What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-17 compared with 2020-02-11 · 452 added, 810 removed, 1110 unchanged (53% of the section changed)

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Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

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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.

(the Company) as of December 31, 2020 and 2019, 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, 2020, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 17, 2021 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

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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.

Description of the Matter The Company recognized $264 million of revenues during the year ended December 31, 2020 and had deferred revenues of $720 million and a liability for guest loyalty program of $2,469 million as of December 31, 2020 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 through participation in the Loyalty Program.

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.

Such amounts are recognized as revenue when the related point obligation is satisfied based upon the estimated standalone selling price per point in excess of the related cost per point.

Auditing Loyalty Program results is complex due to:

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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.

For example, we tested controls over management’s review of the assumptions and data inputs utilized by outside actuaries to assist the Company in determining the fair value of the future award redemption obligation and breakage rate of Loyalty Program points and management’s review of activity and data inputs to their accounting model.

We tested significant inputs into the accounting model, including the estimated standalone selling price and recognition of points earned and redeemed during the period.

We involved our actuarial professionals to assist in our testing procedures with respect to the estimate of the breakage of Loyalty Program points and the ultimate estimated redemption cost.

We evaluated management’s methodology for estimating the breakage of Loyalty Program points, as well as tested underlying data and 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.

Description of the Matter The Company recognized an income tax benefit of $204 million during the year ended December 31, 2020, and unrecognized tax benefits of $451 million as of December 31, 2020.

As discussed in Note 13 to the consolidated financial statements, changes to the Company’s unrecognized tax benefits relate to, among others, uncertainty regarding prior year tax returns in certain foreign jurisdictions where the Company operates, additional reserves related to Hilton Honors, and reductions and settlements related to the conclusion of certain state audits.

Further, as discussed in Note 13 to the consolidated financial statements, the Company has recognized tax positions of $817 million as of December 31, 2020 for which the Internal Revenue Service has made proposed adjustments through the issuance of a Revenue Agents Report, for which the Company has reserved $97 million.

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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;

comparing budgeted amounts and initial allocations to actual activity 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.

Impairment of Goodwill, Property and Equipment and Intangible Assets with Finite Useful Lives

Description of the Matter As of December 31, 2020, the Company’s net consolidated goodwill totaled $5,095 million, and property and equipment and intangible assets with finite useful lives (together, the “finite‑lived assets”), totaled $346 million and $1,691 million, respectively.

As discussed in Notes 6 and 11 to the consolidated financial statements, the Company recorded impairment charges during the period of $104 million on goodwill and $154 million on finite‑lived assets.

As discussed in Note 2 to the consolidated financial statements, the novel coronavirus (“COVID-19”) pandemic had a material adverse impact on the Company’s results for the year ended December 31, 2020.

Further, as discussed in Note 2 to the consolidated financial statements, the Company evaluates the carrying value of its reporting units on an annual basis or at other times during the year if indicators of impairment are present, such as macroeconomic conditions including a deterioration in general economic conditions.

For finite‑lived assets, the Company evaluates the carrying value either on an annual basis or at other times of the year if indicators of impairment are present, such as a significant decrease in the market price of a finite-lived asset, or a significant adverse change in the manner in which a finite-lived asset is being used.

When such factors exist, as in the case of COVID-19 impacts on results, for goodwill, the Company performs an analysis to determine the fair value of its reporting units as compared to carrying values, to identify both the existence of impairment and to measure the amount of impairment loss.

Impairment losses for goodwill are determined when the fair value of a reporting unit is less than its net carrying value.

Impairment losses are measured and recorded as the excess of the carrying value of a reporting unit over its estimated fair value.

For finite-lived assets, the Company evaluates recoverability of the asset group carrying value by comparing the expected undiscounted future cash flows to the net carrying value of the asset group.

Impairment losses for finite‑lived assets are determined when the undiscounted cash flows are less than the net carrying value of the asset group.

Impairment losses are measured and recorded as the excess of the net carrying value of the asset group over the estimated fair value of the assets within the asset group.

Auditing management’s evaluation of goodwill and finite-lived assets for impairment and measurement of impairment is complex due to the judgment and significant estimation uncertainty in the identification of impairment indicators, determination of the estimated future discounted cash flows of reporting units and undiscounted cash flows of finite‑lived asset groups that exhibited indicators of impairment, and determination of the fair value of reporting units and finite‑lived asset groups in instances where impairment was measured.

In particular, identification of impairment indicators is judgmental due to the subjectivity of management’s assumptions in determining how the current economic environment impacts the performance of their business in the future.

Additionally, discounted and undiscounted cash flows and fair value estimates are subject to significant assumptions which include projected reporting unit, hotel and asset-level revenue and gross margin growth, estimated capital expenditures, terminal period assumptions, and the discount rate applied to cash flow forecasts, all of which can be affected by future market conditions including the longevity of the impact of COVID-19.

These estimates are also affected by management’s assumptions regarding intent and ability to hold and use the finite-lived assets over the remaining useful lives and in the manner assumed in impairment evaluation and measurement analyses.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls related to the Company’s process for evaluating goodwill and finite‑lived assets for impairment and measurement of impairment, including controls over management’s review of the significant assumptions described above.

To test the Company’s evaluation of goodwill and finite‑lived assets for impairment, including fair value estimates for impairment measurement purposes, we performed audit procedures that included, among others, involving valuation specialists to assist in evaluating the significant assumptions discussed above for the reporting units and certain hotel related finite‑lived assets, assessing the methodologies, evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by management in its analyses.

We compared the significant assumptions used by management to historical operating results, relevant observable market information, current industry trends, Company strategic priorities and other relevant factors.

As part of our evaluation, we assessed the historical accuracy of management’s estimates and performed sensitivity analyses of certain assumptions, including revenue and gross margin growth rates, estimated capital expenditures, terminal period assumptions and the discount rate, to evaluate the changes in the fair value of reporting units and recoverability of certain finite‑lived assets and the change in measured impairment that would result from changes in the assumptions.

We also inspected the minutes and materials of relevant committee and management meetings, observing those meetings when possible.

/s/ Ernst & Young LLP

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Cash and cash equivalents

$ 3,218 $ 538

Restricted cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 44 and $ 42

Accounts receivable, net of allowance for credit losses of $ 132 and $ 44

Prepaid expenses 70 130

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( 860 ) ( 840 )

Total Hilton stockholders' equity (deficit)

Total Hilton stockholders' deficit

( 1,490 ) ( 482 )

Noncontrolling interests

Total equity (deficit) ( 472 ) 558

Total deficit ( 1,486 ) ( 472 )

TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 16,755 $ 14,957

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General and administrative 311 441 443

Reorganization costs 41 — —

Impairment losses 258 — —

Other expenses 60 72 51

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Gain on sale of assets, net — 81 —

Operating income 1,657 1,432 1,132

Operating income (loss) ( 418 ) 1,657 1,432

Interest expense ( 429 ) ( 414 ) ( 371 )

Gain (loss) on foreign currency transactions

Loss on foreign currency transactions

( 27 ) ( 2 ) ( 11 )

Loss on debt extinguishment

Other non-operating income, net

Income before income taxes 1,244 1,078 753

Loss on debt extinguishments ( 48 ) — —

Other non-operating income (loss), net

Income (loss) before income taxes ( 924 ) 1,244 1,078

Income tax benefit (expense) 204 ( 358 ) ( 309 )

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:

Net income (loss) ( 720 ) 886 769

Net loss (income) attributable to noncontrolling interests 5 ( 5 ) ( 5 )

Net income (loss) attributable to Hilton stockholders $ ( 715 ) $ 881 $ 764

Earnings (loss) per share:

Basic $ ( 2.58 ) $ 3.07 $ 2.53

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HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

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2020 2019 2018

Net income $ 886 $ 769 $ 1,089

Net income (loss) $ ( 720 ) $ 886 $ 769

Other comprehensive income (loss), net of tax benefit (expense):

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Cash flow hedge adjustment, net of tax of $ 13 , $ 15 and $( 8 )

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

( 38 ) ( 45 ) 22

Total other comprehensive loss ( 20 ) ( 58 ) ( 57 )

Comprehensive income (loss) ( 740 ) 828 712

Comprehensive loss (income) attributable to noncontrolling interests 5 ( 5 ) ( 5 )

Comprehensive income (loss) attributable to Hilton stockholders $ ( 735 ) $ 823 $ 707

See notes to consolidated financial statements.

