What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-09 compared with 2022-02-16 · 266 added, 314 removed, 1112 unchanged (34% of the section changed)

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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 U.S.

GAAP of the accounting model developed by the Company to recognize revenue and costs associated with the Loyalty Program.

generally accepted accounting principles of the accounting model developed by the Company to recognize revenue and costs associated with the Loyalty Program.

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

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Description of the Matter The Company recognized income tax expense of $477 million during the year ended December 31, 2022, and unrecognized tax benefits of $337 million as of December 31, 2022.

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 jurisdictions where the Company operates, changes in reserves related to Hilton Honors, and reductions and settlements related to the conclusion of certain audits.

As discussed in Note 2 to the consolidated financial statements, for all tax positions taken in a tax return, the Company will first determine whether it is more likely than not that a tax position will be sustained upon examination.

If the Company determines that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

Auditing the accounting for income taxes is complex as a result of:

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As discussed in Note 2 to the consolidated financial statements, the Company incurs certain direct and indirect expenses that are for the benefit of, and contractually reimbursable from, hotel owners.

Such amounts (“Cost Reimbursements”) are recorded in the period in which the expense is incurred as Other expenses from managed and franchised properties and the accounting for indirect cost reimbursements includes judgment with respect to the allocation of certain costs between reimbursable and non-reimbursable.

Such amounts (“Cost Reimbursements”) are recorded in the peri od in which the expense is incurred as Other expenses from managed and franchised properties, and the accounting for indirect cost reimbursements includes judgment with respect to the allocation of certain costs between reimbursable and non-reimbursable.

Auditing the classification of indirect reimbursements recognized within Other expenses from managed and franchised properties and General and administrative expenses is complex as a result of:

(1) judgment associated with testing management’s conclusions regarding the allocation of costs between reimbursable and non-reimbursable expenses, presented as Other expenses from managed and franchised properties and General and administrative expenses, respectively, (2) the complexity associated with allocating indirect expenses due to the high volume of data utilized by management in establishing and maintaining allocations for indirect expenses, and (3) incentives for management to limit the growth in General and administrative expenses due to the impact on publicly disclosed earnings metrics.

(1) judgment associated with testing management’s conclusions regarding the allocation of costs between reimbursable and non-reimbursable expenses, presented as Other expenses from managed and franchised properties and General and administrative expenses, respectively, and (2) the complexity associated with allocating indirect expenses due to the high volume of data utilized by management in establishing and maintaining allocations for indirect expenses.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for Cost Reimbursements, General and administrative expenses, and the process for allocating indirect reimbursement expenses during the year.

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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;

performing analytical 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.

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Equity (Deficit):

Preferred stock, $ 0.01 par value;

3,000,000,000 authorized shares, none issued or outstanding as of December 31, 2021 and 2020

Common stock, $ 0.01 par value;

10,000,000,000 authorized shares, 332,011,359 issued and 279,091,009 outstanding as of December 31, 2021 and 330,511,254 issued and 277,590,904 outstanding as of December 31, 2020

10,000,000,000 authorized shares, 267,860,301 outstanding as of December 31, 2022 and 279,091,009 outstanding as of December 31, 2021

Treasury stock, at cost;

52,920,350 shares as of December 31, 2021 and December 31, 2020

65,217,085 shares as of December 31, 2022 and 52,920,350 shares as of December 31, 2021

( 6,040 ) ( 4,443 )

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Owned and leased hotels

679 620 1,254

Depreciation and amortization 162 188 331

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Total expenses 6,679 4,771 4,725

Gain (loss) on sales of assets, net ( 7 ) — 81

Loss on sales of assets, net — ( 7 ) —

Operating income (loss) 2,094 1,010 ( 418 )

Interest expense ( 415 ) ( 397 ) ( 429 )

Loss on foreign currency transactions

Gain (loss) on foreign currency transactions

5 ( 7 ) ( 27 )

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Impairment losses — — 258

Loss (gain) on sales of assets, net 7 — ( 81 )

Loss on foreign currency transactions 7 27 2

Loss on sales of assets, net — 7 —

Loss (gain) on foreign currency transactions ( 5 ) 7 27

Loss on debt extinguishments — 69 48

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Deferred income taxes 34 ( 4 ) ( 235 )

Contract acquisition costs ( 200 ) ( 50 ) ( 90 )

Contract acquisition costs, net of refunds ( 81 ) ( 200 ) ( 50 )

Changes in operating assets and liabilities:

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( 39 ) ( 35 ) ( 46 )

Issuance of financing receivables ( 46 ) ( 3 ) ( 3 )

Undesignated derivative financial instruments 79 ( 5 ) ( 3 )

Proceeds from asset dispositions — 6 —

Capitalized software costs ( 63 ) ( 44 ) ( 46 )

Investments in unconsolidated affiliates ( 53 ) — —

Other ( 1 ) 24 ( 9 )

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Proceeds from share-based compensation 29 52 31

Settlements of interest rate swap with financing component 2 — —

Net cash provided by (used in) financing activities ( 1,765 ) ( 1,793 ) 2,032

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Balance as of December 31, 2019 279.0 $ 3 $ ( 4,169 ) $ 10,489 $ ( 5,965 ) $ ( 840 ) $ 10 $ ( 472 )

295 $ 3 $ ( 2,625 ) $ 10,372 $ ( 6,417 ) $ ( 782 ) $ 7 $ 558

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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1.2 — ( 5 ) 63 — — — 58

Distributions — — — — — — ( 1 ) ( 1 )

Cumulative effect of the adoption of ASU 2016-13 (1)

— — — — ( 10 ) — — ( 10 )

Deconsolidation of a variable interest entity

— — — — — — ( 2 ) ( 2 )

Balance as of December 31, 2020 277.6 3 ( 4,453 ) 10,552 ( 6,732 ) ( 860 ) 4 ( 1,486 )

279 3 ( 4,169 ) 10,489 ( 5,965 ) ( 840 ) 10 ( 472 )

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

Net income (loss) — — — — 410 — ( 3 ) 407

Other comprehensive income (loss),

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— — — — — 31 — 31

Other comprehensive loss

— — — — — ( 20 ) — ( 20 )

Dividends — — — — ( 42 ) — — ( 42 )

Repurchases of common stock

Other comprehensive income

— — — — — 81 1 82

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1.5 — 10 168 — — — 178

Distributions

— — — — — — ( 1 ) ( 1 )

Cumulative effect of the adoption of ASU 2016-13 (2)

— — — — ( 10 ) — — ( 10 )

Balance as of December 31, 2021 279.1 3 ( 4,443 ) 10,720 ( 6,322 ) ( 779 ) 2 ( 819 )

278 3 ( 4,453 ) 10,552 ( 6,732 ) ( 860 ) 4 ( 1,486 )

Net income (loss) — — — — 410 — ( 3 ) 407

Net income — — — — 1,255 — 2 1,257

Other comprehensive income (loss),

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— — — — — 73 — 73

Dividends — — — — ( 123 ) — — ( 123 )

Repurchases of common stock

( 12.3 ) — ( 1,608 ) — — — — ( 1,608 )

Share-based compensation

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(1) Relates to Accounting Standards Update ("ASU") No.

2016-02 ("ASU 2016-02"), Leases (Topic 842) , that was adopted on January 1, 2019.

(2) Relates to ASU No.

2016-13 ("ASU 2016-13"), Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , that was adopted on January 1, 2020.

(2) As of December 31, 2022, 3.0 billion shares of preferred stock with a par value of $ 0.01 were authorized with no such shares issued.

See notes to consolidated financial statements.

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Hilton Worldwide Holdings Inc.

(the "Parent," or together with its subsidiaries, "Hilton," "we," "us," "our" or the "Company"), a Delaware corporation, is one of the largest hospitality companies in the world and is engaged in managing, franchising, owning and leasing hotels and resorts and licensing its intellectual property, including brand names, trademarks and service marks ("IP").

As of December 31, 2021, we managed, franchised, owned or leased 6,837 hotels and resorts, including timeshare properties, totaling 1,074,791 rooms in 122 countries and territories.

(the "Parent," or together with its subsidiaries, "Hilton," "we," "us," "our" or the "Company"), a Delaware corporation, is one of the largest hospitality companies in the world and is engaged in managing, franchising, owning and leasing hotels and resorts, and licensing its intellectual property ("IP"), including brand names, trademarks and service marks.

As of December 31, 2022, we managed, franchised or leased 7,165 hotels and resorts, including timeshare properties, totaling 1,127,430 rooms in 123 countries and territories.

Basis of Presentation and Summary of Significant Accounting Policies

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If the entity is considered to be a VIE, we evaluate whether we are the primary beneficiary and then consolidate those VIEs for which we have determined we are the primary beneficiary.

If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity.

We consolidate entities other than VIEs when we own more than 50 percent of the voting shares of a company or otherwise have a controlling financial interest.

If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting shares in the entity, and, if we do, we consolidate the entity.

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 or have the ability to 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.

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 on the date that we became the primary beneficiary.

If such consolidation is required, the amounts may be material.

All material intercompany transactions and balances have been eliminated in consolidation.

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

In particular, the coronavirus ("COVID-19") pandemic had a material adverse impact on our results for the years ended December 31, 2021 and 2020 when compared to periods prior to the onset of the pandemic, which was in early 2020, and it may continue to have an adverse impact in future periods.

