UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2019~~2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36243

Hilton Worldwide Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware

27-4384691

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

7930 Jones Branch Drive, Suite 1100, McLean, VA

22102

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (703) 883-1000

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

HLT

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant's common stock, par value $0.01 per share, as of October ~~17, 2019~~29, 2020 was ~~282,162,971.~~

277,446,309.

HILTON WORLDWIDE HOLDINGS INC.

FORM 10-Q TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3120
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4132
Item 4.	Controls and Procedures	4133

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	4234
Item 1A.	Risk Factors	4234
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4236
Item 3.	Defaults Upon Senior Securities	4236
Item 4.	Mine Safety Disclosures	4236
Item 5.	Other Information	4336
Item 6.	Exhibits	4336
	Signatures	4437

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HILTON WORLDWIDE HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

September 30, December 31,
2019 2018
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 719 $ 403
Restricted cash and cash equivalents 90 81
Accounts receivable, net of allowance for doubtful accounts of $45 and $42 1,193 1,150
Prepaid expenses 115 160
Other 138 189
Total current assets (variable interest entities – $103 and $90)
2,255 1,983
Intangibles and Other Assets:
Goodwill 5,137 5,160
Brands 4,864 4,869
Management and franchise contracts, net 794 872
Other intangible assets, net 404 415
Operating lease right-of-use assets 839 —
Property and equipment, net 380 367
Deferred income tax assets 146 90
Other 248 239
Total intangibles and other assets (variable interest entities – $182 and $178)
12,812 12,012
TOTAL ASSETS $ 15,067 $ 13,995
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other $ 1,784 $ 1,549
Current maturities of long-term debt 38 16
Current portion of deferred revenues 290 350
Current portion of liability for guest loyalty program 788 700
Total current liabilities (variable interest entities – $74 and $56)
2,900 2,615
Long-term debt 7,767 7,266
Operating lease liabilities 1,004 —
Deferred revenues 834 826
Deferred income tax liabilities 873 898
Liability for guest loyalty program 1,004 969
Other 884 863
Total liabilities (variable interest entities – $275 and $263)
15,266 13,437
Commitments and contingencies - see Note 15
Equity (Deficit):
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of September 30, 2019 and December 31, 2018 — —
Common stock, $0.01 par value; 10,000,000,000 authorized shares, 333,095,427 issued and 283,310,197 outstanding as of September 30, 2019 and 332,105,163 issued and 294,815,890 outstanding as of December 31, 2018 3 3
Treasury stock, at cost; 49,785,230 shares as of September 30, 2019 and 37,289,273 shares as of December 31, 2018 (3,726) (2,625)
Additional paid-in capital 10,460 10,372
Accumulated deficit (6,097) (6,417)
Accumulated other comprehensive loss (848) (782)
Total Hilton stockholders' equity (deficit) (208) 551
Noncontrolling interests 9 7
Total equity (deficit) (199) 558
TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 15,067 $ 13,995


	September 30,		December 31,
	2020		2019
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	3,405	$	538
Restricted cash and cash equivalents	63		92
Accounts receivable, net of allowance for credit losses of $100 and $44	890		1,261
Prepaid expenses	113		130
Other	113		72
Total current assets (variable interest entities – $55 and $100)	4,584		2,093
Intangibles and Other Assets:
Goodwill	5,169		5,159
Brands	4,884		4,877
Management and franchise contracts, net	652		780
Other intangible assets, net	287		421
Operating lease right-of-use assets	769		867
Property and equipment, net	349		380
Deferred income tax assets	120		100
Other	315		280
Total intangibles and other assets (variable interest entities – $193 and $179)	12,545		12,864
TOTAL ASSETS	$	17,129	$	14,957
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other	$	1,387	$	1,703
Current maturities of long-term debt	51		37
Current portion of deferred revenues	245		332
Current portion of liability for guest loyalty program	616		799
Total current liabilities (variable interest entities – $55 and $64)	2,299		2,871
Long-term debt	10,439		7,956
Operating lease liabilities	954		1,037
Deferred revenues	1,410		827
Deferred income tax liabilities	658		795
Liability for guest loyalty program	1,657		1,060
Other	1,031		883
Total liabilities (variable interest entities – $245 and $260)	18,448		15,429
Commitments and contingencies – see Note 15
Equity (Deficit):
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, NaN issued or outstanding as of September 30, 2020 and December 31, 2019	0		0
Common stock, $0.01 par value; 10,000,000,000 authorized shares, 330,350,372 issued and 277,430,022 outstanding as of September 30, 2020 and 333,159,770 issued and 278,985,125 outstanding as of December 31, 2019	3		3
Treasury stock, at cost; 52,920,350 shares as of September 30, 2020 and 54,174,645 shares as of December 31, 2019	(4,457)		(4,169)
Additional paid-in capital	10,491		10,489
Accumulated deficit	(6,508)		(5,965)
Accumulated other comprehensive loss	(853)		(840)
Total Hilton stockholders' deficit	(1,324)		(482)
Noncontrolling interests	5		10
Total deficit	(1,319)		(472)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	17,129	$	14,957

See notes to condensed consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Revenues
Franchise and licensing fees $ 443 $ 407 $ 1,269 $ 1,142
Base and other management fees 80 80 249 241
Incentive management fees 54 57 167 171
Owned and leased hotels 361 373 1,060 1,099
Other revenues 23 27 75 72
961 944 2,820 2,725
Other revenues from managed and franchised properties 1,434 1,309 4,263 3,893
Total revenues 2,395 2,253 7,083 6,618
Expenses
Owned and leased hotels 310 331 942 1,003
Depreciation and amortization 86 81 256 242
General and administrative 107 109 327 328
Other expenses 11 10 46 36
514 531 1,571 1,609
Other expenses from managed and franchised properties 1,443 1,337 4,284 3,939
Total expenses 1,957 1,868 5,855 5,548
Gain on sale of assets, net 81 — 81 —
Operating income 519 385 1,309 1,070
Interest expense (105) (99) (304) (277)
Gain (loss) on foreign currency transactions 7 (6) 4 (7)
Other non-operating income (loss), net — 13 (8) 26
Income before income taxes 421 293 1,001 812
Income tax expense (131) (129) (291) (268)
Net income 290 164 710 544
Net income attributable to noncontrolling interests (2) (2) (4) (4)
Net income attributable to Hilton stockholders $ 288 $ 162 $ 706 $ 540
Earnings per share:
Basic $ 1.01 $ 0.55 $ 2.44 $ 1.77
Diluted $ 1.00 $ 0.54 $ 2.42 $ 1.76
Cash dividends declared per share $ 0.15 $ 0.15 $ 0.45 $ 0.45


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenues
Franchise and licensing fees	$	241	$	443	$	712	$	1,269
Base and other management fees	24		80		92		249
Incentive management fees	7		54		25		167
Owned and leased hotels	94		361		335		1,060
Other revenues	19		23		52		75
	385		961		1,216		2,820
Other revenues from managed and franchised properties	548		1,434		2,201		4,263
Total revenues	933		2,395		3,417		7,083

Expenses
Owned and leased hotels	144		310		478		942
Depreciation and amortization	90		86		269		256
General and administrative	66		107		189		327
Reorganization costs	0		0		38		0
Impairment losses	9		0		136		0
Other expenses	21		11		48		46
	330		514		1,158		1,571
Other expenses from managed and franchised properties	592		1,443		2,482		4,284
Total expenses	922		1,957		3,640		5,855

Gain on sale of assets, net	0		81		0		81

Operating income (loss)	11		519		(223)		1,309

Interest expense	(116)		(105)		(316)		(304)
Gain (loss) on foreign currency transactions	(12)		7		(16)		4
Other non-operating income (loss), net	3		0		(20)		(8)

Income (loss) before income taxes	(114)		421		(575)		1,001

Income tax benefit (expense)	33		(131)		80		(291)

Net income (loss)	(81)		290		(495)		710
Net loss (income) attributable to noncontrolling interests	2		(2)		4		(4)
Net income (loss) attributable to Hilton stockholders	$	(79)	$	288	$	(491)	$	706

Earnings (loss) per share:
Basic	$	(0.29)	$	1.01	$	(1.77)	$	2.44
Diluted	$	(0.28)	$	1.00	$	(1.76)	$	2.42

Cash dividends declared per share	$	0	$	0.15	$	0.15	$	0.45

See notes to condensed consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Net income $ 290 $ 164 $ 710 $ 544
Other comprehensive income (loss), net of tax benefit (expense):
Currency translation adjustment, net of tax of $7, $(1), $8 and $— (35) (11) (23) (56)
Pension liability adjustment, net of tax of $—, $—, $(1) and $(1) 1 1 5 4
Cash flow hedge adjustment, net of tax of $3, $(2), $16 and $(16) (8) 6 (48) 47
Total other comprehensive loss (42) (4) (66) (5)
Comprehensive income 248 160 644 539
Comprehensive income attributable to noncontrolling interests (2) (2) (4) (4)
Comprehensive income attributable to Hilton stockholders $ 246 $ 158 $ 640 $ 535


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income (loss)	$	(81)	$	290	$	(495)	$	710
Other comprehensive income (loss), net of tax benefit (expense):
Currency translation adjustment, net of tax of $(11), $7, $(2) and $8	25		(35)		21		(23)
Pension liability adjustment, net of tax of $(1), $0, $(2) and $(1)	2		1		5		5
Cash flow hedge adjustment, net of tax of $(1), $3, $13 and $16	1		(8)		(39)		(48)
Total other comprehensive income (loss)	28		(42)		(13)		(66)

Comprehensive income (loss)	(53)		248		(508)		644
Comprehensive loss (income) attributable to noncontrolling interests	2		(2)		4		(4)
Comprehensive income (loss) attributable to Hilton stockholders	$	(51)	$	246	$	(504)	$	640

See notes to condensed consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

Nine Months Ended
September 30,
2019 2018
Operating Activities:
Net income $ 710 $ 544
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of contract acquisition costs 21 20
Depreciation and amortization 256 242
Gain on sale of assets, net (81) —
Loss (gain) on foreign currency transactions (4) 7
Share-based compensation 123 103
Deferred income taxes 22 29
Contract acquisition costs (49) (82)
Working capital changes and other 184 51
Net cash provided by operating activities 1,182 914
Investing Activities:
Capital expenditures for property and equipment (66) (51)
Payments received on other financing receivables — 49
Proceeds from asset disposition 120 —
Capitalized software costs (79) (62)
Other (22) (16)
Net cash used in investing activities (47) (80)
Financing Activities:
Borrowings 1,795 1,676
Repayment of debt (1,327) (701)
Debt issuance costs (29) (21)
Dividends paid (130) (137)
Repurchases of common stock (1,086) (1,561)
Share-based compensation tax withholdings and other (31) (42)
Other — (4)
Net cash used in financing activities (808) (790)
Effect of exchange rate changes on cash, restricted cash and cash equivalents (2) (14)
Net increase in cash, restricted cash and cash equivalents 325 30
Cash, restricted cash and cash equivalents, beginning of period 484 670
Cash, restricted cash and cash equivalents, end of period $ 809 $ 700
Supplemental Disclosures:
Cash paid during the year:
Interest $ 248 $ 208
Income taxes, net of refunds 238 230


	Nine Months Ended
	September 30,
	2020		2019
Operating Activities:
Net income (loss)	$	(495)	$	710
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of contract acquisition costs	22		21
Depreciation and amortization	269		256
Impairment losses	136		0
Gain on sale of assets, net	0		(81)
Loss (gain) on foreign currency transactions	16		(4)
Share-based compensation	37		123
Deferred income taxes	(142)		22
Contract acquisition costs	(37)		(49)
Change in deferred revenues	496		(52)
Change in liability for guest loyalty program	413		124
Working capital changes and other	131		112
Net cash provided by operating activities	846		1,182
Investing Activities:
Capital expenditures for property and equipment	(38)		(66)
Proceeds from asset disposition	0		120
Capitalized software costs	(38)		(79)
Other	(13)		(22)
Net cash used in investing activities	(89)		(47)
Financing Activities:
Borrowings	2,690		1,795
Repayment of debt	(214)		(1,327)
Debt issuance costs	(14)		(29)
Dividends paid	(42)		(130)
Repurchases of common stock	(296)		(1,086)
Share-based compensation tax withholdings and other	(36)		(31)
Other	(1)		0
Net cash provided by (used in) financing activities	2,087		(808)

Effect of exchange rate changes on cash, restricted cash and cash equivalents	(6)		(2)
Net increase in cash, restricted cash and cash equivalents	2,838		325
Cash, restricted cash and cash equivalents, beginning of period	630		484
Cash, restricted cash and cash equivalents, end of period	$	3,468	$	809

Supplemental Disclosures:
Cash paid during the year:
Interest	$	276	$	248
Income taxes, net of refunds	67		238

See notes to condensed consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1: Organization and Basis of Presentation

Organization

Hilton Worldwide Holdings Inc. (the "Parent," or together with its subsidiaries, "Hilton," "we," "us," "our" or the "Company"), a Delaware corporation, is one of the largest hospitality companies in the world and is engaged in managing, franchising, owning and leasing hotels and resorts, and licensing its brands and intellectual property ("IP"). As of September 30, ~~2019,~~2020, we managed, franchised, owned or leased ~~5,980~~6,333 hotels and resorts, including timeshare properties, totaling ~~954,855~~998,282 rooms in ~~117~~118 countries and territories.

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

Basis of Presentation

The accompanying condensed consolidated financial statements for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") and are unaudited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP. Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018. Certain prior year amounts in our condensed consolidated balance sheets have been reclassified to conform to current year presentation.~~2019.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Additionally, interim results are not necessarily indicative of full year performance. In particular, the novel coronavirus ("COVID-19") pandemic had a material adverse impact on our results for the three and nine months ended September 30, 2020, and we expect it to continue to have a material adverse impact on our results for an indeterminate length of time. Management is making estimates and judgments in light of these circumstances, and this interim period, as well as upcoming periods, are unlikely to be comparable to past performance or indicative of future performance. In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions have been eliminated in consolidation.

~~Summary~~Reorganization

We recognized $38 million of ~~Significant~~reorganization costs in our condensed consolidated statement of operations during the nine months ended September 30, 2020 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. As of September 30, 2020, $15 million of such reorganization costs were included in accounts payable, accrued expenses and other in our condensed consolidated balance sheet.

Note 2: Recently Issued Accounting ~~Policies~~Pronouncements

~~Our significant accounting policies are detailed in Note 2: "Basis of Presentation and Summary of Significant~~In June 2016, the Financial Accounting ~~Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. On January 1, 2019, we adopted the requirements of~~Standards Board issued Accounting Standards Update ("ASU") No. ~~2016-02~~2016-13 ("ASU ~~2016-02"~~2016-13"), ~~Leases~~Financial Instruments – Credit Losses (Topic ~~842),~~326): Measurement of Credit Losses on Financial Instruments, which significantly changes how entities account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. On January 1, 2020, we adopted ASU 2016-13, and subsequent ASUs issued to clarify its application, on a prospective basis, and recognized a $10 million cumulative adjustment, net of taxes, in accumulated deficit. By applying ASU 2016-13 at the ~~significant accounting policies that changed as~~adoption date, the presentation of credit losses for periods prior to January 1, 2020 remains unchanged and in accordance with Receivables (Topic 310).

As a result of the adoption, ~~are set forth below.~~

~~Leases~~

~~We determine if a contract is or contains a lease at~~we consider forecasted business conditions, in addition to current business conditions and historical collection activity, in calculating our allowance for credit losses on our financial instruments. The cumulative adjustment to accumulated deficit that we recognized upon adoption of this ASU did not include the ~~inception~~impact of the ~~contract, and we classify that lease~~COVID-19 pandemic as a finance lease if it meets certain criteria or as an operating lease when it does not. We reassess if a contract is or contains a leasing arrangement upon modification of the contract. For a contract, in which we are a lessee, that contains fixed payments for both lease and non-lease components, we have elected to account for the components as a single lease component, as permitted.

~~At the commencement date of a lease, we recognize a lease liability for future fixed lease payments and a right-of-use ("ROU") asset representing our right to use the underlying asset~~forecasted business condition. However, during the ~~lease term. The lease liability is initially measured as the present value~~nine months ended September 30, 2020, we revised our expected credit loss rates from those used at adoption, primarily for our accounts receivable balances, in light of the future fixed lease payments that will be made over the lease term. The lease term includes lessee options to extend the lease and periods occurring after a lessee early termination option, only to the extent it is reasonably certain that we will exercise such extension options and not exercise such early termination options, respectively. The future fixed lease payments are discounted using the rate implicitbusiness conditions in the ~~lease, if available, or~~current environment. In particular, we considered the expected impact on our ~~incremental borrowing rate. Our incremental borrowing rate is estimated on a portfolio basis~~hotel owners' and incorporates lease term, currency risk, credit risk and an adjustment for collateral. Upon adoption of ASU 2016-02, we elected to use the remaining lease term as of January 1, 2019 in our estimation of the applicable discount rate for leases that were in place at adoption. For the initial measurement of the lease liability for leases commencing after January 1, 2019, we use the discount rate as of the commencement date of the lease, incorporating the entire lease term. Additionally, we elected not to recognize leases with lease terms of 12 months or less at the commencement date in our consolidated balance sheets. Current maturities and long-term portions of operating lease liabilities are classified as accounts payable, accrued expenses and other and operating lease liabilities, respectively, and currentcustomers'

~~maturities and long-term portions of finance lease liabilities~~ability to ultimately settle receivables that are ~~classified as current maturities of long-term debt and long-term debt, respectively, in our consolidated balance sheets.~~

~~The ROU asset is measured at the amount of the lease liability with adjustments, if applicable, for lease prepayments made prior~~or will be due to ~~or at lease commencement, initial direct costs incurred by~~ us and ~~lease incentives. We evaluate the carrying value~~recorded provisions for credit losses of ~~ROU assets if there are indicators of impairment~~$30 million and review the recoverability of the related asset group. If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, we record an impairment loss in our consolidated statements of operations. ROU assets of operating leases are classified as operating lease right-of-use assets and ROU assets of finance leases are classified as property and equipment, net in our consolidated balance sheets.

Our operating leases require: (i) fixed lease payments, or minimum payments, as contractually stated in the lease agreement; (ii) variable lease payments, which, for our hotels, are generally based on a percentage of the underlying asset's revenues or profits, or are dependent on changes in an index; or (iii) lease payments equal to the greater of the fixed or variable lease payments. In addition,$45 million during the ~~term of our hotel leases, we may be required to pay some, or all, of the capital costs for furniture, equipment~~three and leasehold improvements in the hotel property. For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term, and lease expense related to variable payments is expensed as incurred, with amounts recognized in owned and leased hotel expenses, general and administrative expenses and other expenses from managed and franchised properties in our consolidated statements of operations. For finance leases, the amortization of the asset is recognized over the shorter of the lease term or useful life of the underlying asset within depreciation and amortization expense and other expenses from managed and franchised properties in our consolidated statements of operations. The interest expense related to finance leases, including any variable lease payments, is recognized in interest expense in our consolidated statements of operations.

~~Recently Issued Accounting Pronouncements~~

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

~~In February 2016, the FASB issued ASU 2016-02~~, ~~which supersedes existing guidance on accounting for leases in~~ ~~Leases (Topic 840)~~ and generally requires all leases, including operating leases, to be recognized in the statement of financial position of lessees as ROU assets and lease liabilities, with certain practical expedients available. Subsequent to ASU 2016-02, the FASB issued related ASUs, including ASU No. 2018-11 ("ASU 2018-11"), ~~Leases (Topic 842): Targeted Improvements,~~ which provides for another transition method in addition to the modified retrospective approach required by ASU 2016-02. This option allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative adjustment to the opening balance of retained earnings in the period of adoption.

As described above, we adopted ASU 2016-02 on January 1, 2019 and applied the package of practical expedients included therein, as well as utilized the transition method included in ASU 2018-11. By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, the presentation of financial information for periods prior to January 1, 2019 remain unchanged and in accordance with ~~Leases (Topic 840)~~. On January 1, 2019, we recognized a $256 million cumulative adjustment to accumulated deficit, net of taxes of $81 million related to a decrease to our deferred tax liability, as a result of the impairment of ROU assets that occurred in periods prior to the adoption date.nine months ended September 30, 2020, respectively.