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Operating Activities:

Net income $ 886 $ 769 $ 1,089

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ ( 720 ) $ 886 $ 769

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Amortization of contract acquisition costs 29 29 27

Depreciation and amortization 331 346 325

Impairment losses 258 — —

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

Loss (gain) on foreign currency transactions 2 11 ( 3 )

Loss on debt extinguishment — — 60

Loss on foreign currency transactions 27 2 11

Share-based compensation 97 154 127

Amortization of deferred financing costs and other 17 16 16

Distributions from unconsolidated affiliates 2 4 1

Deferred income taxes ( 235 ) ( 20 ) ( 14 )

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Change in other liabilities 8 ( 14 ) ( 53 )

Other 2 ( 4 ) 5

Net cash provided by operating activities 708 1,384 1,255

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Repayment of debt ( 2,121 ) ( 1,547 ) ( 1,005 )

Debt issuance costs and redemption premium ( 29 ) ( 21 ) ( 69 )

Debt issuance costs and redemption premiums ( 71 ) ( 29 ) ( 21 )

Dividends paid ( 42 ) ( 172 ) ( 181 )

Cash transferred in spin-offs — — ( 501 )

Repurchases of common stock ( 296 ) ( 1,538 ) ( 1,721 )

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( 1 ) — ( 4 )

Net cash used in financing activities ( 1,113 ) ( 1,300 ) ( 1,724 )

Net cash provided by (used in) financing activities 2,032 ( 1,113 ) ( 1,300 )

Effect of exchange rate changes on cash, restricted cash and cash equivalents — ( 2 ) ( 10 )

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For supplemental disclosures, see Note 12:

"Leases" and Note 20:

"Supplemental Disclosures of Cash Flow Information."

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Net income — — — — 764 — 5 769

Other comprehensive income, net of taxes:

Other comprehensive income (loss),

net of taxes:

Currency translation adjustment

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— — — — — 22 — 22

Other comprehensive income — — — — — 197 — 197

Dividends — — — — ( 196 ) — — ( 196 )

Other comprehensive loss

— — — — — ( 57 ) — ( 57 )

— — — — ( 184 ) — — ( 184 )

Repurchases of common stock

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— — — — — — ( 1 ) ( 1 )

Spin-offs of Park and HGV

Acquisition of noncontrolling interest

— — — ( 3 ) — — — ( 3 )

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Net income — — — — 881 — 5 886

Other comprehensive income (loss),

net of taxes:

Other comprehensive loss, net of taxes:

Currency translation adjustment

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— — — — — ( 58 ) — ( 58 )

— — — — ( 184 ) — — ( 184 )

Dividends — — — — ( 173 ) — — ( 173 )

Repurchases of common stock

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1 — — 117 — — — 117

Distributions

— — — — — — ( 1 ) ( 1 )

Acquisition of noncontrolling interest

— — — ( 3 ) — — — ( 3 )

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 )

Net income — — — — 881 — 5 886

Other comprehensive loss, net of taxes:

Net loss — — — — ( 715 ) — ( 5 ) ( 720 )

Other comprehensive income (loss),

net of taxes:

Currency translation adjustment

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2 — ( 5 ) 63 — — — 58

Cumulative effect of the adoption of ASU 2016-02

Distributions

— — — — — — ( 1 ) ( 1 )

Deconsolidation of a variable interest entity

Cumulative effect of the adoption of ASU 2016-13

— — — — ( 10 ) — — ( 10 )

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As of December 31, 2020, we managed, franchised, owned or leased 6,478 hotels and resorts, including timeshare properties, totaling 1,019,287 rooms in 119 countries and territories.

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").

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.

These consolidated financial statements present the consolidated financial position of Hilton as of December 31, 2020 and 2019 and results of operations for the years ended December 31, 2020, 2019 and 2018.

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.

Our consolidated financial statements include the accounts of our wholly owned subsidiaries and other entities in which we have a controlling financial interest, including variable interest entities ("VIEs") for which we are the primary beneficiary.

Non-wholly owned 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.

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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.

We hold interests in VIEs, for which we are not the primary beneficiary, that may provide us with the option to acquire an additional interest in such an entity at a predetermined amount, if certain contingent events occur.

In a circumstance that we exercise our option to acquire an additional interest in a VIE, we would 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.

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.

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 third-party 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.

In particular, the novel coronavirus ("COVID-19") pandemic had a material adverse impact on our results for the year ended December 31, 2020, and we expect it to continue to have a material adverse impact on our results for an indeterminate length of time.

Management is making estimates and judgments in light of these circumstances, and this period, as well as upcoming periods, are unlikely to be comparable to past performance or indicative of future performance.

Reorganization

During the year ended December 31, 2020, we recognized expenses related to organizational changes, including reductions in our workforce and the associated costs, as part of our efforts to reduce future costs for our corporate operations in response to the COVID-19 pandemic.

Included in these expenses were $ 41 million of reorganization costs for our corporate operations and

$177 million related to amounts to be reimbursed by our third-party hotel owners, including those related to our managed hotels, which were included in other expenses from managed and franchised properties in our consolidated statement of operations.

As of December 31, 2020, $35 million of reorganization costs were included in accounts payable, accrued expenses and other in our consolidated balance sheet, with related amounts in accounts receivable for reimbursements by our third-party hotel owners, as applicable.

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.

Revenues are primarily derived from management and franchise contracts with third-party hotel and resort owners, our owned and leased hotels, and from license agreements with Hilton Grand Vacations Inc.

("HGV") and strategic partnerships, including co-branded credit card arrangements.

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.

However, in response to cash flow deficiencies experienced by certain property owners resulting from the COVID-19 pandemic, we may amend certain contracts with customers to provide short-term payment relief, expecting that we collect most amounts outstanding in twelve months or less.

Management and franchise revenues

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• 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.

Each of the identified performance obligations is considered to be a series of distinct services transferred over time, except for the substantive rights for free or discounted goods or services to hotel guests performance obligation, which is satisfied at a point in 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.

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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;

(i) a license agreement with HGV to use certain Hilton marks and IP in its timeshare business, which are typically billed monthly, and revenue is generally recognized at the same time the fees are billed and (ii) co-branded 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."

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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.

• Indirect reimbursements include marketing expenses and other expenses associated with our brand programs and shared services, which are paid from 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 or 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.

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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.

Purchasing revenues include any amounts received for vendor rebate arrangements that we participate in on behalf of the hotels in our system.

Taxes and fees collected on behalf of governmental agencies

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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 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.

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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.

Allowance for Credit Losses

An allowance for credit losses is provided on our financial instruments, primarily accounts receivable.

Our expected credit losses are based on historical collection activity, the nature of the financial instrument, geographic considerations and current and forecasted business conditions.