As such, the years ended December 31, 2021 and 2020, as well as upcoming periods, are unlikely to be comparable to periods prior to the onset of the pandemic or to other periods affected by the pandemic and are not indicative of future performance.

In particular, the coronavirus ("COVID-19") pandemic (the "COVID-19 pandemic" or the "pandemic") had an adverse impact on certain of our results for the years ended December 31, 2022, 2021 and 2020;

however, our results experienced significant recovery during the years ended December 31, 2022 and 2021 when compared to the year ended December 31, 2020, the period most impacted by the pandemic.

The years ended December 31, 2022, 2021 and 2020, as well as upcoming periods, may not be comparable to periods prior to the onset of the COVID-19 pandemic or to other periods affected by the pandemic, and are not indicative of future performance.

Management has made estimates and judgments in light of these circumstances.

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.

Summary of Significant Accounting Policies

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Revenues are primarily derived from:

(i) management and franchise contracts with third-party hotel and resort owners;

(ii) our owned and leased hotels;

and (iii) license agreements with Hilton Grand Vacations Inc.

("HGV") and strategic partners, including co-branded credit card providers.

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.

(i) fees earned from management and franchise contracts with third-party hotel owners;

(ii) fees earned from license agreements with strategic partners, including co-branded credit card providers, and Hilton Grand Vacations Inc.

and (iii) our owned and leased hotels.

The majority of our performance obligations are promises to provide 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.

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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, such as those resulting from the COVID-19 pandemic, we may amend certain contracts with customers to provide short-term payment relief, expecting that we will collect most amounts outstanding in twelve months or less.

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

Management and franchise revenues

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• Hotel management services include providing day-to-day management services in the operation of the hotels for the hotel owners.

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

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

• Hilton Honors rewards provide substantive rights for free or discounted goods or services to Hilton Honors members.

Each of the identified performance obligations is considered to be a series of distinct services transferred over time, except for the performance obligation related to Hilton Honors rewards, which is satisfied at the point in time when the loyalty program point is redeemed by the loyalty program member.

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

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

• Rewards from Hilton Honors, our guest loyalty program, provide substantive rights for free or discounted goods or services to Hilton Honors members.

Each of the identified performance obligations is considered to be a series of distinct services transferred over time, except for the performance obligation related to Hilton Honors rewards, which is satisfied at the point in time when the Hilton Honors point is redeemed by the Hilton Honors member.

While the underlying activities may vary from day to day, the nature of the commitments are the same each day, and the property owner can independently benefit from each day's services.

Management and franchise fees are typically based on the sales or usage of the underlying hotel, with the exception of fixed upfront fees, which usually represent an insignificant portion of the transaction price.

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

Franchise and licensing fees represent fees earned in connection with the licensing of one of our brands, usually under long-term contracts with the hotel owner, and may also include fees from licensing agreements for the use of our IP, and include the following:

• Royalty fees are generally based on a percentage of the hotel's monthly gross room revenue and, in some cases, may also include a percentage of gross food and beverage revenues and other revenues, as applicable.

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(ii) there is a change of ownership of a hotel;

or (iii) contracts with properties already in our system are extended.

or (iii) contracts with hotels already in our system are extended.

These fees are typically fixed and collected upfront and are recognized as revenue over the term of the franchise contract.

We do not consider this advance consideration to include a significant financing component, since it is used to protect us from the property owner failing to adequately complete some or all of its obligations under the contract, including establishing and maintaining the hotel in accordance with our standards.

We do not consider this advance consideration to include a significant financing component, since it is used to protect us from the hotel owner

failing to adequately complete some or all of its obligations under the contract, including establishing and maintaining the hotel in accordance with our standards.

• Licensing fees are earned from:

(i) a license agreement with HGV to use our 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) strategic partners, including from co-branded credit card providers, which are recognized as revenue when points for our guest loyalty program, Hilton Honors, are issued, generally as spend with the strategic partner or co-branded credit card occurs;

see further discussion below under "Hilton Honors."

(i) strategic partnerships, including from co-branded credit card arrangements, which are recognized as revenue when points for Hilton Honors are issued, generally as spend with the strategic partner or co-branded credit card provider occurs (see further discussion below under "Hilton Honors") and (ii) a license agreement with HGV to use our IP in its timeshare business, which are typically billed monthly, and revenue is generally recognized at the same time the fees are billed.

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

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Incentive fee payment terms vary, but they are generally billed and collected monthly or annually upon completion of the incentive period.

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

Consideration paid or anticipated to be paid to incentivize hotel owners to enter into management and franchise contracts with us is amortized over the life of the applicable contract, generally including any extension periods that are at our sole option, as a reduction to base and other management fees and franchise and licensing fees, respectively.

We do not estimate revenues expected to be recognized related to our unsatisfied performance obligations for our:

(i) royalty fees, since they are considered sales-based royalty fees recognized as hotel room sales occur in exchange for licenses of our IP over the terms of the franchise contracts and (ii) other licensing fees and base management fees and incentive management fees since they are allocated entirely to the wholly unsatisfied promise to transfer IP or provide management services, respectively, which form part of a single performance obligation in a series, over the term of the individual contract.

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

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

• Direct reimbursements include payroll and related costs and certain other operating costs of the managed and franchised properties' operations, which are contractually reimbursed to us by the property owners as expenses are incurred.

Revenue is recognized based on the amount of expenses incurred by Hilton, which are presented as other expenses from managed and franchised properties in our consolidated statements of operations, that are then reimbursed to us by the property owner typically on a monthly basis, which results in no net effect on operating income (loss) or net income (loss).

• Indirect reimbursements include marketing expenses and other expenses associated with our brand programs and shared services, which are paid from program fees collected by Hilton from the managed and franchised properties.

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 statement 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 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.

The expenses incurred by Hilton to operate the marketing and brand programs and shared services are recognized as incurred and presented as other expenses from managed and franchised properties in our consolidated statements of operations and are expected to equal the revenues earned from indirect reimbursements over time.

The management and franchise fees and reimbursements from third-party hotel owners are allocated to the performance obligations and the distinct services to which they relate using their estimated standalone selling prices.

The terms of the fees

earned under the contract relate to a specific outcome of providing the services (e.g., hotel room sales) or to Hilton's efforts (e.g., costs) to satisfy the performance obligations.

The expenses incurred by Hilton to operate the marketing and brand programs and shared services are recognized as incurred and presented as other expenses from managed and franchised properties in our consolidated statement of operations and are expected to equal the revenues earned from indirect reimbursements over time.

The management and franchise fees and reimbursements from third-party property owners are allocated to the performance obligations and the distinct services to which they relate using their estimated standalone selling prices.

The terms of the fees earned under the contract relate to a specific outcome of providing the services (e.g., hotel room sales) or to Hilton's efforts (e.g., costs) to satisfy the performance obligations.

Using time as the measure of progress, we recognize fee revenue and indirect reimbursements in the period earned per the terms of the contract and revenue related to direct reimbursements in the period in which the cost is incurred.

Owned and leased hotel revenues

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

Owned and leased hotels revenues

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

• Cancellable room reservations or ancillary services are typically satisfied as the good or service is transferred to the hotel guest, which is generally when the room stay occurs.

• Noncancellable room reservations and banquet or conference reservations represent a series of distinct goods or services provided over time and satisfied as each distinct good or service is provided, which is reflected by the duration of the reservation.

• Substantive rights for free or discounted goods or services are satisfied at the earlier of when:

(i) the substantive right expires or (ii) the underlying free or discounted good or service is provided to the hotel guest.

• Substantive rights for free or discounted goods or services are satisfied when the underlying free or discounted good or service is provided to the hotel guest.

• Other ancillary goods and services are purchased independently of the room reservation at standalone selling prices and are considered separate performance obligations, which are satisfied when the related good or service is provided to the hotel guest.

• Components of package reservations for which each component could be sold separately to other hotel guests are considered separate performance obligations and are satisfied as set forth above.

Owned and leased hotel revenues primarily consist of hotel room sales, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and sales of other ancillary goods and services (e.g., parking) related to consolidated owned and leased hotels.

Owned and leased hotels revenues primarily consist of hotel room sales, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and sales of other ancillary goods and services (e.g., parking) related to consolidated owned and leased hotels.

Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively.

Payment terms typically align with when the goods and services are provided.

Owned and leased hotel revenues are reduced upon issuance of Hilton Honors points for Hilton Honors members' paid stay transactions and are recognized when Hilton Honors points are redeemed for a free or discounted stay at an owned or leased hotel (see the "Hilton Honors" section below for additional information).

Owned and leased hotels revenues are reduced upon issuance of Hilton Honors points for Hilton Honors members' paid stay transactions and are recognized when Hilton Honors points are redeemed for a free or discounted stay at an owned or leased hotel (see the "Hilton Honors" section below for additional information).

Although the transaction prices of hotel room sales, goods and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected to be provided to the customer.

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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

Restricted cash and cash equivalents include cash balances established as collateral for certain guarantees and insurance, including self-insurance, furniture, fixtures and equipment replacement ("FF&E") reserves required under certain lease agreements and advanced deposits collected on behalf of managed and franchised hotels.

Restricted cash and cash equivalents include cash balances established as collateral for certain guarantees and insurance, including self-insurance and furniture, fixtures and equipment replacement ("FF&E") reserves required under certain lease agreements.

