What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-06 · 125 added, 118 removed, 300 unchanged (45% of the section changed)

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We believe these factors include but are not limited to those described under "Part I—Item 1A.

Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and "Part II.

Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as updated under "Part II.

Other Information—Item 1A.

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COVID-19 Pandemic

During the six months ended June 30, 2020, the COVID-19 pandemic significantly impacted the global economy and strained the hospitality industry due to travel restrictions and stay-at-home directives in place at various times during the period, resulting in cancellations and significantly reduced travel around the world.

The reduction in travel has resulted in complete and partial suspensions of hotel operations in many of the locations in which our hotels are located for an indeterminate duration, which, outside of China, largely began in mid-March, and included approximately 20 percent of our global hotel properties for some portion of the reporting period.

As such, it had a material adverse impact on our results for the three and six months ended June 30, 2020, and we expect it to continue to have a material adverse impact on our results in future periods, as described below under "—Results of Operations."

As of July 31, 2020, 96 percent of our global hotel properties were open, while 260 hotels had temporarily suspended operations.

During the nine months ended September 30, 2020, the COVID-19 pandemic significantly impacted the global economy and strained the hospitality industry due to travel restrictions and stay-at-home directives in place at various times during the period, resulting in cancellations and significantly reduced travel around the world.

The reduction in travel has resulted in complete and partial suspensions of hotel operations in many of the locations, where our hotels are located, for an indeterminate duration, which, outside of China, largely began in mid-March, and included approximately 20 percent of our global hotel properties for some portion of the reporting period.

As such, it had a material adverse impact on our results for the three and nine months ended September 30, 2020 and, based on the potential impact of further restrictions and health and safety concerns, we expect it to continue to have a material adverse impact on our results in future periods, as described below under "—Results of Operations."

As of November 2, 2020, 97 percent of our global hotel properties were open, while approximately 190 hotels had temporarily suspended operations.

However, in late October, certain geographic areas have re-imposed additional travel restrictions, which may result in further adverse impacts to our hotel operations.

Hotels that have reopened generally have experienced significantly lower occupancy as compared with periods before the onset of the pandemic.

In response to this global crisis, we have taken actions to prioritize the safety and security of our guests, employees and owners and support our communities, which have included:

(i) finding alternative uses for our hotel properties, such as providing housing for first responders and healthcare workers, which included our partnership with American Express to donate up to one million hotel room nights across the U.S.

to frontline medical professionals;

(ii) pledging financial assistance to organizations helping those affected by COVID-19 through our Hilton Effect Foundation;

and (iii) providing the option for our Hilton Honors members to donate Hilton Honors points to select foundations aiding those impacted by COVID-19.

Most recently, as properties around the world are reopening and certain travel restrictions are lifted, we launched a new program, Hilton CleanStay, that will deliver a new standard of cleanliness and disinfection to our properties worldwide, and Hilton EventReady, which focuses on cleanliness and customer service specific to meetings and events.

Additionally, we have taken several steps to help our business withstand this uncertain time, as detailed in "—Liquidity."

Hilton is one of the largest hospitality companies in the world, with 6,215 properties comprising 983,465 rooms in 118 countries and territories as of June 30, 2020.

In response to this global crisis, we have taken actions to prioritize the safety and security of our guests, employees and owners and support our communities.

During the summer, we launched Hilton CleanStay to deliver a new standard of cleanliness and disinfection to our properties worldwide and Hilton EventReady, which focuses on cleanliness and customer service specific to meetings and events.

We also found alternative uses for certain of our hotel properties, including providing housing for first responders and healthcare workers, and provided financial assistance to organizations helping those affected by COVID-19 through our Hilton Effect Foundation.

Additionally, we have taken several steps to help our business withstand this uncertain time, as detailed in "—Liquidity and Capital Resources."

Hilton is one of the largest hospitality companies in the world, with 6,333 properties comprising 998,282 rooms in 118 countries and territories as of September 30, 2020.

Our premier brand portfolio includes:

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and our timeshare brand, Hilton Grand Vacations.

As of June 30, 2020, we had 108 million members in our award-winning guest loyalty program, Hilton Honors.

As of September 30, 2020, we had 110 million members in our award-winning guest loyalty program, Hilton Honors.

Segments and Regions

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As a manager of hotels, we typically are responsible for supervising or operating the property in exchange for management fees.

As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and related commercial services, such as our reservation system, marketing and information technology services.

The ownership segment primarily derives earnings from providing nightly hotel room sales, food and beverage sales and other services at our owned and leased hotels.

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Although the U.S.

is included in the Americas, it represented 72 percent of our system-wide hotel rooms as of June 30, 2020;

is included in the Americas, it represents a significant portion of our system-wide hotel rooms, 72 percent as of September 30, 2020;

therefore, the U.S.