Note 3: Disposal

In September 2019, we completed the sale of the Hilton Odawara Resort & Spa ("Hilton Odawara") 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 condensed consolidated statements of operations for the three and nine months ended September 30, 2019.

Note 4: Revenues from Contracts with Customers

Contract Liabilities

The following table summarizes the activity of our contract liabilities, which are classified as a component of current and long-term deferred revenues, during the nine months ended September 30, ~~2019:~~2020:


	(in millions)
Balance as of December 31, ~~2018~~	2019	$	~~1,060~~1,041
Cash received in advance and not recognized as revenue⁽¹⁾(2)	~~329~~741
Revenue recognized⁽¹⁾(3)	~~(197)~~(164)
Other⁽²⁾(4)	~~(125)~~(12)
Balance as of September 30, ~~2019~~2020	$	~~1,067~~1,606

____________

⁽¹⁾Primarily related to Hilton Honors, our guest loyalty ~~program.~~program, which included revenue recognized of $65 million.

⁽²⁾~~Primarily~~As a result of the ~~result~~Hilton Honors points pre-sale to American Express, we recorded $636 million of deferred revenues; see below for additional information.

(3)During the three months ended September 30, 2020 and 2019, revenue recognized was $54 million and $62 million, respectively, and during the nine months ended September 30, 2019, revenue recognized was $197 million.

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

In April 2020, we pre-sold Hilton Honors points to American Express for $1.0 billion in cash (the "Honors Points Pre-Sale"), of which $636 million was recorded in deferred revenues and the remainder was recorded in liability for guest loyalty program in our condensed consolidated balance sheet. American Express and their respective designees may use the points in connection with Hilton Honors co-branded credit cards and for promotions, rewards and incentive programs or certain other activities as they may establish or engage in from time to time. We ~~recognized~~recognize revenue from licensing fees related to these Hilton Honors points when American Express issues the points to customers and other revenues ~~that were previously deferred as contract liabilities of $62 million~~from managed and~~$33 million~~ du~~ring~~ franchised properties when customers redeem the ~~three months ended September 30, 2019 and 2018, respectively, and $149 million during the nine months ended September 30, 2018.~~Hilton Honors points.

Performance Obligations

As of September 30, ~~2019,~~2020, we had ~~$442 million of~~ deferred revenues ~~related to~~for unsatisfied performance obligations consisting of: (i) $444 million related to Hilton Honors that will be recognized as revenues when the points are redeemed, which we estimate will occur over approximately the next two ~~years. Additionally, we had $625~~to three years; (ii) $504 million related to the Honors Points Pre-Sale of ~~deferred~~which a portion will be recognized as revenue when points are awarded, with the remaining portion recognized as revenues when the points are redeemed; and (iii) $658 million related to application, initiation and licensing fees ~~which are~~that is expected to be recognized as revenues ~~in future periods~~ over the terms of the related contracts.

Note 5: Consolidated Variable Interest Entities

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we consolidated 2 variable interest entities ("VIEs") that lease hotel ~~properties and, as of December 31, 2018, we also consolidated 1 VIE that is a management company.~~properties. We consolidated these VIEs since we are the primary beneficiary, having the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our consolidated VIEs are only available to settle the obligations of the respective entities.

In June 2019, the VIE that is a management company, which we had previously consolidated, sold its assets. As a result of the sale, we deconsolidated $7 million of total assets and $3 million of total liabilities, as we no longer had the power to direct the activities that most significantly affect the VIE's economic performance. See Note 13: "Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss" for additional information.

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


		September 30,		December 31,			September 30,		December 31,
		2019		2018			2020		2019
		(in millions)							(in millions)
Cash and cash equivalents	Cash and cash equivalents	$	81	$	71	Cash and cash equivalents	$	39	$	81
Property and equipment, net	Property and equipment, net	71		68		Property and equipment, net	76		69
Deferred income tax assets	Deferred income tax assets	50		53		Deferred income tax assets	53		48
Other non-current assets	Other non-current assets	61		58		Other non-current assets	64		61
Accounts payable, accrued expenses and other	Accounts payable, accrued expenses and other	59		41		Accounts payable, accrued expenses and other	30		49
Long-term debt⁽¹⁾	Long-term debt⁽¹⁾	200		205		Long-term debt(1)	199		194
Other long-term liabilities	Other long-term liabilities	15		15		Other long-term liabilities	16		17

____________

⁽¹⁾Includes finance lease liabilities of ~~$182~~$181 million and ~~$187~~$177 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

To provide financial flexibility in response to the business disruption caused by the COVID-19 pandemic, each of our consolidated VIEs entered into revolving credit facilities during the nine months ended September 30, 2020. These revolving credit facilities have borrowing capacities totaling 2.75 billion Japanese yen and 2 billion Japanese yen (equivalent to $26 million and $19 million, respectively, as of September 30, 2020), and mature in June 2021 and August 2021, respectively. As of September 30, 2020, 0 amounts have been drawn under these revolving credit facilities.

We did not provide any financial or other support to any consolidated VIEs that we were not previously contractually required to provide during the nine months ended September 30, 2020 and 2019, and ~~2018.~~we are not aware of any future obligations to do so.

Note 6: ~~Amortizing~~Finite-Lived Intangible Assets

~~Amortizing~~Finite-lived intangible assets were as follows:


		September 30, 2019											September 30, 2020
		Gross Carrying Value		Accumulated Amortization		Net Carrying Value			Gross Carrying Value		Accumulated Amortization		Net Carrying Value
		(in millions)											(in millions)
Management and franchise contracts:	Management and franchise contracts:							Management and franchise contracts:
Management and franchise contracts recorded at Merger⁽¹⁾	Management and franchise contracts recorded at Merger⁽¹⁾	$	2,226	$	(1,997)	$	229	Management and franchise contracts recorded at Merger(1)	$	2,164	$	(2,096)	$	68
Contract acquisition costs(2)	Contract acquisition costs(2)	573		(114)		459		Contract acquisition costs(2)	613		(137)		476
Development commissions and other	Development commissions and other	124		(18)		106		Development commissions and other	130		(22)		108
		$	2,923	$	(2,129)	$	794		$	2,907	$	(2,255)	$	652

Other intangible assets:	Other intangible assets:							Other intangible assets:
Leases⁽¹⁾⁽³⁾	Leases⁽¹⁾⁽³⁾	$	279	$	(166)	$	113	Leases⁽¹⁾⁽³⁾	$	150	$	(90)	$	60
Capitalized software costs	Capitalized software costs	583		(377)		206		Capitalized software costs	640		(478)		162
Hilton Honors⁽¹⁾	Hilton Honors⁽¹⁾	336		(251)		85		Hilton Honors(1)	339		(274)		65
Other⁽¹⁾		34		(34)		—
		$	1,232	$	(828)	$	404		$	1,129	$	(842)	$	287

December 31, 2018
Gross Carrying Value Accumulated Amortization Net Carrying Value
(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger⁽¹⁾
$ 2,228 $ (1,873) $ 355
Contract acquisition costs 525 (101) 424
Development commissions and other 108 (15) 93
$ 2,861 $ (1,989) $ 872
Other intangible assets:
Leases⁽¹⁾
$ 288 $ (161) $ 127
Capitalized software costs 503 (321) 182
Hilton Honors⁽¹⁾
338 (236) 102
Other⁽¹⁾
38 (34) 4
$ 1,167 $ (752) $ 415


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

Other intangible assets:
Leases(1)	$	290	$	(176)	$	114
Capitalized software costs	625		(399)		226
Hilton Honors(1)	338		(257)		81
Other(1)	34		(34)		0
	$	1,287	$	(866)	$	421

____________

⁽¹⁾Represents intangible assets that were initially recorded at their fair value as part of the October 24, 2007 transaction whereby we became a wholly owned subsidiary of affiliates of The Blackstone Group Inc. ~~(formerly known as The Blackstone Group L.P.)~~ (the "Merger").

(2)During the three and nine months ended September 30, 2020, we recognized impairment losses of $6 million and $15 million, respectively, which in total reduced the gross carrying value and accumulated amortization of contract acquisition costs by $18 million and $3 million, respectively.

(3)During the nine months ended September 30, 2020, we recognized impairment losses of $46 million, which in total reduced the gross carrying value and accumulated amortization of our leases intangible assets by $138 million and $92 million, respectively. See Note 8: "Fair Value Measurements" for additional information.

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


		Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
		September 30,						September 30,							September 30,				September 30,
		2019		2018		2019		2018			2020		2019		2020		2019
		(in millions)															(in millions)
Recognized in depreciation and amortization expense⁽¹⁾	Recognized in depreciation and amortization expense⁽¹⁾	$	71	$	67	$	212	$	202	Recognized in depreciation and amortization expense(1)	$	76	$	71	$	227	$	212
Recognized as a reduction of franchise and licensing fees and base and other management fees	Recognized as a reduction of franchise and licensing fees and base and other management fees	7		6		21		20		Recognized as a reduction of franchise and licensing fees and base and other management fees	7		7		22		21

____________

⁽¹⁾Includes amortization expense of $47 million and $50 million for the three months ended September 30, 2020 and 2019, respectively, and ~~2018,~~$143 million and $152 ~~million and $153~~ million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, associated with assets that were initially recorded at their fair value at the time of the Merger.

We estimate future amortization of our ~~amortizing~~finite-lived intangible assets as of September 30, ~~2019~~2020 to be as follows:


		Recognized in Depreciation and Amortization Expense		Recognized as a Reduction of Franchise and Licensing Fees and Base and Other Management Fees			Recognized in Depreciation and Amortization Expense			Recognized as a Reduction of Franchise and Licensing Fees and Base and Other Management Fees
Year	Year	(in millions)							Year	(in millions)
2019 (remaining)		$	73	$	7
2020		264		27
2020 (remaining)						2020 (remaining)	$	48		$	7
2021	2021	115		26		2021	127			28
2022	2022	93		24		2022	92			26
2023	2023	50		23		2023	58			26
2024						2024	9			25
Thereafter	Thereafter	144		352		Thereafter	129			364
		$	739	$	459		$	463		$	476

Note 7: Debt

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of September 30, ~~2019,~~2020, were as follows:


		September 30,		December 31,			September 30,		December 31,
		2019		2018			2020		2019
		(in millions)							(in millions)
Senior secured term loan facility with a rate of 3.77%, due 2026		$	2,619	$	3,119
Senior secured revolving credit facility with a weighted average rate of 1.15%, due 2024						Senior secured revolving credit facility with a weighted average rate of 1.15%, due 2024	$	1,690	$	195
Senior secured term loan facility with a rate of 1.90%, due 2026						Senior secured term loan facility with a rate of 1.90%, due 2026	2,619		2,619
Senior notes with a rate of 4.250%, due 2024	Senior notes with a rate of 4.250%, due 2024	1,000		1,000		Senior notes with a rate of 4.250%, due 2024	1,000		1,000
Senior notes with a rate of 4.625%, due 2025	Senior notes with a rate of 4.625%, due 2025	900		900		Senior notes with a rate of 4.625%, due 2025	900		900
Senior notes with a rate of 5.375%, due 2025						Senior notes with a rate of 5.375%, due 2025	500		0
Senior notes with a rate of 5.125%, due 2026	Senior notes with a rate of 5.125%, due 2026	1,500		1,500		Senior notes with a rate of 5.125%, due 2026	1,500		1,500
Senior notes with a rate of 4.875%, due 2027	Senior notes with a rate of 4.875%, due 2027	600		600		Senior notes with a rate of 4.875%, due 2027	600		600
Senior notes with a rate of 5.750%, due 2028						Senior notes with a rate of 5.750%, due 2028	500		0
Senior notes with a rate of 4.875%, due 2030	Senior notes with a rate of 4.875%, due 2030	1,000		—		Senior notes with a rate of 4.875%, due 2030	1,000		1,000
Finance lease liabilities with a weighted average rate of 5.77%, due 2019 to 2030		255		225
Other debt with a rate of 3.08% due 2026		17		17
Finance lease liabilities with a weighted average rate of 5.81%, due 2020 to 2030						Finance lease liabilities with a weighted average rate of 5.81%, due 2020 to 2030	250		245
Other debt with a rate of 3.08%, due 2026						Other debt with a rate of 3.08%, due 2026	18		17
		7,891		7,361			10,577		8,076
Less: unamortized deferred financing costs and discount	Less: unamortized deferred financing costs and discount	(86)		(79)		Less: unamortized deferred financing costs and discount	(87)		(83)
Less: current maturities of long-term debt⁽¹⁾	Less: current maturities of long-term debt⁽¹⁾	(38)		(16)		Less: current maturities of long-term debt(1)	(51)		(37)
		$	7,767	$	7,266		$	10,439	$	7,956

____________

⁽¹⁾Represents current maturities of finance lease liabilities.

Our senior secured credit facilities consist of a $1.75 billion senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility (the "Term Loans"). The obligations of our senior secured credit facilities are unconditionally and irrevocably guaranteed by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries.

In ~~June 2019,~~March 2020, as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic, we ~~amended the Term Loans~~fully drew down on our Revolving Credit Facility. As of September 30, 2020, in addition to ~~extend the maturity date to June 2026 with a discount~~our outstanding debt balance of ~~0.25 percent. In June 2019, we also amended the~~$1.69 billion under our Revolving Credit Facility, ~~to increase the borrowing capacity to $1.75 billion, $250~~we also had $60 million ~~of which is available in the form~~ of letters of credit and extended the maturity date to June 2024. In connection with this amendment, we incurred $7 million of debt issuance costs, which were included in other non-current assets in our condensed consolidated balance sheet as of September 30, 2019. As of September 30, 2019, we had $59 million of outstanding ~~letters of credit, resulting in an available borrowing capacity~~ under the Revolving Credit ~~Facility of $1.69 billion. We are required to pay a commitment fee of 0.125 percent per annum under the Revolving Credit Facility in respect of the unused commitments thereunder.~~Facility.

In ~~June 2019,~~April 2020, we issued ~~$1.0 billion~~$500 million aggregate principal amount of ~~4.875%~~5.375% Senior Notes due ~~2030~~2025 (the ~~"2030~~"5.375% 2025 Senior Notes") and $500 million aggregate principal amount of 5.750% Senior Notes due 2028 (the "2028 Senior Notes") and incurred ~~$15~~$14 million of debt issuance costs. Interest on the ~~2030~~5.375% 2025 Senior Notes and the 2028 Senior Notes is payable semi-annually in arrears on ~~January 15~~May 1 and ~~July 15~~November 1 of each year, beginning ~~January~~November 1, 2020. We used a portion of the net proceeds from the issuance of the 2030 Senior Notes to repay $500 million outstanding on our Term Loans and to repay $225 million outstanding under our Revolving Credit Facility. In connection with the amendment and the repayment of the Term Loans, we recognized $10 million of fees and unamortized deferred financing costs and discount, which were included in other non-operating income, net in our condensed consolidated statement of operations for the nine months ended September 30, 2019.

The 4.250% Senior Notes due 2024, ~~(the "2024 Senior Notes"),~~ the 4.625% Senior Notes due 2025, ~~(the "2025~~the 5.375% 2025 Senior ~~Notes"),~~Notes, the 5.125% Senior Notes due 2026, ~~(the "2026 Senior Notes"),~~ the 4.875% Senior Notes due 2027, ~~(the "2027~~the 2028 Senior ~~Notes")~~Notes and the ~~2030~~4.875% Senior Notes due 2030 are collectively referred to as the Senior Notes and are jointly and severally guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries, ~~that are themselves not issuers~~other than Hilton Domestic Operating Company Inc. ("HOC"), a wholly owned subsidiary of the ~~applicable~~Parent, which is the issuer of each of the series of ~~senior notes. See Note 16: "Condensed Consolidating Guarantor Financial Information" for additional information.~~Senior Notes.

The contractual maturities of our long-term debt as of September 30, ~~2019~~2020 were as follows:


Year	Year	(in millions)		Year	(in millions)
2019 (remaining)		$	10
2020		37
2020 (remaining)				2020 (remaining)	$	10
2021	2021	30		2021	49
2022	2022	21		2022	28
2023	2023	20		2023	22
2024				2024	2,713
Thereafter	Thereafter	7,773		Thereafter	7,755
		$	7,891		$	10,577

1110

Note 8: Fair Value Measurements

~~We did not elect~~Estimates of the fair ~~value measurement option for any~~values of our financial instruments and nonfinancial assets ~~or liabilities.~~ were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values.

The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown ~~below; the fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of September 30, 2019 and December 31, 2018:~~below:


		September 30, 2019															September 30, 2020
				Hierarchy Level													Hierarchy Level
		Carrying Value		Level 1		Level 2		Level 3			Carrying Value		Level 1		Level 2		Level 3
		(in millions)															(in millions)
Assets:	Assets:									Assets:
Cash equivalents	Cash equivalents	$	174	$	—	$	174	$	—	Cash equivalents	$	2,848	$	—	$	2,848	$	—
Restricted cash equivalents	Restricted cash equivalents	33		—		33		—		Restricted cash equivalents	9		—		9		—
Liabilities:	Liabilities:									Liabilities:
Long-term debt⁽¹⁾	Long-term debt⁽¹⁾	7,533		5,217		—		2,639		Long-term debt(1)	10,222		6,156		—		4,224
Interest rate swaps	Interest rate swaps	45		—		45		—		Interest rate swaps	88		—		88		—


		December 31, 2018															December 31, 2019
				Hierarchy Level													Hierarchy Level
		Carrying Value		Level 1		Level 2		Level 3			Carrying Value		Level 1		Level 2		Level 3
		(in millions)															(in millions)
Assets:	Assets:									Assets:
Cash equivalents	Cash equivalents	$	87	$	—	$	87	$	—	Cash equivalents	$	117	$	—	$	117	$	—
Restricted cash equivalents	Restricted cash equivalents	18		—		18		—		Restricted cash equivalents	32		—		32		—
Interest rate swaps		16		—		16		—
Liabilities:	Liabilities:									Liabilities:
Long-term debt⁽¹⁾	Long-term debt⁽¹⁾	7,040		3,809		—		3,039		Long-term debt(1)	7,731		5,230		—		2,834
Interest rate swaps										Interest rate swaps	37		—		37		—

____________

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

We measure our interest rate swaps at fair value, which ~~were estimated~~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 ~~non-current assets or other~~ long-term liabilities in our condensed consolidated balance ~~sheets depending on their~~sheets.

Our nonfinancial assets that were measured at fair value on a non-recurring basis during the nine months ended September 30, 2020, and for which we recorded impairment losses, were related to certain hotel properties under operating and finance leases in our ownership segment. See Note 6: "Finite-Lived Intangible Assets" and Note 9: "Leases" foradditional information on the impairment losses related to our leased properties. The fair values, which were determined using significant Level 3 unobservable inputs, were as follows:


	(in millions)
Other intangible assets, net(1)	$	0
Operating lease right-of-use assets(1)	34
Property and equipment, net(1)	4

____________

(1)Amounts were measured at March 31, 2020, except for $10 million of operating lease right-of-use ("ROU") assets, which were remeasured at June 30, 2020. Additionally, certain of these assets were fully impaired at March 31, 2020, June 30, 2020 and September 30, 2020.

We recognized impairment losses during the six months ended June 30, 2020 related to certain hotel properties under operating and finance leases. During the three months ended September 30, 2020, the short-term expected results for certain leased hotels declined from estimates used in the assessment of recoverability at June 30, 2020, generally due to extensions of government restrictions and additional visibility into expected hotel customer engagement at such properties. As a result, further analysis of the recoverability of the carrying value of the assets related to leased hotel properties was necessary at September 30, 2020.