Allowance for Credit Losses

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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 17:

"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 determine qualitatively that the fair value is more likely than not less than its carrying value, or if we decide to bypass the qualitative assessment, we perform a quantitative analysis.

"Business Segments." We evaluate goodwill for potential impairment by comparing the carrying value of the reporting unit to its fair value.

When we evaluate goodwill for potential impairment, generally, we first 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 determine qualitatively that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or if we decide to bypass the qualitative assessment, we perform a quantitative analysis.

The quantitative analysis is used to identify both the existence of impairment and the amount of the impairment loss by comparing the estimated fair value of a reporting unit to its carrying value, including goodwill.

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If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss would be recognized in our consolidated statement 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.

Certain brand intangible assets were initially recorded at their fair value at the time of the Merger, using the relief-from-royalty valuation approach or the excess earnings method, depending on the contract type.

At the time of the Merger, our portfolio of brands, and those for which we recorded intangible assets, consisted of Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton, Embassy Suites by Hilton, Hilton Garden Inn, Hampton by Hilton, Homewood Suites by Hilton and our timeshare brand, Hilton Grand Vacations.

There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of these brands, and, accordingly, the useful lives of these brands are considered to be indefinite.

At the time of the Merger, our portfolio consisted of Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton, Embassy Suites by Hilton, Hilton Garden Inn, Hampton by Hilton, Homewood Suites by Hilton and our timeshare brand, Hilton Grand Vacations.

As a result of the Merger, these brands were assigned a fair value using the relief-from-royalty valuation approach or the excess earnings method, depending on the contract type.

All brands that were launched subsequent to the Merger, which include LXR Hotels & Resorts, Canopy by Hilton, Signia by Hilton, Curio Collection by Hilton, Tapestry Collection by Hilton, Tempo 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.

A portion of our brands intangible assets are denominated in foreign currencies and, as such, a period over period change in these assets is attributable to fluctuations in foreign currency exchange rates.

All brands that were launched subsequent to the Merger, which, as of December 31, 2022, included LXR Hotels & Resorts, Canopy by Hilton, Signia by Hilton, Curio Collection by Hilton, Tapestry Collection by Hilton, Tempo 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.

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 brand intangible asset is less than its carrying value.

If we determine qualitatively that the fair value is more likely than not less than its carrying value, or if we decide to bypass the qualitative assessment, we perform a quantitative analysis.

When we evaluate our brands intangible assets for potential impairment, generally, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the asset is less than its carrying value.

If we determine qualitatively that the fair value of an asset is more likely than not less than its carrying value,

or if we decide to bypass the qualitative assessment, we perform a quantitative analysis.

The estimated fair value of the brand is based on internal projections of expected future cash flows.

If a brand intangible asset’s estimated fair value is less than its

respective carrying value, the excess of the carrying value over the estimated fair value is recognized in our consolidated statement of operations as an impairment loss.

If a brand intangible asset's estimated fair value is less than its respective carrying value, the excess of the carrying value over the estimated fair value is recognized in our consolidated statement of operations as an impairment loss.

Intangible Assets with Finite Useful Lives

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and capitalized software costs ( 3 years).

In our consolidated statements of operations, the amortization of these intangible assets, excluding contract acquisition costs, is included in depreciation and amortization expense, and the amortization of contract acquisition costs is recognized as a reduction to franchise and licensing fees or base and other management fees, depending on the contract type.

Costs incurred prior to the acquisition of a contract, such as external legal costs, are expensed as incurred and included in general and administrative expenses in our consolidated statements of operations.

Cash flows for contract acquisition costs and development commissions and other 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 evaluate the carrying value of all finite-lived intangible assets for indicators of impairment, and, if such indicators 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 and exceeds the estimated fair value of the asset group, we recognize an impairment loss in our consolidated statement of operations for the amount by which the carrying value exceeds the estimated fair value.

In our consolidated statement of operations, the amortization of these intangible assets, excluding contract acquisition costs, is included in depreciation and amortization expenses, and the amortization of contract acquisition costs is recognized as a reduction to franchise and licensing fees or base and other management fees, depending on the contract type.

Cash flows for contract acquisition costs and development commissions and other are included as operating activities in our consolidated statement of cash flows, and cash flows for capitalized software costs are included as investing activities.

We evaluate the carrying value of all finite-lived intangible assets for indicators of impairment, and, if such indicators exist, we perform an analysis to determine the recoverability of the asset group 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 and it exceeds the estimated fair value of the asset group, we recognize an impairment loss in our consolidated statement of operations for the amount by which the carrying value exceeds the estimated fair value.

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

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refer to "Leases" below for additional information.

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

buildings and improvements ( 8 to 40 years);

furniture and equipment ( 3 to 8 years);

and computer equipment ( 3 to 5 years).

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

(i) 8 to 40 years for buildings and improvements;

(ii) 3 to 8 years for furniture and equipment;

and (iii) 3 to 5 years for computer equipment.

Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the estimates above, or the remaining lease term.

We evaluate the carrying value of our property and equipment for indicators of impairment and, if such indicators exist, we review the recoverability of the asset group by comparing the estimated undiscounted future cash flows to the net carrying value of the asset group.

If the net carrying value of the asset group is determined to be more than its estimated undiscounted future cash flows and, therefore, is not considered to be recoverable and is in excess of the estimated fair value, we recognize an impairment loss in our consolidated statement of operations for the amount by which the carrying value exceeds the estimated fair value.

We evaluate the carrying value of our property and equipment for indicators of impairment, and, if such indicators exist, we perform an analysis to determine the recoverability of the asset group by comparing the estimated undiscounted future cash flows to the net carrying value of the asset group.

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

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The lease liability is initially measured as the present value of the future fixed lease payments that will be made over the lease term.

The lease term includes lessee options to extend the lease and periods occurring after a lessee early termination option, only to the extent it is reasonably certain that we will exercise such extension options and not exercise such early termination options, respectively.

The lease term includes lessor options to renew the lease within the lessor's control and lessee options to extend the lease and periods occurring after a lessee early termination option, only to the extent it is reasonably certain that we will exercise such extension options and not exercise such early termination options, respectively.

The future fixed lease payments are discounted using the rate implicit in the lease, if available, or our incremental borrowing rate.

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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 ROU assets for indicators of impairment and, if such indicators exist, we review the recoverability of the related asset group by comparing the estimated undiscounted future cash flows to the net carrying value of the asset group.

If the net carrying value of the asset group is determined to be more than its estimated undiscounted future 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 statement of operations for the amount the carrying value exceeds the estimated fair value.

In our consolidated balance sheets, 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.

We evaluate the carrying value of our ROU assets for indicators of impairment, and, if such indicators exist, we perform an analysis to determine the recoverability of the asset group by comparing the estimated undiscounted future 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 values of the respective assets.

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(i) fixed lease payments, or minimum payments, as contractually stated in the lease agreement;

(ii) variable lease payments, which, for our hotels, are generally based on a percentage of the underlying asset's revenues or profits, or are dependent on changes in an index;

(ii) variable lease payments, which, for our hotels, are generally based on a percentage of the underlying asset's revenues or profits or result from changes in inflationary indices;

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 FF&E 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, 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 hotels expenses, general and administrative expenses and other expenses from managed and franchised properties in our consolidated statement 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, if any, 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 expenses and other expenses from managed and franchised properties in our consolidated statements of operations.

The interest expense related to finance leases, including any variable lease payments, is recognized in interest expense in our consolidated statements of operations.

The interest expense related to finance leases, including any variable lease payments, is recognized in interest expense in our consolidated statement of operations.

Contract Liabilities

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(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.

and (iv) as of December 31, 2021, 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, excluding the pre-sale of Hilton Honors points, are recognized as revenue when the points are redeemed for a free or discounted good or service by the Hilton Honors

Contract liabilities related to amounts received for Hilton Honors, excluding the

pre-sale of Hilton Honors points, are recognized as revenue when the points are redeemed for a free or discounted good or service by the Hilton Honors member.

For the contract liabilities related to the pre-sale of Hilton Honors points, a portion is recognized as revenue from licensing fees when the related points are awarded to customers, and the remainder is recognized when customers redeem the Hilton Honors points.

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All of our managed, franchised, owned and leased properties participate in the Hilton Honors program.

Hilton Honors members earn points based on their spend at our participating properties and through participation in affiliated strategic partner programs.

Hilton Honors members earn points based on their spend at our participating properties and through participation in affiliated strategic partner programs, including co-branded credit card arrangements.

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.

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For the Hilton Honors fees that are charged to the participating properties, we allocate such fees to the substantive right created by the Hilton Honors points that are issued using the variable consideration allocation guidance, since the fees are directly related to the issuance of Hilton Honors points to the Hilton Honors member and Hilton's efforts to satisfy the future redemption of those Hilton Honors points.

We engage third-party actuaries annually to assist in determining the fair value of the future reward 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 (i.e., 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 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.

We engage third-party actuaries annually to assist in determining the fair value of the future reward redemption obligation using a discount rate and 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 (i.e., points that will never be redeemed), an expectation of when such points are expected to 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 by a Hilton Honors member at an owned or leased hotel, we recognize a reduction in owned and leased hotels revenues, since we are also the program sponsor.

We estimate the current portions of our liability for guest loyalty program and Hilton Honors deferred revenues based on the total point redemptions and breakage expected to occur within the next 12 months;

these amounts are presented as current portion of liability for guest loyalty program and current portion of deferred revenues in our consolidated balance sheets.