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By increasing the number of management and franchise contracts with third-party owners, over time we expect to increase revenues, overall return on invested capital and cash available to support our business needs.

While these objectives have not changed as a result of the COVID-19 pandemic, the current economic environment has posed certain challenges to the execution of our strategy, which have and may continue to include delays in openings and new development.

See further discussion on our cash management policy, as detailed in "—Liquidity."

As of June 30, 2020, we had over 2,700 hotels in our development pipeline that we expect to add as open hotels in our system, representing nearly 414,000 rooms under construction or approved for development throughout 121 countries and territories, including 35 countries and territories where we do not currently have any open hotels.

All of the rooms in the development pipeline are within our management and franchise segment.

While these objectives have not changed as a result of the COVID-19 pandemic, the current economic environment has posed certain challenges to the execution of our strategy, which have included and may continue to include delays in openings and new development.

See further discussion on our cash management policy, as detailed in "—Liquidity and Capital Resources."

As of September 30, 2020, we had approximately 2,640 hotels in our development pipeline that we expect to add as open hotels in our system, representing more than 408,000 rooms under construction or approved for development throughout 120 countries and territories, including 33 countries and territories where we do not currently have any open hotels.

Despite the adverse effects of the COVID-19 pandemic, we added nearly 70 hotels, on a net basis, to our development pipeline during the nine months ended September 30, 2020.

Nearly all of the rooms in the development pipeline are within our management and franchise segment.

Additionally, of the rooms in the development pipeline, 237,000 rooms were located outside the U.S., and 217,000 rooms were under construction.

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The U.K.'s withdrawal from the E.U.

occurred on January 31, 2020, beginning the implementation period, which is set to end on December 31, 2020 and can be extended up to two years.

occurred on January 31, 2020, beginning the implementation period, which is set to end on December 31, 2020.

The effects of Brexit will depend on the final terms that will be negotiated during the implementation period, including the terms of any trade agreements that will dictate the U.K.’s access to E.U.

While our results as of and for the six months ended June 30, 2020 were not materially affected by Brexit, the final outcomes are not yet certain.

While our results as of and for the nine months ended September 30, 2020 were not materially affected by Brexit, the final outcomes are not yet certain.

Brexit measures could potentially disrupt the markets we serve and cause tax and foreign currency volatility, which could have adverse effects on our business.

We will continue to monitor the potential impact of Brexit on our business during the implementation period.

We will continue to monitor the potential impact of Brexit on our business in future periods.

Key Business and Financial Metrics Used by Management

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and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results were not available.

Of the 6,160 hotels in our system as of June 30, 2020, 5,018 hotels were classified as comparable hotels.

Our 1,142 non-comparable hotels included 192 hotels, or approximately three percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they sustained substantial property damage, business interruption, underwent large-scale capital projects or comparable results were otherwise not available.

When considering business interruption in the context of our definition of comparable hotels, any hotel that had completely or partially suspended operations on a temporary basis at any point during the six months ended June 30, 2020 as a result of the COVID-19 pandemic was considered to be part of the definition of comparable hotels.

Despite these temporary suspensions of hotel operations, we believe that including these hotels within occupancy, average daily rate and revenue per available room, reflects the underlying results of our business for the three and six months ended June 30, 2020.

Of the 6,278 hotels in our system as of September 30, 2020, 4,996 hotels were classified as comparable hotels.

Our 1,282 non-comparable hotels included 152 hotels, or approximately two percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they sustained substantial property damage, business interruption, underwent large-scale capital projects or comparable results were otherwise not available.

When considering business interruption in the context of our definition of comparable hotels, any hotel that had completely or partially suspended operations on a temporary basis at any point during the nine months ended September 30, 2020 as a result of the COVID-19 pandemic was considered to be part of the definition of comparable hotels.

Despite these temporary suspensions of hotel operations, we believe that including these hotels within occupancy, average daily rate and revenue per available room reflects the underlying results of our business for the three and nine months ended September 30, 2020.

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels for a given period.

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References to RevPAR, ADR and occupancy are presented on a comparable basis, and references to RevPAR and ADR are presented on a currency neutral basis, unless otherwise noted.

As such, comparisons of these hotel operating statistics for the three and six months ended June 30, 2020 and 2019 use the exchange rates for the three and six months ended June 30, 2020, respectively.

As such, comparisons of these hotel operating statistics for the three and nine months ended September 30, 2020 and 2019 use the exchange rates for the three and nine months ended September 30, 2020, respectively.

EBITDA and Adjusted EBITDA

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(iii) the net effect of our cost reimbursement revenues and reimbursed expenses, as we contractually do not operate the related programs to generate a profit over the terms of the respective contracts;

and (iv) other items that are not core to our operations and are not reflective of our operating performance.

and (iv) other items, including reorganization and related severance costs, that are not core to our operations and are not reflective of our operating performance.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with GAAP.