We assessed recoverability of the assets included in the table above using estimates of undiscounted net cash flows, and concluded that the carrying values of the assets were not fully recoverable. We then estimated the fair value of these assets using discounted cash flow analyses, which included an estimate of the impact of the COVID-19 pandemic on each leased property based on the expected recovery term. The stabilized growth rates after recovery and discount rates used for the fair value of the assets reflect the risk profile of the underlying cash flows and the individual markets where the assets are located, and are not necessarily indicative of our hotel portfolio as a whole. Estimations of stabilized growth rates after the recovery period ranged from 1.7 percent to 4.8 percent, and discount rates ranged from 7.0 percent to 12.0 percent, with the weighted average, based on relative impairment losses, for both inputs being at the lower end of each of the ranges. As a result of these non-recurring fair value measurements, we recognized impairment losses of $3 million and $121 million during the three and nine months ended September 30, 2020, respectively.

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of ~~the balance sheet date.~~September 30, 2020 and December 31, 2019.

Note 9: Leases

We lease hotel properties, land, corporate office space and equipment used at hotels and corporate offices, with our most significant lease liabilities related to hotel properties. As of September 30, ~~2019,~~2020, we leased 5249 hotels under operating leases and 6 hotels under finance leases, 2 of which were the liabilities of consolidated VIEs and were non-recourse to us. Our hotel leases expire at various dates, with varying renewal and termination options.

~~Supplemental balance sheet information related to leases as of September 30, 2019 was as follows:~~


	(dollars in millions)
~~Operating leases:~~
~~Operating lease right-of-use assets~~	$	~~839~~
~~Accounts payable, accrued expenses and other~~	~~128~~
~~Operating lease liabilities~~	~~1,004~~
~~Finance leases:~~
~~Property and equipment, net~~	$	57
~~Current maturities of long-term debt~~	38
~~Long-term debt~~	~~217~~

~~Weighted average remaining lease term:~~
~~Operating leases~~	~~12.9 years~~
~~Finance leases~~	~~8.7 years~~

~~Weighted average discount rate:~~
~~Operating leases~~	~~3.75~~		%
~~Finance leases~~	~~5.77~~		%

~~The components~~During the nine months ended September 30, 2020, we recognized $51 million of ~~lease expense were as follows:~~

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2019
(in millions)
Operating lease expense for fixed payments $ 35 $ 108
Finance lease expense:
Amortization of ROU assets 7 23
Interest on lease liabilities 3 10
Variable lease expense⁽¹⁾
41 123

~~____________~~

⁽¹⁾~~Includes amounts~~impairment losses related to certain operating ~~leases~~lease ROU assets, and ~~interest payments on finance leases.~~

~~Lease expense for our operating leases for~~during the ~~year~~three and nine months ended ~~December 31, 2018 included $225~~September 30, 2020, we recognized $3 million and $24 million of ~~fixed lease expense~~impairment losses related to property and ~~$142~~equipment, respectively, including $2 million and $4 million of ~~variable~~finance lease ~~expense.~~ROU assets, respectively. All of these impairment losses were included in impairment losses in our condensed consolidated statements of operations; see Note 8: "Fair Value Measurements" for additional information.

Supplemental cash flow information related to leases ~~for the nine months ended September 30, 2019~~ was as follows:


	~~(in millions)~~
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows from operating leases~~	$	~~130~~
~~Financing cash flows from finance leases~~	32
~~ROU assets obtained in exchange for lease liabilities in non-cash transactions:~~
~~Operating leases~~	21
~~Finance leases~~	59


	Nine Months Ended
	September 30,
	2020		2019
	(in millions)
ROU assets obtained in exchange for lease liabilities in non-cash transactions:
Operating leases	$	32	$	21
Finance leases	16		59

1312

Our future minimum lease payments as of September 30, ~~2019~~2020 were as follows:


		Operating Leases		Finance Leases			Operating Leases			Finance Leases
Year	Year	(in millions)							Year	(in millions)
2019 (remaining)		$	43	$	14
2020		170		51
2020 (remaining)						2020 (remaining)	$	76		$	23
2021	2021	160		42		2021	174			51
2022	2022	133		32		2022	148			40
2023	2023	118		30		2023	133			32
2024						2024	112			31
Thereafter	Thereafter	846		164		Thereafter	796			139
Total minimum lease payments	Total minimum lease payments	1,470		333		Total minimum lease payments	1,439			316
Less: imputed interest	Less: imputed interest	(338)		(78)		Less: imputed interest	(316)			(66)
Total lease liabilities	Total lease liabilities	$	1,132	$	255	Total lease liabilities	$	1,123		$	250

Note 10: Income Taxes

At the end of each quarter, we estimate the effective income tax rate expected to be applied for the full ~~year.~~year to ordinary income, which excludes discrete items. Discrete items that were recognized during the nine months ended September 30, 2020 included impairment losses and the vesting of certain share-based compensation awards, which provided us with tax benefits. The effective income tax rate for the full year is determined by the level and composition of income (loss) before income taxes, excluding discrete items as discussed above, which is subject to federal, state, local and foreign income taxes. The Company's forecast includes losses for the full year in many foreign jurisdictions. For certain foreign jurisdictions, we expect to have net operating losses ("NOLs"), which we expect to be utilized in future periods. However, as future utilization of NOLs reduces foreign taxes paid, we expect U.S. foreign tax credits to be reduced, thereby reducing or eliminating the tax benefit of the NOLs on a global basis. Because of the reduced global tax benefit of NOLs in these specific jurisdictions, our effective income tax rate estimate is lower than the combined U.S. statutory rate. Due to forecasted losses before income taxes for the full year, the Company is forecasting an overall tax benefit.

We file income tax returns, including returns for our subsidiaries, with federal, state, local and foreign tax jurisdictions. We are under regular and recurring audit by the Internal Revenue Service ("IRS") and other taxing authorities on open tax positions. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution. Changes may result from the conclusion of ongoing audits, appeals or litigation in federal, state, local and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. As of September 30, ~~2019,~~2020, we remain subject to federal and state examinations of our income tax returns for tax years from 2005 through ~~2018~~2019 and foreign examinations of our income tax returns for tax years from 1996 through ~~2018.~~2019.

Our total unrecognized tax benefits as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$330~~$432 million and ~~$318~~$395 million, respectively. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had accrued approximately ~~$46~~$64 million and ~~$40~~$52 million, respectively, for interest and penalties related to ~~our~~these unrecognized tax ~~benefits in our condensed consolidated balance sheets.~~benefits. Included in the balances of unrecognized tax benefits as of September 30, ~~2019~~2020 and December 31, ~~2018 was $318~~2019 were $393 million and ~~$310~~$380 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate.

In ~~April 2014,~~prior periods, we received 30-day Letters from the IRS and the Revenue Agents ~~Report~~Reports ("~~RAR"~~RARs") for the 2006 ~~and October 2007~~through the 2013 tax years. We disagreed with several of the proposed adjustments in the ~~RAR,~~RARs and filed a formal appeals protest with the IRS and did not make any tax payments related to this audit. The issues being protested in appeals relate to assertions by the IRS that: (i) certain foreign currency denominated intercompany loans from our foreign subsidiaries to certain U.S. subsidiaries should be recharacterized as equity for U.S. federal income tax purposes and constitute deemed dividends from such foreign subsidiaries to our U.S. subsidiaries; (ii) in calculating the amount of U.S. taxable income resulting from 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; and (iii) certain foreign currency denominated loans issued by one of our Luxembourg subsidiaries whose functional currency is the U.S. dollar ("USD"), should instead be treated as issued by one of our Belgian subsidiaries whose functional currency is the euro ("EUR"), and thus foreign currency gains and losses with respect to such loans should have been measured in EUR, instead of USD. In January 2016, we received a 30-day Letter from the IRS and the RAR for the December 2007 through 2010 tax years, which included proposed adjustments that reflect the carryover effect of the three protested issues from the 2006 through October 2007 tax years. These proposed adjustments are also being protested in appeals and formal appeals protests ~~have been submitted. In April 2016, we requested a Technical Advice Memorandum ("TAM") from~~with the IRS with respect to the treatment of the gains and losses recognized as a result of changes in foreign currency exchange rates on loans issued by our Luxembourg subsidiary. We received a taxpayer favorable TAM in October 2018 and this issue is no longer being pursued by the IRS for any of the open tax years. In September 2018, we received a 30-day Letter from the IRS and the RAR for the 2011 through 2013 tax years, which reflects proposed adjustments for the carryover effect of the two remaining protested issues from the 2006 through October 2007 tax years.IRS. The adjustments for the 2011 through 2013 tax years will also be protested in appeals and formal protests have been submitted. After receipt of the TAM relating to the Luxembourg subsidiary, the two remainingunsettled proposed adjustments sought by the IRS for the tax years with open audits would result in additional U.S. federal ~~tax~~taxes owed of approximately $817 million, excluding interest and penalties and potential state income

taxes. ~~The portion of this amount related to Hilton Honors would result in a decrease to our future tax liability when the points are redeemed.~~ We disagree with the IRS's position on each of ~~these~~their assertions and intend to vigorously contest them. However, based on continuing appeals process discussions with the IRS, we believe that it is more likely than not that we will not recognize the full benefit related to certain of the issues being appealed. Accordingly, as of September 30, ~~2019,~~2020, we had recorded ~~$56~~$76 million of unrecognized tax benefits related to these issues.

Note 11: Share-Based Compensation

~~We grant~~As part of the Hilton 2017 Omnibus Incentive Plan (the "2017 Plan"), we award time-vesting restricted stock units and restricted stock (collectively, "RSUs"), nonqualified stock options ("options") and performance-vesting RSUs ("performance shares") to our ~~employees and deferred share units ("DSUs") to members of our board of directors.~~eligible employees. We recognized share-based compensation expense of ~~$42~~$25 million and ~~$35~~$42 million during the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$123~~$37 million and ~~$103~~$123 million during the nine months

ended September 30, 2020 and 2019, respectively, which included amounts reimbursed by hotel owners in all periods. The expenses recognized during the three and ~~2018, respectively.~~ nine months ended September 30, 2020 were net of the reversal of expenses recognized in prior periods, as a result of the determination that the performance conditions of certain share-based compensation awards were no longer probable of achievement, as described in further detail below.

As of September 30, ~~2019,~~2020, unrecognized compensation costs for unvested awards ~~was~~under the 2017 Plan were approximately ~~$153~~$87 million, which are expected to be recognized over a weighted-average period of ~~1.8~~1.9 years on a straight-line basis. As of September 30, ~~2019,~~2020, there were ~~14.2 million~~12,980,000 shares of common stock available for future issuance under the ~~Hilton~~ 2017 ~~Omnibus Incentive~~ Plan, plus any shares subject to awards outstanding under ~~our~~the 2013 Omnibus Incentive Plan, which will become available for issuance under the ~~Hilton~~ 2017 ~~Omnibus Incentive~~ Plan if such outstanding awards expire or are terminated or are canceled or forfeited.

RSUs

During the nine months ended September 30, ~~2019,~~2020, we granted ~~1.0 million~~907,000 RSUs with a weighted average grant date fair value per share of ~~$83.41,~~$93.43, which generally vest in equal annual installments over two or three years from the date of grant.

Options

During the nine months ended September 30, ~~2019,~~2020, we granted ~~0.8 million~~755,000 options with a weighted average exercise price per share of ~~$83.11,~~$93.33, which vest over three years from the date of grant in equal annual installments and terminate 10 years from the date of grant or earlier if the individual’s service terminates under certain circumstances.

The weighted average grant date fair value per share of the options granted during the nine months ended September 30, ~~2019~~2020 was ~~$21.08,~~$21.47, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:


Expected volatility⁽¹⁾	~~23.51~~23.69	%
Dividend yield⁽²⁾	~~0.81~~0.55	%
Risk-free rate⁽³⁾	~~2.47~~0.96	%
Expected term (in years)⁽⁴⁾	6.0

____________

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

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

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

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

As of September 30, ~~2019, 1.5 million~~2020, 1,889,000 options were exercisable.

Performance Shares

During the nine months ended September 30, ~~2019,~~2020, we granted ~~0.4 million~~347,000 performance shares with a weighted average grant date fair value per share of ~~$83.11.~~$93.33. The performance shares are settled at the end of the ~~three-year~~three-year performance period with: (i) 50 percent of the awards subject to achievement based on the compound annual growth rate ("CAGR") of the Company's earnings before interest expense, ~~a provision for~~ income ~~taxes~~tax benefit (expense) and depreciation and amortization ("EBITDA"), adjusted to exclude certain items ("Adjusted EBITDA")~~, referred to as EBITDA CAGR~~ and (ii) 50 percent of the awards subject to achievement based on the Company’s free cash flow ~~("FCF")~~ per share ~~CAGR, referred to as FCF~~ CAGR. The total number of performance shares that vest related to each performance measure is based on an achievement factor, which is estimated each reporting period, that ranges from a 0zero percent to 200 percent payout, with 100 percent being the target. As of September 30, ~~2019,~~2020, we determined that the performance conditions for the outstanding 2018, 2019 and 2020 performance shares ~~are~~were not probable of achievement, ~~and we~~which resulted in the reversal of prior expense recognized ~~compensation expense, for both our outstanding EBITDA CAGR and FCF CAGR performance shares, at the maximum achievement percentage~~ for the ~~2017~~outstanding 2020 performance awards during the three months ended September 30, 2020 and ~~2018~~the reversal of prior expense recognized for all outstanding performance ~~shares and at target for~~awards during the ~~2019 performance shares.~~nine months ended September 30, 2020.

1514

Note 12: Earnings (Loss) Per Share

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


		Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
		September 30,						September 30,							September 30,				September 30,
		2019		2018		2019		2018			2020		2019		2020		2019
		(in millions, except per share amounts)															(in millions, except per share amounts)
Basic EPS:	Basic EPS:									Basic EPS:
Numerator:	Numerator:									Numerator:
Net income attributable to Hilton stockholders		$	288	$	162	$	706	$	540
Net income (loss) attributable to Hilton stockholders										Net income (loss) attributable to Hilton stockholders	$	(79)	$	288	$	(491)	$	706
Denominator:	Denominator:									Denominator:
Weighted average shares outstanding	Weighted average shares outstanding	285		297		289		305		Weighted average shares outstanding	277		285		277		289
Basic EPS	Basic EPS	$	1.01	$	0.55	$	2.44	$	1.77	Basic EPS	$	(0.29)	$	1.01	$	(1.77)	$	2.44

Diluted EPS:	Diluted EPS:									Diluted EPS:
Numerator:	Numerator:									Numerator:
Net income attributable to Hilton stockholders		$	288	$	162	$	706	$	540
Net income (loss) attributable to Hilton stockholders										Net income (loss) attributable to Hilton stockholders	$	(79)	$	288	$	(491)	$	706
Denominator:	Denominator:									Denominator:
Weighted average shares outstanding(1)	Weighted average shares outstanding(1)	288		300		292		307		Weighted average shares outstanding(1)	279		288		279		292
Diluted EPS	Diluted EPS	$	1.00	$	0.54	$	2.42	$	1.76	Diluted EPS	$	(0.28)	$	1.00	$	(1.76)	$	2.42

____________

(1)

Approximately 1 million share-based compensation awards were excluded from the computation of diluted EPS for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 because their effect would have been anti-dilutive under the treasury stock method.

Note 13: Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss

The following tables present the changes in the components of stockholders' equity (deficit) ~~for the three and nine months ended September 30, 2019 and 2018:~~:

Three Months Ended September 30, 2019
Equity (Deficit) Attributable to Hilton Stockholders
Treasury Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated
Other
Comprehensive
Loss
Common Stock Noncontrolling
Interests
Shares Amount Total
(in millions)
Balance as of June 30, 2019 288 $ 3 $ (3,304) $ 10,419 $ (6,342) $ (806) $ 7 $ (23)
Net income — — — — 288 — 2 290
Other comprehensive loss — — — — — (42) — (42)
Dividends — — — — (43) — — (43)
Repurchases of common stock (5) — (422) — — — — (422)
Share-based compensation — — — 41 — — — 41
Balance as of September 30, 2019 283 $ 3 $ (3,726) $ 10,460 $ (6,097) $ (848) $ 9 $ (199)


	Three Months Ended September 30, 2020
	Equity (Deficit) Attributable to Hilton Stockholders
				Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Common Stock											Noncontrolling Interests
	Shares	Amount												Total
	(in millions)
Balance as of June 30, 2020	277	$	3	$	(4,457)	$	10,465	$	(6,429)	$	(881)	$	8	$	(1,291)
Net loss	—	—		—		—		(79)		—		(2)		(81)
Other comprehensive income	—	—		—		—		—		28		0		28
Share-based compensation	0	—		0		26		—		—		—		26
Distributions	—	—		—		—		—		—		(1)		(1)
Balance as of September 30, 2020	277	$	3	$	(4,457)	$	10,491	$	(6,508)	$	(853)	$	5	$	(1,319)


	Three Months Ended September 30, 2019
	Equity (Deficit) Attributable to Hilton Stockholders
				Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Common Stock											Noncontrolling Interests
	Shares	Amount												Total
	(in millions)
Balance as of June 30, 2019	288	$	3	$	(3,304)	$	10,419	$	(6,342)	$	(806)	$	7	$	(23)
Net income	—	—		—		—		288		—		2		290
Other comprehensive loss	—	—		—		—		—		(42)		0		(42)
Dividends	—	—		—		—		(43)		—		—		(43)
Repurchases of common stock	(5)	—		(422)		—		—		—		—		(422)
Share-based compensation	0	—		—		41		—		—		—		41
Balance as of September 30, 2019	283	$	3	$	(3,726)	$	10,460	$	(6,097)	$	(848)	$	9	$	(199)

Three Months Ended September 30, 2018
Equity (Deficit) Attributable to Hilton Stockholders
Treasury Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated
Other
Comprehensive
Loss
Common Stock Noncontrolling
Interests
Shares Amount Total
(in millions)
Balance as of June 30, 2018 298 $ 3 $ (2,330) $ 10,321 $ (6,697) $ (742) $ 5 $ 560
Net income — — — — 162 — 2 164
Other comprehensive loss — — — — — (4) — (4)
Dividends — — — — (45) — — (45)
Repurchases of common stock (1) — (122) — — — — (122)
Share-based compensation — — — 31 — — — 31
Acquisition of noncontrolling
interest
— — — (3) — — — (3)
Distributions — — — — — — (1) (1)
Balance as of September 30, 2018 297 $ 3 $ (2,452) $ 10,349 $ (6,580) $ (746) $ 6 $ 580


	Nine Months Ended September 30, 2020
	Equity (Deficit) Attributable to Hilton Stockholders
				Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Common Stock											Noncontrolling Interests
	Shares	Amount												Total
	(in millions)
Balance as of December 31, 2019	279	$	3	$	(4,169)	$	10,489	$	(5,965)	$	(840)	$	10	$	(472)
Net loss	—	—		—		—		(491)		—		(4)		(495)
Other comprehensive loss	—	—		—		—		—		(13)		0		(13)
Dividends	—	—		—		—		(42)		—		—		(42)
Repurchases of common stock	(3)	—		(279)		—		—		—		—		(279)
Share-based compensation	1	—		(9)		2		—		—		—		(7)
Distributions	—	—		—		—		—		—		(1)		(1)
Cumulative effect of the adoption of ASU 2016-13	—	—		—		—		(10)		—		—		(10)
Balance as of September 30, 2020	277	$	3	$	(4,457)	$	10,491	$	(6,508)	$	(853)	$	5	$	(1,319)

Nine Months Ended September 30, 2019
Equity (Deficit) Attributable to Hilton Stockholders
Treasury Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated
Other
Comprehensive
Loss
Common Stock Noncontrolling
Interests
Shares Amount Total
(in millions)
Balance as of December 31, 2018 295 $ 3 $ (2,625) $ 10,372 $ (6,417) $ (782) $ 7 $ 558
Net income — — — — 706 — 4 710
Other comprehensive loss — — — — — (66) — (66)
Dividends — — — — (130) — — (130)
Repurchases of common stock (13) — (1,101) — — — — (1,101)
Share-based compensation 1 — — 88 — — — 88
Cumulative effect of the adoption of ASU 2016-02 — — — — (256) — — (256)
Deconsolidation of a VIE — — — — — — (2) (2)
Balance as of September 30, 2019 283 $ 3 $ (3,726) $ 10,460 $ (6,097) $ (848) $ 9 $ (199)


	Nine Months Ended September 30, 2019
	Equity (Deficit) Attributable to Hilton Stockholders
				Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Common Stock											Noncontrolling Interests
	Shares	Amount												Total
	(in millions)
Balance as of December 31, 2018	295	$	3	$	(2,625)	$	10,372	$	(6,417)	$	(782)	$	7	$	558
Net income	—	—		—		—		706		—		4		710
Other comprehensive loss	—	—		—		—		—		(66)		0		(66)
Dividends	—	—		—		—		(130)		—		—		(130)
Repurchases of common stock	(13)	—		(1,101)		—		—		—		—		(1,101)
Share-based compensation	1	—		—		88		—		—		—		88
Cumulative effect of the adoption of ASU 2016-02	—	—		—		—		(256)		—		—		(256)
Deconsolidation of a VIE	—	—		—		—		—		—		(2)		(2)
Balance as of September 30, 2019	283	$	3	$	(3,726)	$	10,460	$	(6,097)	$	(848)	$	9	$	(199)

Nine Months Ended September 30, 2018
Equity (Deficit) Attributable to Hilton Stockholders
Treasury Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated
Other
Comprehensive
Loss
Common Stock Noncontrolling
Interests
Shares Amount Total
(in millions)
Balance as of December 31, 2017 317 $ 3 $ (891) $ 10,298 $ (6,981) $ (741) $ 3 $ 1,691
Net income — — — — 540 — 4 544
Other comprehensive loss — — — — — (5) — (5)
Dividends — — — — (139) — — (139)
Repurchases of common stock (21) — (1,561) — — — — (1,561)
Share-based compensation 1 — — 54 — — — 54
Acquisition of noncontrolling
interest
— — — (3) — — — (3)
Distributions — — — — — — (1) (1)
Balance as of September 30, 2018 297 $ 3 $ (2,452) $ 10,349 $ (6,580) $ (746) $ 6 $ 580
In March 2020, we suspended share repurchases and the payment of dividends. The stock repurchase program remains authorized by the board of directors, and we may resume share repurchases in the future at any time, depending on market conditions, our capital needs and other factors.