The transaction prices for the Hilton Honors points issued are reduced by the expected payments to the properties and other third parties that will provide the free or discounted good or service using the actuarial projection of the cost per point.

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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 Hilton Honors member to redeem their points for free or discounted goods and services is reflective of the amount retained by Hilton after the cost of providing the free or discounted goods and services.

As a result of the COVID-19 pandemic, we temporarily suspended the expiration of Hilton Honors points, and, as a result, our estimates of breakage for both the determination of our liability for guest loyalty program and the amount of revenue recognized when our point obligation is satisfied include the anticipated point expirations that will occur at the end of the suspension.

recognized when our point obligation is satisfied included the anticipated point expirations that occurred at the end of the

suspension, which was December 31, 2022.

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

The consideration received 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 Hilton Honors members using a cost plus method based on an evaluation of other third-party administrators.

(i) an IP license using the relief-from-royalty valuation method;

and (ii) substantive rights for free or discounted goods or services to the Hilton Honors members 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 performance obligation related to the IP license over time as the strategic partner simultaneously receives and consumes the benefits of the goods or services provided.

Hilton reimburses participating properties and applicable third parties when points are redeemed by Hilton Honors members for stays at the participating properties or for other goods or 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 points for a free or discounted stay at our owned and leased hotels, we recognize room revenue, included in owned and leased hotel revenues in our

consolidated statements of operations.

We recognized revenue of $ 346 million related to Hilton Honors point redemptions and license fees during the year ended December 31, 2021.

Hilton reimburses participating properties and applicable third parties when points are redeemed by Hilton Honors members for stays

at the participating properties or for other goods or 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 statement of operations.

Additionally, when Hilton Honors members redeem points for a free or discounted stay at our owned and leased hotels, we recognize room revenue, included in owned and leased hotels revenues in our consolidated statement of operations.

During the year ended December 31, 2022, we recognized an aggregate of $ 457 million of revenue related to Hilton Honors, including amounts related to point redemptions, which were recognized in other revenues from managed and franchised properties, and amounts related to licensing fees, which were recognized in franchise and licensing fees.

Fair Value Measurements – Valuation Hierarchy

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We generally enter into cash flow hedges (i.e., a hedge of a specific forecasted transaction or the variability of cash flows to be paid), and, in the past, we entered into net investment hedges (i.e., a hedge of an investment in a foreign operation).

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

If we do not specifically designate the derivative as a cash flow hedge or another type of hedging instrument, changes in the fair value of the undesignated derivative instrument are reported in current period earnings.

Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged in the consolidated statements of cash flows, while cash flows from undesignated derivative financial instruments are included as an investing activity.

Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged in the consolidated statement of cash flows, while cash flows from undesignated derivative financial instruments are included as an investing activity.

We perform an initial prospective assessment of hedge effectiveness on a quantitative basis between the inception date and the earlier of the first quarterly hedge effectiveness date or the issuance of the financial statements that include the hedged transaction.

On a quarterly basis, we assess the effectiveness of our designated hedges in offsetting the variability in the cash flows using the Hypothetical Derivative Method.

On a quarterly basis, we assess the effectiveness of our designated hedges in offsetting the variability in the cash flows using a statistical method.

This method compares the cumulative change in fair value of each hedging instrument to the cumulative change in fair value of a hypothetical hedging instrument, which has terms that identically match the critical terms of the respective hedged transactions.

Thus, the hypothetical hedging instrument is presumed to perfectly

offset the hedged cash flows.

Thus, the hypothetical hedging instrument is presumed to perfectly offset the hedged cash flows.

Ineffectiveness results when the cumulative change in the fair value of the hedging instrument exceeds the cumulative change in the fair value of the hypothetical hedging instrument.

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The functional currency for our entities operating outside of the U.S.

is the currency of the primary economic environment in which the respective entity operates.

is the currency of the primary economic environment in which the respective entity operates, unless it is considered a highly inflationary economy in which case the functional currency of that entity is USD.

Assets and liabilities measured in foreign currencies are translated into USD at the prevailing foreign currency exchange rates in effect as of the financial statement date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive income (loss) in our consolidated balance sheets.

Income and expense accounts are translated at the average foreign currency exchange rate for the period.

Gains and losses from foreign currency exchange rate changes related to transactions denominated in a currency other than an entity's functional currency or intercompany receivables and payables denominated in a currency other than an entity’s functional currency that are not of a long-term investment nature are recognized within gain (loss) on foreign currency transactions in our consolidated statements of operations.

Where certain specific evidence indicates intercompany receivables and payables will not be settled in the foreseeable future and are of a long-term nature, gains and losses from foreign currency exchange rate changes are recognized as currency translation adjustment within other comprehensive income (loss) in our consolidated statements of comprehensive income (loss).

We are self-insured for losses up to our third-party insurance deductibles for domestic general liability, auto liability, workers' compensation, employment practices liability and crime insurance at our owned, leased and managed hotels that participate in our insurance programs, in addition to other corporate related coverages.

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

corporate operations and some managed hotels.

We are self-insured for losses up to our third-party insurance deductibles for domestic general liability, auto liability, workers' compensation, employment practices liability and crime insurance at our leased and managed hotels that participate in our insurance programs, in addition to other corporate related coverages.

We are also self-insured for health coverages for some of our U.S.

and Puerto Rico employees, which include those working at our corporate operations and managed hotels, with purchased insurance protection for costs over specified thresholds.

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.

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These estimates are prepared with the assistance of third-party actuaries and consultants.

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.

The ultimate cost of claims for a covered period are reviewed at least annually, or more frequently as circumstances dictate, and are adjusted based on the latest information available to us, which may differ from our original estimates.

Share-Based Compensation

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Compensation expense for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered as of the reporting date) in the fair value of the instrument for each reporting period for such liability awards.

Compensation expense for awards with performance conditions is recognized over the requisite service period if it is probable that the performance condition will be satisfied.

Compensation expense for awards with a performance condition is dependent on the expected achievement percentage of such awards, which is reassessed each reporting period from the date of grant through the vesting of such performance awards, and is recognized over the requisite service period if it is probable that the performance condition will be satisfied.

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 related to awards that are determined to be improbable of achievement is reversed.

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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.

Share-based compensation expense is recognized in owned and leased hotels expenses, general and administrative expenses and other expenses from managed and franchised properties in our consolidated statement of operations.

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

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We use a prescribed recognition threshold for the financial statement recognition and measurement of a tax position taken in a tax return.

For all income tax positions, we first determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position.

If it is determined that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

In August 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law in the U.S.

We do not expect the IRA to have a material impact on our consolidated financial statements, including our annual estimated effective tax rate during interim periods.

Loss Contingencies

We are involved in various claims and lawsuits arising in the ordinary course of business, the outcomes of which are subject to significant uncertainty.

We also provide various types of guarantees and other assistance in the form of letters of credit and financing to certain owners of hotels that we currently or plan to manage or franchise, with varying degrees of certainty with respect to the ultimate timing and amount of cash flows that might be expended under such agreements.

We also provide various types of guarantees and other assistance in the form of letters of

credit and financing to owners of certain hotels that we currently or in the future will manage or franchise, with varying degrees of certainty with respect to the ultimate timing and amount of cash flows that might be expended under such agreements.

An estimated loss from a loss contingency will be accrued as a charge to income if it is probable a loss has been incurred and the amount of the loss can be reasonably estimated.

We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss in determining whether an accrual of an estimated loss is appropriate.

Recently Issued Accounting Pronouncements

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Disclosures by Business Entities about Government Assistance , which requires entities to provide annual disclosures about the nature of material existing government assistance agreements and the impact of such agreements on the entity's financial statements.

The provisions of ASU 2021-10 are effective for fiscal years beginning after December 15,

early adoption is permitted.

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 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.

The provisions of ASU 2021-10 are effective for fiscal years beginning after December 15, 2021 and the amendments should be applied either:

(i) prospectively to all in scope transactions that are reflected in the financial statements at the date of initial application and new transactions that are entered into after that date;

or (ii) retrospectively to those transactions.

Hilton adopted this ASU on January 1, 2022 on a prospective basis and it had no material impact on our consolidated financial statements as of and for the year ended December 31, 2022.

If, at any point in time, such amounts are deemed to be material, we will present the required disclosures as applicable .

Revenues from Contracts with Customers

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(1) Primarily related to Hilton Honors, including co-branded credit card arrangements.

(2) Revenue recognized during the year ended December 31, 2021 included $ 25 million for performance obligations that were satisfied in a prior period as a result of a change to the estimated breakage of Hilton Honors points for which point expirations have been temporarily suspended.

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

Hilton Honors Points Pre-Sale

In April 2020, we pre-sold Hilton Honors points to American Express for $ 1.0 billion in cash (the "Honors Points Pre-Sale").

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 that they may establish or engage in from time to time.

Upon receipt of the cash, we recognized $ 636 million in deferred revenues and the remainder in liability for guest loyalty program, which is recognized as revenue as discussed in Note 2:

"Basis of Presentation and Summary of Significant Accounting Policies" and for which the remaining deferred revenue as of December 31, 2021 is included in our co-branded credit card arrangement performance obligation below.

(2) Revenue recognized during the year ended December 31, 2022 included a net increase in revenue of $ 11 million for Hilton Honors points redeemed in prior periods, as a result of a change to the estimated breakage of Hilton Honors points for which point expirations were temporarily suspended through December 31, 2022.