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.

(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 indicators of impairment exist.

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.

"Business Segments." At any time 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.

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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.

otherwise, an impairment loss would be recognized 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.

We manage, franchise, own and lease hotels under our portfolio of brands.

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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.

All brands that were launched subsequent to the Merger, which include LXR Hotels & Resorts, Canopy by Hilton, Tempo by Hilton, Signia by Hilton, Curio Collection by Hilton, Tapestry Collection by Hilton, Motto by Hilton, Tru by Hilton, and Home2 Suites by Hilton, were not assigned fair values, and we do not have any intangible assets for these brands recorded in our consolidated balance 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.

At any time 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.

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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.

than its respective carrying value, the excess of the carrying value over the estimated fair value is recognized in our consolidated statements of operations as impairment losses.

Intangible Assets with Finite Useful Lives

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These intangible assets consist of management contracts, franchise contracts, leases, certain proprietary technologies and our Hilton Honors guest loyalty program.

As of December 31, 2020, the intangible assets related to these franchise contracts, U.S.

management contracts and certain proprietary technologies were fully amortized.

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.

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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 review all finite-lived intangible assets for impairment on an annual basis or at other times during the year 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.

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 our consolidated statements of operations.

Property and Equipment

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Costs for normal repairs and maintenance are expensed as incurred.

Refer to "Leases" below for information on right-of-use ("ROU") assets of finance leases, which are included in property and equipment, net in our consolidated balance sheets.

Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally as follows:

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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.

We evaluate the carrying value of our property and equipment if there are indicators of impairment and review the recoverability of the asset group by comparing the estimated future undiscounted cash flows to the net carrying value of the asset group.

If the net carrying value of the asset group is determined to be less than its estimated future undiscounted cash flows and, therefore, is not considered to be recoverable and is in excess of the estimated fair value, we record an impairment loss in our consolidated statements of operations.

We allocate the impairment loss related to an asset group among the various assets within the asset group pro rata based on the relative carrying value of the respective assets.

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.

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.

We reassess if a contract is or contains a leasing arrangement upon modification of the contract.

For a contract, in which we are the 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 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.

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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.

Current and long-term portions of operating lease liabilities are classified as accounts payable, accrued expenses and other and operating lease liabilities, respectively, and current 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 as 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.

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.

We evaluate the carrying value of ROU assets if there are indicators of impairment and review the recoverability of the related asset group by comparing the estimated future undiscounted cash flows to the net carrying value of the asset group.

We allocate the impairment loss related to an asset group among the various assets within the asset group pro rata based on the relative carrying value of the respective assets.

Our operating leases require:

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(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.

and/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 operating leases for which the ROU asset has been impaired, the lease expense is determined as the sum of the amortization of the ROU asset remaining after impairment on a straight-line basis over the remaining term of the lease and the accretion of the lease liability based on the discount rate applied to the lease liability.

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.

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(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.

(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;

and (iv) a portion of the consideration received for the pre-sale of Hilton Honors points.

Contract liabilities related to advance consideration received for fees and certain indirect reimbursements are recognized ratably 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 or discounted good or service by the Hilton Honors member.

Contract liabilities related to the pre-sale of Hilton Honors points are recognized as revenue from licensing fees when the related points are issued to customers, and the remainder is recognized when customers redeem the Hilton Honors points.

Contract liabilities are included in current and long-term deferred revenues in our consolidated balance sheets.

Hilton Honors

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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.

Hilton Honors members earn points based on their spend 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.

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.

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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.

When points are issued as a result of a stay by a Hilton Honors member 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:

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 our point obligation is satisfied 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.

During 2020, we temporarily suspended the expiration of Hilton Honors points, and, as a result, our estimates of breakage include the anticipated point expirations that will occur at the end of the suspension.

We also earn licensing fees from co-branded credit card arrangements (see "Management and franchise revenues" within the "Revenue Recognition" section above).

The co-branded 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.

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 obligation related to the IP license 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 for stays at the participating properties or for other services from the third-party providers, 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.

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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.

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

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.

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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.

Estimates of the fair values of our financial instruments and nonfinancial assets are determined using available market information and appropriate valuation methods.

Considerable judgment is necessary to interpret market data and develop the estimated fair values.

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

Derivative Instruments

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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 do not enter into derivative financial instruments for speculative purposes.

We record all derivatives at fair value.

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(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 cash flow hedge or net investment hedge are recorded in other comprehensive income (loss) in our consolidated statements of comprehensive income (loss) until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Changes in the fair value of a derivative that is qualified 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.

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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

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.

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.

We are also self-insured for health coverage for the employees of our U.S.

corporate operations and some managed properties.

In addition, through our captive insurance subsidiary, we participate in reinsurance arrangements that provide coverage and/or act as a financial intermediary for claim payments on our self-insurance program.

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.

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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.

The ultimate cost of claims for a covered period are reviewed at least annually and are adjusted based on the latest information available to us, which 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:

As part of the Hilton 2017 Omnibus Incentive Plan (the "2017 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.

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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.

• Performance shares are settled at the end of the defined performance period, and the grant date fair value per share is equal to the closing stock price on the date of grant.

During the year ended December 31, 2020, the terms of all outstanding performance shares were modified such that participants would receive the greater of the payout under the original award or the modified award, with the exception of certain executives who will receive the number of shares achieved under the modified award, based on the fact that the performance conditions applicable to the original awards were no longer expected to be achieved due to the significant and unforeseen challenges related to the COVID-19 pandemic.

Under the terms of the original awards:

(i) 50 percent of the awards are subject to achievement based on the three-year compound annual growth rate ("CAGR") of the Company's earnings before interest expense, a provision for income tax benefit (expense) and depreciation and amortization ("EBITDA") , adjusted to exclude certain items ("Adjusted EBITDA"), referred to as EBITDA CAGR, and (ii) 50 percent of the awards are subject to achievement based on the Company’s three-year free cash flow ("FCF") per share CAGR , referred to as FCF CAGR.

Under the terms of the modified awards, the outstanding 2018 awards and a portion of the outstanding 2019 awards were modified to vest based on performance prior to the pandemic and continued service, and the remaining portion of the outstanding 2019 awards and the outstanding 2020 awards were converted to performance awards that will vest based

on new performance measures.

The terms of the performance awards that will vest based on new performance measures are as follows:

(i) 25 percent of the awards are subject to the Company's Adjusted EBITDA at the end of the performance period ;

(ii) 25 percent of the awards are subject to the Company's FCF per share at the end of the performance period ;

(iii) 25 percent of the awards are subject to the Company's three-year net unit growth ("NUG") CAGR, referred to as NUG CAGR ;

and (iv) 25 percent of the awards are subject to one-year revenue per available room ("RevPAR") index growth .

The total number of performance shares that vest related to each performance measure is based on an achievement factor that ranges from zero percent to 200 percent, with 100 percent being the target.

For additional information on the performance share modifications, see Note 15:

"Share-Based Compensation."

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.

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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.

If such performance conditions are not or are no longer considered probable, no compensation expense for these awards is recognized, and any previously recognized expense is reversed.

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.

We recognize forfeitures of share-based compensation awards as they occur.

Share-based compensation expense is 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.

We account for income taxes using the asset and liability method.

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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 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.

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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.

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("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.

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.

Measurement of Credit Losses on Financial Instruments , which significantly changes how entities account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

On January 1, 2020, we adopted ASU 2016-13, and subsequent ASUs issued to clarify its application, on a prospective basis, and recognized a $ 10 million cumulative adjustment, net of taxes, in accumulated deficit.