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

Currency Translation Adjustment⁽¹⁾
Pension Liability Adjustment Cash Flow Hedge Adjustment Total
(in millions)
Balance as of December 31, 2018 $ (545) $ (260) $ 23 $ (782)
Other comprehensive loss before reclassifications (24) (1) (40) (65)
Amounts reclassified from accumulated other comprehensive loss 1 6 (8) (1)
Net current period other comprehensive income (loss) (23) 5 (48) (66)
Balance as of September 30, 2019 $ (568) $ (255) $ (25) $ (848)


	Currency Translation Adjustment(1)		Pension Liability Adjustment(2)		Cash Flow Hedge Adjustment(3)		Total
	(in millions)
Balance as of December 31, 2019	$	(549)	$	(269)	$	(22)	$	(840)
Other comprehensive income (loss) before reclassifications	16		(3)		(35)		(22)
Amounts reclassified from accumulated other comprehensive loss	5		8		(4)		9
Net current period other comprehensive income (loss)	21		5		(39)		(13)
Balance as of September 30, 2020	$	(528)	$	(264)	$	(61)	$	(853)

Currency Translation Adjustment⁽¹⁾
Pension Liability Adjustment Cash Flow Hedge Adjustment Total
(in millions)
Balance as of December 31, 2017 $ (513) $ (229) $ 1 $ (741)
Other comprehensive income (loss) before reclassifications (56) (2) 41 (17)
Amounts reclassified from accumulated other comprehensive loss — 6 6 12
Net current period other comprehensive income (loss) (56) 4 47 (5)
Balance as of September 30, 2018 $ (569) $ (225) $ 48 $ (746)


	Currency Translation Adjustment(1)		Pension Liability Adjustment(2)		Cash Flow Hedge Adjustment(3)		Total
	(in millions)
Balance as of December 31, 2018	$	(545)	$	(260)	$	23	$	(782)
Other comprehensive loss before reclassifications	(24)		(1)		(40)		(65)
Amounts reclassified from accumulated other comprehensive loss	1		6		(8)		(1)
Net current period other comprehensive income (loss)	(23)		5		(48)		(66)
Balance as of September 30, 2019	$	(568)	$	(255)	$	(25)	$	(848)

____________

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

~~The following table presents additional information about reclassifications out~~ Amounts reclassified related to the liquidation of ~~accumulated other comprehensive loss; amounts~~investments in ~~parentheses indicate losses~~foreign entities and were recognized net of taxes in ~~our condensed consolidated statements of operations:~~

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2019
(in millions)
Currency translation adjustment:
Liquidation of investments in foreign entities⁽¹⁾
$ — $ (1)
Total currency translation adjustment reclassifications for the period,
net of taxes
— (1)
Pension liability adjustment:
Amortization of prior service cost⁽²⁾
(1) (3)
Amortization of net loss⁽²⁾
(2) (5)
Tax benefit⁽³⁾
1 2
Total pension liability adjustment reclassifications for the period,
net of taxes
(2) (6)
Cash flow hedge adjustment:
Interest rate swaps⁽⁴⁾
2 8
Forward contracts⁽⁵⁾
2 2
Tax expense⁽³⁾
(1) (2)
Total cash flow hedge adjustment reclassifications for the period,
net of taxes
3 8
Total reclassifications for the period, net of taxes $ 1 $ 1

~~____________~~

⁽¹⁾~~Includes a gain on the related net investment hedge for one of the foreign entities. Reclassified to~~ gain (loss) on foreign currency transactions in our condensed consolidated statements of operations. ~~The~~

(2)Amounts reclassified related ~~tax benefit reclassified~~ to ~~income tax expense~~the amortization of prior service cost and amortization of net loss and were recognized net of taxes in ~~our condensed consolidated statements of operations was less than $1 million.~~

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

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

⁽⁴⁾~~Reclassified~~Amounts reclassified related to interest rate swaps and forward contracts that hedge our foreign currency denominated fees and were recognized net of taxes in interest expense ~~in our condensed consolidated statements of operations.~~

⁽⁵⁾~~Reclassified to~~and franchise and licensing fees, ~~and~~ base and other management fees and other revenues from managed and franchised properties, respectively, in our condensed consolidated statements of operations.

~~As of September 30, 2019, approximately $959 million remained available for share repurchases under our $3.5 billion stock repurchase program.~~

Note 14: Business Segments

We are a hospitality company with operations organized in 2 distinct operating segments: (i) management and franchise and (ii) ownership. These segments are managed and reported separately because of their distinct economic characteristics.

The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels that use our brands, but are operated or managed by someone other than us. ~~As of September 30, 2019, this segment included 706 managed hotels and 5,154 franchised hotels consisting of 925,458 total rooms.~~ This segment also earns licensing fees from Hilton Grand Vacations Inc. ("HGV") and ~~co-brand credit card arrangements~~strategic partnerships for the ~~exclusive~~ right to use certain Hilton marks and IP, as well as fees for managing properties in our ownership segment. As of September 30, 2020, this segment included 700 managed hotels and 5,516 franchised hotels consisting of 969,546 total rooms. As a result of the COVID-19 pandemic, approximately 1,235 hotels in our management and franchise segment had temporarily suspended operations at some point in time during the nine months ended September 30, 2020, largely beginning in mid-March. Of these hotels, all but approximately 200 had reopened as of September 30, 2020.

As of September 30, ~~2019, the~~2020, our ownership segment included 6562 properties totaling ~~20,481 rooms, comprising 57~~19,780 rooms. As a result of the COVID-19 pandemic, approximately 35 hotels in our ownership segment had temporarily suspended operations at some point in time during the nine months ended September 30, 2020, largely beginning in mid-March, of which all had reopened as of September 30, 2020. The segment comprised 54 hotels that we wholly owned or leased, 1 hotel owned by a consolidated non-wholly owned entity, 2 hotels leased by consolidated VIEs and 5 hotels owned or leased by unconsolidated affiliates.

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

1917

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


		Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
		September 30,						September 30,							September 30,				September 30,
		2019		2018		2019		2018			2020		2019		2020		2019
		(in millions)															(in millions)
Franchise and licensing fees	Franchise and licensing fees	$	447	$	409	$	1,277	$	1,147	Franchise and licensing fees	$	244	$	447	$	720	$	1,277
Base and other management fees⁽¹⁾	Base and other management fees⁽¹⁾	95		95		293		286		Base and other management fees(1)	30		95		108		293
Incentive management fees	Incentive management fees	54		57		167		171		Incentive management fees	7		54		25		167
Management and franchise	Management and franchise	596		561		1,737		1,604		Management and franchise	281		596		853		1,737
Ownership	Ownership	361		373		1,060		1,099		Ownership	94		361		335		1,060
Segment revenues	Segment revenues	957		934		2,797		2,703		Segment revenues	375		957		1,188		2,797
Amortization of contract acquisition costs	Amortization of contract acquisition costs	(7)		(6)		(21)		(20)		Amortization of contract acquisition costs	(7)		(7)		(22)		(21)
Other revenues	Other revenues	23		27		75		72		Other revenues	19		23		52		75
Direct reimbursements from managed and franchised properties⁽²⁾	Direct reimbursements from managed and franchised properties⁽²⁾	770		710		2,334		2,139		Direct reimbursements from managed and franchised properties(2)	244		770		1,185		2,334
Indirect reimbursements from managed and franchised properties⁽²⁾	Indirect reimbursements from managed and franchised properties⁽²⁾	664		599		1,929		1,754		Indirect reimbursements from managed and franchised properties(2)	304		664		1,016		1,929
Intersegment fees elimination⁽¹⁾	Intersegment fees elimination⁽¹⁾	(12)		(11)		(31)		(30)		Intersegment fees elimination(1)	(2)		(12)		(2)		(31)
Total revenues	Total revenues	$	2,395	$	2,253	$	7,083	$	6,618	Total revenues	$	933	$	2,395	$	3,417	$	7,083

____________

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

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

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


		Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
		September 30,						September 30,							September 30,				September 30,
		2019		2018		2019		2018			2020		2019		2020		2019
		(in millions)															(in millions)
Management and franchise⁽¹⁾	Management and franchise⁽¹⁾	$	596	$	561	$	1,737	$	1,604	Management and franchise(1)	$	281	$	596	$	853	$	1,737
Ownership⁽¹⁾	Ownership⁽¹⁾	39		31		87		66		Ownership(1)	(52)		39		(145)		87
Segment operating income	Segment operating income	635		592		1,824		1,670		Segment operating income	229		635		708		1,824
Amortization of contract acquisition costs	Amortization of contract acquisition costs	(7)		(6)		(21)		(20)		Amortization of contract acquisition costs	(7)		(7)		(22)		(21)
Other revenues, less other expenses	Other revenues, less other expenses	12		17		29		36		Other revenues, less other expenses	(2)		12		4		29
Net other expenses from managed and franchised properties	Net other expenses from managed and franchised properties	(9)		(28)		(21)		(46)		Net other expenses from managed and franchised properties	(44)		(9)		(281)		(21)
Depreciation and amortization	Depreciation and amortization	(86)		(81)		(256)		(242)		Depreciation and amortization	(90)		(86)		(269)		(256)
General and administrative		(107)		(109)		(327)		(328)
General and administrative expenses										General and administrative expenses	(66)		(107)		(189)		(327)
Reorganization costs										Reorganization costs	0		0		(38)		0
Impairment losses										Impairment losses	(9)		0		(136)		0
Gain on sale of assets, net	Gain on sale of assets, net	81		—		81		—		Gain on sale of assets, net	0		81		0		81
Operating income		519		385		1,309		1,070
Operating income (loss)										Operating income (loss)	11		519		(223)		1,309
Interest expense	Interest expense	(105)		(99)		(304)		(277)		Interest expense	(116)		(105)		(316)		(304)
Gain (loss) on foreign currency transactions	Gain (loss) on foreign currency transactions	7		(6)		4		(7)		Gain (loss) on foreign currency transactions	(12)		7		(16)		4
Other non-operating income (loss), net	Other non-operating income (loss), net	—		13		(8)		26		Other non-operating income (loss), net	3		0		(20)		(8)
Income before income taxes		$	421	$	293	$	1,001	$	812
Income (loss) before income taxes										Income (loss) before income taxes	$	(114)	$	421	$	(575)	$	1,001

____________

2018

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

September 30, December 31,
2019 2018
(in millions)
Management and franchise $ 11,345 $ 11,362
Ownership 1,627 927
Corporate and other 2,095 1,706
$ 15,067 $ 13,995

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


		Nine Months Ended							September 30,		December 31,
		September 30,							2020		2019
		2019		2018			(in millions)
		(in millions)
Management and franchise						Management and franchise	$	11,088	$	11,455
Ownership	Ownership	$	31	$	34	Ownership	1,359		1,610
Corporate and other	Corporate and other	35		17		Corporate and other	4,682		1,892
		$	66	$	51		$	17,129	$	14,957

Note 15: Commitments and Contingencies

We provide performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees allow us to terminate the contract, rather than fund shortfalls, if specified operating performance levels are not achieved. However, in limited cases, we are obligated to fund performance ~~shortfalls.~~shortfalls, creating variable interests in the ownership entities of the hotels, of which we are not the primary beneficiary. As of September 30, ~~2019,~~2020, we had 64 performance guarantees, with expirations ranging from ~~December 2019~~2023 to 2039, and possible cash outlays totaling approximately ~~$38~~$18 million. Our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee. AsWe have included the impact of the COVID-19 pandemic on these hotels in our expectations of their future operating performance and, as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we accrued current liabilities of $3$7 million and ~~$12~~$3 million, respectively, for 1our performance ~~guarantee related to a hotel owned by a VIE for which we were not the primary beneficiary.~~guarantees. We may enter into new contracts containing performance guarantees in the future, which could increase our possible cash outlays. ~~We do not have any letters of credit pledged as collateral against our performance guarantees.~~

As of September 30, 2019, we guaranteed 2 loans for 3 hotels that we franchise or will franchise for a total of $30 million. One of the loans has an initial maturity date in 2022 with two one-year extension options and the other loan will mature in 2023. Although we believe it is unlikely that material payments will be required under these guarantees, there can be no assurance that this will be the case. We do not have any letters of credit pledged as collateral against these guarantees.

We hold interests in VIEs, for which we are not the primary beneficiary, that have entered into loan agreements with third parties. Under the terms of our contractual arrangements with certain of these VIEs, we may provide financial support to such entities under specified circumstances, including default of such a VIE under a third-party loan agreement, and may have the option to acquire a controlling financial interest in such an entity at a predetermined amount. In a circumstance that we provide financial support or exercise our option to acquire an additional interest in a VIE, we may be required to reassess whether we are the primary beneficiary of the VIE. If we determine that we are the primary beneficiary of the VIE, we would be required to consolidate the total assets, liabilities and results of operations of the VIE, which may be material upon consolidation.

WeAs of September 30, 2020, we guaranteed 1 loan for 2 hotels that we will franchise for $10 million. Additionally, we have entered into ~~agreements~~an agreement with ~~owners~~the owner of ~~certain hotels~~a hotel that we ~~currently~~ manage ~~or will franchise~~ to finance capital expenditures at the ~~hotels.~~hotel. As of September 30, ~~2019,~~2020, we had remaining possible cash outlays related to this agreement of approximately ~~$25 million,~~$10 million; however, we cannot currently estimate the timing of ~~which we expect to fund $15 million in~~ the ~~remainder of 2019 and $10 million in 2020.~~payments or if they will be made at all.

We receive fees from managed and franchised properties to operate our marketing, sales and brand programs on behalf of hotel owners. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had collected an aggregate of ~~$397~~$113 million and ~~$375~~$350 million in excess of amounts expended, respectively, across all programs.

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the

ultimate resolution of all pending or threatened claims and litigation as of September 30, ~~2019~~2020 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

~~Note 16: Condensed Consolidating Guarantor Financial Information~~

Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. (together, the "HWF Issuers"), which are 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which is 100 percent owned by the Parent, issued the 2025 Senior Notes and the 2027 Senior Notes. Hilton Domestic Operating Company Inc. ("HOC"), which is 100 percent owned by Hilton Worldwide Finance LLC, assumed the 2024 Senior Notes, issued the 2026 Senior Notes and, in June 2019, issued the 2030 Senior Notes. The 2024 Senior Notes, 2025 Senior Notes, 2026 Senior Notes, 2027 Senior Notes and 2030 Senior Notes are collectively referred to as the Senior Notes. The HWF Issuers and HOC are collectively referred to as the Subsidiary Issuers.

The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by HWP, the Parent and certain of the Parent's wholly owned domestic restricted subsidiaries that are themselves not issuers of the applicable series of Senior Notes (together, the "Guarantors''). The indentures that govern the Senior Notes provide that any subsidiary of the Company that provides a guarantee of our senior secured credit facilities will guarantee the Senior Notes. Additionally, the HWF Issuers are guarantors of the 2024 Senior Notes, the 2026 Senior Notes and the 2030 Senior Notes, and HOC is a guarantor of the 2025 Senior Notes and the 2027 Senior Notes. As of September 30, 2019, none of our foreign subsidiaries or U.S. subsidiaries owned by foreign subsidiaries or conducting foreign operations or our non-wholly owned subsidiaries guaranteed the Senior Notes (collectively, the "Non-Guarantors").

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

The following tables present the condensed consolidating financial information as of September 30, 2019 and December 31, 2018, and for the three and nine months ended September 30, 2019 and 2018, for the Parent, HWF Issuers, HOC, Guarantors and Non-Guarantors. The condensed consolidating financial information presents the financial information for all periods based on the composition of the Guarantors and Non-Guarantors as of September 30, 2019.