(3) Represents changes in estimated transaction prices for our performance obligations related to the issuance of Hilton Honors points, which had no effect on revenues during the period, and was primarily due to the expiration of Hilton Honors points on December 31, 2022 following the program's temporary suspension of such points.

Performance Obligations

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(i) $ 631 million related to Hilton Honors that will be recognized as revenue over approximately the next two years ;

(ii) $ 151 million related to co-branded credit card arrangements, primarily from the Honors Points Pre-Sale;

and (iii) $ 631 million related to application, initiation and other fees .

(ii) $ 674 million related to advance consideration received from hotel owners for application, initiation and other fees and certain indirect reimbursements;

and (iii) $ 26 million related to other obligations.

Consolidated Variable Interest Entities

As of December 31, 2021 and 2020, we consolidated two VIEs that each lease a hotel property.

As of December 31, 2022 and 2021, we consolidated two VIEs that each lease one hotel property, both of which are located in Japan.

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

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The assets of our consolidated VIEs are only available to settle the obligations of the respective entities, and the liabilities of the consolidated VIEs are non-recourse to us.

Our consolidated balance sheets include the assets and liabilities of these entities, which primarily comprised the following:

Our consolidated balance sheets include the assets and liabilities of these entities, including the effect of foreign currency translation, which primarily comprised the following:

(in millions)

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(1) Includes finance lease liabilities of $ 115 million and $ 153 million as of December 31, 2022 and 2021, respectively.

As of December 31, 2021, the VIEs had revolving credit facilities with borrowing capacities totaling 4.5 billion Japanese yen ("JPY") (equivalent to $ 39 million), with 500 million JPY (equivalent to $ 4 million) included in long-term debt in our consolidated balance sheet, resulting in available borrowing capacities totaling 4.0 billion JPY (equivalent to $ 35 million).

There were no amounts drawn under these facilities as of December 31, 2020.

In December 2021, our consolidated VIEs borrowed an aggregate of 600 million JPY (equivalent to $ 5 million), which was also included in long-term debt in our consolidated balance sheet as of December 31, 2021.

Debt for additional information.

During the year ended December 31, 2022, our consolidated VIEs borrowed an aggregate of 2.7 billion Japanese yen ("JPY"), of which 0.3 billion JPY was repaid during the year ended December 31, 2022, resulting in 2.4 billion JPY (equivalent to $ 18 million) of those borrowings remaining outstanding as of December 31, 2022.

As of December 31, 2022, these remaining borrowings were included in long-term debt in our consolidated balance sheet and had a weighted average interest rate of 1.04 percent and maturity dates ranging from August 2025 to February 2029.

As of December 31, 2021, one of our consolidated VIEs had drawn 500 million JPY (equivalent to $ 4 million) under a revolving credit facility, which was fully repaid by July 2022;

these borrowings were included in long-term debt in our consolidated balance sheet as of December 31, 2021.

Goodwill and Intangible Assets

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"Fair Value Measurements" for additional information.

As such, as of December 31, 2021 and 2020, our goodwill balance was only attributable to our management and franchise reporting unit, which had no accumulated impairment losses as of either date, and the change during the year ended December 31, 2021 was due to foreign currency translation.

As such, as of December 31, 2022 and 2021, our goodwill balance was only attributable to our management and franchise reporting unit, which had no accumulated impairment losses as of either date.

The changes in our goodwill balances during the years ended December 31, 2022 and 2021 were due to foreign currency translation.

Intangible Assets

Changes to our brands intangible assets during the year ended December 31, 2021 were due to foreign currency translation.

Finite-lived intangible assets were as follows:

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Management and franchise contracts:

Management contracts recorded at Merger (1)

International management contracts recorded at Merger (1)

$ 293 $ ( 278 ) $ 15

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Management and franchise contracts:

Management contracts recorded at Merger (1)

International management contracts recorded at Merger (1)

$ 310 $ ( 275 ) $ 35

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Capitalized software costs $ 561 $ ( 460 ) $ 101

Leases (1)(3)

138 ( 83 ) 55

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

(2) During the year ended December 31, 2020, we recognized impairment losses of $ 15 million included in our consolidated statement of operations.

(3) During the year ended December 31, 2020, we recognized impairment losses of $ 46 million included in our consolidated statement of operations.

During the year ended December 31, 2020 we recognized $ 15 million and $ 46 million of impairment losses related to contract acquisition costs and our leases intangible assets, respectively, in our consolidated statement of operations;

see Note 10 :

" Fair Value Measurements " for additional information.

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Recognized as a reduction of franchise and licensing fees and base and other management fees

(1) Includes amortization expense of $ 47 million, $ 164 million and $ 202 million for the years ended December 31, 2021, 2020 and 2019, respectively, associated with assets that were initially recorded at their fair value at the time of the Merger, some of which fully amortized during 2020.

We estimate future amortization expense of our finite-lived intangible assets that will be recognized in depreciation and amortization expenses as of December 31, 2021 to be as follows:

(1) Includes amortization expense of $ 45 million, $ 47 million and $ 164 million for the years ended December 31, 2022, 2021 and 2020, respectively, associated with assets that were initially recorded at fair value at the time of the Merger, some of which fully amortized during 2020.

As of December 31, 2022, w e estimate future amortization expense of our finite-lived intangible assets that will be recognized in depreciation and amortization expenses to be as follows:

Year (in millions)

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(in millions)

Land $ 9 $ 11

Buildings and leasehold improvements

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(1) During the years ended December 31, 2022, 2021 and 2020, depreciation and amortization expenses on property and equipment was $ 46 million , $ 53 million and $ 57 million, respectively.

Property and equipment, net attributed to U.S.

operations was $ 111 million and $ 112 million as of December 31, 2022 and 2021, respectively, and to operations outside the U.S.

was $ 169 million and $ 193 million, respectively, most significantly in the United Kingdom ("U.K.") and Japan.

During the year ended December 31, 2020 we recognized $ 28 million of impairment losses in our consolidated statement of operations related to property and equipment, net, of which $ 4 million related to finance lease ROU assets;

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$ 1,790 $ 1,568

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

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

Long-term Debt

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(in millions)

Senior secured revolving credit facility, due 2024 $ — $ 1,690

Senior secured term loan facility with a rate of 6.17 %, due 2026

Senior notes with a rate of 5.375 %, due 2025

$ 2,619 $ 2,619

Senior notes with a rate of 5.375 %, due 2025 (1)

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$ 8,708 $ 8,712

(1) Represents current maturities of finance lease liabilities and, as of December 31, 2021, the outstanding borrowings under the revolving credit facility of a consolidated VIE.

As part of our response to the COVID-19 pandemic, we completed senior note 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 at that point in time.

In February 2021, we issued $ 1.5 billion aggregate principal amount of 3.625 % Senior Notes due 2032 (the "2032 Senior Notes") and incurred $ 21 million of debt issuance costs.

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 redeem all $ 1.5 billion in aggregate principal amount of our outstanding 5.125 % Senior Notes due 2026, plus accrued and unpaid interest.

In connection with the redemption, we paid a redemption premium of $ 55 million and accelerated the recognition of the unamortized deferred financing costs related to the redeemed notes of $ 14 million, which were both included in loss on debt extinguishment in our consolidated statement of operations for the year ended December 31, 2021.

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 related to the redeemed notes 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 "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 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 (the "2030 Senior Notes").

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 Loan") and to repay $ 225 million outstanding on the senior secured revolving credit facility (the "Revolving Credit Facility").

As a result of the repayment and simultaneous amendment of the Term Loan, we accelerated the recognition of $ 10 million of unamortized deferred financing costs and discount and fees, which were included in other non-operating income, net in our consolidated statement of operations during the year ended December 31, 2019.

The 2025 Senior Notes, the 4.875 % Senior Notes due 2027, the 2028 Senior Notes, the 2029 Senior Notes, the 2030 Senior Notes, the 2031 Senior Notes and the 2032 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 restricted subsidiaries, other than Hilton Domestic Operating Company Inc.

(1) These 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 restricted subsidiaries, except for Hilton Domestic Operating Company Inc.

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

Senior Secured Credit Facilities

Our senior secured credit facilities consist of the $ 1.75 billion Revolving Credit Facility, of which $ 250 million is available in the form of letters of credit, and the Term Loan.

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 restricted subsidiaries.

During the year ended December 31, 2021, we fully repaid the $ 1,690 million outstanding debt balance on the Revolving Credit Facility, which we borrowed in 2020 in response to the COVID-19 pandemic.

As of December 31, 2021, we had $ 60 million of letters of credit outstanding on the Revolving Credit Facility, resulting in an available borrowing capacity of $ 1,690 million.

Other Debt of Consolidated VIEs

In August 2021, one of our consolidated VIEs borrowed 500 million JPY (equivalent to $ 4 million as of December 31, 2021) on its revolving credit facility, which has a maturity date of June 2022;

(2) Long-term debt of our consolidated variable interest entities is included in finance lease liabilities and other debt of consolidated VIEs as applicable;

refer to Note 4:

"Consolidated Variable Interest Entities" for additional information on the revolving credit facilities of our consolidated VIEs.

In December 2021, our two consolidated VIEs each borrowed 300 million JPY (totaling to an equivalent of $ 5 million as of December 31, 2021) with zero percent interest rates and maturity dates in November 2024 and November 2028.