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

Three Months Ended Variance Six Months Ended Variance

June 30, 2020 2020 vs.

2019 June 30, 2020 2020 vs.

Three Months Ended Variance Nine Months Ended Variance

September 30, 2020 2020 vs.

2019 September 30, 2020 2020 vs.

Occupancy 44.3 % (34.8) % pts.

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RevPAR $ 44.95 (59.9) % $ 47.74 (55.9) %

During the three and six months ended June 30, 2020, we experienced significant declines in RevPAR in all regions compared to the same periods in 2019, due to both occupancy and ADR decreases resulting from the COVID-19 pandemic.

During the three and nine months ended September 30, 2020, we experienced significant declines in RevPAR in all regions compared to the same periods in 2019, due to both occupancy and ADR decreases resulting from the COVID-19 pandemic.

Our Asia Pacific region experienced the effects of the pandemic early in 2020, with suspensions of hotel operations beginning in late January.

Pronounced negative results in the Americas and EMEA regions lagged the Asia Pacific region, with hotel suspensions in those regions beginning in mid-March.

Of the approximately 1,205 properties that had suspended hotel operations at some point during the six months ended June 30, 2020, approximately 46 percent were in the U.S., 10 percent were in the Americas (excluding U.S.), 23 percent were in Europe, 5 percent were in MEA and 16 percent were in Asia Pacific.

As of July 31, 2020, the operations at 260 hotels, primarily located in the U.S., were temporarily suspended.

Of the approximately 1,270 properties that had suspended hotel operations at some point during the nine months ended September 30, 2020, approximately 44 percent were in the U.S., 9 percent were in the Americas (excluding U.S.), 26 percent were in Europe, 5 percent were in MEA and 16 percent were in Asia Pacific.

As of November 2, 2020, the operations at approximately 190 hotels, primarily located in the U.S., were temporarily suspended.

However, properties that have reopened have experienced significantly lower occupancy compared with periods prior to the onset of the pandemic as business and transient demand remains lower and travel restrictions and stay-at-home directives are still in place in many areas.

On a global level, the pervasiveness of the COVID-19 impact began in late March, with its most significant adverse impact on occupancy and RevPAR seen in April.

Since April, all regions, except for MEA, have experienced month over month increases in occupancy and RevPAR.

We experienced the most notable recoveries in the U.S.

and Asia Pacific with occupancy levels up approximately 20 percentage points and 15 percentage points, respectively, from April to June.

Since April, system-wide occupancy has increased month over month, with the most notable recoveries in Asia Pacific, the U.S.

and Europe, with comparable hotel occupancy levels up approximately 32 percentage points, 32 percentage points and 31 percentage points, respectively, from April to September.

The table below provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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EBITDA 92 612 10 1,561

Loss on foreign currency transactions 13 3 4 3

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

Loss (gain) on foreign currency transactions 12 (7) 16 (4)

FF&E replacement reserves 18 13 39 42

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Amortization of contract acquisition costs 7 7 22 21

Net other expenses (revenues) from managed and franchised properties

166 (22) 237 12

Net other expenses from managed and franchised properties

Other adjustment items (1)

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(1) Includes severance not related to the reorganization and other items.

The three and six months ended June 30, 2020 also include losses related to the disposal of an investment and an accrual for a loan guarantee for a franchised hotel.

The three and six months ended June 30, 2019 also include expenses recognized in connection with the refinancings and repayments of our senior secured credit facilities.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

The three and nine months ended September 30, 2020 also include costs recognized for the settlement of a dispute with an owner of a managed hotel.

Additionally, the nine months ended September 30, 2020 includes losses related to the disposal of an investment and a loan guarantee for a franchised hotel.

The three and nine months ended September 30, 2019 also include expenses recognized in connection with the refinancings and repayments of our senior secured credit facilities.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2020 2019 2020 vs.

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Incentive management fees

(5) 58 NM (1)

7 54 (87.0) 25 167 (85.0)

Total management fees $ 31 $ 134 (76.9) $ 117 $ 416 (71.9)

(1) Fluctuation in terms of percentage change is not meaningful.

The COVID-19 pandemic and the related reduction in global travel and tourism resulted in the complete or partial suspensions of hotel operations at approximately 1,170 of our managed and franchised properties at some point during the six months ended June 30, 2020.

Of these hotels, more than half had reopened as of June 30, 2020.

The COVID-19 pandemic and the related reduction in global travel and tourism resulted in the complete or partial suspensions of hotel operations at approximately 1,235 of our managed and franchised properties at some point during the nine months ended September 30, 2020.

Of these hotels, all but approximately 200 had reopened as of September 30, 2020.

On a comparable basis, decreases in occupancy and ADR led to reduced RevPAR, resulting in decreases in franchise fees and management fees from our comparable managed and franchised properties.