2219

September 30, 2019
Parent HWF Issuers HOC Guarantors Non-Guarantors Eliminations Total
(in millions)
ASSETS
Current Assets:
Cash and cash equivalents $ — $ — $ 17 $ 26 $ 676 $ — $ 719
Restricted cash and cash equivalents — — 34 23 33 — 90
Accounts receivable, net — — 13 850 332 (2) 1,193
Intercompany receivables — — — — 39 (39) —
Prepaid expenses — — 26 37 57 (5) 115
Other — 3 1 56 102 (24) 138
Total current assets — 3 91 992 1,239 (70) 2,255
Intangibles and Other Assets:
Investments in subsidiaries (187) 3,948 7,709 (187) — (11,283) —
Goodwill — — — 3,824 1,313 — 5,137
Brands — — — 4,404 460 — 4,864
Management and franchise contracts, net — — 1 464 329 — 794
Other intangible assets, net — — — 290 114 — 404
Operating lease right-of-use assets — — 34 9 796 — 839
Property and equipment, net — — 60 68 252 — 380
Deferred income tax assets 3 11 85 — 146 (99) 146
Other — 11 31 37 169 — 248
Total intangibles and other assets (184) 3,970 7,920 8,909 3,579 (11,382) 12,812
TOTAL ASSETS $ (184) $ 3,973 $ 8,011 $ 9,901 $ 4,818 $ (11,452) $ 15,067
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other $ 24 $ 37 $ 264 $ 711 $ 770 $ (22) $ 1,784
Current maturities of long-term debt — — 20 — 18 — 38
Current portion of deferred revenues — — 38 241 20 (9) 290
Intercompany payables — — 39 — — (39) —
Current portion of liability for guest loyalty program — — — 788 — — 788
Total current liabilities 24 37 361 1,740 808 (70) 2,900
Long-term debt — 4,078 3,474 — 215 — 7,767
Operating lease liabilities — — 39 7 958 — 1,004
Deferred revenues — — — 764 70 — 834
Deferred income tax liabilities — — — 957 15 (99) 873
Liability for guest loyalty program — — — 1,004 — — 1,004
Other — 45 189 96 554 — 884
Total liabilities 24 4,160 4,063 4,568 2,620 (169) 15,266
Equity (Deficit):
Total Hilton stockholders' equity (deficit) (208) (187) 3,948 5,333 2,189 (11,283) (208)
Noncontrolling interests — — — — 9 — 9
Total equity (deficit) (208) (187) 3,948 5,333 2,198 (11,283) (199)
TOTAL LIABILITIES AND EQUITY (DEFICIT) $ (184) $ 3,973 $ 8,011 $ 9,901 $ 4,818 $ (11,452) $ 15,067

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

Three Months Ended September 30, 2019
Parent HWF Issuers HOC Guarantors Non-Guarantors Eliminations Total
(in millions)
Revenues
Franchise and licensing fees $ — $ — $ 68 $ 338 $ 41 $ (4) $ 443
Base and other management fees — — 1 48 31 — 80
Incentive management fees — — — 16 38 — 54
Owned and leased hotels — — — — 361 — 361
Other revenues — — — 20 3 — 23
— — 69 422 474 (4) 961
Other revenues from managed and franchised properties — — 79 1,195 160 — 1,434
Total revenues — — 148 1,617 634 (4) 2,395
Expenses
Owned and leased hotels — — — — 310 — 310
Depreciation and amortization — — 2 63 21 — 86
General and administrative — — 88 — 28 (9) 107
Other expenses — — 1 — 5 5 11
— — 91 63 364 (4) 514
Other expenses from managed and franchised properties — — 85 1,200 158 — 1,443
Total expenses — — 176 1,263 522 (4) 1,957
Gain on sale of assets, net — — — — 81 — 81
Operating income (loss) — — (28) 354 193 — 519
Interest expense — (45) (49) — (11) — (105)
Gain (loss) on foreign currency transactions — — 4 (43) 46 — 7
Other non-operating income (loss), net — (2) — (3) 5 — —
Income (loss) before income taxes and equity in earnings from subsidiaries — (47) (73) 308 233 — 421
Income tax benefit (expense) — 11 15 (79) (78) — (131)
Income (loss) before equity in earnings from subsidiaries — (36) (58) 229 155 — 290
Equity in earnings from subsidiaries 288 324 382 288 — (1,282) —
Net income 288 288 324 517 155 (1,282) 290
Net income attributable to noncontrolling interests — — — — (2) — (2)
Net income attributable to Hilton stockholders $ 288 $ 288 $ 324 $ 517 $ 153 $ (1,282) $ 288
Comprehensive income $ 246 $ 279 $ 324 $ 516 $ 123 $ (1,240) $ 248
Comprehensive income attributable to noncontrolling interests — — — — (2) — (2)
Comprehensive income attributable to Hilton stockholders $ 246 $ 279 $ 324 $ 516 $ 121 $ (1,240) $ 246

Three Months Ended September 30, 2018
Parent HWF Issuers HOC Guarantors Non-Guarantors Eliminations Total
(in millions)
Revenues
Franchise and licensing fees $ — $ — $ 57 $ 316 $ 39 $ (5) $ 407
Base and other management fees — — — 49 31 — 80
Incentive management fees — — — 15 42 — 57
Owned and leased hotels — — — — 373 — 373
Other revenues — — 1 19 3 4 27
— — 58 399 488 (1) 944
Other revenues from managed and franchised properties — — 70 1,076 163 — 1,309
Total revenues — — 128 1,475 651 (1) 2,253
Expenses
Owned and leased hotels — — — — 331 — 331
Depreciation and amortization — — 2 58 21 — 81
General and administrative — — 81 — 30 (2) 109
Other expenses — — 1 2 6 1 10
— — 84 60 388 (1) 531
Other expenses from managed and franchised properties — — 70 1,106 161 — 1,337
Total expenses — — 154 1,166 549 (1) 1,868
Operating income (loss) — — (26) 309 102 — 385
Interest expense — (54) (34) — (8) (3) (99)
Gain (loss) on foreign currency transactions — — — 1 (7) — (6)
Other non-operating income, net — — 1 4 5 3 13
Income (loss) before income taxes and equity in earnings from subsidiaries — (54) (59) 314 92 — 293
Income tax benefit (expense) — 13 8 (70) (80) — (129)
Income (loss) before equity in earnings from subsidiaries — (41) (51) 244 12 — 164
Equity in earnings from subsidiaries 162 203 254 162 — (781) —
Net income 162 162 203 406 12 (781) 164
Net income attributable to noncontrolling interests — — — — (2) — (2)
Net income attributable to Hilton stockholders $ 162 $ 162 $ 203 $ 406 $ 10 $ (781) $ 162
Comprehensive income $ 158 $ 168 $ 204 $ 405 $ 2 $ (777) $ 160
Comprehensive income attributable to noncontrolling interests — — — — (2) — (2)
Comprehensive income attributable to Hilton stockholders $ 158 $ 168 $ 204 $ 405 $ — $ (777) $ 158

Nine Months Ended September 30, 2019
Parent HWF Issuers HOC Guarantors Non-Guarantors Eliminations Total
(in millions)
Revenues
Franchise and licensing fees $ — $ — $ 198 $ 970 $ 114 $ (13) $ 1,269
Base and other management fees — — 1 157 91 — 249
Incentive management fees — — — 60 107 — 167
Owned and leased hotels — — — — 1,060 — 1,060
Other revenues — — 1 63 11 — 75
— — 200 1,250 1,383 (13) 2,820
Other revenues from managed and franchised properties — — 235 3,581 447 — 4,263
Total revenues — — 435 4,831 1,830 (13) 7,083
Expenses
Owned and leased hotels — — — — 942 — 942
Depreciation and amortization — — 5 188 63 — 256
General and administrative — — 259 — 90 (22) 327
Other expenses — — 5 10 22 9 46
— — 269 198 1,117 (13) 1,571
Other expenses from managed and franchised properties — — 244 3,602 438 — 4,284
Total expenses — — 513 3,800 1,555 (13) 5,855
Gain on sale of assets, net — — — — 81 — 81
Operating income (loss) — — (78) 1,031 356 — 1,309
Interest expense — (148) (117) — (39) — (304)
Gain (loss) on foreign currency transactions — — 5 (70) 69 — 4
Other non-operating income (loss), net — (11) — (8) 11 — (8)
Income (loss) before income taxes and equity in earnings from subsidiaries — (159) (190) 953 397 — 1,001
Income tax benefit (expense) — 38 42 (238) (133) — (291)
Income (loss) before equity in earnings from subsidiaries — (121) (148) 715 264 — 710
Equity in earnings from subsidiaries 706 827 975 706 — (3,214) —
Net income 706 706 827 1,421 264 (3,214) 710
Net income attributable to noncontrolling interests — — — — (4) — (4)
Net income attributable to Hilton stockholders $ 706 $ 706 $ 827 $ 1,421 $ 260 $ (3,214) $ 706
Comprehensive income $ 640 $ 657 $ 830 $ 1,420 $ 245 $ (3,148) $ 644
Comprehensive income attributable to noncontrolling interests — — — — (4) — (4)
Comprehensive income attributable to Hilton stockholders $ 640 $ 657 $ 830 $ 1,420 $ 241 $ (3,148) $ 640

Nine Months Ended September 30, 2018
Parent HWF Issuers HOC Guarantors Non-Guarantors Eliminations Total
(in millions)
Revenues
Franchise and licensing fees $ — $ — $ 151 $ 900 $ 104 $ (13) $ 1,142
Base and other management fees — — 1 155 85 — 241
Incentive management fees — — — 58 113 — 171
Owned and leased hotels — — — — 1,099 — 1,099
Other revenues — — 4 60 8 — 72
— — 156 1,173 1,409 (13) 2,725
Other revenues from managed and franchised properties — — 176 3,256 461 — 3,893
Total revenues — — 332 4,429 1,870 (13) 6,618
Expenses
Owned and leased hotels — — — — 1,003 — 1,003
Depreciation and amortization — — 5 176 61 — 242
General and administrative — — 237 — 97 (6) 328
Other expenses — — 5 17 21 (7) 36
— — 247 193 1,182 (13) 1,609
Other expenses from managed and franchised properties — — 178 3,304 457 — 3,939
Total expenses — — 425 3,497 1,639 (13) 5,548
Operating income (loss) — — (93) 932 231 — 1,070
Interest expense — (172) (78) — (27) — (277)
Gain (loss) on foreign currency transactions — — 3 (80) 70 — (7)
Other non-operating income (loss), net — (7) 5 16 12 — 26
Income (loss) before income taxes and equity in earnings from subsidiaries — (179) (163) 868 286 — 812
Income tax benefit (expense) — 44 35 (204) (143) — (268)
Income (loss) before equity in earnings from subsidiaries — (135) (128) 664 143 — 544
Equity in earnings from subsidiaries 540 675 803 540 — (2,558) —
Net income 540 540 675 1,204 143 (2,558) 544
Net income attributable to noncontrolling interests — — — — (4) — (4)
Net income attributable to Hilton stockholders $ 540 $ 540 $ 675 $ 1,204 $ 139 $ (2,558) $ 540
Comprehensive income $ 535 $ 585 $ 677 $ 1,203 $ 92 $ (2,553) $ 539
Comprehensive income attributable to noncontrolling interests — — — — (4) — (4)
Comprehensive income attributable to Hilton stockholders $ 535 $ 585 $ 677 $ 1,203 $ 88 $ (2,553) $ 535

Nine Months Ended September 30, 2019
Parent HWF Issuers HOC Guarantors Non-Guarantors Eliminations Total
(in millions)
Operating Activities:
Net cash provided by (used in) operating activities $ — $ (122) $ (17) $ 1,157 $ 229 $ (65) $ 1,182
Investing Activities:
Capital expenditures for property and equipment — — (6) (5) (55) — (66)
Proceeds from asset disposition — — — — 120 — 120
Capitalized software costs — — — (79) — — (79)
Other — — — (18) (4) — (22)
Net cash provided by (used in) investing activities — — (6) (102) 61 — (47)
Financing Activities:
Borrowings — 795 1,000 — — — 1,795
Repayment of debt — (1,295) (20) — (12) — (1,327)
Debt issuance costs — (13) (16) — — — (29)
Intercompany transfers 1,216 635 (896) (1,038) 83 — —
Dividends paid (130) — — — — — (130)
Repurchases of common stock (1,086) — — — — — (1,086)
Intercompany dividends — — — — (65) 65 —
Share-based compensation tax withholdings and other — — (31) — — — (31)
Net cash provided by (used in) financing activities — 122 37 (1,038) 6 65 (808)
Effect of exchange rate changes on cash, restricted cash and cash equivalents — — — — (2) — (2)
Net increase in cash, restricted cash and cash equivalents — — 14 17 294 — 325
Cash, restricted cash and cash equivalents, beginning of period — — 37 32 415 — 484
Cash, restricted cash and cash equivalents, end of period $ — $ — $ 51 $ 49 $ 709 $ — $ 809

Nine Months Ended September 30, 2018
Parent HWF Issuers HOC Guarantors Non-Guarantors Eliminations Total
(in millions)
Operating Activities:
Net cash provided by (used in) operating activities $ — $ (143) $ (7) $ 808 $ 256 $ — $ 914
Investing Activities:
Capital expenditures for property and equipment — — (5) (4) (42) — (51)
Payments received on other financing receivables — — — 49 — — 49
Capitalized software costs — — — (62) — — (62)
Other — — — (6) (10) — (16)
Net cash used in investing activities — — (5) (23) (52) — (80)
Financing Activities:
Borrowings — 175 1,500 — 1 — 1,676
Repayment of debt — (685) — — (16) — (701)
Debt issuance costs — — (21) — — — (21)
Intercompany transfers 1,698 653 (1,451) (739) (161) — —
Dividends paid (137) — — — — — (137)
Repurchases of common stock (1,561) — — — — — (1,561)
Share-based compensation tax withholdings and other — — (42) — — — (42)
Other — — — (3) (1) — (4)
Net cash provided by (used in) financing activities — 143 (14) (742) (177) — (790)
Effect of exchange rate changes on cash, restricted cash and cash equivalents — — — — (14) — (14)
Net increase (decrease) in cash, restricted cash and cash equivalents — — (26) 43 13 — 30
Cash, restricted cash and cash equivalents, beginning of period — — 63 28 579 — 670
Cash, restricted cash and cash equivalents, end of period $ — $ — $ 37 $ 71 $ 592 $ — $ 700

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include, but are not limited to, statements related to our expectations regarding the impact of the COVID-19 pandemic, the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond our control, risks related to the impact of the COVID-19 pandemic, competition for hotel guests and management and franchise contracts, risks related to doing business with third-party hotel owners, performance of our information technology systems, growth of reservation channels outside of our system, risks of doing business outside of the U.S. and our indebtedness. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under "Part I—Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019, as updated under "Part II. Other Information—Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

COVID-19 Pandemic

During the nine months ended September 30, 2020, the COVID-19 pandemic significantly impacted the global economy and strained the hospitality industry due to travel restrictions and stay-at-home directives in place at various times during the period, resulting in cancellations and significantly reduced travel around the world. The reduction in travel has resulted in complete and partial suspensions of hotel operations in many of the locations, where our hotels are located, for an indeterminate duration, which, outside of China, largely began in mid-March, and included approximately 20 percent of our global hotel properties for some portion of the reporting period. As such, it had a material adverse impact on our results for the three and nine months ended September 30, 2020 and, based on the potential impact of further restrictions and health and safety concerns, we expect it to continue to have a material adverse impact on our results in future periods, as described below under "—Results of Operations."

As of November 2, 2020, 97 percent of our global hotel properties were open, while approximately 190 hotels had temporarily suspended operations. However, in late October, certain geographic areas have re-imposed additional travel restrictions, which may result in further adverse impacts to our hotel operations. Hotels that have reopened generally have experienced significantly lower occupancy as compared with periods before the onset of the pandemic.

In response to this global crisis, we have taken actions to prioritize the safety and security of our guests, employees and owners and support our communities. During the summer, we launched Hilton CleanStay to deliver a new standard of cleanliness and disinfection to our properties worldwide and Hilton EventReady, which focuses on cleanliness and customer service specific to meetings and events. We also found alternative uses for certain of our hotel properties, including providing housing for first responders and healthcare workers, and provided financial assistance to organizations helping those affected by COVID-19 through our Hilton Effect Foundation. Additionally, we have taken several steps to help our business withstand this uncertain time, as detailed in "—Liquidity and Capital Resources."

Overview

Our Business

Hilton is one of the largest ~~and fastest growing~~ hospitality companies in the world, with ~~5,980~~6,333 properties comprising ~~954,855~~998,282 rooms in ~~117~~118 countries and territories as of September 30, ~~2019.~~2020. Our premier brand portfolio includes: our luxury and lifestyle hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts, Conrad Hotels & Resorts, Canopy by Hilton, Tempo by Hilton and ~~Canopy~~Motto by Hilton; our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts, Curio Collection by Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton and Embassy Suites by Hilton; our focused service hotel brands, ~~Motto by Hilton,~~ Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton; and our timeshare brand, Hilton Grand Vacations. As of September 30, ~~2019,~~2020, we had ~~nearly 99~~110 million members in our award-winning guest loyalty program, Hilton ~~Honors,a 21 percent increase from September 30, 2018.~~Honors.

Segments and Regions

We analyze our operations and business by both operating segments and geographic regions. Our operations consist of two reportable segments that are based on similar products or services: (i) management and franchise and (ii) ownership. The management and franchise segment provides services, including hotel management and licensing of our ~~brands.~~brands and IP. This segment generates its revenue from: (i) management and franchise fees charged to third-party hotel owners; (ii) licensing fees from HGV and strategic partnerships for the ~~exclusive~~ right to use certain Hilton marks and IP; and (iii) fees for managing our owned and leased hotels. As a manager of hotels, we typically are responsible for supervising or operating the property in exchange for management fees. As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and related commercial services, such as our reservation system, marketing and information technology ~~services.~~services, while a third party manages or operates such franchised hotels. The ownership segment primarily derives earnings from providing nightly hotel room sales, food and beverage sales and other services at our owned and leased hotels.

Geographically, we conduct business through three distinct geographic regions: (i) the Americas; (ii) Europe, Middle East and Africa ("EMEA"); and (iii) Asia Pacific. The Americas region includes North America, South America and Central America, including all Caribbean nations. Although the U.S. is included in the Americas, it ~~represented 72 percent~~represents a significant portion of our system-wide hotel rooms, 72 percent as of September 30, ~~2019;~~2020; therefore, the U.S. is often analyzed separately and apart from the Americas ~~geographic~~ region and, as such, it is presented separately within the analysis herein. The EMEA region includes Europe, which represents the western-most peninsula of Eurasia stretching from Iceland in the west to Russia in the east, and the Middle East and Africa ("MEA"), which represents the Middle East region and all African nations, including the Indian

Ocean island nations. Europe and MEA are often analyzed separately and, as such, are presented separately within the analysis herein. The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand and the Pacific Island nations.

System Growth and Development Pipeline

Our strategic objectives include the continued expansion of our global footprint and fee-based business. As we enter into new management and franchise contracts, we expand our business with minimal or no capital investment by us as the manager or franchisor, since the capital required to build and maintain hotels is typically provided by the third-party owner of the hotel with whom we contract to provide management services or license our brand ~~names.~~names and IP. Prior to approving the addition of new properties to our management and franchise development pipeline, we evaluate the economic viability of the property based on its geographic location, the credit quality of the third-party owner and other factors. By increasing the number of management and franchise contracts with third-party owners, over time we expect to increase revenues, overall return on invested capital and cash available ~~for return~~ to ~~stockholders.~~support our business needs. While these objectives have not changed as a result of the COVID-19 pandemic, the current economic environment has posed certain challenges to the execution of our strategy, which have included and may continue to include delays in openings and new development. See further discussion on our cash management policy, as detailed in "—Liquidity and Capital Resources."

As of September 30, ~~2019,~~2020, we had ~~more than 2,530~~approximately 2,640 hotels in our development pipeline that we expect to add as open hotels in our system, representing ~~nearly 379,000~~more than 408,000 rooms under construction or approved for development throughout ~~111~~120 countries and territories, including 3533 countries and territories where we do not currently have any open hotels. ~~All~~Despite the adverse effects of the COVID-19 pandemic, we added nearly 70 hotels, on a net basis, to our development pipeline during the nine months ended September 30, 2020. Nearly all of the rooms in the development pipeline are within our management and franchise segment. Additionally, of the rooms in the development pipeline, ~~205,000~~237,000 rooms were located outside the U.S., and ~~198,000~~217,000 rooms ~~or more than half,~~ were under construction. We do not consider any individual development project to be material to us.

Brexit

In June 2016, the United Kingdom ("U.K.") held a referendum in which voters approved an exit from the European Union ("E.U.") (commonly referred to as "Brexit")~~, currently with a deadline of October~~. The U.K.'s withdrawal from the E.U. occurred on January 31, ~~2019.~~2020, beginning the implementation period, which is set to end on December 31, 2020. The effects of Brexit will depend on the final terms ~~on which~~that will be negotiated during the ~~U.K. will leave the E.U.,~~implementation period, including the terms of any trade agreements that will dictate the U.K.’s access to E.U. ~~markets either during any transitional period or more permanently.~~markets. While our results as of and for the nine months ended September 30, ~~2019~~2020 were not materially affected by Brexit, the final outcomes are not yet certain. Brexit measures could potentially disrupt the markets we serve and cause tax and foreign currency volatility, which could have adverse effects on our business. We will continue to monitor the potential impact of Brexit on our business ~~as the deadline approaches.~~in future periods.

Key Business and Financial Metrics Used by Management

Comparable Hotels

We define our comparable hotels as those that: (i) were active and operating in our system for at least one full calendar year as of the end of the current period, and open January 1st of the previous year; (ii) have not undergone a change in brand or ownership type during the current or comparable periods reported; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results ~~are~~were not available. Of the ~~5,925~~6,278 hotels in our system as of September 30, ~~2019, 4,633~~2020, 4,996 hotels ~~have been~~were classified as comparable hotels. Our ~~1,292~~1,282 non-comparable hotels included ~~236~~152 hotels, or approximately ~~four~~two percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they sustained substantial property damage, business interruption, underwent large-scale capital projects or comparable results were otherwise not available.