"Consolidated Variable Interest Entities" for additional information.

(3) Represents current maturities of finance lease liabilities and borrowings of one consolidated VIE.

Senior Secured Credit Facilities

Our senior secured credit facilities consist of a senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility.

In December 2022, we amended the credit agreement that governs our senior secured credit facilities to reference the Secured Overnight Financing Rate as the primary benchmark rate for our variable-rate indebtedness under this agreement in lieu of the London Interbank Offered Rate.

We applied the practical expedient as prescribed in ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting that allowed us to consider this amendment as though the modification was not substantial.

As of December 31, 2022, our Revolving Credit Facility had a total borrowing capacity of $ 1.75 billion and, of the $ 250 million available in the form of letters of credit, $ 60 million letters of credit were outstanding, resulting in an available borrowing capacity of $ 1,690 million.

No borrowings were outstanding under the Revolving Credit Facility as of December 31, 2022 and 2021.

In January 2023, we amended the credit agreement governing our Revolving Credit Facility to increase the borrowing capacity to $ 2.0 billion, $ 250 million of which is available in the form of letters of credit, and, based on the terms of the agreement, we expect the extended maturity date to be January 2028.

In connection with this amendment, we incurred approximately $ 9 million of debt issuance costs.

As of February 3, 2023, after considering $ 60 million letters of credit outstanding and no borrowings outstanding, we had an available borrowing capacity on the Revolving Credit Facility of $ 1,940 million .

During 2021 and 2020, we completed financing transactions, whereby we issued senior unsecured notes and used the net proceeds from those issuances, together with available cash, to redeem outstanding senior unsecured notes.

In connection with

the redemptions, we paid redemption premiums of $ 55 million and $ 31 million during the years ended December 31, 2021 and 2020, respectively, and accelerated the recognition of the unamortized deferred financing costs on the redeemed notes of $ 14 million and $ 17 million, respectively.

These amounts were included in loss on debt extinguishments in our consolidated statements of operations for the years ended December 31, 2021 and 2020.

During 2020, we also issued in aggregate $ 1.0 billion of senior unsecured notes.

Debt Maturities

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Hierarchy Level

Carrying Value Level 1 Level 2 Level 3

Carrying Value (1)

Level 1 Level 2 Level 3

(in millions)

Cash equivalents $ 338 $ — $ 338 $ —

Interest rate swap (2)

Long-term debt (3)

8,619 5,292 — 2,616

Interest rate swaps 41 — 41 —

December 31, 2021

Hierarchy Level

Carrying Value Level 1 Level 2 Level 3

Carrying Value (1)

Level 1 Level 2 Level 3

(in millions)

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Interest rate swaps (2)

(1) The carrying values include unamortized deferred financing costs and discount.

The carrying values and fair values exclude finance lease liabilities and other debt of consolidated VIEs.

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of December 31, 2021 and 2020.

(1) The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values.

(2) Interest rate swaps are included in other non-current assets or other long-term liabilities in our consolidated balance sheet depending on their value to us as of the balance sheet date.

During the year ended December 31, 2022, one of the interest rate swaps that was outstanding as of December 31, 2021 matured.

The remaining interest rate swap outstanding as of December 31, 2022 will mature in March 2026.

(3) The carrying value and fair values exclude the deduction for unamortized deferred financing costs and any applicable discounts, as well as all finance lease liabilities and other debt of consolidated VIEs;

refer to Note 8:

Debt for additional information.

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 as a result of the COVID-19 pandemic, were primarily related to certain hotel properties under operating and finance leases and goodwill, all of which were part of our ownership reporting unit.

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Finance leases 5.90 % 5.88 %

(1) Operating lease ROU assets attributed to U.S.

operations was $ 78 million and $ 37 million as of December 31, 2022 and 2021, respectively, and to operations outside the U.S.

was $ 584 million and $ 657 million, respectively, most significantly in the U.K.

The components of lease expense were as follows:

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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:

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Provision for uncertain tax positions 14 15 7

Nondeductible compensation 15 — —

Excess tax benefits related to share-based compensation ( 10 ) — —

Other, net 4 1 ( 11 )

Provision (benefit) for income taxes $ 477 $ 153 $ ( 204 )

(1) Income tax rate changes resulted in the remeasurement of our deferred tax assets and liabilities and other tax liabilities to the new tax rates, resulting in a $ 49 million deferred tax benefit and a $ 4 million current tax expense, respectively, which were recognized during the year ended December 31, 2021.

Deferred Income Taxes

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Operating and finance lease ROU assets ( 206 ) ( 218 )

Other ( 10 ) —

Deferred tax liabilities ( 1,429 ) ( 1,455 )

Net deferred taxes $ ( 531 ) $ ( 487 )

As of December 31, 2021, we had:

(i) state net operating loss carryforwards of $ 69 million, which resulted in deferred tax assets of $ 4 million;

(ii) separate return limitation year loss carryforwards of $ 221 million, which resulted in federal deferred tax assets of $ 44 million and state deferred tax assets of $ 11 million;

and (iii) foreign net operating loss carryforwards of $ 2.2 billion and other foreign tax loss carryforwards of $ 129 million, resulting in deferred tax assets of $ 556 million and $ 34 million, respectively.

Approximately $ 44 million of our deferred tax assets as of December 31, 2021 related to net operating loss carryforwards that will expire between 2022 and 2041 with less than $1 million of that amount expiring in 2022.

Approximately $ 516 million of our deferred tax assets as of December 31, 2021 resulted from net operating loss carryforwards that are not subject to expiration.

Approximately $ 90 million of our deferred tax assets as of December 31, 2021 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 $ 488 million as of December 31, 2021 on the deferred tax assets relating to these tax loss carryforwards.

As of December 31, 2021, we also had deferred tax assets for foreign tax credit carryforwards of $ 48 million that will expire within eight years, for which we have provided full valuation allowances.

During the year ended December 31, 2021, we generated net operating losses in various jurisdictions and recorded a deferred tax benefit of $ 49 million for net operating losses, reduced by valuation allowances of $ 7 million, which resulted in a net deferred tax benefit of $ 42 million.

We have also provided valuation allowances of $ 27 million on other deferred tax assets generated during 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 decreased total valuation allowances by $ 19 million.

Overall, our total valuation allowance increased by $ 15 million during the year ended December 31, 2021.

As of December 31, 2022, we had gross U.S.

separate return limitation year loss carryforwards and foreign operating loss carryforwards of $ 2.6 billion, resulting in deferred tax assets of $ 641 million.

Approximately $ 41 million of our deferred tax assets as of December 31, 2022 related to loss carryforwards that will expire between 2023 and 2042 with less than $ 1 million of that amount expiring in 2023.

Approximately $ 600 million of our deferred tax assets as of December 31, 2022 resulted from loss carryforwards that are not subject to expiration.

We believe that it is more likely than not that the benefit from certain U.S.

and foreign loss carryforwards will not be realized.

In recognition of this assessment, we provided valuation allowances totaling $ 494 million as of December 31, 2022 on the deferred tax assets relating to these loss carryforwards.

As of December 31, 2022, we also had deferred tax assets for U.S.

tax credit carryforwards of $ 49 million that will expire between 2029 and 2032, for which we have provided valuation allowances.

Tax Uncertainties

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The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution.

Changes may result from the conclusion of ongoing audits, appeals or litigation in federal, state, local and foreign

tax jurisdictions or from the resolution of various proceedings between the U.S.

Changes may result from the conclusion of ongoing audits, appeals or litigation in federal, state, local and foreign tax jurisdictions or from the resolution of various proceedings between the U.S.

and foreign tax authorities.

As of December 31, 2021, we remain subject to federal and state examinations of our income tax returns for tax years from 2005 through 2021 and foreign examinations of our income tax returns for tax years from 1996 through 2021.

As of December 31, 2022, the Company's federal income tax returns remain subject to examination by the IRS for tax years from 2005 through 2022.

Various income tax returns filed with state, local and foreign jurisdictions remain subject to examination by the applicable taxing authorities.

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

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Balance at end of year $ 337 $ 375 $ 451

In prior periods, we received assessments for the tax years from 2006 through 2013 seeking proposed adjustments related to assertions by the IRS that:

(i) certain foreign currency denominated intercompany loans from our foreign subsidiaries to certain U.S.

subsidiaries should be recharacterized as equity for U.S.

federal income tax purposes and constitute deemed dividends from such foreign subsidiaries to our U.S.

subsidiaries 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.

As of December 31, 2021, we had entered into a tentative agreement to pay $ 48 million to settle both matters through the 2010 tax year, for which we had previously recorded reserves of $ 39 million.

The settlement is subject to approval by the Joint Committee on Taxation.

We continue to be subject to audit by the IRS on the two matters described above for the tax years subsequent to those subject to the settlement and may be assessed tax in the future on these same matters, and the amounts of such future assessments may be material.

We have evaluated the amount of benefit more likely than not to be realized for these two matters and, as of December 31, 2021, we had recorded $ 49 million of unrecognized tax benefits related to these issues for the tax years 2011 through 2021.

Subsequent to the aforementioned settlement, $ 36 million remains unsettled related to the two matters described above for the tax years from 2011 through 2013 and could result in additional U.S.

federal income taxes.

The decrease to our unrecognized tax benefits during the year ended December 31, 2021 primarily related to a tentative settlement agreement reached with the IRS for the tax years from 2006 through 2010.

