Note 21: Supplemental Disclosures of Cash Flow Information

Interest paid during the years ended December 31, 2019, 2018 and 2017 was $360 million, $330 million and $314 million, respectively.

Income taxes, net of refunds, paid during the years ended December 31, 2019, 2018 and 2017 were $363 million, $288 million and $526 million, respectively.

In 2017, non-cash financing activities of $25 million in connection with the spin-offs were excluded from our consolidated statements of cash flows.

Refer to Note 12: "Leases" for supplemental disclosures of cash flow information related to operating and finance leases.

Note 22: Condensed Consolidating Guarantor Financial Information

Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. (together, the "HWF Issuers"), which are 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which is 100 percent owned by the Parent, issued the 2025 Senior Notes and the 2027 Senior Notes. Hilton Domestic Operating Company Inc. ("HOC"), which is 100 percent owned by Hilton Worldwide Finance LLC, assumed the 2024 Senior Notes, issued the 2026 Senior Notes and, in June 2019, issued the 2030 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 the Parent, HWP and substantially all of the Parent's direct and indirect wholly 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 facilities will guarantee the Senior Notes. Additionally, the HWF Issuers are guarantors of the 2024 Senior Notes, the 2026 Senior Notes and the 2030 Senior Notes, and HOC is a guarantor of the 2025 Senior Notes and the 2027 Senior Notes. As of December 31, 2019, none of our foreign subsidiaries or U.S. subsidiaries owned by foreign subsidiaries or conducting foreign operations or our non-wholly owned subsidiaries guaranteed the Senior Notes (collectively, the "Non-Guarantors").

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 facilities; (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.

Subsequent to December 31, 2019, we intend to merge the HWF Issuers with and into HOC, with HOC as the surviving entity.

The following tables present the condensed consolidating financial information as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017, for the Parent, HWF Issuers, HOC, Guarantors and Non-Guarantors. The condensed consolidating financial information presents the financial information for all periods based on the composition of the Guarantors as of December 31, 2019.


	December 31, 2019
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations		Total
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	—	$	1	$	10	$	527	$	—	$	538
Restricted cash and cash equivalents	—		—		36		21		35		—		92
Accounts receivable, net	—		—		26		897		338		—		1,261
Intercompany receivables	—		—		—		—		40		(40)		—
Prepaid expenses	—		—		43		40		52		(5)		130
Other	—		1		1		39		54		(23)		72
Total current assets	—		1		107		1,007		1,046		(68)		2,093
Intangibles and Other Assets:
Investments in subsidiaries	(468)		3,846		7,645		(468)		—		(10,555)		—
Goodwill	—		—		—		3,824		1,335		—		5,159
Brands	—		—		—		4,405		472		—		4,877
Management and franchise contracts, net	—		—		1		448		331		—		780
Other intangible assets, net	—		—		—		306		115		—		421
Operating lease right-of-use assets	—		—		31		8		828		—		867
Property and equipment, net	—		—		62		68		250		—		380
Deferred income tax assets	3		7		96		—		129		(135)		100
Other	—		11		38		49		182		—		280
Total intangibles and other assets	(465)		3,864		7,873		8,640		3,642		(10,690)		12,864
TOTAL ASSETS	$	(465)	$	3,865	$	7,980	$	9,647	$	4,688	$	(10,758)	$	14,957
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other	$	17	$	21	$	277	$	695	$	715	$	(22)	$	1,703
Current maturities of long-term debt	—		—		19		—		18		—		37
Current portion of deferred revenues	—		—		107		218		13		(6)		332
Intercompany payables	—		—		40		—		—		(40)		—
Current portion of liability for guest loyalty program	—		—		—		799		—		—		799
Total current liabilities	17		21		443		1,712		746		(68)		2,871
Long-term debt	—		4,274		3,472		—		210		—		7,956
Operating lease liabilities	—		—		37		5		995		—		1,037
Deferred revenues	—		—		—		755		72		—		827
Deferred income tax liabilities	—		—		—		930		—		(135)		795
Liability for guest loyalty program	—		—		—		1,060		—		—		1,060
Other	—		38		182		82		581		—		883
Total liabilities	17		4,333		4,134		4,544		2,604		(203)		15,429
Equity (Deficit):
Total Hilton stockholders' equity (deficit)	(482)		(468)		3,846		5,103		2,074		(10,555)		(482)
Noncontrolling interests	—		—		—		—		10		—		10
Total equity (deficit)	(482)		(468)		3,846		5,103		2,084		(10,555)		(472)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	(465)	$	3,865	$	7,980	$	9,647	$	4,688	$	(10,758)	$	14,957