When considering business interruption in the context of our definition of comparable hotels, any hotel that had completely or partially suspended operations on a temporary basis at any point during the nine months ended September 30, 2020 as a result of the COVID-19 pandemic was considered to be part of the definition of comparable hotels. Despite these temporary suspensions of hotel operations, we believe that including these hotels within occupancy, average daily rate and revenue per available room reflects the underlying results of our business for the three and nine months ended September 30, 2020.

Occupancy

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels for a given period. Occupancy measures the utilization of our hotels' available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable average daily rate pricing levels as demand for hotel rooms increases or decreases.

Average Daily Rate ("ADR")

ADR represents hotel room revenue divided by the total number of room nights sold for a given period. ADR measures average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and

we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates charged to customers have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.

Revenue per Available Room ("RevPAR")

RevPAR is calculated by dividing hotel room revenue by the total number of room nights available to guests for a given period. We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key drivers of operations at a hotel or group of hotels, as previously described: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.

References to RevPAR, ADR and occupancy are presented on a comparable basis, and references to RevPAR and ADR are presented on a currency neutral basis, unless otherwise noted. As such, comparisons of these hotel operating statistics for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 use the exchange rates for the three and nine months ended September 30, ~~2019,~~2020, respectively.

EBITDA and Adjusted EBITDA

EBITDA reflects net income (loss), excluding interest expense, ~~a provision for~~ income ~~taxes~~tax benefit (expense) and depreciation and amortization.

Adjusted EBITDA is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including gains, losses, revenues and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated equity investments; (ii) foreign currency transactions; (iii) debt restructurings and retirements; (iv) furniture, fixtures and equipment ("FF&E") replacement reserves required under certain lease agreements; (v) reorganization, ~~costs; (vi) share-based compensation expense; (vii) non-cash impairment losses; (viii)~~ severance, relocation and other related expenses; ~~(ix)~~(vi) share-based compensation; (vii) non-cash impairment; (viii) amortization of contract acquisition costs; ~~(x)~~(ix) the net effect of reimbursable costs included in other revenues and other expenses from managed and franchised properties; and ~~(xi)~~(x) other items.

We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) these measures are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions and (ii) these measures are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry. Additionally, these measures exclude certain items that can vary widely across different industries and among competitors within our industry. For instance, interest expense and ~~the provision for~~ income taxes are dependent on company specifics, including, among other things, capital structure and operating jurisdictions, respectively, and, therefore, could vary significantly across companies. Depreciation and amortization, as well as amortization of contract acquisition costs, are dependent upon company policies, including the method of acquiring and depreciating assets and the useful lives that are used. For Adjusted EBITDA, we also exclude items such as: (i) FF&E replacement reserves for leased hotels to be consistent with the treatment of FF&E for owned hotels, where it is capitalized and depreciated over the life of the FF&E; (ii) share-based compensation expense (benefit), as this could vary widely among companies due to the different plans in place and the usage of them; (iii) the net effect of our cost reimbursement revenues and reimbursed expenses, as we contractually do not operate the related programs to generate a profit over the terms of the respective contracts; and (iv) other items, including reorganization and related severance costs, that are not core to our operations and are not reflective of our operating performance.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered as alternatives, either in isolation or as a substitute, for net income (loss), cash flow or other methods of analyzing our results as reported under GAAP. Some of these limitations are:

•EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

•EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;

•EBITDA and Adjusted EBITDA do not reflect ~~a provision for~~ income ~~taxes~~tax expenses or benefits or the cash requirements to pay our taxes;

•EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

•EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations;

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and

•other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

Results of Operations

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


		Three Months Ended			Variance						Nine Months Ended			Variance					Three Months Ended			Variance				Nine Months Ended			Variance
		September 30, 2019			2019 vs. 2018						September 30, 2019			2019 vs. 2018					September 30, 2020			2020 vs. 2019				September 30, 2020			2020 vs. 2019
U.S.	U.S.														U.S.
Occupancy	Occupancy	79.4		%	0.3	%	pts.	77.6		%		0.4	%	pts.	Occupancy	44.3		%	(34.8)	%	pts.		42.5		%	(34.6)	%	pts.
ADR	ADR	$	149.12		—	%		$	149.84			0.6	%		ADR	$	109.45		(26.0)	%			$	122.07		(17.6)	%
RevPAR	RevPAR	$	118.37		0.4	%		$	116.27			1.1	%		RevPAR	$	48.47		(58.6)	%			$	51.88		(54.6)	%

Americas (excluding U.S.)	Americas (excluding U.S.)														Americas (excluding U.S.)
Occupancy	Occupancy	74.8		%	(0.1)	%	pts.	71.3		%		0.6	%	pts.	Occupancy	24.8		%	(48.4)	%	pts.		29.9		%	(40.1)	%	pts.
ADR	ADR	$	122.65		(0.2)	%		$	123.12			1.4	%		ADR	$	85.84		(27.1)	%			$	102.91		(12.0)	%
RevPAR	RevPAR	$	91.77		(0.4)	%		$	87.74			2.3	%		RevPAR	$	21.25		(75.3)	%			$	30.74		(62.4)	%

Europe	Europe														Europe
Occupancy	Occupancy	84.0		%	1.6	%	pts.	78.0		%		1.2	%	pts.	Occupancy	31.6		%	(51.5)	%	pts.		30.6		%	(46.0)	%	pts.
ADR	ADR	$	143.12		0.5	%		$	140.42			2.0	%		ADR	$	103.45		(28.0)	%			$	111.79		(18.4)	%
RevPAR	RevPAR	$	120.27		2.4	%		$	109.50			3.5	%		RevPAR	$	32.71		(72.6)	%			$	34.22		(67.4)	%

MEA	MEA														MEA
Occupancy	Occupancy	71.6		%	1.5	%	pts.	72.5		%		2.2	%	pts.	Occupancy	25.2		%	(42.8)	%	pts.		34.1		%	(34.0)	%	pts.
ADR	ADR	$	141.95		(2.3)	%		$	145.34			(5.0)	%		ADR	$	117.71		(12.5)	%			$	126.52		(9.5)	%
RevPAR	RevPAR	$	101.57		(0.2)	%		$	105.38			(2.0)	%		RevPAR	$	29.65		(67.6)	%			$	43.20		(54.7)	%

Asia Pacific	Asia Pacific														Asia Pacific
Occupancy	Occupancy	75.4		%	(0.2)	%	pts.	72.2		%		0.8	%	pts.	Occupancy	53.1		%	(21.0)	%	pts.		40.0		%	(29.8)	%	pts.
ADR	ADR	$	120.55		(2.4)	%		$	123.85			(1.0)	%		ADR	$	85.45		(25.2)	%			$	92.61		(19.6)	%
RevPAR	RevPAR	$	90.92		(2.7)	%		$	89.47			0.1	%		RevPAR	$	45.35		(46.4)	%			$	37.02		(54.0)	%

System-wide	System-wide														System-wide
Occupancy	Occupancy	79.1		%	0.4	%	pts.	76.8		%		0.6	%	pts.	Occupancy	42.5		%	(36.0)	%	pts.		40.4		%	(35.4)	%	pts.
ADR	ADR	$	145.11		(0.1)	%		$	145.81			0.5	%		ADR	$	105.87		(26.0)	%			$	118.23		(17.3)	%
RevPAR	RevPAR	$	114.78		0.4	%		$	111.98			1.2	%		RevPAR	$	44.95		(59.9)	%			$	47.74		(55.9)	%

During the three and nine months ended September 30, ~~2019,~~2020, we experienced modest system-wide RevPAR growth. There was continued strength in Europe resulting primarily from ADR and occupancy growth in southern Europe, particularly Italy and Turkey, which, during the three months ended September 30, 2019, was partially offset by a decreasesignificant declines in RevPAR in ~~Germany. In~~all regions compared to the ~~Americas (excluding U.S.), results were attributable~~same periods in 2019, due to ~~demand growth in Colombia~~both occupancy and ~~Brazil, offset by~~ADR decreases in RevPAR in Canada and Mexico. RevPAR growth in the U.S. was primarily a result of strong group performance and continued transient demand at our luxury properties. Asia Pacific results were primarily driven by declining RevPAR in

~~China~~ resulting from the ~~continued economic slowdown, ongoing trade wars~~COVID-19 pandemic. Our Asia Pacific region experienced the effects of the pandemic early in 2020, with suspensions of hotel operations beginning in late January. Pronounced negative results in the Americas and EMEA regions lagged the ~~protests~~Asia Pacific region, with hotel suspensions in ~~Hong Kong, which, for~~those regions beginning in mid-March. Of the approximately 1,270 properties that had suspended hotel operations at some point during the nine months ended September 30, ~~2019, was offset by growth~~2020, approximately 44 percent were in ~~Japan.~~the U.S., 9 percent were in the Americas (excluding U.S.), 26 percent were in Europe, 5 percent were in MEA and 16 percent were in Asia Pacific. As of November 2, 2020, the operations at approximately 190 hotels, primarily located in the U.S., were temporarily suspended. However, properties that have reopened have experienced ~~declines~~significantly lower occupancy compared with periods prior to the onset of the pandemic as business and transient demand remains lower and travel restrictions and stay-at-home directives are still in ~~RevPAR resulting from decreased demand~~place in ~~United Arab Emirates, partially offset by improved results in Egypt and Saudi Arabia.~~many areas.

On a global level, the pervasiveness of the COVID-19 impact began in late March, with its most significant adverse impact on occupancy and RevPAR seen in April. Since April, system-wide occupancy has increased month over month, with the most notable recoveries in Asia Pacific, the U.S. and Europe, with comparable hotel occupancy levels up approximately 32 percentage points, 32 percentage points and 31 percentage points, respectively, from April to September.

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


		Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
		September 30,						September 30,							September 30,				September 30,
		2019		2018		2019		2018			2020		2019		2020		2019
		(in millions)															(in millions)
Net income		$	290	$	164	$	710	$	544
Net income (loss)										Net income (loss)	$	(81)	$	290	$	(495)	$	710
Interest expense	Interest expense	105		99		304		277		Interest expense	116		105		316		304
Income tax expense		131		129		291		268
Income tax expense (benefit)										Income tax expense (benefit)	(33)		131		(80)		291
Depreciation and amortization	Depreciation and amortization	86		81		256		242		Depreciation and amortization	90		86		269		256
EBITDA	EBITDA	612		473		1,561		1,331		EBITDA	92		612		10		1,561
Gain on sale of assets, net	Gain on sale of assets, net	(81)		—		(81)		—		Gain on sale of assets, net	—		(81)		—		(81)
Loss (gain) on foreign currency transactions	Loss (gain) on foreign currency transactions	(7)		6		(4)		7		Loss (gain) on foreign currency transactions	12		(7)		16		(4)
FF&E replacement reserves	FF&E replacement reserves	13		12		42		39		FF&E replacement reserves	18		13		39		42
Share-based compensation expense	Share-based compensation expense	42		35		123		103		Share-based compensation expense	25		42		37		123
Reorganization costs										Reorganization costs	—		—		38		—
Impairment losses										Impairment losses	9		—		136		—
Amortization of contract acquisition costs	Amortization of contract acquisition costs	7		6		21		20		Amortization of contract acquisition costs	7		7		22		21
Net other expenses from managed and franchised properties	Net other expenses from managed and franchised properties	9		28		21		46		Net other expenses from managed and franchised properties	44		9		281		21
Other adjustment items⁽¹⁾	Other adjustment items⁽¹⁾	10		(3)		39		11		Other adjustment items(1)	17		10		59		39
Adjusted EBITDA	Adjusted EBITDA	$	605	$	557	$	1,722	$	1,557	Adjusted EBITDA	$	224	$	605	$	638	$	1,722

____________

⁽¹⁾Includes ~~adjustments~~severance not related to the reorganization and other items. The three and nine months ended September 30, 2020 also include costs recognized for the settlement of a dispute with an owner of a managed hotel. Additionally, the nine months ended September 30, 2020 includes losses related to the disposal of an investment and a loan guarantee for a franchised hotel. The three and nine months ended September 30, 2019 also include expenses recognized in connection with the refinancings and repayments of our senior secured credit ~~facilities for the three and nine months ended September 30, 2019 and the nine months ended September 30, 2018; and severance and other items for all periods.~~facilities.

Revenues


		Three Months Ended					Percent		Nine Months Ended							Percent	Three Months Ended			Percent		Nine Months Ended	Percent
		September 30,					Change		September 30,							Change	September 30,			Change		September 30,	Change
		2019		2018		2019 vs. 2018	2019		2018		2019 vs. 2018		2020		2019		2020 vs. 2019	2020		2019		2020 vs. 2019
		(in millions)							(in millions)								(in millions)					(in millions)
Franchise and licensing fees	Franchise and licensing fees	$	443	$	407	8.8	$	1,269	$	1,142	11.1	Franchise and licensing fees	$	241	$	443	(45.6)	$	712	$	1,269	(43.9)

Base and other management fees	Base and other management fees	$	80	$	80	—	$	249	$	241	3.3	Base and other management fees	$	24	$	80	(70.0)	$	92	$	249	(63.1)
Incentive management fees	Incentive management fees	54		57		(5.3)	167		171		(2.3)	Incentive management fees	7		54		(87.0)	25		167		(85.0)
Total management fees	Total management fees	$	134	$	137	(2.2)	$	416	$	412	1.0	Total management fees	$	31	$	134	(76.9)	$	117	$	416	(71.9)

~~Our~~The COVID-19 pandemic and the related reduction in global travel and tourism resulted in the complete or partial suspensions of hotel operations at approximately 1,235 of our managed and franchised properties at some point during the nine months ended September 30, 2020. Of these hotels, all but approximately 200 had reopened as of September 30, 2020.

On a comparable basis, decreases in occupancy and ADR led to reduced RevPAR, resulting in decreases in franchise fees and management fees from our comparable managed and franchised properties. For the three months ended September 30, 2020, RevPAR decreased 55.1 percent at our comparable franchised properties and 72.0 percent at our comparable managed properties, resulting from reduced occupancy of 32.8 percentage points and 44.8 percentage points, respectively, and reduced ADR of 23.1 percent and 33.2 percent, respectively. For the nine months ended September 30, 2020, RevPAR decreased 52.8 percent at our comparable franchised properties and 63.1 percent at our comparable managed properties, resulting from reduced occupancy of 33.3 percentage points and 41.1 percentage points, respectively, and reduced ADR of 16.1 percent and 17.7 percent, respectively.

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

Additionally, licensing and other fees ~~increased~~decreased $22 million and $75 million during the three and nine months ended September 30, ~~2019,~~2020, respectively, primarily due to decreased licensing fees from both our strategic partnerships and ~~our management fees increased during the nine months ended September 30, 2019, primarily~~HGV as a result of the ~~addition of new properties to our management and franchise segment.~~ COVID-19 pandemic.

Including new development and ownership type transfers, from January 1, ~~2018~~2019 to September 30, ~~2019,~~2020, we added ~~697~~653 managed and franchised properties on a net basis, providing an additional ~~99,650~~86,673 rooms to our management and franchise segment. AsWhile we have historically experienced increases to management and franchise fees as new hotels ~~stabilize in our system, we expect the fees received from such hotels to increase as they~~ are a part of our system for full ~~periods.~~periods, the impact of the COVID-19 pandemic has outweighed the impact of these property additions in 2020.

Franchise fees from our comparable franchised properties increased for the three and nine months ended September 30, 2019, as a result of increased RevPAR of 0.3 percent and 1.1 percent, respectively, driven by increased occupancy, which was partially offset by unfavorable foreign currency exchange rates. Additionally, licensing and other fees during the three and nine months ended September 30, 2019 increased $13 million and $62 million, respectively, which for the nine months ended September 30, 2019, included an increase in termination fees of $13 million, primarily related to the redevelopment of a franchised hotel.

For the three and nine months ended September 30, 2019, management fees from our comparable managed properties increased due to increases in RevPAR of 0.4 percent and 1.2 percent, respectively, which were offset by unfavorable foreign currency exchange rates and decreased incentive management fees that were largely due to challenges in certain markets, particularly Hong Kong.

Three Months Ended Percent Nine Months Ended Percent
September 30, Change September 30, Change
2019 2018 2019 vs. 2018 2019 2018 2019 vs. 2018
(in millions) (in millions)
Owned and leased hotels $ 361 $ 373 (3.2) $ 1,060 $ 1,099 (3.5)


	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2020		2019		2020 vs. 2019	2020		2019		2020 vs. 2019
	(in millions)					(in millions)
Owned and leased hotels	$	94	$	361	(74.0)	$	335	$	1,060	(68.4)

Owned and leased hotel revenues decreased primarily due to the COVID-19 pandemic and the related reduction in global travel and tourism. As a result of the COVID-19 pandemic, approximately 35 hotels in our ownership segment had temporarily suspended operations at some point in time during the nine months ended September 30, 2020. All of these hotels have reopened as of September 30, 2020. On a comparable basis, decreases in occupancy and ADR led to reduced RevPAR, resulting in decreases in revenues from our comparable owned and leased hotels. For the three and nine months ended September 30, ~~2019 primarily as a result~~2020, RevPAR decreased 78.8 percent and 72.2 percent, respectively, resulting from reduced occupancy of ~~unfavorable fluctuations in foreign currency exchange rates, which decreased revenues by $10 million~~58.2 percentage points and ~~$52 million,~~49.8 percentage points, respectively, and reduced ADR of 28.1 percent and 20.1 percent, respectively.

~~On a currency neutral basis, revenues at our comparable~~ Additionally, owned and leased ~~hotels increased $12~~hotel revenues decreased $8 million and ~~$28~~$36 million during the three and nine months ended September 30, ~~2019,~~2020, respectively, due to ~~increases in RevPAR of 4.1 percent~~properties being sold or lease agreements terminated and ~~4.2 percent, respectively, driven by increases in both ADR~~the hotels being transferred to our managed and ~~occupancy. On a currency neutral basis, revenues at our non-comparable owned and leased hotels decreased primarily due to hotel lease terminations, disposals and hotels that were under renovation~~franchised segment during ~~the nine months ended September 30, 2019, partially offset by increases in revenues from hotels that were under renovation in 2018.~~2019.

Three Months Ended Percent Nine Months Ended Percent
September 30, Change September 30, Change
2019 2018 2019 vs. 2018 2019 2018 2019 vs. 2018
(in millions) (in millions)
Other revenues $ 23 $ 27 (14.8) $ 75 $ 72 4.2


	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2020		2019		2020 vs. 2019	2020		2019		2020 vs. 2019
	(in millions)					(in millions)
Other revenues	$	19	$	23	(17.4)	$	52	$	75	(30.7)

The ~~changes~~decreases in other revenues during the three and nine months ended September 30, ~~2019~~2020 were primarily due to decreases in revenues from our purchasing ~~operations.~~operations related to delayed hotel improvement projects and lower volume purchasing based on reduced hotel demand as a result of the COVID-19 pandemic.

Operating Expenses


	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2020		2019		2020 vs. 2019	2020		2019		2020 vs. 2019
	(in millions)					(in millions)
Owned and leased hotels	$	144	$	310	(53.5)	$	478	$	942	(49.3)

Owned and leased hotel expensesdecreasedprimarily due to decreases in occupancy resulting from the COVID-19 pandemic and approximately 35 hotels temporarily suspending operations at some point in time during the nine months ended September 30, 2020. Further, as a result of declining performance, variable rent expense was reduced at most leased hotels with a variable rent structure. However, certain fixed costs of maintaining these hotels, such as fixed rent and certain minimum maintenance and utility costs, even while temporarily closed or operating with very low occupancy, could not be reduced at the same rate as the hotel revenue decreases during the periods. Additionally, owned and leased hotel expenses decreased $10 million and $35 million during the three and nine months ended September 30, ~~2019 primarily as a result of fluctuations in foreign currency exchange rates, which~~ ~~decreasedexpenses by $10 million~~2020, respectively, related to properties being sold or lease agreements terminated and ~~$51 million, respectively.~~the hotels being transferred to our managed and franchised segment during 2019.