Additionally, reserves decreased due to the current year decrease in the liability for Hilton Honors.

The increase 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 increases were partially offset by reductions and settlements, primarily relating to the conclusion of certain state audits.

The increase to our unrecognized tax benefits during the year ended December 31, 2019 primarily related to uncertainty regarding affirmative refund claims submitted to the IRS during 2019, as well as the addition of reserves related to Hilton Honors.

As of December 31, 2021, we had entered into a tentative agreement with the IRS, subject to approval by the Joint Committee on Taxation, to settle our federal examination through the 2010 tax year, and the settlement was approved by the Joint Committee on Taxation during the year ended December 31, 2022.

As a result, the extended federal statute of limitations for tax years from 2005 through 2010 is set to expire in 2023.

The assets and liabilities relating to the settlement were previously recognized as of December 31, 2021, and no adjustments were necessary as a result of the settlement approval.

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, 2022, 2021 and 2020, we recognized income tax expense related to interest and penalties of $ 17 million, $ 16 million and $ 13 million, respectively, in our consolidated statements of operations.

As of both December 31, 2021 and 2020, we had accrued approximately $ 65 million for interest and penalties related to our unrecognized tax benefits in our consolidated balance sheets.

As of December 31, 2022 and 2021, we had accrued approximately $ 79 million and $ 65 million, respectively, for interest and penalties related to our unrecognized tax benefits in our consolidated balance sheets.

Included in the balances of unrecognized tax benefits as of December 31, 2022 and 2021 were $ 337 million and $ 343 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate.

5 unchanged sentences

This plan was frozen for participant benefit accruals in 1996;

therefore, the projected benefit obligation is equal to the accumulated

benefit obligation.

therefore, the projected benefit obligation is equal to the accumulated benefit obligation.

The plan assets will be used to pay benefits due to employees for service through December 31, 1996.

Since employees have not accrued additional benefits from that time, we do not utilize salary or pension inflation assumptions in calculating our benefit obligation for the Domestic Plan.

The employee benefit plans covering many of our international employees include:

The employee benefit plans covering certain of our international employees include:

(i) a plan that covers employees in the U.K.

1 unchanged sentence

The annual measurement date for all of our plans is December 31.

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

We are required to recognize the funded status of our pension plans, which is the difference between the fair value of plan assets and the projected benefit obligations, in our

consolidated balance sheets and make corresponding adjustment s for changes in the difference between the fair value of plan assets and the projected benefit obligations through accumulated other comprehensive income (loss), net of taxes.

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

8 unchanged sentences

Interest cost 8 6 8 5 2 2

Actuarial loss (gain) ( 11 ) 31 ( 32 ) 78 ( 3 ) 2

Actuarial gain (1)

( 71 ) ( 11 ) ( 152 ) ( 32 ) ( 10 ) ( 3 )

Settlements — — — — — ( 1 )

13 unchanged sentences

Accumulated benefit obligation $ 284 $ 370 $ 286 $ 490 $ 64 $ 81

(1) The actuarial gains during the year ended December 31, 2022 were primarily related to increases in the discount rate assumptions.

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

12 unchanged sentences

Net actuarial loss (gain) $ 25 $ ( 38 ) $ 4 $ 39 $ ( 48 ) $ 41 $ ( 4 ) $ ( 7 ) $ 3

Prior service cost ( 4 ) ( 4 ) ( 4 ) — — ( 3 ) — — —

Amortization of prior service cost ( 4 ) ( 4 ) ( 4 ) — — — — — —

Amortization of net loss ( 3 ) ( 5 ) ( 4 ) ( 3 ) ( 5 ) ( 4 ) ( 1 ) ( 1 ) ( 1 )

17 unchanged sentences

$ ( 2 ) $ ( 1 ) $ 4 $ ( 10 ) $ ( 9 ) $ ( 5 ) $ 2 $ 1 $ 1

(1) Recognized in owned and leased hotel expenses and general and administrative expenses, as applicable, in our consolidated statements of operations.

(1) Recognized in owned and leased hotels expenses and general and administrative expenses, as applicable, in our consolidated statements of operations.

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

37 unchanged sentences

(in millions)

Cash and cash equivalents

$ — $ 12 $ 12

Alternative investments

Net asset value (1)

Cash equivalents

Common collective trusts

12 unchanged sentences

Share-Based Compensation

We recognized share-based compensation expense of $ 193 million, $ 97 million and $ 154 million during the years ended December 31, 2021, 2020 and 2019, respective ly, which included amounts reimbursed by hotel owners.

The total tax benefit recognized related to share-based compensation expense was $ 54 million , $ 35 million and $ 41 million for the years ended December 31, 2021, 2020 and 2019, respectively .

Share-based compensation expense recognized during the year ended December 31, 2020 included the reversal of expense recognized in prior years as a result of the determination that the performance conditions of our then-outstanding performance shares were no longer probable of achievement, partially offset by expense recorded in December 2020 as a result of the modification of our then-outstanding performance shares.

We recognized share-based compensation expense of $ 162 million, $ 193 million and $ 97 million during the years ended December 31, 2022, 2021 and 2020, respective ly, which included amounts reimbursed by hotel owners, and the related tax benefit recognized was $ 48 million, $ 54 million and $ 35 million, respectively .

Further, in December 2020, we modified our then-outstanding performance shares in response to the COVID-19 pandemic to reward for results achieved prior to the pandemic and incentivize our recovery efforts, with a portion of the awards modified to vest based on continued service and the remaining portion of the awards to vest based on new performance measures.

As a result of this modification, our share-based compensation expense for the years ended December 31, 2022, 2021 and 2020 includes incremental share-based compensation of $ 25 million, $ 70 million and $ 44 million, respectively.

As of December 31, 2022, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 119 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, 2021, there were 12.2 million shares of common stock available for future issuance under the 2017 Plan, including any shares subject to awards outstanding under the 2013 Omnibus Incentive Plan that will become available for issuance under the 2017 Plan if such outstanding awards expire or are terminated or are canceled or forfeited.

As of December 31, 2022, there were 11.4 million remaining shares authorized for awards under the 2017 Plan, including any shares subject to awards outstanding under the 2013 Omnibus Incentive Plan that 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:

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(1) Estimated using a blended approach of historical and implied volatility.

Historical volatility is based on the historical movement of Hilton's stock price for a period that corresponds to the expected life of the option.

(2) For options granted during the years ended December 31, 2020 and 2019, dividend yield was estimated based on our historical quarterly dividends and the three-month average stock price at the date of grant.

Historical volatility is based on the historical movement of Hilton's stock price for a look back period that corresponds to the expected term of the option.

(2) For options granted during the year ended December 31, 2020, dividend yield was estimated based on our historical quarterly dividends.

However, after the 2020 options were granted, we suspended the declaration and payment of dividends, and, at the time of grant for the 2021 options, we could not estimate when the payment of dividends would resume.

For the options granted during the year ended December 31, 2022, dividend yield was estimated based on the expectation, at the date of grant, of the resumption of a quarterly $ 0.15 per share dividend, which occurred in the second quarter of 2022.

For option grants made during the years ended December 31, 2022 and 2020, the three month average stock price at the date of grant was also utilized in the dividend yield calculation.

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

Department of Treasury instruments with similar expected lives.

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

Department of Treasury instruments with similar expected terms at the date of grant.

(4) Estimated using the midpoint of the vesting period and the contractual term of the options.

The following table summarizes the activity of our options during the year ended December 31, 2022:

5 unchanged sentences

Exercised ( 100 ) 69.88

Forfeited ( 19 ) 100.84

Outstanding as of December 31, 2022 (1)

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Performance Shares

In December 2020, we modified our performance shares that were originally awarded in 2018, 2019 and 2020 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 adverse impact of the pandemic.

Under the terms of the modified awards, a portion of the outstanding performance shares granted in 2019 were modified to vest based on performance prior to the pandemic and continued service, and the remaining portion of those performance shares, as well as the shares granted in 2020, were converted to performance shares that will vest based on different performance measures from those under the original award agreements.

The modified terms did not change the vesting schedules of the original awards, and, as such, the performance shares that were originally awarded in 2018 and 2019 vested in December 2020 and December 2021, respectively.

As a result of the performance share modifications, we recognized incremental share-based compensation expense of $ 70 million and $ 44 million during the years ended December 31, 2021 and 2020, respectively, and we expect to recognize the remaining incremental expense of $ 23 million during 2022.

As of December 31, 2021, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the applicable achievement factors estimated to be between the target and maximum achievement percentages.

As of December 31, 2022, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the average of the applicable achievement factors estimated to be between the target and maximum achievement percentages.

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

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Aggregate intrinsic value of shares vested (in millions) $ 42 $ 36 $ 58

(1) In December 2020, 288,000 and 340,000 performance shares from the 2020 grant and 2019 grant, respectively, were modified, as discussed above, with a modification date fair value per share of $ 102.95 .

The following table summarizes the activity of our performance shares for all of our performance measures during the year ended December 31, 2021:

(1) In December 2020, 288,000 performance shares from the 2020 grant were modified with a modification date fair value per share of $ 102.95 .