	December 31, 2018
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations		Total
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	—	$	3	$	17	$	383	$	—	$	403
Restricted cash and cash equivalents	—		—		34		15		32		—		81
Accounts receivable, net	—		—		10		735		405		—		1,150
Intercompany receivables	—		—		—		—		40		(40)		—
Prepaid expenses	—		—		52		37		80		(9)		160
Other	—		1		1		36		154		(3)		189
Total current assets	—		1		100		840		1,094		(52)		1,983
Intangibles and Other Assets:
Investments in subsidiaries	557		5,131		7,930		557		—		(14,175)		—
Goodwill	—		—		—		3,824		1,336		—		5,160
Brands	—		—		—		4,404		465		—		4,869
Management and franchise contracts, net	—		—		—		556		316		—		872
Other intangible assets, net	—		—		—		287		128		—		415
Property and equipment, net	—		—		27		65		275		—		367
Deferred income tax assets	4		—		94		—		90		(98)		90
Other	—		23		33		22		161		—		239
Total intangibles and other assets	561		5,154		8,084		9,715		2,771		(14,273)		12,012
TOTAL ASSETS	$	561	$	5,155	$	8,184	$	10,555	$	3,865	$	(14,325)	$	13,995
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other	$	10	$	19	$	229	$	529	$	765	$	(3)	$	1,549
Current maturities of long-term debt	—		—		—		—		16		—		16
Current portion of deferred revenues	—		—		106		239		14		(9)		350
Intercompany payables	—		—		40		—		—		(40)		—
Current portion of liability for guest loyalty program	—		—		—		700		—		—		700
Total current liabilities	10		19		375		1,468		795		(52)		2,615
Long-term debt	—		4,573		2,467		—		226		—		7,266
Deferred revenues	—		—		—		762		64		—		826
Deferred income tax liabilities	—		6		—		962		28		(98)		898
Liability for guest loyalty program	—		—		—		969		—		—		969
Other	—		—		211		93		559		—		863
Total liabilities	10		4,598		3,053		4,254		1,672		(150)		13,437
Equity:
Total Hilton stockholders' equity	551		557		5,131		6,301		2,186		(14,175)		551
Noncontrolling interests	—		—		—		—		7		—		7
Total equity	551		557		5,131		6,301		2,193		(14,175)		558
TOTAL LIABILITIES AND EQUITY	$	561	$	5,155	$	8,184	$	10,555	$	3,865	$	(14,325)	$	13,995


	Year Ended December 31, 2019
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations		Total
	(in millions)
Revenues
Franchise and licensing fees	$	—	$	—	$	275	$	1,268	$	156	$	(18)	$	1,681
Base and other management fees	—		—		1		207		124		—		332
Incentive management fees	—		—		—		77		153		—		230
Owned and leased hotels	—		—		—		—		1,422		—		1,422
Other revenues	—		—		3		82		16		—		101
	—		—		279		1,634		1,871		(18)		3,766
Other revenues from managed and franchised properties	—		—		320		4,768		598		—		5,686
Total revenues	—		—		599		6,402		2,469		(18)		9,452

Expenses
Owned and leased hotels	—		—		—		—		1,254		—		1,254
Depreciation and amortization	—		—		7		255		84		—		346
General and administrative	—		—		339		—		132		(30)		441
Other expenses	—		—		8		11		41		12		72
	—		—		354		266		1,511		(18)		2,113
Other expenses from managed and franchised properties	—		—		324		4,835		604		—		5,763
Total expenses	—		—		678		5,101		2,115		(18)		7,876