~~On a currency neutral basis, owned and leased hotel expenses decreased $11 million and $10 million, respectively, for the three and~~ ~~nine months ended September 30, 2019~~, primarily due to decreases in expenses at our non-comparable hotels resulting from lease terminations, disposals and hotels that were under renovation during the nine months ended September 30, 2019, partially offset by increases in expenses from hotels that were under renovation in 2018. The decreases in expenses at our non-comparable hotels were partially offset by slight increases in expenses at our comparable hotels due to increases in occupancy.


	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2020		2019		2020 vs. 2019	2020		2019		2020 vs. 2019
	(in millions)					(in millions)
Depreciation and amortization	$	90	$	86	4.7	$	269	$	256	5.1
General and administrative	66		107		(38.3)	189		327		(42.2)
Reorganization costs	—		—		NM(1)	38		—		NM(1)
Impairment losses	9		—		NM(1)	136		—		NM(1)
Other expenses	21		11		90.9	48		46		4.3

____________

(1)

Three Months Ended Percent Nine Months Ended Percent
September 30, Change September 30, Change
2019 2018 2019 vs. 2018 2019 2018 2019 vs. 2018
(in millions) (in millions)
Depreciation and amortization $ 86 $ 81 6.2 $ 256 $ 242 5.8
General and administrative 107 109 (1.8) 327 328 (0.3)
Other expenses 11 10 10.0 46 36 27.8
Fluctuation in terms of percentage change is not meaningful.

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

General and administrative expenses decreased primarily as a result of actions taken by the Company during the nine months ended September 30, 2020 to reduce or eliminate certain corporate costs in response to the COVID-19 pandemic, which included workforce reductions, temporary furloughs and salary reductions of corporate employees; refer to "—Liquidity and Capital Resources" for additional information. These actions are expected to also reduce costs in future periods. In addition, share-based compensation expense decreased due to the determination that the performance conditions of our outstanding performance shares were no longer probable of achievement, resulting in a reversal of previously recognized expense for the outstanding 2020 performance awards during the three months ended September 30, 2020 and for all outstanding performance awards during the nine months ended September 30, 2020; see Note 11: "Share-Based Compensation" in our unaudited condensed consolidated financial statements for additional information.

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

During the three months ended September 30, 2020, we recognized impairment losses of $3 million and $6 million on property and equipment related to our leased properties and management contract acquisition costs, respectively. During the nine months ended September 30, 2020, we recognized impairment losses of $51 million, $24 million, $15 million and $46 million on hotel operating lease ROU assets, property and equipment related to our leased properties, management contract acquisition costs and other intangible assets related to our leased hotel properties, respectively. These impairment losses were due to a decline in results and expected future performance at the related hotels as a result of the COVID-19 pandemic, as well as actual and expected early terminations of management contracts.

Other expenses increased primarily as a result of costs recognized for the settlement of a dispute with an owner of a managed hotel and increases in amounts accrued related to our performance guarantees during the three and nine months ended September 30, ~~2019 were primarily due to additions to capitalized software costs that were placed into service from January 1, 2018 to September 30, 2019.~~

General and administrative expenses remained flat during the three and nine months ended September 30, 2019 primarily as a result of increases in share-based compensation costs driven by Company performance2020, partially offset by decreases ~~in general corporate expenses.~~

~~Other expenses increased during the three and nine months ended September 30, 2019 primarily as a result of increases~~ in expenses from our purchasing ~~operations.~~operations, resulting from reduced demand.

Gain on ~~sale~~Sale of ~~assets, net~~Assets, Net

Three Months Ended Percent Nine Months Ended Percent
September 30, Change September 30, Change
2019 2018 2019 vs. 2018 2019 2018 2019 vs. 2018
(in millions) (in millions)
Gain on sale of assets, net 81 —
NM⁽¹⁾
81 —
NM⁽¹⁾

~~____________~~

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


	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2020		2019		2020 vs. 2019	2020		2019		2020 vs. 2019
	(in millions)					(in millions)
Gain on sale of assets, net	$	—	$	81	(100.0)	$	—	$	81	(100.0)

In September 2019, we recognized a gain upon completion of the sale of the Hilton Odawara. See Note 3: "Disposal" in our unaudited condensed consolidated financial statements for additional information.

Non-operating Income and Expenses


		Three Months Ended					Percent		Nine Months Ended							Percent	Three Months Ended			Percent		Nine Months Ended	Percent
		September 30,					Change		September 30,							Change	September 30,			Change		September 30,	Change
		2019		2018		2019 vs. 2018	2019		2018		2019 vs. 2018		2020		2019		2020 vs. 2019	2020		2019		2020 vs. 2019
		(in millions)							(in millions)								(in millions)					(in millions)
Interest expense	Interest expense	$	(105)	$	(99)	6.1	$	(304)	$	(277)	9.7	Interest expense	$	(116)	$	(105)	10.5	$	(316)	$	(304)	3.9
Gain (loss) on foreign currency transactions	Gain (loss) on foreign currency transactions	7		(6)		NM⁽¹⁾	4		(7)		NM⁽¹⁾	Gain (loss) on foreign currency transactions	(12)		7		NM(1)	(16)		4		NM(1)
Other non-operating income (loss), net	Other non-operating income (loss), net	—		13		(100.0)	(8)		26		NM⁽¹⁾	Other non-operating income (loss), net	3		—		NM(1)	(20)		(8)		NM(1)
Income tax expense		(131)		(129)		1.6	(291)		(268)		8.6
Income tax benefit (expense)												Income tax benefit (expense)	33		(131)		NM(1)	80��		(291)		NM(1)

____________

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

The increases in interest expense ~~during~~for the three and nine months ended September 30, ~~2019~~2020 were primarily due to the ~~issuance~~full draw down on the Revolving Credit Facility in March 2020, the issuances of the ~~2030~~5.375% 2025 Senior Notes and the 2028 Senior Notes in ~~June 2019~~April 2020 and, for the nine months ended September 30, ~~2019,~~2020, the issuance of the ~~2026~~4.875% Senior Notes due 2030 in ~~April 2018 and draws on the Revolving Credit Facility during~~June 2019. The increases were partially offset by ~~decreases~~a decrease in interest expense ~~related to~~on our Term Loans ~~which were~~ due to ~~the reduction of the interest rate in April 2018 and~~a 2019 principal ~~repayments~~repayment of $500 million and ~~$800 million during 2019 and 2018, respectively,~~a decline in variable interest rate, as well as ~~net gains reclassified~~decreased variable interest expense of certain finance leases for our hotels that resulted from ~~accumulated other comprehensive loss resulting from settlements of interest rate swaps~~a decline in ~~2018 and 2017.~~operating performance.

The gains and losses on foreign currency transactions ~~primarily related to~~included changes in foreign currency exchange rates on certain intercompany financing arrangements, including short-term cross-currency intercompany loans. ~~For~~The changes were the result of various currencies, but primarily in the euro and the Australian dollar. Additionally, during the three and nine months ended September 30, ~~2019, the changes were predominantly~~2020, we recognized losses related to ~~EUR and~~ the ~~Australian dollar ("AUD"). For~~liquidation of investments in foreign entities that were reclassified out of accumulated other comprehensive loss.

Other non-operating loss, net for the ~~three and~~ nine months ended September 30, ~~2018, the changes were predominantly~~2020 primarily included losses related to ~~EUR~~a loan guarantee for a franchised hotel and the ~~British pound and, for the three months ended September 30, 2018, also AUD.~~

~~The decrease in other non-operating income, net for the three months ended September 30, 2019 and the increase in other~~disposal of an investment. Other non-operating loss, net for the nine months ended September 30, 2019 ~~were~~ primarily ~~due to~~included a loss on the disposal of an unconsolidated real estate investment ~~in 2019~~ and ~~increased~~ expenses recognized in connection with the refinancings and repayments of our senior secured credit facilities. Additionally, other non-operating income, net for the three and nine months ended September 30, 2018 included a gain on the refinancing of a loan we issued to finance the construction of a hotel that we manage.

The ~~increases~~changes in the income tax ~~expense during the three and nine months ended September 30, 2019~~provisions were primarily attributable to ~~increases~~decreases in income before income taxes, ~~and the sale of Hilton Odawara, which were partially~~ offset ~~by: (i) adjustments to provisional amounts related to the Tax Cuts and Jobs Act of 2017 and (ii)~~by reductions in the tax ~~effect of a stock distribution, which were~~benefits recognized ~~during~~for the ~~three months ended September 30, 2018.~~

expected NOLs generated in 2020 in certain foreign jurisdictions. For additional information, see Note 10: "Income Taxes" in our unaudited condensed consolidated financial statements.

Segment Results

~~We evaluate our business segment operating performance using operating income.~~ Refer to Note 14: "Business Segments" in our unaudited condensed consolidated financial statements for ~~a reconciliation~~reconciliations of revenues for our reportable segments to consolidated amounts and of segment operating income to consolidated income (loss) before income ~~taxes and additional information on the evaluation of the~~taxes. We evaluate our business segment operating performance ~~of our segments~~ using segment operating ~~income. The following table sets forth~~income (loss), without allocating other revenues and ~~operating income by segment:~~expenses or general and administrative expenses.

Three Months Ended Percent Nine Months Ended Percent
September 30, Change September 30, Change
2019 2018 2019 vs. 2018 2019 2018 2019 vs. 2018
(in millions) (in millions)
Revenues:
Management and franchise⁽¹⁾
$ 596 $ 561 6.2 $ 1,737 $ 1,604 8.3
Ownership 361 373 (3.2) 1,060 1,099 (3.5)
Segment revenues 957 934 2.5 2,797 2,703 3.5
Amortization of contract acquisition costs (7) (6) 16.7 (21) (20) 5.0
Other revenues 23 27 (14.8) 75 72 4.2
Other revenues from managed and franchised properties 1,434 1,309 9.5 4,263 3,893 9.5
Intersegment fees elimination⁽¹⁾
(12) (11) 9.1 (31) (30) 3.3
Total revenues $ 2,395 $ 2,253 6.3 $ 7,083 $ 6,618 7.0
Operating Income⁽¹⁾:
Management and franchise $ 596 $ 561 6.2 $ 1,737 $ 1,604 8.3
Ownership 39 31 25.8 87 66 31.8
Segment operating income $ 635 $ 592 7.3 $ 1,824 $ 1,670 9.2

~~____________~~

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

Management and franchise segment revenues and operating income increased $35 million and $133 million during the three and nine months ended September 30, 2019, respectively, primarily as a result of the net addition of managed and franchised properties to our system and increases in licensing and other fees. Refer to "—Revenues" for further discussion of the ~~increases~~decreases in revenues from our managed and franchised ~~properties.~~

~~Ownership~~properties, which are correlated to our management and franchise segment revenues ~~decreased $12 million~~ and ~~$39 millionduring the three and nine months ended September 30, 2019, respective~~ly~~, primarily as a result of fluctuations in foreign currency exchange rates. Ownership~~segment operating ~~income increased $8 million and $21 million~~ ~~during the three and nine months ended September 30, 2019, respectively,~~ as a result of decreases in owned and leased hotel expenses, which were primarily a result of fluctuations in foreign currency exchange rates, only partially offset by the decreases in segment revenues due to foreign currency exchange rates.income. Refer to "—Revenues" and "—Operating Expenses" for further discussion of the ~~changes~~decreases in revenues and operating expenses at our owned and leased ~~hotels.~~hotels, which are correlated with our ownership segment revenues and segment operating income (loss).

Liquidity and Capital Resources

Overview

As of September 30, ~~2019,~~2020, we had total cash and cash equivalents of ~~$809~~$3,468 million, including ~~$90~~$63 million of restricted cash and cash equivalents. The majority of our restricted cash and cash equivalents balance related to cash collateral on our self-insurance programs and cash held for FF&E reserves.

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

3828

impact on our results of operations in future periods. As such, due to the uncertainties associated with the COVID-19 pandemic and the indeterminate length of time it will affect the hospitality industry, we have taken certain proactive measures to secure our liquidity position to be able to meet our obligations for the foreseeable future, which have included: (i) fully drawing down on our $1.75 billion Revolving Credit Facility; (ii) suspending dividend payments and share repurchases; (iii) implementing strict cost management measures, such as temporarily halting certain marketing programs, temporarily eliminating non-essential expenses, including capital expenditures, and reducing payroll and related costs through workforce reductions, furloughs and temporary salary reductions; (iv) consummating the Honors Points Pre-Sale; and (v) issuing $1.0 billion aggregate principal amount of senior notes.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including costs associated with the management and franchising of hotels, corporate expenses, payroll and compensation costs, taxes and compliance costs, interest payments on our outstanding indebtedness, contract acquisition costs and capital expenditures for renovations and maintenance at the hotels within our ownership segment. While our accounts receivable balance as of September 30, 2020 is less than periods prior to the start of the pandemic, we are generally experiencing slower payment of certain fees due to us. As such, we have considered the implications of these delayed payment trends in developing our estimates of expected future credit losses.

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements to the hotels within our ownership segment, commitments to owners in our management and franchise segment ~~dividends as declared, share repurchases~~ and corporate capital and information technology expenditures. We have currently suspended dividend payments and share repurchases, but expect that these activities will result in uses of liquidity in future periods.

We have a long-term investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments and returning available capital to stockholders through dividends and share repurchases. However, the COVID-19 pandemic has caused us to temporarily change our cash management strategy as described above. Within the framework of our long-term investment policy, we currently intend to continue to finance our business activities primarily with ~~existing~~ cash on our balance sheet as of September 30, 2020 and cash generated from our operations. We

After considering our approach to liquidity and accessing our available sources of cash, we believe that ~~this~~our cash ~~and, from time-to-time, the use of our Revolving Credit Facility,~~position will be adequate to meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments for the foreseeable ~~future.~~future based on current conditions. The objectives of our cash management policy are to maintain ~~existing leverage levels and~~ the availability of liquidity while minimizing operational costs. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments and returning available capital to stockholders through dividends and share repurchases.

We may from time to time issue or incur or increase our capacity to incur new debt and/or purchase our outstanding debt through underwritten offerings, open market transactions, privately negotiated transactions or otherwise. Issuances or incurrence of new debt (or an increase in our capacity to incur new debt) and/or purchases or retirement of outstanding debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

~~During~~We formally suspended share repurchases given the current economic environment and our efforts to preserve cash, and no share repurchases have been made since March 5, 2020. The stock repurchase program remains authorized by the board of directors, and we may resume share repurchases in the future at any time, depending on market conditions, our capital needs and other factors. Prior to the suspension, during the nine months ended September 30, ~~2019,~~2020, we repurchased 132.6 million shares of our common stock under our stock repurchase program for ~~$1,101~~$279 million, which we funded principally with ~~borrowings and~~ available cash. As of September 30, ~~2019,~~2020, approximately ~~$959 million~~$2.2 billion remained available for share repurchases under ~~our $3.5 billion stock repurchase~~the program.

Sources and Uses of Our Cash and Cash Equivalents

The following table summarizes our net cash flows:


		Nine Months Ended							Percent	Nine Months Ended			Percent
		September 30,							Change	September 30,			Change
		2019		2018		2019 vs. 2018		2020		2019		2020 vs. 2019
		(in millions)								(in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	1,182	$	914	29.3	Net cash provided by operating activities	$	846	$	1,182	(28.4)
Net cash used in investing activities	Net cash used in investing activities	(47)		(80)		(41.3)	Net cash used in investing activities	(89)		(47)		89.4
Net cash used in financing activities		(808)		(790)		2.3
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	2,087		(808)		NM(1)

____________

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

Operating Activities

~~Cash flows from operating activities were primarily generated from management and franchise fee revenue and operating income from our owned and leased hotels.~~

The ~~$268 million increase~~decrease in net cash provided by operating activities was primarily the result of ~~improved operating results~~decreases in cash inflows generated from our management and franchise ~~business, including~~properties and our owned and leased hotels, largely as a result of decreases in system-wide RevPAR due to the COVID-19 pandemic, as further discussed in "—Revenues." The decrease in net ~~property additions and an increase in licensing and other fees. The increase~~cash provided by operating activities was partially offset by ~~increases~~$1.0 billion of cash received in connection with the Honors Points Pre-Sale and a decrease in cash paid for ~~interest and~~taxes of $171 million, primarily resulting from decreases in income ~~taxes.~~before income taxes, as well as NOLs that were generated in 2020 in many foreign tax jurisdictions that had taxable income in 2019.

Investing Activities

~~For the nine months ended September 30, 2019 and 2018, net~~Net cash used in investing activities ~~consisted~~ primarily ofrelated to capital expenditures for property and equipment and capitalized software costs. Beginning in March 2020, we took steps to temporarily eliminate non-essential expenses, including capital expenditures, in response to the COVID-19 pandemic. While we do not expect to be able to fully eliminate such expenditures, we expect to materially reduce our spending on an annual basis, when compared to the prior year. Our capital expenditures for property and equipment primarily consisted of expenditures related to our corporate facilities and the renovation of hotels in our ownership segment, and our ~~corporate facilities. Our~~ capitalized software costs related to various systems initiatives, for the benefit of both our hotel owners and our overall corporate operations. ~~Additionally, cash used for investing activities during~~During the nine months ended September 30, 2019, ~~was offset by the~~we received cash proceeds ~~from~~of $120 million relating to the sale of the Hilton Odawara that partially offset capital expenditures for property and ~~during the nine months ended September 30, 2018, by the repayment~~equipment, capitalized software costs and other uses of ~~a loan we issued that financed the construction of a hotel we manage.~~cash for investing activities.

Financing Activities

The ~~increase~~change in ~~net~~ cash ~~used in~~flows related to financing activities ~~during the nine months ended September 30, 2019~~ was primarily attributable to a ~~decrease~~$1.5 billion increase in cash inflows from net ~~proceeds from~~ borrowings and repayments ~~attributable to~~under our Revolving Credit Facility, a $500 million decrease in ~~proceeds received~~cash outflows from ~~the June 2019~~net borrowings and ~~April 2018 issuances of senior notes, which were both used to repay $500 million outstanding on the~~repayments under our Term Loans ~~in each respective period. The~~and an $878 million decrease in ~~proceeds was largely offset by a decrease in~~share repurchases ~~of common stock due to the 2018 repurchases of shares from HNA Tourism Group Co., Ltd~~ and ~~certain affiliates of The Blackstone Group Inc. as part of the full divestiture of their respective investments in Hilton.~~dividend payments.

Debt and Borrowing Capacity

As of September 30, ~~2019,~~2020, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately ~~$7.9~~$10.6 billion. For additional information on our total indebtedness, including ~~our recent financing transactions, availability under~~fully drawing down our Revolving Credit Facility, our issuance of $1.0 billion aggregate principal amount of senior notes and guarantees on our debt, refer to Note 7: "Debt" ~~and Note 16: "Condensed Consolidating Guarantor Financial Information"~~ in our unaudited condensed consolidated financial statements.

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to reduce capital expenditures or issue additional equity ~~securities or make draws on our Revolving Credit Facility.~~securities. Our ability to make scheduled principal payments and to pay interest on our debt depends on our future operating performance, which is subject to general conditions in or affecting the hospitality industry that may be beyond our control. The COVID-19 pandemic negatively impacted our cash flows from operations during the period, and will continue to do so for an indeterminate period of time. Although our operating activities provided cash during the nine months ended September 30, 2020, it was primarily a result of the Honors Points Pre-Sale. We have taken precautions to secure our cash position, as discussed above, and expect to be able to meet our current obligations. Furthermore, we do not have any material indebtedness outstanding that matures prior to June 2024.

Contractual Obligations

During the nine months ended September 30, 2020, we fully drew down $1.69 billion under our Revolving Credit Facility, after giving effect to the letters of credit outstanding, which matures in 2024 and is repayable by us at any time. Further, we issued $500 million aggregate principal amount of senior notes due 2025 and $500 million aggregate principal amount of senior notes due 2028. Other than ~~the issuance of the 2030 Senior Notes and the repayment of a portion of the Term Loans as described above,~~these borrowings, there were no material changes to our contractual obligations from what we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

Off-Balance Sheet Arrangements

See Note 15: "Commitments and Contingencies" in our unaudited condensed consolidated financial statements for a discussion of our off-balance sheet arrangements.