By applying ASU 2016-13 at the adoption date, the presentation of credit losses for periods prior to January 1, 2020 remains unchanged and in accordance with Receivables (Topic 310 ).

The cumulative adjustment to accumulated deficit that we recognized upon adoption of this ASU did not include the impact of the COVID-19 pandemic as a forecasted business condition.

However, during the year ended December 31, 2020, we revised our expected credit loss rates from those used at adoption, primarily for our accounts receivable balances, in light of business conditions in the current environment.

In particular, we considered the expected impact on our hotel owners' and customers' ability to ultimately settle receivables that are or will be due to us and recorded a related provision for credit losses of $ 76 million during the year ended December 31, 2020.

In 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.

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Balance as of December 31, 2020

(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.

(1) Primarily related to Hilton Honors, our guest loyalty program, including $ 636 million related the Honors Points Pre-Sale;

see below for additional information.

(2) Primarily includes $ 264 million related to Hilton Honors, including amounts recognized as licensing fees from co-branded credit card arrangements.

(3) During the years ended December 31, 2019 and 2018, revenue recognized was $ 288 million and $ 229 million, respectively.

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

In April 2020, we pre-sold Hilton Honors points to American Express for $ 1.0 billion in cash (the "Honors Points Pre-Sale"), of which $ 636 million was recorded in deferred revenues and the remainder was recorded in liability for guest loyalty program in our consolidated balance sheet.

American Express and their respective designees may use the points in connection with Hilton Honors co-branded credit cards and for promotions, rewards and incentive programs or certain other activities as they may establish or engage in from time to time.

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.

As of December 31, 2020, we had deferred revenues for unsatisfied performance obligations consisting of:

(i) $ 249 million related to Hilton Honors that will be recognized as revenue when the points are redeemed, which we estimate will occur over approximately the next two years ;

(ii) $ 471 million related to co-branded credit card arrangements, primarily consisting of deferred revenues for the Honors Points Pre-Sale of which a portion will be recognized as revenue when points are awarded, with the remaining portion recognized as revenues when the points are redeemed;

and (iii) $ 592 million related to application, initiation and other fees that is expected to be recognized as revenue over the terms of the related contracts.

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.

As of December 31, 2020 and 2019, we consolidated two VIEs that lease hotel properties.

We consolidated these VIEs since we are the primary beneficiary, having the power to direct the activities that most significantly affect their economic performance.

1 unchanged sentence

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:

1 unchanged sentence

Cash and cash equivalents $ 40 $ 81

Accounts receivable, net 15 15

Property and equipment, net 76 69

5 unchanged sentences

(1) Includes finance lease liabilities of $ 184 million and $ 177 million as of December 31, 2020 and 2019, respectively.

To provide financial flexibility in response to the business disruption caused by the COVID-19 pandemic, each of our consolidated VIEs entered into a revolving credit facility during the year ended December 31, 2020.

These revolving credit facilities have borrowing capacities totaling 2.75 billion Japanese yen and 2.0 billion Japanese yen (equivalent to $ 27 million and $ 19 million, respectively, as of December 31, 2020), and mature in June 2021 and August 2021, respectively.

As of December 31, 2020, no amounts have been drawn under these revolving credit facilities.

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, 2020, 2019 and 2018.

Goodwill and Intangible Assets

During the year ended December 31, 2020, we recognized impairment losses of $ 104 million of goodwill, as a result of the full impairment of the goodwill attributable to our ownership reporting unit.

"Fair Value Measurements" for additional information on the impairment analysis performed on goodwill and the resulting impairment losses recognized.

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

Ownership (1)

Management and Franchise

3 unchanged sentences

Balance as of December 31, 2019 98 5,061 5,159

Impairment losses ( 104 ) — ( 104 )

Foreign currency translation 6 34 40

Balance as of December 31, 2020 $ — $ 5,095 $ 5,095

(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.

There were no accumulated impairment losses for the management and franchise reporting unit as of December 31, 2020, 2019 and 2018.

The gross carrying values and accumulated impairment losses for the ownership reporting unit are as follows:

Gross Carrying Value Accumulated Impairment Losses Net Carrying Value

(in millions)

Balance as of December 31, 2018 $ 439 $ ( 340 ) $ 99

Foreign currency translation ( 1 ) — ( 1 )

Balance as of December 31, 2019 438 ( 340 ) 98

Impairment losses ( 444 ) 340 ( 104 )

Foreign currency translation 6 — 6

Balance as of December 31, 2020 $ — $ — $ —

Intangible Assets

8 unchanged sentences

Contract acquisition costs (3)

632 ( 144 ) 488

Development commissions and other 132 ( 23 ) 109

1 unchanged sentence

Other intangible assets:

Leases (1)(4)

$ 157 $ ( 95 ) $ 62

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

(2) During the year ended December 31, 2020, certain of the assets became fully amortized and, as a result, the gross carrying values and related accumulated amortization were written-off.

(3) During the year ended December 31, 2020, we recognized impairment losses of $ 15 million, which reduced the gross carrying value and accumulated amortization by $ 18 million and $ 3 million, respectively.

(4) During the year ended December 31, 2020, we recognized impairment losses of $ 46 million, which reduced the gross carrying value and accumulated amortization by $ 138 million and $ 92 million, respectively.

"Fair Value Measurements" for additional information.

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

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Construction-in-progress 7 20

Finance lease right-of-use assets 120 65

Accumulated depreciation

Finance lease ROU assets 87 120

Accumulated depreciation and amortization (1)

( 486 ) ( 509 )

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.

(1) During the years ended December 31, 2020, 2019 and 2018, depreciation and amortization expense on property and equipment was $ 57 million, $ 60 million and $ 54 million, respectively.

During the year ended December 31, 2020, we recognized $ 28 million of impairment losses related to property and equipment, including $ 4 million for finance lease ROU assets, which reduced the gross carrying value of property and equipment by $ 119 million, including finance lease ROU assets by $ 42 million, and the accumulated depreciation and amortization by $ 91 million, including finance lease ROU assets by $ 38 million.

"Fair Value Measurements" for additional information.

Accounts Payable, Accrued Expenses and Other

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Accounts payable 224 303

Operating lease liabilities, current 170 133

Insurance reserves, current 68 95

Operating lease ROU liabilities 133 —

Other liabilities and accrued expenses (1)

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(in millions)

Senior secured revolving credit facility with a weighted average rate of 2.98 %, due 2024

Senior secured revolving credit facility with a rate of 1.15 %, due 2024

$ 1,690 $ 195

Senior secured term loan facility with a rate of 1.90 %, due 2026

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Senior notes with a rate of 4.875 %, due 2027

Senior notes with a rate of 5.750 %, due 2028

Senior notes with a rate of 3.750 %, due 2029

Senior notes with a rate of 4.875 %, due 2030

Senior notes with a rate of 4.000 %, due 2031

Finance lease liabilities with a weighted average rate of 5.85 %, due 2021 to 2030

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(1) Represents current maturities of finance lease liabilities.

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").

As part of our response to the COVID-19 pandemic, we completed financing transactions during 2020 and early 2021, in an effort to extend the maturities and reduce the interest rates of our outstanding debt, as well as to bolster liquidity and add to our available cash.

In February 2021, we issued $ 1.5 billion aggregate principal amount of 3.625 % Senior Notes due 2032 and used the net proceeds from the issuance, together with available cash, to redeem all $ 1.5 billion in aggregate principal amount of our outstanding 5.125 % Senior Notes due 2026 (the "2026 Senior Notes") and to pay the related redemption premium and all related fees and expenses;

"Subsequent Events" for additional information.