Gain on sale of assets, net	—		—		—		—		81		—		81

Operating income (loss)	—		—		(79)		1,301		435		—		1,657

Interest expense	—		(192)		(166)		(1)		(55)		—		(414)
Gain (loss) on foreign currency transactions	—		—		3		(24)		19		—		(2)
Other non-operating income (loss), net	—		(11)		7		(6)		13		—		3

Income (loss) before income taxes and equity in earnings from subsidiaries	—		(203)		(235)		1,270		412		—		1,244

Income tax benefit (expense)	—		49		51		(313)		(145)		—		(358)

Income (loss) before equity in earnings from subsidiaries	—		(154)		(184)		957		267		—		886

Equity in earnings from subsidiaries	881		1,035		1,219		881		—		(4,016)		—

Net income	881		881		1,035		1,838		267		(4,016)		886
Net income attributable to noncontrolling interests	—		—		—		—		(5)		—		(5)
Net income attributable to Hilton stockholders	$	881	$	881	$	1,035	$	1,838	$	262	$	(4,016)	$	881

Comprehensive income	$	823	$	838	$	1,042	$	1,838	$	245	$	(3,958)	$	828
Comprehensive income attributable to noncontrolling interests	—		—		—		—		(5)		—		(5)
Comprehensive income attributable to Hilton stockholders	$	823	$	838	$	1,042	$	1,838	$	240	$	(3,958)	$	823


	Year Ended December 31, 2018
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations		Total
	(in millions)
Revenues
Franchise and licensing fees	$	—	$	—	$	227	$	1,182	$	139	$	(18)	$	1,530
Base and other management fees	—		—		1		205		115		—		321
Incentive management fees	—		—		—		78		157		—		235
Owned and leased hotels	—		—		—		—		1,484		—		1,484
Other revenues	—		—		6		78		14		—		98
	—		—		234		1,543		1,909		(18)		3,668
Other revenues from managed and franchised properties	—		—		245		4,376		617		—		5,238
Total revenues	—		—		479		5,919		2,526		(18)		8,906

Expenses
Owned and leased hotels	—		—		—		—		1,332		—		1,332
Depreciation and amortization	—		—		6		237		82		—		325
General and administrative	—		—		323		—		130		(10)		443
Other expenses	—		—		7		21		31		(8)		51
	—		—		336		258		1,575		(18)		2,151
Other expenses from managed and franchised properties	—		—		236		4,466		621		—		5,323
Total expenses	—		—		572		4,724		2,196		(18)		7,474

Operating income (loss)	—		—		(93)		1,195		330		—		1,432

Interest expense	—		(227)		(106)		—		(38)		—		(371)
Gain (loss) on foreign currency transactions	—		—		4		(99)		84		—		(11)
Other non-operating income (loss), net	—		(9)		3		16		18		—		28

Income (loss) before income taxes and equity in earnings from subsidiaries	—		(236)		(192)		1,112		394		—		1,078

Income tax benefit (expense)	—		57		39		(263)		(142)		—		(309)

Income (loss) before equity in earnings from subsidiaries	—		(179)		(153)		849		252		—		769

Equity in earnings from subsidiaries	764		943		1,096		764		—		(3,567)		—

Net income	764		764		943		1,613		252		(3,567)		769
Net income attributable to noncontrolling interests	—		—		—		—		(5)		—		(5)
Net income attributable to Hilton stockholders	$	764	$	764	$	943	$	1,613	$	247	$	(3,567)	$	764

Comprehensive income	$	707	$	784	$	932	$	1,612	$	187	$	(3,510)	$	712
Comprehensive income attributable to noncontrolling interests	—		—		—		—		(5)		—		(5)
Comprehensive income attributable to Hilton stockholders	$	707	$	784	$	932	$	1,612	$	182	$	(3,510)	$	707