For the three months ended June 30, 2020, RevPAR decreased 77.9 percent at our comparable franchised properties and 88.3 percent at our comparable managed properties, resulting from reduced occupancy of 54.6 percentage points and 59.7 percentage points, respectively, and reduced ADR of 29.1 percent and 44.7 percent, respectively.

For the six months ended June 30, 2020, RevPAR decreased 51.6 percent at our comparable franchised properties and 58.7 percent at our comparable managed properties, resulting from reduced occupancy of 33.6 percentage points and 39.3 percentage points, respectively, and reduced ADR of 12.2 percent and 10.7 percent, respectively.

Incentive fees decreased during the periods as they are based on hotels' operating profits, which have declined and are expected to continue to decline as a result of the COVID-19 pandemic.

For the three months ended June 30, 2020, we reversed incentive fees that were recognized in the previous period due to the expectation that stated return thresholds to the hotel owners would no longer be met.

Management and franchise and licensing fees also decreased on a non-comparable basis.

Licensing and other fees decreased $48 million and $53 million during the three and six months ended June 30, 2020, respectively, primarily due to decreased licensing fees from both our strategic partnerships and HGV as a result of the COVID-19 pandemic.

The six months ended June 30, 2020, also included a $12 million decrease in termination fees, attributable to a termination fee that was recognized in 2019 for the redevelopment of a franchised hotel.

Including new development and ownership type transfers, from January 1, 2019 to June 30, 2020, we added 532 managed and franchised properties on a net basis, providing an additional 71,073 rooms to our management and franchise segment.

For the three months ended September 30, 2020, RevPAR decreased 55.1 percent at our comparable franchised properties and 72.0 percent at our comparable managed properties, resulting from reduced occupancy of 32.8 percentage points and 44.8 percentage points, respectively, and reduced ADR of 23.1 percent and 33.2 percent, respectively.

For the nine months ended September 30, 2020, RevPAR decreased 52.8 percent at our comparable franchised properties and 63.1 percent at our comparable managed properties, resulting from reduced occupancy of 33.3 percentage points and 41.1 percentage points, respectively, and reduced ADR of 16.1 percent and 17.7 percent, respectively.

Incentive fees decreased during the periods as they are based on hotels' operating profits, which have declined compared with prior year results as a result of the COVID-19 pandemic.

Additionally, licensing and other fees decreased $22 million and $75 million during the three and nine months ended September 30, 2020, respectively, primarily due to decreased licensing fees from both our strategic partnerships and HGV as a result of the COVID-19 pandemic.

Including new development and ownership type transfers, from January 1, 2019 to September 30, 2020, we added 653 managed and franchised properties on a net basis, providing an additional 86,673 rooms to our management and franchise segment.

While we have historically experienced increases to management and franchise fees as new hotels are a part of our system for full periods, the impact of the COVID-19 pandemic has outweighed the impact of these property additions in 2020.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2020 2019 2020 vs.

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Owned and leased hotel revenues decreased primarily due to the COVID-19 pandemic and the related reduction in global travel and tourism.

As a result of the COVID-19 pandemic, approximately 35 hotels in our ownership segment had temporarily suspended operations at some point in time during the six months ended June 30, 2020, of which nearly 10 hotels had reopened as of June 30, 2020.

As a result of the COVID-19 pandemic, approximately 35 hotels in our ownership segment had temporarily suspended operations at some point in time during the nine months ended September 30, 2020.

All of these hotels have reopened as of September 30, 2020.

On a comparable basis, decreases in occupancy and ADR led to reduced RevPAR, resulting in decreases in revenues from our comparable owned and leased hotels.

For the three and six months ended June 30, 2020, RevPAR decreased 96.0 percent and 67.9 percent, respectively, resulting from reduced occupancy of 73.5 percentage points and 45.1 percentage points, respectively, and reduced ADR of 41.6 percent and 16.1 percent, respectively.

Additionally, owned and leased hotel revenues decreased $12 million and $28 million during the three and six months ended June 30, 2020, respectively, due to properties that were transferred to our managed and franchised segment during 2019.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

For the three and nine months ended September 30, 2020, RevPAR decreased 78.8 percent and 72.2 percent, respectively, resulting from reduced occupancy of 58.2 percentage points and 49.8 percentage points, respectively, and reduced ADR of 28.1 percent and 20.1 percent, respectively.

Additionally, owned and leased hotel revenues decreased $8 million and $36 million during the three and nine months ended September 30, 2020, respectively, due to properties being sold or lease agreements terminated and the hotels being transferred to our managed and franchised segment during 2019.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2020 2019 2020 vs.

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Other revenues $ 19 $ 23 (17.4) $ 52 $ 75 (30.7)

The decreases in other revenues during the three and six months ended June 30, 2020 were primarily due to decreases in revenues from our purchasing operations related to delayed hotel improvement projects and lower volume purchasing based on reduced hotel demand as a result of the COVID-19 pandemic.