Summarized Guarantor Financial Information

HOC is the issuer of the Senior Notes and is 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which, in turn, is 100 percent owned directly by the Parent. The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by the Parent, HWP and substantially all of the Parent's direct and indirect wholly owned domestic restricted subsidiaries, except for HOC, the issuer (together, the "Guarantors"). The indentures that govern the Senior Notes provide that any subsidiary of the Company that provides a guarantee of our senior secured credit facilities will guarantee the Senior Notes. As of September 30, 2020, none of our foreign subsidiaries or domestic subsidiaries owned by foreign subsidiaries or conducting foreign operations or our non-wholly owned subsidiaries guaranteed the Senior Notes.

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

Neither HOC nor any of the Guarantors has any reporting obligation under the Exchange Act in respect of the Senior Notes; however, we are supplementally providing the information set forth below. The following tables present summarized financial information for HOC, along with the Parent and all other Guarantors, on a combined basis:


	As of September 30, 2020
	(in millions)
ASSETS
Total current assets	$	840
Intangible assets, net	8,788
Total intangibles and other assets	9,297
TOTAL ASSETS	10,137

LIABILITIES AND DEFICIT
Total current liabilities	1,759
Long-term debt	10,266
Total liabilities	16,170
Total Hilton stockholders' deficit	(6,033)
TOTAL LIABILITIES AND DEFICIT	10,137


	Nine Months Ended September 30, 2020
	(in millions)
Revenues
Revenues	$	762
Other revenues from managed and franchised properties	1,966
Total revenues	$	2,728

Expenses
Expenses	$	368
Other expenses from managed and franchised properties	2,201
Total expenses	$	2,569

Operating income	$	159
Interest expense	(304)
Income tax benefit	35
Net loss	(108)
Net loss attributable to Hilton stockholders	(108)

Critical Accounting Policies and Estimates

The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018. Since~~2019.

As a result of the ~~date~~impact of the COVID-19 pandemic on our business, we have had to reevaluate certain estimates and assumptions that affect our reported amounts. In particular, we extended the expected redemption rate of our ~~Annual Report on Form 10-K~~Hilton Honors points over the next year, which, due to the re-evaluation at March 31, 2020, resulted in reclassifications of the liabilities for guest loyalty program and deferred revenues from current to long-term of $221 million and $50 million, respectively. We continued to use the revised methodology subsequent to March 31, 2020. Changes to the Hilton Honors program may affect the estimated cost per point for our future redemption obligation and the expected redemption pattern, which may result in changes to the amounts recorded for the ~~fiscal year~~liabilities for guest loyalty program and deferred revenues and the classification of such liabilities between current and long-term. Additionally, we recognized impairment losses of $9 million and $136 million during the three and nine months ended ~~December 31, 2018, we adopted ASU 2016-02,~~September 30, 2020, respectively, which ~~has changed our critical accounting policies~~required the use of significant judgments and ~~estimates related to leases.~~estimates. See Note ~~2: "Basis of Presentation~~8: "Fair Value Measurements" and ~~Summary of Significant Accounting Policies"~~Note 6: "Finite-Lived Intangible Assets" in our unaudited condensed consolidated financial statements ~~and the discussion below~~ for additional ~~information.~~information on the impairment losses.

~~Leases~~

We record lease liabilities as the present value of the future minimum lease payments using a discount rate that is either the rate implicit in the lease, if available, or our incremental borrowing rate, adjusted for collateral. The collateralized incremental borrowing rate is estimated on a portfolio basis and reflects factors such as the term of the lease and the currency in which the lease payments will be made. Our estimation utilizes various assumptions that require judgment, including our adjustment for collateral, economic factors, including currency data, and our credit risk.

The ROU asset is measured at the amount of the lease liability, with applicable adjustments. We evaluate the carrying value of our ROU assets for impairment in a method consistent with our evaluation of property and equipment, including the determination of impairment indicators, projecting the undiscounted future cash flows and determining an asset's fair value. Refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for additional information.

As of September 30, 2019, we had $0.9 billion and $1.4 billion of ROU assets and lease liabilities, respectively. Changes in the estimates used in determining the collateralized incremental borrowing rate could result in material changes to our lease liabilities and, accordingly, our ROU assets.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates, which may affect future income, cash flows and the fair value of the Company, depending on changes to interest rates or foreign currency exchange rates. In certain situations, we may seek to reduce cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into derivative financial instruments intended to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged. We enter into derivative financial instruments to the extent they meet the objectives described above, and we do not use derivatives for trading or speculative purposes. Our exposure to market risk has not materially changed from what we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019; however, given the impact that the COVID-19 pandemic has had on the global market, we continue to monitor our exposure to market risk and have adjusted, and will continue to adjust, our hedge portfolios accordingly.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures as that term is defined in Rules 13a-15(e) and

15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission ("SEC") rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums, including proceedings involving tort and other general liability claims, employee claims, consumer protection claims and claims related to our management of certain hotel properties. In addition,we recently settled a matter with the SEC in regard to certain historical perquisites disclosures. We recognize a liability when we believe the loss is probable and can be reasonably estimated. Most occurrences involving liability, claims of negligence and employees are covered by insurance with solvent insurance carriers. The ultimate results of claims and litigation cannot be predicted with certainty. We believe we have adequate reserves against such matters. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations in a particular period.

Item 1A. Risk Factors

AsFor a discussion of ~~September 30, 2019, there have been no material changes from~~our potential risks and uncertainties, see the risk factor below and the risk factors previously disclosed under Part I—Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as updated by the information disclosed under Part II—Item 1A. of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020.

Supplemental Risk Factor

The ongoing global COVID-19 pandemic has negatively affected and will continue to negatively affect our business, financial condition and results of operations.

The COVID-19 pandemic has significantly affected the global economy and strained the hospitality industry due to travel restrictions and stay-at-home directives that have resulted in ~~response~~cancellations and reduced travel around the world, as well as complete and partial suspensions of certain hotel operations for an indeterminate duration. Currently, there are no fully effective vaccines or treatments for COVID-19 and the timing and efficacy of any future vaccines and treatments are uncertain. As such, the COVID-19 pandemic has had a material negative impact on our results for the three and nine months ended September 30, 2020, and will continue to negatively affect future results. The current and uncertain future impact of the COVID-19 pandemic, including its effect on the ability or desire of people to travel and use our hotel properties for lodging, food and beverage and other services, is expected to continue to negatively affect our results, operations, outlook, plans, growth, cash flows and liquidity.

During the pandemic, the U.S. and other national and local governments have imposed travel restrictions at various times and, in some countries and U.S. states, re-imposed such restrictions, and a number of our hotels have fully or partially suspended operations. We have been and expect to continue to be negatively affected by additional governmental regulations and travel advisories to fight the pandemic, including recommendations by the U.S. Department of State, the Centers for Disease Control and Prevention and the World Health Organization.

We cannot predict when any of our hotels that have completely or partially suspended operations will be able to fully reopen, the conditions upon which a full reopening may occur or the effects of any such conditions. We also cannot predict if any of our hotels that are currently operational will have to completely or partially suspend operations in the future. Moreover, even where travel advisories and restrictions have been lifted, travel demand has been and is likely to remain weak for a significant length of time and we cannot predict if or when our properties will return to pre-pandemic demand or pricing. Adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of the COVID-19 pandemic, will negatively affect travel demand.

The steps we have taken to reduce operating costs, including temporarily reducing compensation, reducing our workforce and furloughing a substantial number of our employees, and further steps we may take in the future to reduce costs for us or our third-party hotel owners, may negatively affect our brand reputation and ability to attract and retain employees. If our furloughed employees do not return to work with us when the COVID-19 pandemic subsides, including because they find new jobs during the furlough, we may face operational challenges that could negatively affect hotel results, guest experience and loyalty. We also may face demands or requests from labor unions that represent employees at our hotels for additional compensation, healthcare benefits or other terms, including making payments to underfunded multi-employer pension plans for

covered union employees, as a result of the pandemic that could increase costs, and we could experience labor issues as we implement our mitigation plans. Even after the COVID-19 pandemic subsides, we could still experience long-term impacts on our operating costs as a result of attempts to counteract future outbreaks of COVID-19 or other viruses through, for example, enhanced health and hygiene requirements or other such measures in one or more regions.

We cannot predict the full impact that the COVID-19 pandemic will have on our partners, such as third-party owners of our properties, third-party service providers, travel agencies, suppliers and other vendors. In particular, if third-party owners of our hotels are unable to maintain their hotels and service indebtedness secured by their hotels, our results of operations and reputation could suffer. Third-party owners of our hotels have experienced financing difficulties and significant declines in revenues, thereby making it more likely that they could declare bankruptcy or face other difficulties with their lenders. Bankruptcies, sales or foreclosures involving our hotels could, in some cases, result in the termination of our management or franchise contracts and eliminate our anticipated income and cash flows, which would negatively affect our results of operations. Hotel owners with financial difficulties have been and may continue to be unable or unwilling to pay us amounts that we are entitled to under our existing contracts on a timely basis or at all. Current and ongoing economic conditions also could affect our ability to enter into management and franchise contracts with potential third-party owners of our hotels, who may be unable to obtain financing or face other delays in developing hotel projects. As a result, some properties in our development pipeline may not enter our system when we anticipated, or at all, and new hotels may enter our pipeline at a slower rate than in the past, thereby negatively affecting our overall growth. Likewise, if we or our hotel owners or franchisees are unable to access capital to make physical improvements to our hotels, the quality of our hotels may suffer, which may negatively impact our reputation and guest loyalty, and our market share may suffer as a result.

We may be required to raise additional capital in the future, and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. Certain of our credit ratings have been downgraded or placed on credit watch, and if our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry or us, our access to capital and the cost of any debt financing would be negatively affected. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations. There is no guarantee that debt financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations. In addition, because of reduced travel demand, certain of our leased properties will not generate revenue sufficient to meet operating expenses. If or when we determine the value of our leased properties has significantly declined, we have recognized and in the future could have to recognize significant non-cash impairment charges to our results of operations. Further, to the extent the COVID-19 pandemic significantly impacts spending patterns of Hilton Honors co-branded credit cardholders or the acquisition of new cardholders, we will receive lower license fees under our co-branded credit card arrangements.

The COVID-19 pandemic has significantly increased economic and demand uncertainty and could cause a global recession, which would have a further adverse impact on our financial condition and operations. The significant increase in unemployment in the U.S. and other regions due to the adoption of social distancing and other policies to slow the spread of COVID-19 continues to have a sustained negative impact on travel demand. The extent of the effects of the COVID-19 pandemic on our business and the travel industry at large remains highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, the timing and availability of vaccinations and other treatments to combat COVID-19, and the length of time it takes for demand and pricing to stabilize and normal economic and operating conditions to resume. Given the uncertainty as to the extent and timing of the potential future spread or mitigation of COVID-19 and the imposition or relaxation of protective measures, we are presently unable to estimate the full impact to our future results of operations, cash flows or financial condition.

Additionally, the COVID-19 pandemic could negatively affect our internal controls over financial reporting as we have reduced our workforce and placed many of our employees on temporary furlough. Our remaining employees have been required to work from home and, therefore, new processes, procedures and controls could be required to respond to changes in our business environment. Further, should any key employees become ill from COVID-19 and unable to work, the attention of our management team could be diverted.

The potential effects of the COVID-19 pandemic also could intensify or otherwise affect many of our other risk factors that are included in "Part ~~I —Item~~I—Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019, including, but not limited to, risks inherent to the hospitality industry, macroeconomic factors beyond our control, competition for hotel guests and management and franchise contracts, risks related to doing business with third-party hotel owners, performance of our information technology systems, growth of reservation channels outside of our system, risks of doing business outside of the U.S. and risks related to our indebtedness. Because the COVID-19 situation is unprecedented and

continuously evolving, the other potential impacts to our risk factors that are further described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 are uncertain.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~(a) Unregistered Sales of Securities~~

None.

~~(b) Use of Proceeds~~

~~None.~~

~~(c) Issuer Purchases of Equity Securities~~

~~The following table sets forth information regarding our purchases of shares of our common stock during the three months ended September 30, 2019:~~

Total Number of Shares Purchased
Average Price Paid per Share⁽¹⁾
Total Number of Shares Purchased as Part of Publicly Announced Program⁽²⁾
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program⁽²⁾
(in millions)
July 1, 2019 to July 31, 2019 1,334,507 $ 98.19 1,334,507 $ 1,250
August 1, 2019 to August 31, 2019 1,627,790 92.98 1,627,790 1,099
September 1, 2019 to September 30, 2019 1,496,704 93.52 1,496,704 959
Total 4,459,001 94.72 4,459,001

~~____________~~

⁽¹⁾~~This price includes per share commissions paid.~~

⁽²⁾In February 2019, our board of directors authorized the repurchase of an additional $1.5 billion of our common stock under our existing stock repurchase program, which was initially announced in February 2017 and increased in November 2017. Under this publicly announced program, we are authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The repurchase program does not have an expiration date and may be suspended or discontinued at any time.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number						Exhibit Description
3.1						Certificate of Incorporation of Hilton Worldwide Holdings Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 17, 2013).
3.2						Certificate of Amendment to Certificate of Incorporation of Hilton Worldwide Holdings Inc. effective as of January 3, 2017 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on January 4, 2017).
3.3						Amended and Restated By-Laws of Hilton Worldwide Holdings Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on August 2, ~~2019~~).
~~4.1~~						F ~~irst Supplemental~~ ~~Indenture~~ ~~with respect~~ ~~to the 4.875% Senior Notes due 2030, dated as of~~ ~~September 12,~~ ~~2019,~~ ~~among~~ ~~the subsidiary guarantors listed therein andWilmington Trust, National Association, as trustee~~ (~~incorporated by reference to Exhibit 4.20 to the Company's Registration Statement on Form S-~~4 ~~filed on September 20,~~ 2019).
31.1						Certificate of Christopher J. Nassetta, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certificate of Kevin J. Jacobs, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certificate of Christopher J. Nassetta, President and Chief Executive Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2						Certificate of Kevin J. Jacobs, Executive Vice President and Chief Financial Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS						Inline XBRL Instance Document - this instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (embedded within the Inline XBRL document).

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HILTON WORLDWIDE HOLDINGS INC.

By:

/s/ Christopher J. Nassetta

Name:

Christopher J. Nassetta

President and Chief Executive Officer

By:

/s/ Kevin J. Jacobs

Name:

Kevin J. Jacobs

Executive Vice President and Chief Financial Officer

Date: ~~October 23, 2019~~November 4, 2020

4437


	Three Months Ended September 30, 2018
	Equity (Deficit) Attributable to Hilton Stockholders
				Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Common Stock															Noncontrolling Interests
	Shares	Amount															Total
	(in millions)
Balance as of June 30, 2018	298	$	3	$	(2,330)	$	10,321	$	(6,697)	$	(742)	$	5	$	560
Net income	—	—		—		—		162		—		2		164
Other comprehensive loss	—	—		—		—		—		(4)		—		(4)
Dividends	—	—		—		—		(45)		—		—		(45)
Repurchases of common stock	(1)	—		(122)		—		—		—		—		(122)
Share-based compensation	—	—		—		31		—		—		—		31
Acquisition of noncontrolling interest	—	—		—		(3)		—		—		—		(3)
Distributions	—	—		—		—		—		—		(1)		(1)
Balance as of September 30, 2018	297	$	3	$	(2,452)	$	10,349	$	(6,580)	$	(746)	$	6	$	580


	Nine Months Ended September 30, 2018
	Equity (Deficit) Attributable to Hilton Stockholders
				Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Common Stock															Noncontrolling Interests
	Shares	Amount															Total
	(in millions)
Balance as of December 31, 2017	317	$	3	$	(891)	$	10,298	$	(6,981)	$	(741)	$	3	$	1,691
Net income	—	—		—		—		540		—		4		544
Other comprehensive loss	—	—		—		—		—		(5)		—		(5)
Dividends	—	—		—		—		(139)		—		—		(139)
Repurchases of common stock	(21)	—		(1,561)		—		—		—		—		(1,561)
Share-based compensation	1	—		—		54		—		—		—		54
Acquisition of noncontrolling interest	—	—		—		(3)		—		—		—		(3)
Distributions	—	—		—		—		—		—		(1)		(1)
Balance as of September 30, 2018	297	$	3	$	(2,452)	$	10,349	$	(6,580)	$	(746)	$	6	$	580


	Currency Translation Adjustment⁽¹⁾		Pension Liability Adjustment		Cash Flow Hedge Adjustment		Total
	(in millions)
Balance as of December 31, 2018	$	(545)	$	(260)	$	23	$	(782)
Other comprehensive loss before reclassifications	(24)		(1)		(40)		(65)
Amounts reclassified from accumulated other comprehensive loss	1		6		(8)		(1)
Net current period other comprehensive income (loss)	(23)		5		(48)		(66)
Balance as of September 30, 2019	$	(568)	$	(255)	$	(25)	$	(848)


	September 30, 2019
			Parent			HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	—		$	—		$	17		$	26		$	676		$	—		$	719
Restricted cash and cash equivalents	—			—			34			23			33			—			90
Accounts receivable, net	—			—			13			850			332			(2)			1,193
Intercompany receivables	—			—			—			—			39			(39)			—
Prepaid expenses	—			—			26			37			57			(5)			115
Other	—			3			1			56			102			(24)			138
Total current assets	—			3			91			992			1,239			(70)			2,255
Intangibles and Other Assets:
Investments in subsidiaries	(187)			3,948			7,709			(187)			—			(11,283)			—
Goodwill	—			—			—			3,824			1,313			—			5,137
Brands	—			—			—			4,404			460			—			4,864
Management and franchise contracts, net	—			—			1			464			329			—			794
Other intangible assets, net	—			—			—			290			114			—			404
Operating lease right-of-use assets	—			—			34			9			796			—			839
Property and equipment, net	—			—			60			68			252			—			380
Deferred income tax assets	3			11			85			—			146			(99)			146
Other	—			11			31			37			169			—			248
Total intangibles and other assets	(184)			3,970			7,920			8,909			3,579			(11,382)			12,812
TOTAL ASSETS	$	(184)		$	3,973		$	8,011		$	9,901		$	4,818		$	(11,452)		$	15,067
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other	$	24		$	37		$	264		$	711		$	770		$	(22)		$	1,784
Current maturities of long-term debt	—			—			20			—			18			—			38
Current portion of deferred revenues	—			—			38			241			20			(9)			290
Intercompany payables	—			—			39			—			—			(39)			—
Current portion of liability for guest loyalty program	—			—			—			788			—			—			788
Total current liabilities	24			37			361			1,740			808			(70)			2,900
Long-term debt	—			4,078			3,474			—			215			—			7,767
Operating lease liabilities	—			—			39			7			958			—			1,004
Deferred revenues	—			—			—			764			70			—			834
Deferred income tax liabilities	—			—			—			957			15			(99)			873
Liability for guest loyalty program	—			—			—			1,004			—			—			1,004
Other	—			45			189			96			554			—			884
Total liabilities	24			4,160			4,063			4,568			2,620			(169)			15,266
Equity (Deficit):
Total Hilton stockholders' equity (deficit)	(208)			(187)			3,948			5,333			2,189			(11,283)			(208)
Noncontrolling interests	—			—			—			—			9			—			9
Total equity (deficit)	(208)			(187)			3,948			5,333			2,198			(11,283)			(199)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	(184)		$	3,973		$	8,011		$	9,901		$	4,818		$	(11,452)		$	15,067


	Total Number of Shares Purchased	Average Price Paid per Share⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Program⁽²⁾	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program⁽²⁾ (in millions)
July 1, 2019 to July 31, 2019	1,334,507	$	98.19	1,334,507	$	1,250
August 1, 2019 to August 31, 2019	1,627,790	92.98		1,627,790	1,099
September 1, 2019 to September 30, 2019	1,496,704	93.52		1,496,704	959
Total	4,459,001	94.72		4,459,001