	Year Ended December 31, 2017
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations		Total
	(in millions)
Revenues
Franchise and licensing fees	$	—	$	—	$	143	$	1,077	$	118	$	(17)	$	1,321
Base and other management fees	—		—		1		195		128		—		324
Incentive management fees	—		—		—		76		146		—		222
Owned and leased hotels	—		—		—		—		1,432		—		1,432
Other revenues	—		—		31		70		11		(7)		105
	—		—		175		1,418		1,835		(24)		3,404
Other revenues from managed and franchised properties	—		—		159		3,986		582		—		4,727
Total revenues	—		—		334		5,404		2,417		(24)		8,131

Expenses
Owned and leased hotels	—		—		—		—		1,269		—		1,269
Depreciation and amortization	—		—		5		242		89		—		336
General and administrative	—		—		327		—		118		(6)		439
Other expenses	—		—		17		29		27		(17)		56
	—		—		349		271		1,503		(23)		2,100
Other expenses from managed and franchised properties	—		—		147		4,147		605		—		4,899
Total expenses	—		—		496		4,418		2,108		(23)		6,999

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

Operating income (loss)	—		—		(162)		985		310		(1)		1,132

Interest expense	—		(244)		(61)		—		(47)		1		(351)
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		21		—		29

Income (loss) before income taxes and equity in earnings from subsidiaries	—		(307)		(209)		1,116		153		—		753

Income tax benefit (expense)	(3)		122		26		89		102		—		336

Income (loss) before equity in earnings from subsidiaries	(3)		(185)		(183)		1,205		255		—		1,089

Equity in earnings from subsidiaries	1,087		1,272		1,455		1,087		—		(4,901)		—

Net income	1,084		1,087		1,272		2,292		255		(4,901)		1,089
Net income attributable to noncontrolling interests	—		—		—		—		(5)		—		(5)
Net income attributable to Hilton stockholders	$	1,084	$	1,087	$	1,272	$	2,292	$	250	$	(4,901)	$	1,084

Comprehensive income	$	1,281	$	1,101	$	1,288	$	2,295	$	419	$	(5,098)	$	1,286
Comprehensive income attributable to noncontrolling interests	—		—		—		—		(5)		—		(5)
Comprehensive income attributable to Hilton stockholders	$	1,281	$	1,101	$	1,288	$	2,295	$	414	$	(5,098)	$	1,281


	Year Ended December 31, 2019
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations		Total
	(in millions)
Operating Activities:
Net cash provided by (used in) operating activities	$	—	$	(153)	$	(30)	$	1,494	$	213	$	(140)	$	1,384
Investing Activities:
Capital expenditures for property and equipment	—		—		(14)		(7)		(60)		—		(81)
Payments received on other financing receivables	—		—		—		3		—		—		3
Proceeds from asset disposition	—		—		—		—		120		—		120
Capitalized software costs	—		—		—		(124)		—		—		(124)
Other	—		—		—		(30)		(11)		—		(41)
Net cash provided by (used in) investing activities	—		—		(14)		(158)		49		—		(123)
Financing Activities:
Borrowings	—		1,200		1,000		—		—		—		2,200
Repayment of debt	—		(1,505)		(25)		—		(17)		—		(1,547)
Debt issuance costs	—		(13)		(16)		—		—		—		(29)
Intercompany transfers	1,710		471		(888)		(1,337)		44		—		—
Dividends paid	(172)		—		—		—		—		—		(172)
Repurchases of common stock	(1,538)		—		—		—		—		—		(1,538)
Intercompany dividends	—		—		—		—		(140)		140		—
Share-based compensation tax withholdings and other	—		—		(27)		—		—		—		(27)
Net cash provided by (used in) financing activities	—		153		44		(1,337)		(113)		140		(1,113)
Effect of exchange rate changes on cash, restricted cash and cash equivalents	—		—		—		—		(2)		—		(2)
Net increase (decrease) in cash, restricted cash and cash equivalents	—		—		—		(1)		147		—		146
Cash, restricted cash and cash equivalents, beginning of period	—		—		37		32		415		—		484
Cash, restricted cash and cash equivalents, end of period	$	—	$	—	$	37	$	31	$	562	$	—	$	630