The decreases in other revenues during the three and nine months ended September 30, 2020 were primarily due to decreases in revenues from our purchasing operations related to delayed hotel improvement projects and lower volume purchasing based on reduced hotel demand as a result of the COVID-19 pandemic.

Operating Expenses

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2020 2019 2020 vs.

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$ 144 $ 310 (53.5) $ 478 $ 942 (49.3)

Owned and leased hotel expen ses decreased primarily due to decreases in occupancy resulting from the COVID-19 pandemic and approximately 35 hotels suspending operations at some point during the six months ended June 30, 2020.

Owned and leased hotel expen ses decreased primarily due to decreases in occupancy resulting from the COVID-19 pandemic and approximately 35 hotels temporarily suspending operations at some point in time during the nine months ended September 30, 2020.

Further, as a result of declining performance, variable rent expense was reduced at most leased hotels with a variable rent structure.

However, certain fixed costs of maintaining these hotels, even while temporarily closed or operating with very low occupancy, could not be reduced at the same rate as the hotel revenue decreases during the periods.

Additionally, owned and leased hotel expenses decreased $11 million and $25 million during the six months ended June 30, 2020 related to properties that were transferred to our managed and franchised segment during 2019.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

However, certain fixed costs of maintaining these hotels, such as fixed rent and certain minimum maintenance and utility costs, even while temporarily closed or operating with very low occupancy, could not be reduced at the same rate as the hotel revenue decreases during the periods.

Additionally, owned and leased hotel expenses decreased $10 million and $35 million during the three and nine months ended September 30, 2020, respectively, related to properties being sold or lease agreements terminated and the hotels being transferred to our managed and franchised segment during 2019.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2020 2019 2020 vs.

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(1) Fluctuation in terms of percentage change is not meaningful.

The increases in depreciation and amortization expense were primarily due to increases in amortization expense resulting from additions to capitalized software costs during 2020 and 2019, partially offset by reduced amortization expense due to impairment losses on other intangible assets related to our leased properties that were recognized during the six months ended June 30, 2020.

General and administrative expenses decreased primarily as a result of actions taken by the Company during the three and six months ended June 30, 2020 to reduce or eliminate certain corporate costs in response to the COVID-19 pandemic;

The increases in depreciation and amortization expense were primarily due to increases in amortization expense resulting from additions to capitalized software costs during 2020 and 2019, partially offset by reduced amortization expense due primarily to impairment losses on other intangible assets related to our leased properties that were recognized during the nine months ended September 30, 2020.

General and administrative expenses decreased primarily as a result of actions taken by the Company during the nine months ended September 30, 2020 to reduce or eliminate certain corporate costs in response to the COVID-19 pandemic, which included workforce reductions, temporary furloughs and salary reductions of corporate employees;

refer to "—Liquidity and Capital Resources" for additional information.

These actions are expected to also reduce costs in future periods.

In addition, share-based compensation expense decreased due to the determination that the performance conditions of our outstanding 2018 and 2019 performance shares were no longer probable of achievement, resulting in a reversal of previously recognized expense for the outstanding 2019 performance awards during the three and six months ended June 30, 2020 and for the outstanding 2018 performance awards during the six months ended June 30, 2020;

In addition, share-based compensation expense decreased due to the determination that the performance conditions of our outstanding performance shares were no longer probable of achievement, resulting in a reversal of previously recognized expense for the outstanding 2020 performance awards during the three months ended September 30, 2020 and for all outstanding performance awards during the nine months ended September 30, 2020;

"Share-Based Compensation" in our unaudited condensed consolidated financial statements for additional information.

During the three and six months ended June 30, 2020, we recognized reorganization costs related to activities undertaken in response to the COVID-19 pandemic, primarily relating to reductions in our workforce and associated costs.

During the three months ended June 30, 2020, we recognized $6 million and $9 million of impairment losses on hotel operating lease ROU assets and management contract acquisition costs, respectively.

During the six months ended June 30, 2020, we recognized $51 million, $21 million, $9 million and $46 million of impairment losses on hotel operating lease ROU assets, property and equipment related to our leased properties, management contract acquisition costs and other intangible assets related to our leased hotel properties, respectively.

These impairment losses were due to a decline in results and expected future performance at the related hotels as a result of the COVID-19 pandemic.

Other expenses decreased primarily as a result of decreases in expenses from our purchasing operations, resulting from reduced demand, partially offset by an increase in amounts accrued related to our performance guarantees.

During the nine months ended September 30, 2020, we recognized reorganization costs related to activities undertaken in response to the COVID-19 pandemic, primarily relating to reductions in our workforce and associated costs.

During the three months ended September 30, 2020, we recognized impairment losses of $3 million and $6 million on property and equipment related to our leased properties and management contract acquisition costs, respectively.