In December 2020, we issued $ 800 million aggregate principal amount of 3.750 % Senior Notes due 2029 (the "2029 Senior Notes") and $ 1.1 billion aggregate principal amount of 4.000 % Senior Notes due 2031 (the "2031 Senior Notes") and incurred $ 27 million of debt issuance costs.

Interest on the 2029 Senior Notes and the 2031 Senior Notes is payable semi-annually in arrears on May 1 and November 1 of each year, beginning May 1, 2021.

We used the net proceeds from the issuances, together with available cash, to redeem all $ 1.0 billion in aggregate principal amount of our outstanding 4.250 % Senior Notes due 2024 and all $ 900 million in aggregate principal amount of our outstanding 4.625 % Senior Notes due 2025, plus accrued and unpaid interest.

In connection with these redemptions, we paid redemption premiums totaling $ 31 million and accelerated the recognition of unamortized deferred financing costs of $ 17 million, which were both included in loss on debt extinguishments in our consolidated statement of operations for the year ended December 31, 2020.

In April 2020, we issued $ 500 million aggregate principal amount of 5.375 % Senior Notes due 2025 (the " 5.375 % 2025 Senior Notes") and $ 500 million aggregate principal amount of 5.750 % Senior Notes due 2028 (the "2028 Senior Notes") and incurred $ 14 million of debt issuance costs.

Interest on the 5.375 % 2025 Senior Notes and the 2028 Senior Notes is payable semi-annually in arrears on May 1 and November 1 of each year, beginning November 1, 2020.

In June 2019, we issued $ 1.0 billion aggregate principal amount of 4.875 % Senior Notes due 2030.

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.

In April 2018, we issued 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.

"Condensed Consolidating Guarantor Financial Information" for additional information.

The 5.375 % 2025 Senior Notes, the 2026 Senior Notes, the 4.875 % Senior Notes due 2027, the 2028 Senior Notes, the 2029 Senior Notes, the 4.875 % Senior Notes due 2030 and the 2031 Senior Notes are collectively referred to as the Senior Notes and are jointly and severally guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries, other than Hilton Domestic Operating Company Inc.

("HOC"), an indirect wholly owned subsidiary of the Parent, which is the issuer of all of the series of Senior Notes.

Senior Secured Credit Facilities

Our senior secured credit facilities consist of the Revolving Credit Facility and Term Loans.

Our senior secured credit facilities consist of the $ 1.75 billion Revolving Credit Facility and the 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.

In March 2020, as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic, we fully drew down on our Revolving Credit Facility.

As of December 31, 2020, in addition to our outstanding debt balance of $ 1.69 billion, we also had $ 60 million of letters of credit outstanding under our Revolving Credit Facility.

In January 2021, we repaid $ 250 million of the outstanding balance under our Revolving Credit Facility;

"Subsequent Events" for additional information.

In addition to the repayments of the Term Loans discussed above, we repaid $ 300 million outstanding under our Term Loans in 2018.

During the years ended December 31, 2019 and 2018, we recognized $ 10 million and $ 8 million, respectively, of unamortized deferred financing costs and discount and fees, as applicable, related to amendments and repayments of the Term Loans, which were included in other non-operating income (loss), net in our consolidated statements of operations.

Debt Maturities

5 unchanged sentences

(in millions)

Pension obligations $ 134 $ 145

Other long-term tax liabilities $ 400 $ 369

Pension obligations 143 134

Deferred employee compensation and benefits 116 118

Insurance reserves (1)

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

(1) The long-term portion of obligations related to insurance claims are expected to be satisfied, on average, over the next three years .

Fair Value Measurements

15 unchanged sentences

Restricted cash equivalents 32 — 32 —

Interest rate swaps 16 — 16 —

Long-term debt (1)

7,731 5,230 — 2,834

Interest rate swaps 37 — 37 —

(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 carrying values and fair values exclude finance lease liabilities and other debt of our VIEs.

We measure our interest rate swaps at fair value, which was determined 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 long-term liabilities in our consolidated balance sheets.

Our nonfinancial assets that were measured at fair value on a non-recurring basis during the year ended December 31, 2020, and for which we recorded impairment losses, were primarily related to certain hotel properties under operating and finance leases and goodwill, all of which were part of our ownership reporting unit.

"Goodwill and Intangible

Assets" and Note 12:

"Leases" for additional information on these impairment losses.

The fair values, which were determined using significant Level 3 unobservable inputs, were as follows:

(in millions)

Other intangible assets, net (2)

Operating lease right-of-use assets (3)

Property and equipment, net (4)

(1) Amount was measured at December 31, 2020.

(2) Amount was measured at March 31, 2020.

(3) Includes $ 24 million that was measured at March 31, 2020, $ 7 million that was measured at June 30, 2020 and $ 21 million that was measured at December 31, 2020.

Amounts that were remeasured are excluded from the original measurement date and are included within the measurement date of their remeasurement.

Additionally, certain of these assets were fully impaired at March 31, 2020, June 30, 2020 and December 31, 2020, which were the measurement dates.

(4) Includes $ 4 million that was measured at March 31, 2020 and $ 5 million that was measured at December 31, 2020.

Amounts that were remeasured are excluded from the original measurement date and are included within the measurement date of their remeasurement.

Additionally, certain of these assets were fully impaired at March 31, 2020 and September 30, 2020, which were the measurement dates.

The prolonged effects of the COVID-19 pandemic resulting from extended travel restrictions and continued declines in demand, including the re-emergence of government travel restrictions and hotel suspensions in late 2020, continued to adversely affect our expected future cash flows, most significantly for our ownership reporting unit, which includes hotel leases, many with fixed rent, and for which we are typically responsible for funding hotel operating losses.

This caused us to reevaluate the cost structures for our lease agreements, including fixed rent terms, and the future operations of our ownership reporting unit.

As such, during the fourth quarter of 2020, we performed a quantitative analysis of goodwill for potential impairment and we fully impaired the goodwill attributable to our ownership reporting unit by recognizing impairment losses of $ 104 million during the year ended December 31, 2020.

We estimated the fair value of the reporting unit using discounted cash flow analyses, which included an estimate of the impact of the COVID-19 pandemic on the reporting unit's expected future cash flows, a stabilized growth rate of 2.5 percent after recovery and the present value of the reporting unit's terminal value.

A discount rate of 12.0 percent was used for the fair value of the ownership reporting unit, which reflects a market rate of return.

We recognized impairment losses related to certain hotel properties under operating and finance leases during each reporting period in 2020 as short-term expected results for certain leased hotels declined from estimates used in the previous period's assessment of recoverability, generally due to extensions of government restrictions and additional visibility into expected hotel customer engagement at such properties.

We assessed recoverability of any related lease intangible asset, operating and finance lease ROU asset and property and equipment using estimates of undiscounted net cash flows, and concluded that the carrying values of the assets for these certain hotels were not fully recoverable.

We then estimated the fair value of these assets using discounted cash flow analyses.

Both our undiscounted cash flow estimates used for assessment of recoverability and our discounted cash flows included an estimate of the impact of the COVID-19 pandemic on each leased property based on the expected recovery term.

The stabilized growth rates after recovery and discount rates used for the fair value of the assets reflect the risk profile of the underlying cash flows and the individual markets where the assets are located, and are not necessarily indicative of our hotel portfolio as a whole.

Estimations of stabilized growth rates after the recovery period ranged from 1.7 percent to 4.8 percent , and discount rates ranged from 7.0 percent to 12.0 percent , with the weighted average, based on relative impairment losses, for both inputs being at the lower end of each of the ranges.