	Year Ended December 31, 2018
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations		Total
	(in millions)
Operating Activities:
Net cash provided by (used in) operating activities	$	—	$	(185)	$	(8)	$	1,128	$	320	$	—	$	1,255
Investing Activities:
Capital expenditures for property and equipment	—		—		(9)		(7)		(56)		—		(72)
Payments received on other financing receivables	—		—		—		49		1		—		50
Capitalized software costs	—		—		—		(87)		—		—		(87)
Other	—		—		—		(6)		(16)		—		(22)
Net cash used in investing activities	—		—		(9)		(51)		(71)		—		(131)
Financing Activities:
Borrowings	—		175		1,500		—		1		—		1,676
Repayment of debt	—		(985)		—		—		(20)		—		(1,005)
Debt issuance costs	—		—		(21)		—		—		—		(21)
Intercompany transfers	1,902		995		(1,444)		(1,070)		(383)		—		—
Dividends paid	(181)		—		—		—		—		—		(181)
Repurchases of common stock	(1,721)		—		—		—		—		—		(1,721)
Share-based compensation tax withholdings and other	—		—		(44)		—		—		—		(44)
Other	—		—		—		(3)		(1)		—		(4)
Net cash provided by (used in) financing activities	—		185		(9)		(1,073)		(403)		—		(1,300)
Effect of exchange rate changes on cash, restricted cash and cash equivalents	—		—		—		—		(10)		—		(10)
Net increase (decrease) in cash, restricted cash and cash equivalents	—		—		(26)		4		(164)		—		(186)
Cash, restricted cash and cash equivalents, beginning of period	—		—		63		28		579		—		670
Cash, restricted cash and cash equivalents, end of period	$	—	$	—	$	37	$	32	$	415	$	—	$	484


	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)	$	950	$	285	$	(170)	$	849
Investing Activities:
Capital expenditures for property and equipment	—		—		(12)		(12)		(34)		—		(58)
Payments received on other financing receivables	—		—		—		7		—		—		7
Capitalized software costs	—		—		—		(75)		—		—		(75)
Other	—		(13)		—		(8)		3		(3)		(21)
Net cash used in investing activities	—		(13)		(12)		(88)		(31)		(3)		(147)
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)
Repurchases of common stock	(891)		—		—		—		—		—		(891)
Intercompany dividends	—		—		—		—		(170)		170		—
Cash transferred in spin-offs	—		—		—		—		(501)		—		(501)
Share-based compensation tax withholdings and other	—		—		(31)		—		—		—		(31)
Other	—		—		—		—		(1)		—		(1)
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, beginning of period	—		—		90		31		1,563		—		1,684
Cash, restricted cash and cash equivalents, end of period	$	—	$	—	$	63	$	28	$	579	$	—	$	670

Note 23: 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, including normal recurring items, considered necessary for a fair presentation of our financial results. Operating results for previous periods do not necessarily indicate results that may be achieved in any future period.


	2019
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
	(in millions, except per share data)
Revenues	$	2,204	$	2,484	$	2,395	$	2,369	$	9,452
Operating income	312		478		519		348		1,657
Net income	159		261		290		176		886
Net income attributable to Hilton stockholders	158		260		288		175		881
Basic earnings per share(1)	$	0.54	$	0.90	$	1.01	$	0.62	$	3.07
Diluted earnings per share(1)	$	0.54	$	0.89	$	1.00	$	0.61	$	3.04


	2018
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
	(in millions, except per share data)
Revenues	$	2,074	$	2,291	$	2,253	$	2,288	$	8,906
Operating income	279		406		385		362		1,432
Net income	163		217		164		225		769
Net income attributable to Hilton stockholders	161		217		162		224		764
Basic earnings per share(1)	$	0.51	$	0.72	$	0.55	$	0.76	$	2.53
Diluted earnings per share(1)	$	0.51	$	0.71	$	0.54	$	0.75	$	2.50

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

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