During the nine months ended September 30, 2020, we recognized impairment losses of $51 million, $24 million, $15 million and $46 million on hotel operating lease ROU assets, property and equipment related to our leased properties, management contract acquisition costs and other intangible assets related to our leased hotel properties, respectively.

These impairment losses were due to a decline in results and expected future performance at the related hotels as a result of the COVID-19 pandemic, as well as actual and expected early terminations of management contracts.

Other expenses increased primarily as a result of costs recognized for the settlement of a dispute with an owner of a managed hotel and increases in amounts accrued related to our performance guarantees during the three and nine months ended September 30, 2020, partially offset by decreases in expenses from our purchasing operations, resulting from reduced demand.

Gain on Sale of Assets, Net

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2020 2019 2020 vs.

2019 2020 2019 2020 vs.

(in millions) (in millions)

Gain on sale of assets, net $ — $ 81 (100.0) $ — $ 81 (100.0)

In September 2019, we recognized a gain upon completion of the sale of the Hilton Odawara.

"Disposal" in our unaudited condensed consolidated financial statements for additional information.

Non-operating Income and Expenses

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2020 2019 2020 vs.

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Interest expense $ (116) $ (105) 10.5 $ (316) $ (304) 3.9

Loss on foreign currency transactions

Gain (loss) on foreign currency transactions

(12) 7 NM (1)

Other non-operating loss, net

(16) 4 NM (1)

Other non-operating income (loss), net

(20) (8) NM (1)

Income tax benefit (expense)

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(1) Fluctuation in terms of percentage change is not meaningful.

The increases in interest expense were primarily due to the issuance of the 4.875% Senior Notes due 2030 in June 2019, the full draw down on the Revolving Credit Facility in March 2020 and the issuances of the 5.375% 2025 Senior Notes and the 2028 Senior Notes in April 2020.

The increases were partially offset by a decrease in interest expense on our Term Loans due to a 2019 principal repayment of $500 million and a lower variable interest rate, as well as decreased variable interest expense of certain finance leases for our hotels that resulted from a decline in operating performance.

The losses on foreign currency transactions included changes in foreign currency exchange rates on certain intercompany financing arrangements, including short-term cross-currency intercompany loans.

The changes were the result of various currencies, but, for the three months ended June 30, 2020, were primarily related to changes in the Australian dollar.

Other non-operating loss, net for the three and six months ended June 30, 2020 primarily included losses related to an accrual for a loan guarantee for a franchised hotel and the disposal of an investment.

Other non-operating loss, net for the three and six months ended June 30, 2019 primarily included a loss on the disposal of an unconsolidated real estate investment and expenses recognized in connection with the refinancings and repayments of our senior secured credit facilities.

The increases in interest expense for the three and nine months ended September 30, 2020 were primarily due to the full draw down on the Revolving Credit Facility in March 2020, the issuances of the 5.375% 2025 Senior Notes and the 2028 Senior Notes in April 2020 and, for the nine months ended September 30, 2020, the issuance of the 4.875% Senior Notes due 2030 in June 2019.

The increases were partially offset by a decrease in interest expense on our Term Loans due to a 2019 principal repayment of $500 million and a decline in variable interest rate, as well as decreased variable interest expense of certain finance leases for our hotels that resulted from a decline in operating performance.

The gains and losses on foreign currency transactions included changes in foreign currency exchange rates on certain intercompany financing arrangements, including short-term cross-currency intercompany loans.

The changes were the result of various currencies, but primarily in the euro and the Australian dollar.

Additionally, during the three and nine months ended September 30, 2020, we recognized losses related to the liquidation of investments in foreign entities that were reclassified out of accumulated other comprehensive loss.

Other non-operating loss, net for the nine months ended September 30, 2020 primarily included losses related to a loan guarantee for a franchised hotel and the disposal of an investment.

Other non-operating loss, net for the nine months ended September 30, 2019 primarily included a loss on the disposal of an unconsolidated real estate investment and expenses recognized in connection with the refinancings and repayments of our senior secured credit facilities.

The changes in the income tax provisions were primarily attributable to decreases in income before income taxes, offset by reductions in the tax benefits recognized for the expected NOLs generated in 2020 in certain foreign jurisdictions.

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Liquidity and Capital Resources

As of June 30, 2020, we had total cash and cash equivalents of $3,575 million, including $72 million of restricted cash and cash equivalents.

As of September 30, 2020, we had total cash and cash equivalents of $3,468 million, including $63 million of restricted cash and cash equivalents.

The majority of our restricted cash and cash equivalents balance related to cash collateral on our self-insurance programs and cash held for FF&E reserves.

Although we cannot presently estimate the ultimate and total financial impact of the unprecedented COVID-19 pandemic, which is highly dependent on the severity and duration of the pandemic, we expect it will continue to have a significant adverse impact on our results of operations.

impact on our results of operations in future periods.