The following table summarizes the activity of our performance shares in aggregate for all of our performance measures during the year ended December 31, 2022, with the performance shares reflected at the target achievement percentage until completion of the performance period:

Number of Shares Weighted Average Grant Date Fair Value per Share

1 unchanged sentence

Outstanding as of December 31, 2021

1,020 $ 84.57

Granted 216 150.67

Performance achievement share adjustments (1)

Vested ( 496 ) 83.11

1 unchanged sentence

Outstanding as of December 31, 2022

(1) Reflects the number of shares achieved above target, based on actual performance as determined at the completion of the respective three-year performance period.

Earnings (Loss) Per Share

12 unchanged sentences

$ 4.53 $ 1.46 $ ( 2.58 )

(1) Certain shares related to share-based compensation were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive under the treasury stock method, including less than 1 million shares, 4 million shares, as revised, and 1 million shares for the years ended December 31, 2021, 2020 and 2019, respectively.

The dilutive shares related to share-based compensation included in the previously reported weighted average shares outstanding of 279 million for the year ended December 31, 2020 were revised in the current period presentation, as the previously reported dilutive shares were determined to be anti-dilutive as a result of the net loss attributable to Hilton stockholders reported during the period.

The result of the revision is an immaterial decrease in the previously reported diluted EPS for the year ended December 31, 2020 of $ 0.02 .

(1) Certain shares related to share-based compensation were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive under the treasury stock method, including less than 1 million shares for the years ended December 31, 2022 and 2021 and 4 million shares for the year ended December 31, 2020.

Accumulated Other Comprehensive Loss

5 unchanged sentences

Balance as of December 31, 2019 $ ( 549 ) $ ( 269 ) $ ( 22 ) $ ( 840 )

Other comprehensive loss before reclassifications

Other comprehensive income (loss) before reclassifications

33 ( 30 ) ( 46 ) ( 43 )

Amounts reclassified from accumulated other comprehensive loss

1 8 ( 10 ) ( 1 )

Net current period other comprehensive loss

Net other comprehensive income (loss)

38 ( 20 ) ( 38 ) ( 20 )

3 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

Net other comprehensive income (loss)

( 29 ) 79 31 81

3 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

Net other comprehensive income (loss)

( 8 ) ( 49 ) 130 73

1 unchanged sentence

(1) Includes net investment hedge gains 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 which were recognized in our consolidated statements of operations in loss on sales of assets, net during the year ended December 31, 2021 and in loss on foreign currency transactions during the years ended December 31, 2020 and 2019.

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

Amounts reclassified relate to the liquidation of investments in foreign entities which were recognized in our consolidated statements of operations in gain (loss) on foreign currency transactions during the years ended December 31, 2022 and 2020 and in loss on sales of assets, net during the year ended December 31, 2021.

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

(3) Amounts reclassified were the result of hedging instruments, including:

(a) interest rate swaps, inclusive of interest rate swaps that were dedesignated and subsequently settled, with related amounts recognized in interest expense in our consolidated statements of operations and (b) forward contracts that hedge our foreign currency denominated fees, with related amounts recognized in various revenue line items, as applicable, in our consolidated statements of operations.

(a) interest rate swaps, inclusive of interest rate swaps that were dedesignated, with related amounts recognized in interest expense in our consolidated statements of operations and (b) forward contracts that hedge our foreign currency denominated fees, with related amounts recognized in various revenue line items, as applicable, in our consolidated statements of operations.

Business Segments

We are a hospitality company with operations organized in two distinct operating segments:

(i) management and franchise and (ii) ownership, each of which is reported as a segment based on (i) delivering a similar set of products and services and (ii) being managed separately given its distinct economic characteristics.

(i) management and franchise and (ii) ownership, each of which is reported as a segment based on (a) delivering a similar set of products and services;

and (b) being managed separately given its 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 that license our IP and where we provide other contracted services to third-party owners, but the day-to-day services of the hotels are operated or managed by someone other than us.

This segment generates its revenue from:

(i) management and franchise fees charged to third-party owners;

(ii) licensing fees from HGV and strategic partnerships, including co-branded credit card arrangements, for the right to use our IP;

Revenues from this segment include:

(i) management and franchise fees charged to third-party hotel owners;

(ii) licensing fees from our strategic partners, including co-branded credit card providers, and HGV for the right to use our IP;

and (iii) fees for managing hotels in our ownership segment.

As of December 31, 2022, this segment included 778 managed hotels and 6,255 franchised hotels consisting of 1,096,115 total rooms.

As a result of the COVID-19 pandemic, during the years ended December 31, 2021 and 2020, the operations of certain hotels in our management and franchise segment were suspended for some period of time.

As of December 31, 2021, nearly all of these hotels had reopened.

As of December 31, 2022, our ownership segment included 52 properties totaling 17,612 rooms.

The segment comprised 46 hotels that we leased, one hotel owned by a consolidated non-wholly owned entity, two hotels that were each leased by a consolidated VIE and five hotels owned or leased by unconsolidated affiliates.

On December 31, 2021, five of our leased hotels exited our system or transferred to our management and franchise segment and, therefore, they are not included in the number of leased hotels as of December 31, 2021.

Further, as a result of the COVID-19 pandemic, during the years ended December 31, 2021 and 2020, the operations of certain hotels in our ownership segment were suspended for some period of time;

however, all of the hotels in our ownership segment that had suspended operations at some point as a result of the pandemic were open as of December 31, 2021.

The performance of our operating segments is evaluated primarily on operating income (loss), without allocating amortization of contract acquisition costs, other revenues, other revenues and other expenses from managed and franchised properties, other expenses or general and administrative expenses.

The segment comprised 45 hotels that we leased, two hotels that were each leased by a consolidated VIE and five hotels owned or leased by unconsolidated affiliates.

In December 2022, one non-wholly owned consolidated hotel and one of our leased hotels exited our system, and, therefore, they are not included in the number of owned and leased hotels as of December 31, 2022, although the results of operations of the hotels are consolidated in our financial statements for the year ended December 31, 2022 for the period prior to their exit.

As a result of the COVID-19 pandemic, the operations of certain of our hotels were suspended for some period of time.

However, substantially all of the hotels in our management and franchise segment had re-opened by the end of 2021 and have remained open and operating since then.

All of the hotels in our ownership segment that had suspended operations at some point in time as a result of the pandemic were open as of December 31, 2021.

The performance of our operating segments is evaluated primarily on operating income (loss), without allocating amortization of contract acquisition costs, other revenues and other expenses, other revenues and other expenses from managed and franchised properties, depreciation and amortization expenses or general and administrative expenses, and does not include equity in earnings (losses) from unconsolidated affiliates.

Our chief operating decision maker does not use assets by operating segment when assessing performance or making operating segment resource allocations.

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

17 unchanged sentences

Total revenues $ 8,773 $ 5,788 $ 4,307

(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.

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

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

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

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

Year Ended December 31,

13 unchanged sentences

Impairment losses — — ( 258 )

Gain (loss) on sales of assets, net ( 7 ) — 81

Loss on sales of assets, net — ( 7 ) —

Operating income (loss) 2,094 1,010 ( 418 )

Interest expense ( 415 ) ( 397 ) ( 429 )

Loss on foreign currency transactions ( 7 ) ( 27 ) ( 2 )

Gain (loss) on foreign currency transactions 5 ( 7 ) ( 27 )

Loss on debt extinguishments — ( 69 ) ( 48 )

1 unchanged sentence

Income (loss) before income taxes $ 1,734 $ 560 $ ( 924 )

(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 of our reportable segments, reconciled to consolidated amounts:

(in millions)

Management and franchise $ 11,404 $ 11,065

Ownership 1,061 1,242

Corporate and other 2,976 4,448

$ 15,441 $ 16,755

Total revenues by country were as follows:

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(1) There are no countries included in these amounts that individually represented more than 10 percent of total revenues for the years ended December 31, 2022, 2021 and 2020.

Property and equipment, net by country was as follows:

(in millions)

All other (1)

(1) There are no countries included in these amounts that individually represented more than 10 percent of total property and equipment, net as of December 31, 2021 and 2020.

Commitments and Contingencies

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As of December 31, 2022, we had performance guarantees with expirations ranging from 2025 to 2043 and possible cash outlays totaling approximately $ 7 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.

We have included the impact of the COVID-19 pandemic on these hotels in our expectations of their future operating performance, and, as of December 31, 2021 and 2020, we accrued current liabilities of $ 2 million and $ 7 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.

As of December 31, 2021, we had debt guarantees for hotels that we will or currently manage or franchise totaling $ 35 million with expirations ranging from 2023 to 2026 .

Additionally, Hilton had extended two letters of credit totaling $ 26 million to the owner of a hotel that we will manage to satisfy debt service reserve requirements for their debt with a third party.

Each letter of credit will expire at the earlier of the date at which it is fully drawn or 2031.

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 for that particular hotel.

As of December 31, 2022, we had extended debt guarantees and letters of credit with expirations ranging from 2023 to 2031 and potential cash outlays totaling $ 124 million to owners of certain hotels that we currently or in the future will manage or franchise.

We receive fees from managed and franchised properties that we are contractually required to use to operate our marketing, sales and brand programs on behalf of hotel owners.

As of December 31, 2020, we had collected amounts in excess of amounts

expended, representing an obligation to spend these amounts on the programs.

However, as of December 31, 2021, amounts expended and recognized on behalf of these programs exceeded the amounts collected.

If we collect amounts in excess of amounts expended, we have a commitment to spend these amounts on the related programs.

As of December 31, 2022 and 2021, amounts expended on behalf of these programs exceeded the amounts collected.

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums.

2 unchanged sentences

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