As a result of these non-recurring fair value measurements, we recognized impairment losses on these assets of $ 139 million during the year ended December 31, 2020.

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of December 31, 2020 and 2019.

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.

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.

1 unchanged sentence

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:

During the year ended December 31, 2020, we recognized $ 65 million and $ 4 million of impairment losses related to certain operating lease and finance lease ROU assets, respectively;

"Fair Value Measurements" for additional information.

Supplemental balance sheet information related to leases was as follows:

(dollars in millions)

Operating leases:

7 unchanged sentences

Weighted average remaining lease term:

Operating leases 12.8 years

Finance leases 8.6 years

Operating leases 12.3 years 12.8 years

Finance leases 7.8 years 8.6 years

Weighted average discount rate:

1 unchanged sentence

Finance leases 5.85 % 5.83 %

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

The components of lease expense were as follows:

Year Ended December 31,

(in millions)

4 unchanged sentences

Variable lease expense (1)

(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:

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

Lease expense for our operating leases for the year ended December 31, 2018 included $ 225 million of fixed lease expense and $ 142 million of variable lease expense.

Supplemental cash flow information related to leases was as follows:

Year Ended December 31,

(in millions)

13 unchanged sentences

Total lease liabilities $ 1,141 $ 252

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:

Income Tax Provision (Benefit)

Our income tax provision (benefit) includes federal, state and foreign income taxes payable.

The domestic and foreign components of income (loss) before income taxes were as follows:

Year Ended December 31,

1 unchanged sentence

(in millions)

income before tax $ 867 $ 881 $ 632

Foreign income before tax 377 197 121

Income before income taxes $ 1,244 $ 1,078 $ 753

income (loss) before tax $ ( 267 ) $ 867 $ 881

Foreign income (loss) before tax ( 657 ) 377 197

Income (loss) before income taxes $ ( 924 ) $ 1,244 $ 1,078

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

11 unchanged sentences

Total provision (benefit) for income taxes $ ( 204 ) $ 358 $ 309

Reconciliations of our tax provision at the U.S.

Reconciliations of our tax provision (benefit) at the U.S.

statutory rate to the provision (benefit) for income taxes were as follows:

3 unchanged sentences

Statutory U.S.

federal income tax provision $ 261 $ 226 $ 264

federal income tax provision (benefit) $ ( 194 ) $ 261 $ 226

State income taxes, net of U.S.

1 unchanged sentence

Impact of foreign operations ( 106 ) 31 26

Effects of the TCJ Act — 13 ( 600 )

Corporate restructuring — 9 —

Goodwill impairment losses 22 — —

Tax rate differential on U.S.

federal net operating loss carryback ( 14 ) — —

Changes in deferred tax asset valuation allowances 116 13 ( 6 )

Provision for uncertain tax positions 7 16 16

Effects of the TCJ Act — — 13

Corporate restructuring — — 9

Other, net ( 11 ) ( 10 ) ( 12 )

Provision (benefit) for income taxes $ ( 204 ) $ 358 $ 309

Restructuring

Corporate Restructuring

During the year ended December 31, 2018, our controlled foreign corporations ("CFC") distributed the stock of certain subsidiaries (the "Distributions").

5 unchanged sentences

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.

During the year ended December 31, 2018, we made adjustments to provisional amounts that were recorded for the TCJ Act as of December 31, 2017, which included a tax benefit of $ 10 million related to the remeasurement of U.S.

deferred tax assets and liabilities, a tax benefit of $ 2 million related to the transition tax applied to foreign earnings and $ 31 million of deferred tax liabilities related to CFC outside basis.

All adjustment amounts were recognized in income tax expense during the year ended December 31, 2018, and our accounting for the effects of the TCJ Act was complete as of December 31, 2018.

Deferred Income Taxes

3 unchanged sentences

Deferred tax assets:

Foreign net operating loss carryforwards $ 386 $ 389

Net tax loss carryforwards and carrybacks $ 593 $ 386

Compensation 135 138

13 unchanged sentences

Net deferred taxes $ ( 455 ) $ ( 695 )

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.

As of December 31, 2020, we had:

(i) a consolidated federal net operating loss carryback of $ 102 million, which resulted in deferred tax assets of $ 36 million;

(ii) state net operating loss carryforwards and carrybacks of $ 27 million, which resulted in deferred tax assets of $ 2 million;

(iii) separate return limitation year loss carryforwards of $ 125 million, which resulted in federal deferred tax assets of $ 25 million and state deferred tax assets of $ 6 million;

and (iv) foreign net operating loss carryforwards and carrybacks of $ 2.1 billion and other foreign tax loss carryforwards of $ 101 million, resulting in deferred tax assets of $ 502 million and $ 22 million, respectively.

Approximately $ 36 million of our deferred tax assets as of December 31, 2020 related to net operating loss carryforwards that will expire between 2021 and 2040 with less than $1 million of that amount expiring in 2021.

Approximately $ 504 million of our deferred tax assets as of December 31, 2020 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.

Approximately $ 53 million of our deferred tax assets as of December 31, 2020 resulted from other tax loss carryforwards that are not subject to expiration.

We believe that it is more likely than not that the benefit from certain federal, state and foreign tax loss carryforwards will not be realized.

In recognition of this assessment, we provided a valuation allowance of $ 451 million as of December 31, 2020 on the deferred tax assets relating to these tax loss carryforwards.

During the year ended December 31, 2020, we generated net operating losses in various jurisdictions and recorded a deferred tax benefit of $ 157 million for net operating losses, reduced by valuation allowances of $ 31 million, which resulted in a net deferred tax benefit of $ 126 million.

We have also provided valuation allowances of $ 62 million on other deferred tax assets generated during the year.

These losses have also caused a change in the expected realizability of existing deferred tax assets and, as a result, we have provided valuation allowances of $ 23 million on deferred tax assets that existed at the beginning of the year.

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 the use of the deferred tax assets.

Additionally, revaluations of certain existing deferred tax assets and their associated valuation allowances due to tax rate changes, foreign currency exchange rate changes and other changes resulted in no net income tax expense or benefit in the current year, but increased total valuation allowances by $ 37 million.

Overall, our total valuation allowance increased by $ 153 million during the year ended December 31, 2020.

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Balance at end of year $ 451 $ 395 $ 318

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.

The changes to our unrecognized tax benefits during the year ended December 31, 2020 primarily related to uncertainty regarding prior year income tax returns in certain foreign jurisdictions where we operate, as well as the addition of reserves related to Hilton Honors.

These changes were partially offset by reductions and settlements, primarily relating to the conclusion of certain state audits.

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 income tax returns filed during the year, as well as the addition of reserves related to Hilton Honors.

We recognize interest and penalties accrued related to uncertain tax positions in income tax benefit (expense) in our consolidated statements of operations.

During the years ended December 31, 2020, 2019 and 2018, we recognized income tax expense related to interest and penalties of $ 13 million, $ 12 million and $ 6 million, respectively, in our consolidated statements of operations.

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Included in the balances of unrecognized tax benefits as of December 31, 2020 and 2019 were $ 400 million and $ 380 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.

As a result of the expected resolution of examination issues with federal, state and foreign tax authorities, we believe it is reasonably possible that during the next 12 months, the amount of unrecognized tax benefits will decrease by up to $ 82 million.

In prior periods, we received 30-day Letters from the IRS and the Revenue Agents Report ("RARs") for the 2006 through the 2013 tax years.

We disagreed with several of the proposed adjustments in the RARs and filed formal appeals protests with the IRS.

The issues being protested in appeals relate to assertions by the IRS that:

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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.

subsidiaries and (ii) in calculating the amount of U.S.

taxable income resulting from Hilton Honors, 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.

The unsettled 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.

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(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").

Plan"), which was frozen to further service accruals in 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.

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Interest cost 10 14 8 10 2 2

Prior service cost (credit) (1)

Prior service credit (1)

— — — ( 3 ) — —

Actuarial loss (gain) 37 ( 14 ) 62 ( 39 ) 6 —

Actuarial loss 31 37 78 62 2 6

Settlements and curtailments ( 1 ) ( 2 ) — — — ( 1 )

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Net amount recognized $ ( 4 ) $ ( 10 ) $ 15 $ 37 $ 23 $ ( 14 ) $ 2 $ 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)

Unrecognized net loss

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:

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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.

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, 2020 and 2019, was 80 percent in funds that invest in equity securities and 20 percent in funds that invest in debt securities.

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Common collective trusts

Alternative investments

$ 343 $ 485 $ 70

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As of December 31, 2020 and 2019, we ac cr ued $ 12 million and $ 16 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.

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

The expense recognized for the year ended December 31, 2020 includes the expense recognized as a result of the modifications of our awards with performance conditions, as described in further detail below, and is net of the reversal of expenses recognized in prior periods for certain of the performance awards, as a result of the determination that they were no longer probable of achievement, prior to the modifications.

As of December 31, 2020, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 136 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, 2020, there were 12.9 million shares of common stock available for future issuance under the 2017 Plan, plus any shares subject to awards outstanding under the 2013 Omnibus Incentive Plan, which will become available for issuance under the 2017 Plan if such outstanding awards expire or are terminated or are canceled or forfeited.

The following table provides information about our RSU grants:

Year Ended December 31,

2020 2019 2018

(in millions, except per share data)

Number of shares granted 1.0 0.9 1.5

Number of shares granted (in thousands) 942 963 912

Weighted average grant date fair value per share $ 93.48 $ 83.47 $ 79.31

Aggregate intrinsic value of shares vested $ 92 $ 123 $ 78

Aggregate intrinsic value of shares vested (in millions) $ 97 $ 92 $ 123

The following table summarizes the activity of our RSUs during the year ended December 31, 2020:

Number of Shares Weighted Average Grant Date Fair Value per Share

(in millions)

(in thousands)

Outstanding as of December 31, 2019

1,780 $ 77.35

Granted 942 93.48

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Outstanding as of December 31, 2020

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

The following table provides information about our option grants:

Year Ended December 31,

2020 2019 2018

(in millions, except per share data)

(in thousands, except per share data)

Number of options granted 755 758 612

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(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.

(2) Estimated based on the quarterly dividend and the three-month average stock price at the date of grant.

(3) Based on the yields of U.S.

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Number of Shares Weighted Average Exercise Price per Share

(in millions)

(in thousands)

Outstanding as of December 31, 2019

2,828 $ 65.72

Granted 755 93.33

Exercised ( 355 ) 60.09

Forfeited ( 201 ) 86.55

Outstanding as of December 31, 2020 (1)

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Performance Shares

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

In December 2020, we modified our outstanding performance shares in response to the COVID-19 pandemic and its negative impact on the hospitality industry and, ultimately, the Company's performance.

The modifications were structured to reward for results achieved prior to the COVID-19 pandemic, retain senior business leaders and incentivize for the recovery efforts via metrics most meaningful in assessing our performance during our recovery from the negative impact of the pandemic.

Under the modified terms, which include new performance measures, eligible employees will receive the greater of the shares achieved based on the original or the modified terms, with the exception of certain executives who will receive the number of shares achieved under the modified terms.

The modified terms did not change the vesting schedules of the original awards.

A total of 1,020,000 performance shares were modified, including 392,000 from the 2018 grant, 340,000 from the 2019 grant and 288,000 from the 2020 grant, with a modification date fair value per share of $ 102.95 .

Under the modified terms, a portion of the awards vests based on service conditions and the remaining portion of the awards were equally distributed to vest based on four new performance measures.

As of December 31, 2020, these four new performance measures were probable of achievement and we recognized $ 44 million of compensation expense during the year ended December 31, 2020 based on the target achievement percentage.

Further, we expect to recognize $ 62 million of additional expense from the modifications over the remaining terms of the awards.

"Basis of Presentation and Summary of Significant Accounting Policies" for additional information regarding the performance measures of the original grants and the new performance measures under the modified terms.

The following table provides information about our original performance share grants:

Year Ended December 31,

2020 2019 2018 (1)

(in millions, except per share data)

Number of shares granted 0.2 0.2 0.2

Number of shares granted (in thousands) 174 192 183

Weighted average grant date fair value per share $ 93.33 $ 83.11 $ 79.36

Number of shares granted 0.2 0.2 0.2

Aggregate intrinsic value of shares vested (in millions) $ 29 $ — $ —

Number of shares granted (in thousands) 174 192 183

Weighted average grant date fair value per share $ 93.33 $ 83.11 $ 79.36

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.

Aggregate intrinsic value of shares vested (in millions) 29 $ — $ —

(1) The aggregate intrinsic value of performance shares vested was less than $1 million .

The following table summarizes the activity of our performance shares during the year ended December 31, 2020:

EBITDA CAGR FCF CAGR

EBITDA CAGR (1)

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)

(in thousands) (in thousands)

Outstanding as of December 31, 2019

527 $ 74.46 527 $ 74.46

Granted 174 93.33 174 93.33

Performance achievement share adjustments (2)

218 64.29 218 64.29

Vested ( 316 ) 58.45 ( 316 ) 58.45

Forfeited ( 93 ) 84.78 ( 93 ) 84.78

Outstanding as of December 31, 2020

510 84.57 510 84.57

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.

Earnings Per Share

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

(1) This performance measure relates to the original awards and, as discussed above and in Note 2:

"Basis of Presentation and Summary of Significant Accounting Policies," we modified our outstanding performance awards in December 2020 whereby the achievement for the performance-based portion of our outstanding awards will be measured under four new performance measures, which include:

(i) Adjusted EBITDA, (ii) FCF per share, (iii) NUG CAGR and (iv) RevPAR index growth.

(2) Reflects the number of shares achieved above target, based on actual performance, and includes the effect of the modifications;

see above for further information.

Earnings (Loss) Per Share

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

Year Ended December 31,

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(in millions, except per share amounts)

Net income attributable to Hilton stockholders

Net income (loss) attributable to Hilton stockholders

$ ( 715 ) $ 881 $ 764

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Basic EPS $ ( 2.58 ) $ 3.07 $ 2.53

Net income attributable to Hilton stockholders

Net income (loss) attributable to Hilton stockholders

$ ( 715 ) $ 881 $ 764

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Diluted EPS $ ( 2.56 ) $ 3.04 $ 2.50

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.

(1) Approximately 2 million , 1 million and 1 million share-based compensation awards were excluded from the computation of diluted EPS for the years ended December 31, 2020, 2019 and 2018, respectively, because their effect would have been anti-dilutive under the treasury stock method.

Accumulated Other Comprehensive Loss

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Currency Translation Adjustment (1)

Pension Liability Adjustment Cash Flow Hedge Adjustment Total

Pension Liability Adjustment (2)

Cash Flow Hedge Adjustment (3)

(in millions)

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Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income

162 22 13 197

Spin-offs of Park and HGV

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

Net current period other comprehensive income (loss)

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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)

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)

Tax benefit (expense) (3)

Total cash flow hedge adjustment reclassifications for the period, net of taxes

Other comprehensive income (loss) before reclassifications

33 ( 30 ) ( 46 ) ( 43 )

Total reclassifications for the period, net of taxes

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

38 ( 20 ) ( 38 ) ( 20 )

(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.

Balance as of December 31, 2020 $ ( 511 ) $ ( 289 ) $ ( 60 ) $ ( 860 )

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

Amounts reclassified related to the liquidation of investments in foreign entities and were recognized in loss on foreign currency transactions in our consolidated statements of operations.

(2) Amounts reclassified related to the amortization of prior service costs and amortization of net loss and were recognized in other non-operating income (loss), net in our consolidated statements of operations.

(3) Amounts reclassified related to interest rate swaps, including interest rate swaps that were dedesignated and subsequently settled, and forward contracts that hedge our foreign currency denominated fees and were recognized in interest expense and franchise and licensing fees, base and other management fees and other revenues from managed and franchised properties, respectively, in our consolidated statements of operations.

Business Segments

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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.

The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels that license our brands and where we provide other prescribed services, but where the day-to-day services of the hotels are operated or managed by someone other than us.

This segment also earns licensing fees from HGV and strategic partnerships, including co-branded credit card arrangements, 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, 2020, this segment included 715 managed hotels and 5,646 franchised hotels consisting of 990,857 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.

As a result of the COVID-19 pandemic, approximately 1,245 hotels in our management and franchise segment had temporarily suspended operations at some point in time during the year ended December 31, 2020, of which, all but approximately 220 had reopened as of December 31, 2020.

As of December 31, 2020, our ownership segment included 61 properties totaling 19,400 rooms.

The segment comprised 53 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.

As a result of the COVID-19 pandemic, approximately 35 hotels in our ownership segment, the majority of which are located in Europe, had temporarily suspended operations at some point in time during the year ended December 31, 2020.

Although all of these hotels had reopened at some point during the year, additional and reinstated restrictions in Europe during the fourth quarter of 2020, resulted in the re-suspension of operations at approximately 10 of these hotels.

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

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

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(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:

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

Year Ended December 31,

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Ownership (1)

( 202 ) 125 108

Segment operating income 936 2,440 2,265

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General and administrative ( 311 ) ( 441 ) ( 443 )

Reorganization costs ( 41 ) — —

Impairment losses ( 258 ) — —

Gain on sale of assets, net — 81 —

Operating income 1,657 1,432 1,132

Operating income (loss) ( 418 ) 1,657 1,432

Interest expense ( 429 ) ( 414 ) ( 371 )

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

Loss on foreign currency transactions ( 27 ) ( 2 ) ( 11 )

Loss on debt extinguishments ( 48 ) — —

Other non-operating income (loss), net ( 2 ) 3 28

Income (loss) before income taxes $ ( 924 ) $ 1,244 $ 1,078

(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:

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

(in millions)

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$ 16,755 $ 14,957

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:

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714 2,029 2,058

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.

$ 4,307 $ 9,452 $ 8,906

(1) There are no countries included in this amount that individually represented more than 10 percent of total revenues for the years ended December 31, 2020, 2019 and 2018.

Property and equipment, net by country was as follows:

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All other (1)

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.

(1) There are no countries included in this amount that individually represented more than 10 percent of total property and equipment, net as of December 31, 2020 and 2019.

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.

Most of these guarantees do not require us to fund shortfalls, but allow for termination of the contract, if specified operating performance levels are not achieved.

However, in limited cases, we are obligated to fund performance shortfalls, creating variable interests in the ownership entities of the hotels, of which we are not the primary beneficiary.

As of December 31, 2020, we had four performance guarantees, with expirations ranging from 2023 to 2039 , and possible cash outlays totaling approximately $ 18 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.

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, and we have included the impact of the COVID-19 pandemic on these hotels in our expectations of their future operating performance.

As of December 31, 2020 and 2019, we accrued current liabilities of $ 7 million and $ 3 million, respectively, for our performance guarantees.

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.

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, 2020, we guaranteed a $ 10 million loan, which matures in 2023 , for two hotels that we will franchise.

Additionally, we have an agreement with the owner of a hotel that we manage to finance capital expenditures at the hotel.

As of December 31, 2020, we had remaining possible cash outlays related to this agreement of approximately $ 10 million;

however, we cannot currently estimate the timing of the payments or if they will be made at all.

We receive fees from managed and franchised properties to operate our marketing, sales and brand programs on behalf of hotel owners, which are based on the underlying hotel's sales or usage.

As of December 31, 2020 and 2019, we had collected an aggregate of $ 5 million and $ 350 million in excess of amounts expended, respectively, across all programs.

As a result of the adverse impact of the COVID-19 pandemic on our hotels' sales and, ultimately, the program fees we earn, our costs to operate these programs have outpaced the fees received, resulting in a material decline in our surplus position during the year ended December 31, 2020.

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, 2020 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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 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.

Supplemental Disclosures of Cash Flow Information

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Income taxes, net of refunds, paid during the years ended December 31, 2020, 2019 and 2018 were $ 79 million , $ 363 million and $ 288 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.

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)

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

— 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

— — — 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

— 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)

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

— 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

— — — 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

— 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

— — 211 93 559 — 863

Total liabilities

10 4,598 3,053 4,254 1,672 ( 150 ) 13,437

Total Hilton stockholders' equity 551 557 5,131 6,301 2,186 ( 14,175 ) 551

Noncontrolling interests — — — — 7 — 7

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)

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

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)

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

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)

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

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

Selected Quarterly Financial Information

5 unchanged sentences

Revenues $ 1,920 $ 564 $ 933 $ 890 $ 4,307

Operating income 312 478 519 348 1,657

Net income 159 261 290 176 886

Net income attributable to Hilton stockholders

Operating income (loss) 68 ( 302 ) 11 ( 195 ) ( 418 )

Net income (loss) 18 ( 432 ) ( 81 ) ( 225 ) ( 720 )

Net income (loss) attributable to Hilton stockholders

18 ( 430 ) ( 79 ) ( 224 ) ( 715 )

Basic earnings per share (1)

Basic earnings (loss) per share (1)

$ 0.06 $ ( 1.55 ) $ ( 0.29 ) $ ( 0.81 ) $ ( 2.58 )

Diluted earnings per share (1)

Diluted earnings (loss) per share (1)

$ 0.06 $ ( 1.55 ) $ ( 0.28 ) $ ( 0.80 ) $ ( 2.56 )

10 unchanged sentences

$ 0.54 $ 0.89 $ 1.00 $ 0.61 $ 3.04

(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.

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

Subsequent Events

Senior Notes Offering

In February 2021, HOC issued $ 1.5 billion aggregate principal amount of 3.625 % Senior Notes due 2032, which are jointly and severally guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries, other than HOC, the issuer.

Interest on the 2032 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning August 15, 2021.

We used the net proceeds from the issuance, together with available cash, to pay all related fees and expenses, estimated to be approximately $ 22 million, and to redeem all $ 1.5 billion in aggregate principal amount of our outstanding 2026 Senior Notes and pay the related redemption premium of $ 55 million.

Upon redemption of the 2026 Senior Notes, we also accelerated the recognition of $ 14 million of related unamortized deferred financing costs.

Repayment of Revolving Credit Facility

In January 2021, we repaid $ 250 million of the outstanding debt balance under our Revolving Credit Facility using available cash, resulting in an outstanding debt balance of $ 1,440 million under our Revolving Credit Facility.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data