As such, due to the uncertainties associated with the COVID-19 pandemic and the indeterminate length of time it will affect the hospitality industry, we have taken certain proactive measures to secure our liquidity position to be able to meet our obligations for the foreseeable future, which have included:

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(ii) suspending dividend payments and share repurchases;

(iii) implementing strict cost management measures, such as temporarily halting marketing programs, temporarily eliminating non-essential expenses, including capital expenditures, and reducing payroll and related costs through workforce reductions, furloughs and temporary salary reductions;

(iii) implementing strict cost management measures, such as temporarily halting certain marketing programs, temporarily eliminating non-essential expenses, including capital expenditures, and reducing payroll and related costs through workforce reductions, furloughs and temporary salary reductions;

(iv) consummating the Honors Points Pre-Sale;

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Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including costs associated with the management and franchising of hotels, corporate expenses, payroll and compensation costs, taxes and compliance costs, interest payments on our outstanding indebtedness, contract acquisition costs and capital expenditures for renovations and maintenance at the hotels within our ownership segment.

We expect to pay a significant portion of the reorganization costs recognized during the three months ended June 30, 2020 in the three months ending September 30, 2020.

While our accounts receivable balance as of June 30, 2020 is less than prior periods, we are generally experiencing slower payment of certain fees due to us.

While our accounts receivable balance as of September 30, 2020 is less than periods prior to the start of the pandemic, we are generally experiencing slower payment of certain fees due to us.

As such, we have considered the implications of these delayed payment trends in developing our estimates of expected future credit losses.

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However, the COVID-19 pandemic has caused us to temporarily change our cash management strategy as described above.

Within the framework of our long-term investment policy, we currently intend to continue to finance our business activities primarily with cash on our balance sheet as of June 30, 2020 and cash generated from our operations.

After considering our approach to liquidity and accessing our available sources of cash, we believe that our cash position will be adequate to meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments for an estimated period of at least 24 months, even at very low occupancy levels.

Within the framework of our long-term investment policy, we currently intend to continue to finance our business activities primarily with cash on our balance sheet as of September 30, 2020 and cash generated from our operations.

After considering our approach to liquidity and accessing our available sources of cash, we believe that our cash position will be adequate to meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments for the foreseeable future based on current conditions.

The objectives of our cash management policy are to maintain the availability of liquidity while minimizing operational costs.

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The amounts involved may be material.

We formally suspended share repurchases given the current economic environment and our efforts to preserve cash, and no share repurchases were made after March 5, 2020.

We formally suspended share repurchases given the current economic environment and our efforts to preserve cash, and no share repurchases have been made since March 5, 2020.

The stock repurchase program remains authorized by the board of directors, and we may resume share repurchases in the future at any time, depending on market conditions, our capital needs and other factors.

Prior to the suspension, during the six months ended June 30, 2020, we repurchased 2.6 million shares of our common stock under our stock repurchase program for $279 million, which we funded principally with available cash.

As of June 30, 2020, approximately $2.2 billion remained available for share repurchases under the program.

Prior to the suspension, during the nine months ended September 30, 2020, we repurchased 2.6 million shares of our common stock under our stock repurchase program for $279 million, which we funded principally with available cash.

As of September 30, 2020, approximately $2.2 billion remained available for share repurchases under the program.

Sources and Uses of Our Cash and Cash Equivalents

The following table summarizes our net cash flows:

Six Months Ended Percent

June 30, Change

Nine Months Ended Percent

September 30, Change

2020 2019 2020 vs.

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Operating Activities

The increase in net cash provided by operating activities was primarily the result of $1.0 billion of cash received in connection with the Honors Points Pre-Sale, offset by decreases in cash inflows generated from our management and franchise properties and our owned and leased hotels.

The decreases were largely the result of decreases in system-wide RevPAR due to the COVID-19 pandemic, as further discussed in "—Revenues." Additionally, cash paid for taxes decreased $104 million, primarily resulting from decreases in income before income taxes, as well as NOLs that were generated in 2020 in many foreign tax jurisdictions that had taxable income in 2019.

The decrease in net cash provided by operating activities was primarily the result of decreases in cash inflows generated from our management and franchise properties and our owned and leased hotels, largely as a result of decreases in system-wide RevPAR due to the COVID-19 pandemic, as further discussed in "—Revenues." The decrease in net cash provided by operating activities was partially offset by $1.0 billion of cash received in connection with the Honors Points Pre-Sale and a decrease in cash paid for taxes of $171 million, primarily resulting from decreases in income before income taxes, as well as NOLs that were generated in 2020 in many foreign tax jurisdictions that had taxable income in 2019.

Investing Activities

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Our capital expenditures for property and equipment primarily consisted of expenditures related to our corporate facilities and the renovation of hotels in our ownership segment, and our capitalized software costs related to various systems initiatives, for the benefit of both our hotel owners and our overall corporate operations.

During the nine months ended September 30, 2019, we received cash proceeds of $120 million relating to the sale of the Hilton Odawara that partially offset capital expenditures for property and equipment, capitalized software costs and other uses of cash for investing activities.

Financing Activities

The change in cash flows related to financing activities was primarily attributable to a $1.5 billion increase in net borrowings and repayments under our Revolving Credit Facility, a $500 million decrease in net borrowings and repayments under our Term Loans and a $400 million decrease in share repurchases and dividend payments.

The change in cash flows related to financing activities was primarily attributable to a $1.5 billion increase in cash inflows from net borrowings and repayments under our Revolving Credit Facility, a $500 million decrease in cash outflows from net borrowings and repayments under our Term Loans and an $878 million decrease in share repurchases and dividend payments.

Debt and Borrowing Capacity

As of June 30, 2020, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $10.6 billion.

As of September 30, 2020, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $10.6 billion.

For additional information on our total indebtedness, including fully drawing down our Revolving Credit Facility, our issuance of $1.0 billion aggregate principal amount of senior notes and guarantees on our debt, refer to Note 7:

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Our ability to make scheduled principal payments and to pay interest on our debt depends on our future operating performance, which is subject to general conditions in or affecting the hospitality industry that may be beyond our control.

Although our operating activities provided cash during the six months ended June 30, 2020 it was primarily a result of the Honors Points Pre-Sale.

The COVID-19 pandemic negatively impacted our cash flows from operations during the period, and will continue to do so for an indeterminate period of time.

Although our operating activities provided cash during the nine months ended September 30, 2020, it was primarily a result of the Honors Points Pre-Sale.

We have taken precautions to secure our cash position, as discussed above, and expect to be able to meet our current obligations.

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Contractual Obligations

During the six months ended June 30, 2020, we fully drew down $1.69 billion under our Revolving Credit Facility, after giving effect to the letters of credit outstanding, which matures in 2024 and is repayable by us at any time.

During the nine months ended September 30, 2020, we fully drew down $1.69 billion under our Revolving Credit Facility, after giving effect to the letters of credit outstanding, which matures in 2024 and is repayable by us at any time.

Further, we issued $500 million aggregate principal amount of senior notes due 2025 and $500 million aggregate principal amount of senior notes due 2028.

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Summarized Guarantor Financial Information

HOC is the issuer of the Senior Notes and is 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which, in turn, is 100 percent owned by the Parent.

HOC is the issuer of the Senior Notes and is 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which, in turn, is 100 percent owned directly by the Parent.

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, except for HOC, the issuer (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.

As of June 30, 2020, none of our foreign subsidiaries or domestic subsidiaries owned by foreign subsidiaries or conducting foreign operations or our non-wholly owned subsidiaries guaranteed the Senior Notes.

As of September 30, 2020, none of our foreign subsidiaries or domestic subsidiaries owned by foreign subsidiaries or conducting foreign operations or our non-wholly owned subsidiaries guaranteed the Senior Notes.

The guarantees are full and unconditional, subject to certain customary release provisions.

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(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;

(ii) the subsidiary is released from its guarantee under our senior secured credit facilities;

(iii) the subsidiary is declared "unrestricted" for covenant purposes;

or (iv) 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.

HOC nor any of the Guarantors have any reporting obligation under the Exchange Act in respect of the Senior Notes;

Neither HOC nor any of the Guarantors has any reporting obligation under the Exchange Act in respect of the Senior Notes;

however, we are supplementally providing the information set forth below.

The following tables present summarized financial information for HOC, along with the Parent and all other Guarantors, on a combined basis:

June 30, 2020

September 30, 2020

(in millions)

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TOTAL LIABILITIES AND DEFICIT 10,137

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(in millions)

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In particular, we extended the expected redemption rate of our Hilton Honors points over the next year, which, due to the re-evaluation at March 31, 2020, resulted in reclassifications of the liabilities for guest loyalty program and deferred revenues from current to long-term of $221 million and $50 million, respectively.

We continued to use the revised methodology as of June 30, 2020.

Additionally, we recognized impairment losses of $15 million and $127 million during the three and six months ended June 30, 2020, respectively, which required the use of significant judgments and estimates.

We continued to use the revised methodology subsequent to March 31, 2020.

Changes to the Hilton Honors program may affect the estimated cost per point for our future redemption obligation and the expected redemption pattern, which may result in changes to the amounts recorded for the liabilities for guest loyalty program and deferred revenues and the classification of such liabilities between current and long-term.

Additionally, we recognized impairment losses of $9 million and $136 million during the three and nine months ended September 30, 2020, respectively, which required the use of significant judgments and estimates.

"Fair Value Measurements" and Note 6:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis