Hilton Worldwide Holdings Inc. (Form: 10-Q, Received: 10/24/2018 11:29:19)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended September 30, 2018



¨	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)

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 x 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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨
		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 x

The number of shares outstanding of the registrant's common stock, par value $0.01 per share, as of October 18, 2018 was 296,569,995 .

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	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	50
Item 6.	Exhibits	50
	Signatures	51

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HILTON WORLDWIDE HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

(unaudited)



	September 30,			December 31,
	2018			2017
ASSETS
Current Assets:
Cash and cash equivalents	$	621		$	570
Restricted cash and cash equivalents	79			100
Accounts receivable, net of allowance for doubtful accounts of $40 and $29	1,051			1,005
Prepaid expenses	166			127
Income taxes receivable	39			36
Other	79			169
Total current assets (variable interest entities - $86 and $93)	2,035			2,007
Intangibles and Other Assets:
Goodwill	5,170			5,190
Brands	4,876			4,890
Management and franchise contracts, net	892			953
Other intangible assets, net	417			433
Property and equipment, net	361			353
Deferred income tax assets	111			111
Other	281			291
Total intangibles and other assets (variable interest entities - $181 and $171)	12,108			12,221
TOTAL ASSETS	$	14,143		$	14,228
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other	$	1,358		$	1,416
Current portion of deferred revenues	299			366
Current maturities of long-term debt	15			46
Income taxes payable	18			12
Current portion of liability for guest loyalty program	723			622
Total current liabilities (variable interest entities - $56 and $58)	2,413			2,462
Long-term debt	7,559			6,556
Deferred revenues	814			829
Deferred income tax liabilities	980			931
Liability for guest loyalty program	906			839
Other	891			920
Total liabilities (variable interest entities - $259 and $271)	13,563			12,537
Commitments and contingencies - see Note 14
Equity:
Preferred stock, $0.01 par value; 3,000,000,000 authorized shares, none issued or outstanding as of September 30, 2018 and December 31, 2017	—			—
Common stock, $0.01 par value; 10,000,000,000 authorized shares, 331,927,869 issued and 296,962,195 outstanding as of September 30, 2018 and 331,054,014 issued and 317,420,933 outstanding as of December 31, 2017	3			3
Treasury stock, at cost; 34,965,674 shares as of September 30, 2018 and 13,633,081 shares as of December 31, 2017	(2,452		)	(891		)
Additional paid-in capital	10,349			10,298
Accumulated deficit	(6,580		)	(6,981		)
Accumulated other comprehensive loss	(746		)	(741		)
Total Hilton stockholders' equity	574			1,688
Noncontrolling interests	6			3
Total equity	580			1,691
TOTAL LIABILITIES AND EQUITY	$	14,143		$	14,228

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,
	2018			2017			2018			2017
Revenues
Franchise fees	$	407		$	358		$	1,142		$	995
Base and other management fees	80			84			241			246
Incentive management fees	57			53			171			159
Owned and leased hotels	373			383			1,099			1,052
Other revenues	27			21			72			78
	944			899			2,725			2,530
Other revenues from managed and franchised properties	1,309			1,192			3,893			3,533
Total revenues	2,253			2,091			6,618			6,063

Expenses
Owned and leased hotels	331			340			1,003			935
Depreciation and amortization	81			83			242			252
General and administrative	109			106			328			330
Other expenses	10			7			36			41
	531			536			1,609			1,558
Other expenses from managed and franchised properties	1,337			1,223			3,939			3,632
Total expenses	1,868			1,759			5,548			5,190

Operating income	385			332			1,070			873

Interest expense	(99		)	(85		)	(277		)	(260		)
Gain (loss) on foreign currency transactions	(6		)	2			(7		)	3
Loss on debt extinguishment	—			—			—			(60		)
Other non-operating income, net	13			7			26			16

Income before income taxes	293			256			812			572

Income tax expense	(129		)	(96		)	(268		)	(213		)

Net income	164			160			544			359
Net income attributable to noncontrolling interests	(2		)	(2		)	(4		)	(4		)
Net income attributable to Hilton stockholders	$	162		$	158		$	540		$	355

Earnings per share:
Basic	$	0.55		$	0.49		$	1.77		$	1.09
Diluted	$	0.54		$	0.49		$	1.76		$	1.08

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

See notes to condensed consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net income	$	164		$	160		$	544		$	359
Other comprehensive income (loss), net of tax benefit (expense):
Currency translation adjustment, net of tax of $(1), $—, $— and $1	(11		)	44			(56		)	117
Pension liability adjustment, net of tax of $—, $(1), $(1) and $(2)	1			—			4			4
Cash flow hedge adjustment, net of tax of $(2), $(2), $(16) and $2	6			3			47			(4		)
Total other comprehensive income (loss)	(4		)	47			(5		)	117

Comprehensive income	160			207			539			476
Comprehensive income attributable to noncontrolling interests	(2		)	(1		)	(4		)	(3		)
Comprehensive income attributable to Hilton stockholders	$	158		$	206		$	535		$	473

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,
	2018			2017
Operating Activities:
Net income	$	544		$	359
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of contract acquisition costs	20			12
Depreciation and amortization	242			252
Loss (gain) on foreign currency transactions	7			(3		)
Loss on debt extinguishment	—			60
Share-based compensation	103			91
Deferred income taxes	29			(160		)
Contract acquisition costs	(82		)	(51		)
Working capital changes and other	51			35
Net cash provided by operating activities	914			595
Investing Activities:
Capital expenditures for property and equipment	(51		)	(36		)
Payments received on other financing receivables	49			7
Capitalized software costs	(62		)	(45		)
Other	(16		)	(21		)
Net cash used in investing activities	(80		)	(95		)
Financing Activities:
Borrowings	1,676			1,823
Repayment of debt	(701		)	(1,848		)
Debt issuance costs and redemption premium	(21		)	(69		)
Dividends paid	(137		)	(147		)
Cash transferred in spin-offs of Park and HGV	—			(501		)
Repurchases of common stock	(1,561		)	(625		)
Distributions to noncontrolling interests	(1		)	(1		)
Tax withholdings on share-based compensation	(42		)	(28		)
Acquisition of noncontrolling interest	(3		)	—
Net cash used in financing activities	(790		)	(1,396		)

Effect of exchange rate changes on cash, restricted cash and cash equivalents	(14		)	8
Net increase (decrease) in cash, restricted cash and cash equivalents	30			(888		)
Cash, restricted cash and cash equivalents from continuing operations, beginning of period	670			1,183
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period	—			501
Cash, restricted cash and cash equivalents, beginning of period	670			1,684
Cash, restricted cash and cash equivalents, end of period	$	700		$	796

Supplemental Disclosures:
Cash paid during the year:
Interest	$	208		$	225
Income taxes, net of refunds	230			377
Non-cash financing activities:
Spin-offs of Park and HGV	$	—		$	30

See notes to condensed consolidated financial statements.

HILTON WORLDWIDE HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 : 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, including timeshare properties. As of September 30, 2018 , we managed, franchised, owned or leased 5,560 hotels and resorts, totaling 894,158 rooms in 109 countries and territories.

On January 3, 2017, we completed the spin-offs of a portfolio of hotels and resorts, as well as our timeshare business, into two independent, publicly traded companies: Park Hotels & Resorts Inc. ("Park") and Hilton Grand Vacations Inc. ("HGV"), respectively (the "spin-offs").

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, 2018 and 2017 have been prepared in accordance with United States of America ("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, 2017 .

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 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.

On January 1, 2018, we adopted the requirements of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") using the full retrospective approach as of January 1, 2016. All amounts and disclosures set forth in this Form 10-Q reflect the necessary adjustments required for the adoption of this standard, including the reclassification of prior year balances to conform to current year presentation. See "Summary of Significant Accounting Policies" below for additional information.

Summary of Significant Accounting Policies

Our significant accounting policies are detailed in Note 2: "Basis of Presentation and Summary of Significant Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 . The significant accounting policies that changed as a result of the adoption of ASU 2014-09 are set forth below.

Revenue Recognition

Revenues are primarily derived from management and franchise contracts with third-party hotel and resort owners, as well as from our owned and leased hotels. The majority of our performance obligations are a series of distinct goods or services, for which we receive variable consideration through our management and franchise fees or fixed consideration through our owned and leased hotels. We allocate the variable fees to the distinct services to which they relate applying the prescribed variable consideration allocation guidance, and we allocate fixed consideration to the related performance obligations based on the present value of the allocated variable cash flows. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which it is in substantially all cases. Additionally, we do not typically include extended payment terms in our contracts with customers.

Management and franchise revenues

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


•	Intellectual Property ("IP") licenses grant the right to access our hotel system IP, including brand IP, reservations systems and property management systems.


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


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


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


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

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

Franchise fees represent fees earned in connection with the licensing of one of our brands, usually under long-term contracts with the property owner, and include the following:


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

•

Application, initiation and other fees are charged when: (i) new hotels enter our system; (ii) there is a change of ownership of a hotel; or (iii) contracts with properties already in our system are extended. These fees are typically fixed and collected upfront and are recognized as revenue over the term of the franchise contract. We do not consider this advance consideration to include a significant financing component, since it is used to protect us from the property owner failing to adequately complete some or all of its obligations under the contract.

•

License fees are earned from: (i) a license agreement with HGV to use certain Hilton marks and IP in its timeshare business, which are typically billed and collected monthly, and revenue is generally recognized at the same time the fees are billed; and (ii) co-brand credit card arrangements, which are recognized as revenue when points for our guest loyalty program, Hilton Honors, are issued, generally as spend on the co-branded credit card occurs; see further discussion below under "Hilton Honors."

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

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


•	Base management fees are generally based on a percentage of the hotel's monthly gross revenue. Base fees are typically billed and collected monthly, and revenue is generally recognized as services are provided.

•

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

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

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

•

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

•

Indirect reimbursements include marketing expenses and other expenses associated with our brands and shared services, which are paid from fees collected by Hilton from the managed and franchised properties. Indirect reimbursements are typically billed and collected monthly, based on the underlying hotel's sales or usage (e.g., gross room revenues and number of reservations processed), and revenue is generally recognized as services are provided. System implementation fees charged to property owners are deferred and recognized as revenue over the term of the management or franchise contract. The corresponding expenses are expensed as incurred and are presented as other expenses from managed and franchised properties in our consolidated statements of operations and are expected to equal the revenues earned from indirect reimbursements over time.

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

Owned and leased hotel revenues

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


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


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


•	Material rights for free or discounted goods or services are satisfied at the earlier point in time when the material right expires or the underlying free or discounted good or service is provided to the hotel guest.


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


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

Owned and leased hotel revenues primarily consist of hotel room rentals, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and other ancillary goods and services (e.g., parking) related to owned, leased and consolidated non-wholly owned hotel properties. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided. Owned and leased hotel revenues are reduced upon issuance of Hilton Honors points for Hilton Honors members' paid stay transactions and are recognized when Hilton Honors points are redeemed for a free stay at an owned or leased hotel (see the "Hilton Honors" section below for additional information).

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

performance obligations to which a portion of the transaction price is allocated based on the estimated standalone selling prices of the good or service, adjusted for the likelihood the hotel guest will exercise the right.

Other revenues

Other revenues include revenues generated by the incidental support of hotel operations for owned, leased, managed and franchised hotels, including purchasing operations, and other operating income. Purchasing revenues include any amounts received for vendor rebate arrangements that we participate in as a manager of hotels.

Taxes and fees collected on behalf of governmental agencies

We are required to collect certain taxes and fees from customers on behalf of governmental agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and fees and, therefore, they are not included in our measurement of transaction prices. We have elected to present revenue net of sales taxes and other similar taxes. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.

Contract Assets

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

Contract Liabilities

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

Intangible Assets with Finite Useful Lives

We have certain finite lived intangible assets that were initially recorded at their fair value in connection with the October 24, 2007 transaction whereby we became a wholly owned subsidiary of affiliates of The Blackstone Group L.P. ("Blackstone") (the "Merger"). These intangible assets consist of management contracts, franchise contracts, leases, certain proprietary technologies and our Hilton Honors guest loyalty program. Additionally, we capitalize cash consideration paid to incentivize hotel owners to enter into management and franchise contracts with us as contract acquisition costs and the incremental costs to obtain or fulfill the contracts as development commissions, which are generally fixed. We also capitalize costs incurred to develop internal-use computer software and costs to acquire software licenses, as well as internal and external costs incurred in connection with the development of upgrades or enhancements that result in additional information technology functionality.

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

We review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations.

Hilton Honors

Hilton Honors is our guest loyalty and marketing program provided to our hotel and resort properties. Nearly all of our owned, leased, managed and franchised properties participate in the Hilton Honors program. Hilton Honors members earn points based on their spending at our participating properties and through participation in affiliated partner programs. When points are earned by Hilton Honors members, they are provided with a material right to free or discounted goods or services in the future upon accumulation of the required level of Hilton Honors points. Points may be redeemed for the right to stay at participating properties, as well as for other goods and services from third parties, including, but not limited to, airlines, car rentals, cruises, vacation packages, shopping and dining.

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

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

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

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

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

In March 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-07 ("ASU 2017-07"), Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic

Postretirement Benefit Cost . This ASU requires employers to report the service cost component of net periodic pension cost in the same line item or items of the statement of operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic pension cost must be presented separately from the service cost component and outside of a subtotal of income (loss) from operations. We adopted ASU 2017-07 on January 1, 2018 on a retrospective basis in our condensed consolidated statements of operations, which includes presenting: (i) the service cost component of net periodic pension cost in owned and leased hotel expenses and general and administrative expenses; and (ii) the other components of net periodic pension cost in other non-operating income (loss), net in our condensed consolidated statements of operations. Prior to adoption, all net periodic pension costs were presented in owned and leased hotel expenses and general and administrative expenses. We have applied the practical expedient permitting us to use the amounts disclosed in our "Employee Benefits Plans" note in our Annual Report on Form 10-K for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. See the "Prior Period Financial Information" below for the effect of the adoption of ASU 2017-07 on our condensed consolidated statements of operations for the three and nine months ended September 30, 2017 .

In May 2014, the FASB issued ASU 2014-09. This ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) and requires entities to recognize revenue when a customer obtains control of promised goods or services and in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Subsequent to ASU 2014-09, the FASB issued several related ASUs to clarify the application of the new revenue recognition standard, collectively referred to herein as ASU 2014-09. We adopted the requirements of ASU 2014-09 on January 1, 2018 using the full retrospective approach, as permitted by the standard, resulting in a cumulative adjustment to accumulated deficit of $212 million as of January 1, 2016.

The provisions of ASU 2014-09 affected our revenue recognition as follows:


•	Application, initiation and other fees are recognized over the term of the franchise contract, rather than upon execution of the contract and the unamortized portion of these fees is included in deferred revenues in our consolidated balance sheets.


•	Contract acquisition costs related to our management and franchise contracts are recognized over the term of the contracts as a reduction to revenue, instead of as amortization expense. This change does not affect net income (loss).


•	Incentive management fees are recognized to the extent that it is probable that a significant reversal will not occur as a result of future hotel profits or cash flows, as opposed to recognizing amounts that would be due if the management contract was terminated at the end of the reporting period. This change does not affect net income (loss) for any full year period.

•

Revenue related to our Hilton Honors guest loyalty program is recognized upon point redemption, net of any reward reimbursement paid to a third party, as opposed to recognized on a gross basis at the time points are issued in conjunction with the accrual of the expected future cost of the reward reimbursement. Additionally, points issued at owned and leased hotels are accounted for as a reduction of owned and leased hotel revenues, as opposed to owned and leased hotel expenses. Fees received in excess of the estimated liability for guest loyalty program are included in deferred revenues in our consolidated balance sheets.


•	Reimbursable fees related to our management and franchise contracts are recognized as they are billed, as opposed to when we incur the related expenses. Timing differences related to the receipt and spend of these fees will no longer be recorded in other assets and other liabilities in our consolidated balance sheets.

We have not retrospectively restated for contract modifications of management and franchise contracts that occurred before January 1, 2016. Instead, we have reflected the aggregate effect of all contract modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price. The estimated effect of applying this practical expedient is to use a longer period over which to straight line any fixed consideration either received from the customer or paid to the customer, since all fees will be amortized over the full contract term beginning on the date of initial execution, rather than amortizing fees received upon contract modifications prospectively from the contract modification date. We do not anticipate that this effect is material given the insignificance of the fixed consideration compared to the overall consideration we expect to earn over the term of the contract. See the "Prior Period Financial Information" below for the effect of the adoption of ASU 2014-09 on our condensed consolidated balance sheet as of December 31, 2017 and our condensed consolidated statements of operations for the three and nine months ended September 30, 2017 .

Prior Period Financial Information

The following table presents the effect of the adoption of ASU 2014-09 for the line items affected in our condensed consolidated balance sheet:



	December 31, 2017
	As Previously Reported			Adoption of ASU 2014-09			As Adjusted
	(in millions)
ASSETS
Accounts receivable, net	$	998		$	7		$	1,005
Prepaid expenses	111			16			127
Other current assets	171			(2		)	169
Management and franchise contracts, net	909			44			953
Deferred income tax assets	113			(2		)	111
Other non-current assets	434			(143		)	291
TOTAL ASSETS	14,308			(80		)	14,228

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable, accrued expenses and other ⁽¹⁾⁽²⁾	1,487			(71		)	1,416
Current portion of deferred revenues ⁽¹⁾	41			325			366
Deferred revenues	97			732			829
Deferred income tax liabilities	1,063			(132		)	931
Other non-current liabilities	1,470			(550		)	920
Total liabilities	12,233			304			12,537
Equity:
Accumulated deficit	(6,596		)	(385		)	(6,981		)
Accumulated other comprehensive loss	(742		)	1			(741		)
Total equity	2,075			(384		)	1,691
TOTAL LIABILITIES AND EQUITY	14,308			(80		)	14,228

____________


⁽¹⁾	The current portion of deferred revenues has been separated from accounts payable, accrued expenses and other in the "As Previously Reported" column to conform with current presentation.


⁽²⁾	The current portion of liability for guest loyalty program has been separated from accounts payable, accrued expenses and other to conform with current presentation. The balance was $622 million as of December 31, 2017 and did not change as a result of the adoption of ASU 2014-09.

The following tables present the effect of the adoption of ASU 2014-09 and ASU 2017-07 on our condensed consolidated statements of operations:



	Three Months Ended September 30, 2017
	As Previously Reported			Adoption of ASU 2014-09			Adoption of ASU 2017-07			As Adjusted
	(in millions)
Revenues
Franchise fees	$	373		$	(15	)	$	—		$	358
Base and other management fees	87			(3		)	—			84
Incentive management fees	52			1			—			53
Owned and leased hotels	388			(5		)	—			383
Other revenues	21			—			—			21
	921			(22		)	—			899
Other revenues from managed and franchised properties	1,433			(241		)	—			1,192
Total revenues	2,354			(263		)	—			2,091

Expenses
Owned and leased hotels	345			(5		)	—			340
Depreciation and amortization	83			—			—			83
General and administrative	104			—			2			106
Other expenses	7			—			—			7
	539			(5		)	2			536
Other expenses from managed and franchised properties	1,433			(210		)	—			1,223
Total expenses	1,972			(215		)	2			1,759

Operating income	382			(48		)	(2		)	332

Interest expense	(100		)	15			—			(85		)
Gain on foreign currency transactions	2			—			—			2
Other non-operating income, net	5			—			2			7

Income before income taxes	289			(33		)	—			256

Income tax expense	(108		)	12			—			(96		)

Net income	181			(21		)	—			160
Net income attributable to noncontrolling interests	(2		)	—			—			(2		)
Net income attributable to Hilton stockholders	$	179		$	(21	)	$	—		$	158

Earnings per share:
Basic	$	0.56								$	0.49
Diluted	$	0.55								$	0.49



	Nine Months Ended September 30, 2017
	As Previously Reported			Adoption of ASU 2014-09			Adoption of ASU 2017-07			As Adjusted
	(in millions)
Revenues
Franchise fees	$	1,039		$	(44	)	$	—		$	995
Base and other management fees	255			(9		)	—			246
Incentive management fees	160			(1		)	—			159
Owned and leased hotels	1,065			(13		)	—			1,052
Other revenues	78			—			—			78
	2,597			(67		)	—			2,530
Other revenues from managed and franchised properties	4,264			(731		)	—			3,533
Total revenues	6,861			(798		)	—			6,063

Expenses
Owned and leased hotels	947			(13		)	1			935
Depreciation and amortization	259			(7		)	—			252
General and administrative	326			—			4			330
Other expenses	41			—			—			41
	1,573			(20		)	5			1,558
Other expenses from managed and franchised properties	4,264			(632		)	—			3,632
Total expenses	5,837			(652		)	5			5,190

Operating income	1,024			(146		)	(5		)	873

Interest expense	(304		)	44			—			(260		)
Gain on foreign currency transactions	3			—			—			3
Loss on debt extinguishment	(60		)	—			—			(60		)
Other non-operating income, net	11			—			5			16

Income before income taxes	674			(102		)	—			572

Income tax expense	(251		)	38			—			(213		)

Net income	423			(64		)	—			359
Net income attributable to noncontrolling interests	(4		)	—			—			(4		)
Net income attributable to Hilton stockholders	$	419		$	(64	)	$	—		$	355

Earnings per share:
Basic	$	1.29								$	1.09
Diluted	$	1.28								$	1.08

Accounting Standards Not Yet Adopted

In August 2018, the 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 expensed 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. The provisions of ASU 2018-15 are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years; early adoption is permitted. We are currently evaluating the effect that ASU 2018-15 will have on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02 ("ASU 2018-02"), Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . This ASU permits a reclassification from accumulated other comprehensive income (loss) to retained earnings (deficit) for stranded tax effects that do not reflect the appropriate tax rates as a result of the Tax Cuts and Jobs Act of 2017 (the "TCJ Act"). The provisions of

ASU 2018-02 are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax rate in the TCJ Act is recognized; early adoption is permitted. We plan to early adopt the provisions of ASU 2018-02 during the fourth quarter of 2018 and expect to reclassify approximately $10 million to $20 million from accumulated other comprehensive loss to accumulated deficit as of January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02 ("ASU 2016-02"), Leases (Topic 842), 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 right-of-use 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-effect adjustment to the opening balance of retained earnings in the period of adoption.

We intend to adopt ASU 2016-02 on January 1, 2019 and apply the package of practical expedients included therein, as well as utilize 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, our reporting for periods prior to January 1, 2019 will continue to be in accordance with Leases (Topic 840) . We are continuing to evaluate the effect that ASU 2016-02 will have on our consolidated financial statements, but we expect it to have a material effect on our consolidated balance sheet.

Note 3 : Revenues from Contracts with Customers

Contract Liabilities

Our contract liabilities, which are classified as a component of current and long-term deferred revenues, decreased $34 million during the nine months ended September 30, 2018 , from $1,087 million as of December 31, 2017 to $1,053 million as of September 30, 2018 . The change included a $167 million decrease, which had no effect on revenues, resulting from changes in estimated transaction prices for our performance obligations related to points issued under Hilton Honors. This decrease was partially offset by a $135 million net increase from cash received in advance, for which revenue recognition was deferred, and revenue recognized during the period, mostly related to Hilton Honors. We recognized revenues that were previously deferred as contract liabilities of $33 million and $31 million during the three months ended September 30, 2018 and 2017 , respectively, and $149 million and $105 million during the nine months ended September 30, 2018 and 2017 , respectively.

Performance Obligations

As of September 30, 2018 , we had $478 million of deferred revenues related to unsatisfied performance obligations under Hilton Honors that will be recognized as revenues when the points are redeemed, which is expected to occur over the next two years . Additionally, we had $575 million of deferred revenues related to application, initiation and other fees, which are expected to be recognized as revenues in future periods over the terms of the related contracts.

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

As part of the adoption of ASU 2014-09, we elected not to disclose the amount of the transaction price allocated to our remaining performance obligations as of December 31, 2017 or provide an explanation of when we expect to recognize that amount as revenue.

Note 4 : Consolidated Variable Interest Entities

As of September 30, 2018 and December 31, 2017 , we consolidated three variable interest entities ("VIEs"): two entities that lease hotel properties and one management company. We are the primary beneficiaries of these consolidated VIEs as we have 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. Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily comprised the following:



	September 30,		December 31,
	2018		2017
	(in millions)
Cash and cash equivalents	$	66	$	73
Accounts receivable, net	11		16
Property and equipment, net	67		57
Deferred income tax assets	56		56
Other non-current assets	58		57
Accounts payable, accrued expenses and other	41		43
Long-term debt ⁽¹⁾	202		212
Other long-term liabilities	13		13

____________


⁽¹⁾	Includes capital lease obligations of $186 million and $191 million as of September 30, 2018 and December 31, 2017 , respectively.

During the nine months ended September 30, 2018 and 2017 , we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.

Note 5 : Amortizing Intangible Assets

Amortizing intangible assets were as follows:



	September 30, 2018
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
	(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger ⁽¹⁾	$	2,233	$	(1,835	)	$	398
Contract acquisition costs	497		(93		)	404
Development commissions	105		(15		)	90
	$	2,835	$	(1,943	)	$	892

Other intangible assets:
Leases ⁽¹⁾	$	293	$	(160	)	$	133
Capitalized software costs	642		(469		)	173
Hilton Honors ⁽¹⁾	339		(232		)	107
Other ⁽¹⁾	38		(34		)	4
	$	1,312	$	(895	)	$	417



	December 31, 2017
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
	(in millions)
Management and franchise contracts:
Management and franchise contracts recorded at Merger ⁽¹⁾	$	2,242	$	(1,716	)	$	526
Contract acquisition costs	416		(74		)	342
Development commissions	97		(12		)	85
	$	2,755	$	(1,802	)	$	953

Other intangible assets:
Leases ⁽¹⁾	$	301	$	(153	)	$	148
Capitalized software costs	585		(428		)	157
Hilton Honors ⁽¹⁾	341		(217		)	124
Other ⁽¹⁾	38		(34		)	4
	$	1,265	$	(832	)	$	433

____________


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

Amortization of our amortizing intangible assets was as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
	(in millions)
Recognized in depreciation and amortization expense ⁽¹⁾	$	67	$	68	$	202	$	207
Recognized as a reduction of franchise fees and base and other management fees	6		4		20		12

____________


⁽¹⁾	Includes amortization expense of $50 million and $51 million for the three months ended September 30, 2018 and 2017 , respectively, and $153 million and $152 million for the nine months ended September 30, 2018 and 2017 , respectively, associated with assets recorded at their fair value at the time of the Merger.

We estimate future amortization of our amortizing intangible assets as of September 30, 2018 to be as follows:



	Recognized in Depreciation and Amortization Expense		Recognized as a Reduction of Franchise Fees and Base and Other Management Fees
Year	(in millions)
2018 (remaining)	$	69	$	8
2019	276		25
2020	227		23
2021	89		23
2022	60		20
Thereafter	184		305
	$	905	$	404

Note 6 : Debt

Long-term debt balances, including obligations for capital leases, and associated interest rates as of September 30, 2018 , were as follows:



	September 30,			December 31,
	2018			2017
	(in millions)
Senior notes with a rate of 4.250%, due 2024	$	1,000		$	1,000
Senior notes with a rate of 4.625%, due 2025	900			900
Senior notes with a rate of 5.125%, due 2026	1,500			—
Senior notes with a rate of 4.875%, due 2027	600			600
Senior secured term loan facility with a rate of 3.97%, due 2023	3,419			3,929
Capital lease obligations with an average rate of 6.32%, due 2021 to 2030	224			233
Other debt with a rate of 3.08% due 2026	17			21
	7,660			6,683
Less: unamortized deferred financing costs and discount	(86		)	(81		)
Less: current maturities of long-term debt ⁽¹⁾	(15		)	(46		)
	$	7,559		$	6,556

____________


⁽¹⁾	Balance as of December 31, 2017 is net of unamortized deferred financing costs and discount attributable to current maturities of long-term debt.

Senior Notes

In April 2018, we issued $1.5 billion aggregate principal amount of 5.125% Senior Notes due 2026 (the "2026 Senior Notes"), and incurred $21 million of debt issuance costs. Interest on the 2026 Senior Notes is payable semi-annually in arrears on May 1 and November 1 of each year, beginning November 2018. We used a portion of the net proceeds from the issuance of the 2026 Senior Notes, together with borrowings under our senior secured revolving credit facility (the "Revolving Credit Facility") and available cash, to repurchase 16.5 million shares of our common stock from a former stockholder for $1,171 million and repay $500 million outstanding under our senior secured term loan facility (the "Term Loans"). See "Senior Secured Credit Facility" below for additional information.

In March 2017, we used the proceeds from issuances of the 4.625% Senior Notes due 2025 (the "2025 Senior Notes") and the 4.875% Senior Notes due 2027 (the "2027 Senior Notes") to redeem in full $1.5 billion of Senior Notes due 2021 (the "2021 Senior Notes"). In connection with the repayment, we paid a redemption premium of $42 million and accelerated the recognition of $18 million of unamortized deferred financing costs, which were included in loss on debt extinguishment in our condensed consolidated statement of operations for the nine months ended September 30, 2017 .

The 4.250% Senior Notes due 2024 (the "2024 Senior Notes"), the 2025 Senior Notes, the 2026 Senior Notes and the 2027 Senior Notes are guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries. See Note 15 : " Condensed Consolidating Guarantor Financial Information " for additional details.

Senior Secured Credit Facility

Our senior secured credit facility consists of a $1.0 billion Revolving Credit Facility and the Term Loans. The obligations of our senior secured credit facility are unconditionally and irrevocably guaranteed by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries. During the nine months ended September 30, 2018, we borrowed $150 million under the Revolving Credit Facility and all amounts borrowed were repaid in the same period.

In connection with the $500 million repayment of the Term Loans in April 2018, we accelerated the recognition of $5 million of 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, 2018 . Additionally, the interest rate on the remaining balance of the Term Loans was reduced by 25 basis points to LIBOR plus 175 basis points .

As of September 30, 2018 , we had $64 million of letters of credit outstanding under our Revolving Credit Facility and a borrowing capacity of $936 million .

Debt Maturities

The contractual maturities of our long-term debt as of September 30, 2018 were as follows:



Year	(in millions)
2018 (remaining)	$	4
2019	16
2020	17
2021	18
2022	18
Thereafter	7,587
	$	7,660

Note 7 : Derivative Instruments and Hedging Activities

Cash Flow Hedges

In May 2017, we began hedging foreign exchange-based cash flow variability in certain of our foreign currency denominated management and franchise fees using forward contracts (the "Fee Forward Contracts"). We elected to designate these Fee Forward Contracts as cash flow hedges for accounting purposes. As of September 30, 2018 , the Fee Forward Contracts had an aggregate notional amount of $73 million and maturities of 24 months or less.

In March 2017, we entered into two interest rate swap agreements with notional amounts of $1.6 billion and $750 million to swap one-month LIBOR on the Term Loans to fixed rates of 1.98 percent and 2.02 percent, respectively, through March 2022 . In May 2018, we settled the interest rate swap with a notional amount of $750 million and received $18 million from the counterparty. Concurrently, we entered into an interest rate swap agreement with a notional amount of $1.6 billion , which swaps one-month LIBOR on the Term Loans to a fixed rate of 3.03 percent, for a term from March 2022 to March 2023 . We elected to designate these interest rate swaps as cash flow hedges for accounting purposes.

Non-designated Hedges

As of September 30, 2018 , we held short-term forward contracts with an aggregate notional amount of $383 million to offset exposure to fluctuations in certain of our foreign currency denominated cash balances. We elected not to designate these forwar d contracts as hedging instruments. Depending on the fair value of each contract, we classify it as an asset or liability.

Fair Value of Derivative Instruments

We measure our derivative instruments at fair value, which is estimated using a discounted cash flow analysis, and we consider the inputs used to measure the fair value as Level 2 within the fair value hierarchy. The discounted cash flow analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs of similar instruments, including interest rate curves and spot and forward rates, as applicable, as well as option volatility. The fair values of our derivative instruments in our condensed consolidated balance sheets were as follows:



		September 30,		December 31,
	Balance Sheet Classification	2018		2017
		(in millions)
Cash Flow Hedges:
Interest rate swaps	Other non-current assets	$	48	$	11
Forward contracts	Other current assets	1		—
Forward contracts	Accounts payable, accrued expenses and other	—		1

Non-designated Hedges:
Forward contracts	Other current assets	1		4
Forward contracts	Accounts payable, accrued expenses and other	2		1

Earnings Effect of Derivative Instruments

The gains and losses recognized in our condensed consolidated statements of operations and condensed consolidated statements of comprehensive income before any effect for income taxes were as follows:



		Three Months Ended						Nine Months Ended
		September 30,						September 30,
	Classification of Gain (Loss) Recognized	2018			2017			2018			2017
		(in millions)
Cash Flow Hedges ⁽¹⁾ :
Interest rate swaps	Other comprehensive income (loss)	$	8		$	(2	)	$	53		$	(26	)
Interest rate swaps ⁽²⁾	Interest expense	—			(5		)	(2		)	(13		)
Forward contracts ⁽³⁾	Other comprehensive income (loss)	(1		)	(1		)	2			(1		)

Non-designated Hedges:
Interest rate swaps	Other non-operating income, net	N/A			—			N/A			2
Interest rate swaps ⁽⁴⁾	Interest expense	(1		)	(3		)	(6		)	(8		)
Forward contracts	Gain (loss) on foreign currency transactions	(2		)	3			(8		)	10

____________


⁽¹⁾	There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing during the three and nine months ended September 30, 2018 and 2017 .


⁽²⁾	The amount for the three months ended September 30, 2018 was less than $1 million.


⁽³⁾	The earnings effects of the Fee Forward Contracts on fee revenues for the three and nine months ended September 30, 2018 and 2017 were less than $1 million.


⁽⁴⁾	These amounts are related to the interest rate swaps that were dedesignated in 2016 and settled in 2017 and the interest rate swap that was dedesignated and settled in May 2018. The amounts were reclassified to interest expense from accumulated other comprehensive loss as the underlying transactions occurred.

Note 8 : Fair Value Measurements

We did not elect the fair value measurement option for any of our financial assets or liabilities. The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below, see Note 7 : " Derivative Instruments and Hedging Activities " for the fair value information of our derivative instruments:



	September 30, 2018
			Hierarchy Level
	Carrying Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Cash equivalents	$	237	$	—	$	237	$	—
Restricted cash equivalents	15		—		15		—
Liabilities:
Long-term debt ⁽¹⁾	7,333		3,940		—		3,436



	December 31, 2017
			Hierarchy Level
	Carrying Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Cash equivalents	$	284	$	—	$	284	$	—
Restricted cash equivalents	12		—		12		—
Liabilities:
Long-term debt ⁽¹⁾	6,348		2,575		—		3,954

____________


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

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of September 30, 2018 and December 31, 2017 . Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values.

Cash equivalents and restricted cash equivalents primarily consisted of short-term interest-bearing money market

funds and commercial paper with maturities of less than 90 days, and time deposits. The estimated fair values were based on available market pricing information of similar financial instruments.

The estimated fair values of our Level 1 long-term debt were based on prices in active debt markets. The estimated fair values of our Level 3 long-term debt were based on indicative quotes received for similar issuances.

Note 9 : Income Taxes

Restructuring

During September of 2018, one of our controlled foreign corporations ("CFC") distributed the stock of a subsidiary that owned multiple other subsidiaries (the "September Distribution"). The distributed subsidiaries will now be includible in our U.S. federal and state income tax filings. As a result of the September Distribution, we incurred deferred income tax expense of $29 million , including: (i) U.S. deferred tax liabilities related to the distributed subsidiaries of $32 million ; and (ii) remeasuring our existing deferred tax assets and liabilities and other tax liabilities at the effective tax rates at which they will reverse in future periods, resulting in a reduction of liabilities of $3 million .

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the TCJ Act, which permanently reduces the federal corporate income tax rate from a graduated 35 percent to a flat 21 percent rate and imposes a one-time transition tax on earnings of foreign subsidiaries that were previously deferred, was signed into law. As of September 30, 2018 , we had not completed our accounting for the tax effects of enactment of the TCJ Act; however, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. We recognized a provisional benefit at December 31, 2017 of $665 million , of which $517 million was the result of the remeasurement of U.S. deferred tax assets and other tax liabilities. The provisional benefit of $517 million recorded at December 31, 2017 on our existing deferred tax balances excludes the income tax impact of the adoption of ASU 2014-09. As of September 30, 2018 , we made adjustments to the provisional amounts recorded at December 31, 2017 , as described below.

Provisional Amounts

•

Deferred tax assets and liabilities and other tax liabilities. We remeasured deferred tax assets and liabilities and other tax liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent . The provisional amounts recorded at December 31, 2017 related to the remeasurement of our deferred tax assets and liabilities, uncertain tax position reserves, and other tax liabilities were income tax benefits of $517 million , $33 million and $84 million , respectively. However, this remeasurement was based on estimates as of the enactment date of the TCJ Act and our existing analysis of the numerous complex tax law changes in the TCJ Act. Upon refinement of our calculations, we adjusted our provisional amount by recording additional tax benefits of $2 million and $10 million , during the three and nine months ended September 30, 2018, respectively, which are included as components of income tax expense. We will continue to analyze the tax law changes in the TCJ Act, including the impact on our 2017 tax return filing positions throughout the 2018 fiscal year, and update our provisional amounts related to the remeasurement of these balances.

•

Foreign taxation changes. A one-time transition tax is applied to foreign earnings previously not subjected to U.S. tax. The one-time transition tax is based on our total post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes, but is assessed at a lower tax rate than the federal corporate tax rate of 35 percent . We recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries based on estimates, as of the enactment date of the TCJ Act, for our controlled foreign subsidiaries and estimates of the total post-1986 E&P for noncontrolled foreign subsidiaries. We previously recorded a federal deferred tax liability for our deferred earnings at the statutory 35 percent rate. The application of the transition tax results in the deferred earnings previously recorded at 35 percent being subjected to a lower rate, resulting in a provisional income tax benefit at December 31, 2017 of $15 million . As a result of additional guidance issued by the U.S. Treasury Department, we refined our calculations and recorded additional tax expense of $1 million and tax benefit of $2 million during the

three and nine months ended September 30, 2018, respectively. Additionally, we had not recorded certain deferred tax assets, related primarily to E&P deficits, for some foreign subsidiaries based upon an expectation that no tax benefit from such assets would be realized within the foreseeable future. The recognition of tax benefits from the deferred tax assets previously not recorded resulted in a provisional income tax benefit at December 31, 2017 of $16 million . We will continue to update our provisional amounts related to the transition tax as the U.S. Treasury Department provides further guidance.

With the changes made to the U.S. taxation of foreign entities, including the change to a territorial system of taxation, the introduction of a dividend participation exemption and the changes to the current taxation of global intangible low-taxed income ("GILTI"), we determined our current method of calculating CFC outside basis should be revised to incorporate the TCJ Act changes. As of September 30, 2018, we were able to determine a reasonable estimate of the TCJ Act’s effects on our recognition of deferred tax assets and liabilities for outside basis differences in our investments in foreign subsidiaries. As permitted, we recorded provisional deferred tax liabilities of $31 million for the three and nine months ended September 30, 2018 within income tax expense in our condensed consolidated statements of operations.

We will further analyze the impact of the TCJ Act on foreign earnings and on our tax positions throughout fiscal year 2018 as the U.S. Treasury Department provides further guidance to allow us to complete the required accounting for our outside basis differences in our investments in foreign subsidiaries.

GILTI and Foreign Derived Intangible Income ("FDII")

The TCJ Act subjects a U.S. stockholder to current tax on GILTI earned by certain foreign subsidiaries. In addition, the TCJ Act provides for FDII to be taxed at a lower effective rate than the statutory rate by allowing a tax deduction against the income. Interpretive guidance on the accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. As of September 30, 2018, we have elected to recognize the current tax on GILTI as a period expense in the period the tax is incurred. We have included the current tax impact of both GILTI and the FDII deduction in our estimated annual effective tax rate as of September 30, 2018.

Income Tax Provision

At the end of each quarter, we estimate the effective income tax rate expected to be applied for the full year. The effective income tax rate is determined by the level and composition of pre-tax income or loss, which is subject to federal, state, local and foreign income taxes. The September Distribution increased our effective tax rate above the statutory tax rate by 10 percent percent and 4 percent for the three and nine months ended September 30, 2018, respectively. Additionally, updates to our provisional amounts related to the TCJ Act increased our effective tax rate above the statutory rate by 10 percent and 2 percent for the three and nine months ended September 30, 2018, respectively.

Our total unrecognized tax benefits as of September 30, 2018 and December 31, 2017 were $311 million and $283 million , respectively. We have also accrued a cumulative total of approximately $39 million and $33 million for the payment of interest and penalties as of September 30, 2018 and December 31, 2017 , respectively. Included in the balances of unrecognized tax benefits as of September 30, 2018 and December 31, 2017 were $307 million and $285 million , respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate. During the three and nine months ended September 30, 2018, we increased our reserve for tax uncertainties by $26 million and $28 million , respectively, for positions that we determined were not more likely than not to receive a full benefit upon audit.

In April 2014, we received 30-day Letters from the Internal Revenue Service ("IRS") and the Revenue Agents Report ("RAR") for the 2006 and October 2007 tax years. We disagreed with several of the proposed adjustments in the RAR, 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 our Hilton Honors guest loyalty program, we should not reduce gross income by the estimated costs of future redemptions, but rather such costs would be deductible at the time the points are redeemed; and (iii) certain foreign currency denominated loans issued by one of our Luxembourg subsidiaries whose functional currency is the U.S. dollar ("USD"), should instead be treated as issued by one of our Belgian subsidiaries whose functional currency is the euro, and thus foreign currency gains and losses with respect to such loans should have been measured in euros, instead of USD. In January 2016, we received a 30-day Letter from the IRS and the RAR for the December 2007 through 2010 tax years, which included proposed adjustments that reflect the carryover effect of the three protested issues from 2006 through October 2007. These proposed

adjustments are also being protested in appeals and formal appeals protests have been submitted. In April 2016, we requested a Technical Advice Memorandum ("TAM") from the IRS with respect to the treatment of the foreign currency gains and losses on loans issued by our Luxembourg subsidiary. We received a taxpayer favorable TAM in October 2018 and this issue is no longer being pursued by IRS Appeals for any of the open tax years. In September 2018, we received a 30-day Letter from the IRS and the RAR for the 2011 through 2013 tax years, which reflects proposed adjustments for the carryover effect of the two remaining protested issues from 2006 through October 2007. The adjustments for tax years 2011 through 2013 will also be protested in appeals and formal protests will be submitted during the fourth quarter of 2018. After receipt of the TAM relating to the Luxembourg subsidiary, in total, the two remaining proposed adjustments sought by the IRS would result in additional U.S. federal tax owed of approximately $817 million , excluding interest and penalties and potential state income taxes. The portion of this amount related to Hilton Honors would result in a decrease to our future tax liability when the points are redeemed. We disagree with the IRS's position on each of these assertions and intend to vigorously contest them. However, based on continuing appeals process discussions with the IRS, we believe that it is more likely than not that we will not recognize the full benefit related to certain of the issues being appealed. Accordingly, we have recorded $50 million of unrecognized tax benefits related to these issues.

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 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. We are no longer subject to U.S. federal income tax examination for years through 2004. As of September 30, 2018 , we remain subject to federal examinations from 2005 through 2017, state examinations from 2005 through 2017 and foreign examinations of our income tax returns for the years 1996 through 2017.

Note 10 : Share-Based Compensation

We grant time-vesting restricted stock units and restricted stock (collectively, "RSUs"), nonqualified stock options ("options") and performance-vesting restricted stock units and restricted stock (collectively, "performance shares") to our employees and deferred share units ("DSUs") to members of our board of directors. We recognized share-based compensation expense of $35 million and $32 million during the three months ended September 30, 2018 and 2017 , respectively, and $103 million and $91 million during the nine months ended September 30, 2018 and 2017 , respectively. As of September 30, 2018 , unrecognized compensation costs for unvested awards was approximately $151 million , which are expected to be recognized over a weighted-average period of 1.8 years on a straight-line basis. As of September 30, 2018 , there were 16.1 million shares of common stock available for future issuance under our 2017 Omnibus Incentive Plan, plus any shares subject to awards outstanding under our 2013 Omnibus Incentive Plan, which will become available for issuance under our 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, 2018 , we granted 0.9 million RSUs with a weighted average grant date fair value per share of $79.31 , 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, 2018 , we granted 0.6 million options with a weighted average exercise price per share of $79.36 , 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, 2018 was $23.72 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:



Expected volatility ⁽¹⁾	27.91	%
Dividend yield ⁽²⁾	0.74	%
Risk-free rate ⁽³⁾	2.73	%
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, 2018 , 1.2 million options were exercisable.

Performance Shares

During the nine months ended September 30, 2018 , we granted 0.3 million performance shares with a weighted average grant date fair value per share of $79.36 . The performance shares are settled at the end of the three-year performance period with 50 percent of the awards subject to achievement based on the compound annual growth rate ("CAGR") of the Company's adjusted earnings before interest expense, a provision for income taxes and depreciation and amortization ("Adjusted EBITDA"), referred to as EBITDA CAGR, and the other 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.

We determined that the performance conditions for performance shares issued in 2018 and 2017 are probable of achievement and, as of September 30, 2018 , we recognized compensation expense based on the following anticipated achievement percentages for these performance shares:



	EBITDA CAGR		FCF CAGR
2017 performance shares	200	%	200	%
2018 performance shares	150	%	150	%

Note 11 : Stockholders' Equity and Accumulated Other Comprehensive Loss

The changes in the components of stockholders' equity were as follows:



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



	Equity Attributable to Hilton Stockholders
					Treasury Stock			Additional Paid-in Capital		Accumulated Deficit ⁽¹⁾			Accumulated Other Comprehensive Loss
	Common Stock															Noncontrolling Interests ⁽²⁾
	Shares		Amount													Noncontrolling Interests ⁽²⁾			Total
	(in millions)
Balance as of December 31, 2016	329		$	3	$	—		$	10,220	$	(3,545	)	$	(1,001	)	$	(50	)	$	5,627
Share-based compensation	2		—		—			52		—			—			—			52
Repurchases of common stock	(10	)	—		(625		)	—		—			—			—			(625		)
Net income	—		—		—			—		355			—			4			359
Other comprehensive income (loss)	—		—		—			—		—			118			(1		)	117
Dividends	—		—		—			—		(148		)	—			—			(148		)
Spin-offs of Park and HGV	—		—		—			—		(4,318		)	63			49			(4,206		)
Cumulative effect of the adoption of ASU 2016-09	—		—		—			1		(1		)	—			—			—
Distributions	—		—		—			—		—			—			(1		)	(1		)
Balance as of September 30, 2017	321		$	3	$	(625	)	$	10,273	$	(7,657	)	$	(820	)	$	1		$	1,175

___________


⁽¹⁾	Includes adjustments of $385 million and $222 million to the balances as of December 31, 2017 and 2016, respectively, as a result of the adoption of ASU 2014-09 as of January 1, 2016. See Note 2 : " Basis of Presentation and Summary of Significant Accounting Policies " for additional information.


⁽²⁾	Other comprehensive loss for the nine months ended September 30, 2017 was related to a pension liability adjustment.

During 2017, our board of directors authorized a stock repurchase program for up to $2.0 billion of the Company's common stock (the "program"), and, as of September 30, 2018 , approximately $719 million remained available for share repurchases under the program. During the nine months ended September 30, 2018 , we repurchased 21.3 million shares of common stock, including 1.25 million shares that were repurchased pursuant to the program from affiliates of Blackstone, as part of their full divestiture of their investment in Hilton, as well as 16.5 million shares that were repurchased from another former stockholder outside of the program, as part of their full divestiture of their investment in Hilton; see Note 6 : " Debt " for additional information.

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



	Currency Translation Adjustment ⁽¹⁾			Pension Liability Adjustment ⁽²⁾			Cash Flow Hedge Adjustment ⁽³⁾		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, 2016	$	(738	)	$	(251	)	$	(12	)	$	(1,001	)
Other comprehensive income (loss) before reclassifications	116			(1		)	(17		)	98
Amounts reclassified from accumulated other comprehensive loss	1			6			13			20
Net current period other comprehensive income (loss)	117			5			(4		)	118
Spin-offs of Park and HGV	63			—			—			63
Balance as of September 30, 2017	$	(558	)	$	(246	)	$	(16	)	$	(820	)

____________


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


⁽²⁾	Amounts reclassified include the amortization of prior service cost and the amortization of net loss that were included in our computation of net periodic pension cost. They were recognized in other non-operating income, net in our condensed consolidated statements of operations and are presented net of a tax benefit of $2 million for both the nine months ended September 30, 2018 and 2017 .

⁽³⁾

Amounts reclassified relate to the designated interest rate swaps, as well as the interest rate swaps that were dedesignated and settled in 2017 and 2018. The amounts were recognized in interest expense in our condensed consolidated statements of operations and are presented net of a tax benefit of $2 million and $8 million for the nine months ended September 30, 2018 and 2017 , respectively. See Note 7 : " Derivative Instruments and Hedging Activities " for additional information.

Note 12 : Earnings Per Share

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
	(in millions, except per share amounts)
Basic EPS:
Numerator:
Net income attributable to Hilton stockholders	$	162	$	158	$	540	$	355
Denominator:
Weighted average shares outstanding	297		322		305		326
Basic EPS	$	0.55	$	0.49	$	1.77	$	1.09

Diluted EPS:
Numerator:
Net income attributable to Hilton stockholders	$	162	$	158	$	540	$	355
Denominator:
Weighted average shares outstanding	300		325		307		328
Diluted EPS	$	0.54	$	0.49	$	1.76	$	1.08

Approximately 1 million share-based compensation awards were excluded from the weighted average shares outstanding used in the computation of diluted EPS for the three and nine months ended September 30, 2018 and 2017 because their effect would have been anti-dilutive under the treasury stock method.

Note 13 : Business Segments

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

The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels operated or managed by someone other than us. As of September 30, 2018 , this segment included 670 managed hotels and 4,768 franchised hotels consisting of 864,071 total rooms. This segment also earns license fees from HGV and co-brand credit card arrangements, as well as fees for managing properties in our ownership segment.

As of September 30, 2018 , the ownership segment included 71 properties totaling 21,720 rooms, comprising 62 hotels that we wholly owned or leased, one hotel owned by a consolidated non-wholly owned entity, two hotels leased by consolidated VIEs and six hotels owned or leased by unconsolidated affiliates.

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

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
	(in millions)
Franchise fees	$	409		$	359		$	1,147		$	998
Base and other management fees ⁽¹⁾	95			99			286			284
Incentive management fees	57			53			171			159
Management and franchise	561			511			1,604			1,441
Ownership	373			383			1,099			1,052
Segment revenues	934			894			2,703			2,493
Amortization of contract acquisition costs	(6		)	(4		)	(20		)	(12		)
Other revenues	27			21			72			78
Direct reimbursements from managed and franchised properties	710			626			2,139			1,925
Indirect reimbursements from managed and franchised properties	599			566			1,754			1,608
Intersegment fees elimination ⁽¹⁾	(11		)	(12		)	(30		)	(29		)
Total revenues	$	2,253		$	2,091		$	6,618		$	6,063

____________


⁽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.

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
	(in millions)
Management and franchise ⁽¹⁾	$	561		$	511		$	1,604		$	1,441
Ownership ⁽¹⁾	31			31			66			88
Segment operating income	592			542			1,670			1,529
Amortization of contract acquisition costs	(6		)	(4		)	(20		)	(12		)
Other revenues, less other expenses	17			14			36			37
Net other expenses from managed and franchised properties	(28		)	(31		)	(46		)	(99		)
Depreciation and amortization	(81		)	(83		)	(242		)	(252		)
General and administrative	(109		)	(106		)	(328		)	(330		)
Operating income	385			332			1,070			873
Interest expense	(99		)	(85		)	(277		)	(260		)
Gain (loss) on foreign currency transactions	(6		)	2			(7		)	3
Loss on debt extinguishment	—			—			—			(60		)
Other non-operating income, net	13			7			26			16
Income before income taxes	$	293		$	256		$	812		$	572

____________


⁽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.

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



	September 30,		December 31,
	2018		2017
	(in millions)
Management and franchise	$	11,347	$	11,505
Ownership	939		964
Corporate and other	1,857		1,759
	$	14,143	$	14,228

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



	Nine Months Ended
	September 30,
	2018		2017
	(in millions)
Ownership	$	34	$	20
Corporate and other	17		16
	$	51	$	36

Note 14 : 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. We may enter into new contracts containing performance guarantees in the future, which could increase our possible cash outlays. As of September 30, 2018 , we had four performance guarantees, with expirations ranging from 2019 to 2030 , and possible cash outlays totaling approximately $44 million . Our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee. We do not have any letters of credit pledged as collateral against these guarantees. As of September 30, 2018 and December 31, 2017 , we recorded $10 million and $12 million , respectively, in accounts payable, accrued expenses and other and $2 million and $9 million , respectively, in other liabilities in our condensed consolidated balance sheets for one and two outstanding performance guarantees, respectively, that are related to VIEs for which we are not the primary beneficiary.

We receive fees from managed and franchised properties to operate our marketing, sales and brand programs on behalf of hotel and resort owners. As of September 30, 2018 and December 31, 2017 , we had collected an aggregate of $401 million and $402 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, 2018 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Note 15 : Condensed Consolidating Guarantor Financial Information

In April 2018, Hilton Domestic Operating Company Inc. ("HOC"), which is 100 percent owned by Hilton Worldwide Finance LLC, issued the 2026 Senior Notes. In March 2017, Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. (the "HWF Issuers"), entities that are 100 percent owned by Hilton Worldwide Parent LLC ("HWP"), which is 100 percent owned by the Parent, issued the 2025 Senior Notes and 2027 Senior Notes. In September 2016, HOC assumed the 2024 Senior Notes that were issued in August 2016 by escrow issuers. The HWF Issuers are guarantors of the 2026 Senior Notes and the 2024 Senior Notes. HOC is a guarantor of the 2025 Senior Notes and the 2027 Senior Notes. The 2024 Senior Notes, 2025 Senior Notes, 2026 Senior Notes and 2027 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 100 percent 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 facility will guarantee the Senior Notes. As of September 30, 2018 , none

of our foreign subsidiaries or U.S. subsidiaries owned by foreign subsidiaries or conducting foreign operations or our non-wholly owned subsidiaries guarantee the Senior Notes (collectively, the "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, 2018 .

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 facility; (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, 2018 and December 31, 2017 , and for the three and nine months ended September 30, 2018 and 2017 , for the Parent, HWF Issuers, HOC, Guarantors and Non-Guarantors.



	September 30, 2018
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations			Total
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	—	$	3	$	58	$	560	$	—		$	621
Restricted cash and cash equivalents	—		—		34		13		32		—			79
Accounts receivable, net	—		—		9		757		285		—			1,051
Intercompany receivables	—		—		—		—		39		(39		)	—
Prepaid expenses	—		—		37		45		94		(10		)	166
Income taxes receivable	—		—		—		78		—		(39		)	39
Other	—		1		1		20		59		(2		)	79
Total current assets	—		1		84		971		1,069		(90		)	2,035
Intangibles and Other Assets:
Investments in subsidiaries	573		5,434		8,180		573		—		(14,760		)	—
Goodwill	—		—		—		3,824		1,346		—			5,170
Brands	—		—		—		4,405		471		—			4,876
Management and franchise contracts, net	—		—		—		583		309		—			892
Other intangible assets, net	—		—		—		283		134		—			417
Property and equipment, net	—		—		21		67		273		—			361
Deferred income tax assets	5		—		87		—		111		(92		)	111
Other	—		56		32		23		170		—			281
Total intangibles and other assets	578		5,490		8,320		9,758		2,814		(14,852		)	12,108
TOTAL ASSETS	$	578	$	5,491	$	8,404	$	10,729	$	3,883	$	(14,942	)	$	14,143
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other	$	4	$	38	$	200	$	593	$	523	$	—		$	1,358
Current portion of deferred revenues	—		—		46		248		17		(12		)	299
Intercompany payables	—		—		39		—		—		(39		)	—
Current maturities of long-term debt	—		—		—		—		15		—			15
Income taxes payable	—		—		—		—		57		(39		)	18
Current portion of liability for guest loyalty program	—		—		—		723		—		—			723
Total current liabilities	4		38		285		1,564		612		(90		)	2,413
Long-term debt	—		4,867		2,466		—		226		—			7,559
Deferred revenues	—		—		1		750		63		—			814
Deferred income tax liabilities	—		13		—		981		78		(92		)	980
Liability for guest loyalty program	—		—		—		906		—		—			906
Other	—		—		218		89		584		—			891
Total liabilities	4		4,918		2,970		4,290		1,563		(182		)	13,563
Equity:
Total Hilton stockholders' equity	574		573		5,434		6,439		2,314		(14,760		)	574
Noncontrolling interests	—		—		—		—		6		—			6
Total equity	574		573		5,434		6,439		2,320		(14,760		)	580
TOTAL LIABILITIES AND EQUITY	$	578	$	5,491	$	8,404	$	10,729	$	3,883	$	(14,942	)	$	14,143



	December 31, 2017
	Parent		HWF Issuers		HOC		Guarantors		Non-Guarantors		Eliminations			Total
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	—	$	2	$	18	$	550	$	—		$	570
Restricted cash and cash equivalents	—		—		61		10		29		—			100
Accounts receivable, net	—		—		18		712		275		—			1,005
Intercompany receivables	—		—		—		—		40		(40		)	—
Prepaid expenses	—		—		25		24		84		(6		)	127
Income taxes receivable	—		—		—		60		—		(24		)	36
Other	—		—		1		13		155		—			169
Total current assets	—		—		107		837		1,133		(70		)	2,007
Intangibles and Other Assets:
Investments in subsidiaries	1,697		7,067		8,326		1,697		—		(18,787		)	—
Goodwill	—		—		—		3,824		1,366		—			5,190
Brands	—		—		—		4,405		485		—			4,890
Management and franchise contracts, net	—		—		2		645		306		—			953
Other intangible assets, net	—		—		1		283		149		—			433
Property and equipment, net	—		—		20		67		266		—			353
Deferred income tax assets	6		—		104		—		127		(126		)	111
Other	—		20		32		67		172		—			291
Total intangibles and other assets	1,703		7,087		8,485		10,988		2,871		(18,913		)	12,221
TOTAL ASSETS	$	1,703	$	7,087	$	8,592	$	11,825	$	4,004	$	(18,983	)	$	14,228
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other	$	15	$	20	$	184	$	576	$	624	$	(3	)	$	1,416
Current portion of deferred revenues	—		—		90		266		13		(3		)	366
Intercompany payables	—		—		40		—		—		(40		)	—
Current maturities of long-term debt	—		32		—		—		14		—			46
Income taxes payable	—		—		—		—		36		(24		)	12
Current portion of liability for guest loyalty program	—		—		—		622		—		—			622
Total current liabilities	15		52		314		1,464		687		(70		)	2,462
Long-term debt	—		5,333		983		—		240		—			6,556
Deferred revenues	—		—		—		770		59		—			829
Deferred income tax liabilities	—		5		—		1,052		—		(126		)	931
Liability for guest loyalty program	—		—		—		839		—		—			839
Other	—		—		228		64		628		—			920
Total liabilities	15		5,390		1,525		4,189		1,614		(196		)	12,537
Equity:
Total Hilton stockholders' equity	1,688		1,697		7,067		7,636		2,387		(18,787		)	1,688
Noncontrolling interests	—		—		—		—		3		—			3
Total equity	1,688		1,697		7,067		7,636		2,390		(18,787		)	1,691
TOTAL LIABILITIES AND EQUITY	$	1,703	$	7,087	$	8,592	$	11,825	$	4,004	$	(18,983	)	$	14,228



	Three Months Ended September 30, 2018
	Parent		HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Revenues
Franchise 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



	Three Months Ended September 30, 2017
	Parent		HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Revenues
Franchise fees	$	—	$	—		$	35		$	292		$	35		$	(4	)	$	358
Base and other management fees	—		—			1			46			37			—			84
Incentive management fees	—		—			—			16			37			—			53
Owned and leased hotels	—		—			—			—			383			—			383
Other revenues	—		—			—			19			3			(1		)	21
	—		—			36			373			495			(5		)	899
Other revenues from managed and franchised properties	—		—			35			1,005			152			—			1,192
Total revenues	—		—			71			1,378			647			(5		)	2,091

Expenses
Owned and leased hotels	—		—			—			—			340			—			340
Depreciation and amortization	—		—			1			60			22			—			83
General and administrative	—		—			80			—			27			(1		)	106
Other expenses	—		—			—			6			5			(4		)	7
	—		—			81			66			394			(5		)	536
Other expenses from managed and franchised properties	—		—			27			1,040			156			—			1,223
Total expenses	—		—			108			1,106			550			(5		)	1,759

Operating income (loss)	—		—			(37		)	272			97			—			332

Interest expense	—		(60		)	(15		)	—			(11		)	1			(85		)
Gain (loss) on foreign currency transactions	—		—			(1		)	48			(45		)	—			2
Other non-operating income (loss), net	—		(1		)	1			2			6			(1		)	7

Income (loss) before income taxes and equity in earnings from subsidiaries	—		(61		)	(52		)	322			47			—			256

Income tax benefit (expense)	—		24			18			(122		)	(16		)	—			(96		)

Income (loss) before equity in earnings from subsidiaries	—		(37		)	(34		)	200			31			—			160

Equity in earnings from subsidiaries	158		195			229			158			—			(740		)	—

Net income	158		158			195			358			31			(740		)	160
Net income attributable to noncontrolling interests	—		—			—			—			(2		)	—			(2		)
Net income attributable to Hilton stockholders	$	158	$	158		$	195		$	358		$	29		$	(740	)	$	158

Comprehensive income	$	206	$	161		$	194		$	358		$	76		$	(788	)	$	207
Comprehensive income attributable to noncontrolling interests	—		—			—			—			(1		)	—			(1		)
Comprehensive income attributable to Hilton stockholders	$	206	$	161		$	194		$	358		$	75		$	(788	)	$	206



	Nine Months Ended September 30, 2018
	Parent		HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Revenues
Franchise 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, 2017
	Parent		HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Revenues
Franchise fees	$	—	$	—		$	103		$	818		$	87		$	(13	)	$	995
Base and other management fees	—		—			1			147			98			—			246
Incentive management fees	—		—			—			57			102			—			159
Owned and leased hotels	—		—			—			—			1,052			—			1,052
Other revenues	—		—			22			48			9			(1		)	78
	—		—			126			1,070			1,348			(14		)	2,530
Other revenues from managed and franchised properties	—		—			120			2,987			426			—			3,533
Total revenues	—		—			246			4,057			1,774			(14		)	6,063

Expenses
Owned and leased hotels	—		—			—			—			935			—			935
Depreciation and amortization	—		—			4			181			67			—			252
General and administrative	—		—			251			2			80			(3		)	330
Other expenses	—		—			15			20			17			(11		)	41
	—		—			270			203			1,099			(14		)	1,558
Other expenses from managed and franchised properties	—		—			114			3,072			446			—			3,632
Total expenses	—		—			384			3,275			1,545			(14		)	5,190

Operating income (loss)	—		—			(138		)	782			229			—			873

Interest expense	—		(183		)	(45		)	—			(33		)	1			(260		)
Gain (loss) on foreign currency transactions	—		—			12			122			(131		)	—			3
Loss on debt extinguishment	—		(60		)	—			—			—			—			(60		)
Other non-operating income (loss), net	—		(4		)	4			6			11			(1		)	16

Income (loss) before income taxes and equity in earnings from subsidiaries	—		(247		)	(167		)	910			76			—			572

Income tax benefit (expense)	—		97			61			(347		)	(24		)	—			(213		)

Income (loss) before equity in earnings from subsidiaries	—		(150		)	(106		)	563			52			—			359

Equity in earnings from subsidiaries	355		505			611			355			—			(1,826		)	—

Net income	355		355			505			918			52			(1,826		)	359
Net income attributable to noncontrolling interests	—		—			—			—			(4		)	—			(4		)
Net income attributable to Hilton stockholders	$	355	$	355		$	505		$	918		$	48		$	(1,826	)	$	355

Comprehensive income	$	473	$	351		$	507		$	919		$	170		$	(1,944	)	$	476
Comprehensive income attributable to noncontrolling interests	—		—			—			—			(3		)	—			(3		)
Comprehensive income attributable to Hilton stockholders	$	473	$	351		$	507		$	919		$	167		$	(1,944	)	$	473



	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		)
Distributions to noncontrolling interests	—			—			—			—			(1		)	—		(1		)
Tax withholdings on share-based compensation	—			—			(42		)	—			—			—		(42		)
Acquisition of noncontrolling interest	—			—			—			(3		)	—			—		(3		)
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



	Nine Months Ended September 30, 2017
	Parent			HWF Issuers			HOC			Guarantors			Non-Guarantors			Eliminations			Total
	(in millions)
Operating Activities:
Net cash provided by (used in) operating activities	$	—		$	(89	)	$	(83	)	$	603		$	164		$	—		$	595
Investing Activities:
Capital expenditures for property and equipment	—			—			(8		)	(7		)	(21		)	—			(36		)
Payments received on other financing receivables	—			—			—			7			—			—			7
Capitalized software costs	—			—			—			(45		)	—			—			(45		)
Other	—			(13		)	—			(9		)	4			(3		)	(21		)
Net cash used in investing activities	—			(13		)	(8		)	(54		)	(17		)	(3		)	(95		)
Financing Activities:
Borrowings	—			1,823			—			—			—			—			1,823
Repayment of debt	—			(1,842		)	—			—			(6		)	—			(1,848		)
Debt issuance costs and redemption premium	—			(69		)	—			—			—			—			(69		)
Repayment of intercompany borrowings	—			—			(3		)	—			—			3			—
Intercompany transfers	772			190			120			(549		)	(533		)	—			—
Dividends paid	(147		)	—			—			—			—			—			(147		)
Cash transferred in spin-offs of Park and HGV	—			—			—			—			(501		)	—			(501		)
Repurchases of common stock	(625		)	—			—			—			—			—			(625		)
Distributions to noncontrolling interests	—			—			—			—			(1		)	—			(1		)
Tax withholdings on share-based compensation	—			—			(28		)	—			—			—			(28		)
Net cash provided by (used in) financing activities	—			102			89			(549		)	(1,041		)	3			(1,396		)
Effect of exchange rate changes on cash, restricted cash and cash equivalents	—			—			—			—			8			—			8
Net decrease in cash, restricted cash and cash equivalents	—			—			(2		)	—			(886		)	—			(888		)
Cash, restricted cash and cash equivalents from continuing operations, beginning of period	—			—			90			31			1,062			—			1,183
Cash, restricted cash and cash equivalents from discontinued operations, beginning of period	—			—			—			—			501			—			501
Cash, restricted cash and cash equivalents, beginning of period	—			—			90			31			1,563			—			1,684
Cash, restricted cash and cash equivalents, end of period	$	—		$	—		$	88		$	31		$	677		$	—		$	796

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, 2017 . As previously discussed, we adopted the requirements of ASU 2014-09 as of January 1, 2016 using the full retrospective approach; refer to Note 2 : " Basis of Presentation and Summary of Significant Accounting Policies " in our unaudited condensed consolidated financial statements for additional information. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect this adoption.

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 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, 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, 2017 . These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included 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.

Overview

Our Business

Hilton is one of the largest and fastest growing hospitality companies in the world, with 5,560 properties comprising 894,158 rooms in 109 countries and territories as of September 30, 2018 . Our premier brand portfolio includes: our luxury and lifestyle hotel brands, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts and Canopy by Hilton; our full service hotel brands, Hilton Hotels & Resorts, Curio - A Collection by Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton and Embassy Suites by Hilton; our focused service hotel brands, 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, 2018 , we had approximately 82 million members in our award-winning guest loyalty program, Hilton Honors, a 19 percent increase from September 30, 2017 .

In October 2018, we launched our newest brand, Motto by Hilton, an urban-affordable brand that combines the best elements of micro-hotels and urban-lifestyle products. Properties will feature efficiently designed, adaptable rooms, innovative guest solutions and unique food and beverage offerings local to each hotel’s respective neighborhood. The first property is expected to open in 2019.

Segments and Regions

Management analyzes 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. This segment generates its revenue from: (i) management and franchise fees charged to third-party hotel owners; (ii) license fees 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. The ownership segment primarily derives earnings from providing hotel room rentals, food and beverage sales and other services at our owned and leased hotels.

Geographically, management conducts 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 73 percent of our system-wide hotel rooms as of September 30, 2018 ; therefore, the U.S. is often analyzed separately and apart from the Americas geographic region overall 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 Pipeline

Our strategic priorities include the continued expansion of our global network 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 or franchise services. 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, we expect to increase overall return on invested capital and cash available for return to stockholders.

As of September 30, 2018 , we had a total of 2,418 hotels in our development pipeline that we expect to add as open hotels in our system, representing more than 371,000 rooms under construction or approved for development throughout 108 countries and territories, including 38 countries and territories where we do not currently have any open hotels. All of the rooms in the pipeline are within our management and franchise segment. Additionally, 202,000 rooms in the pipeline were located outside the U.S., and 196,000 rooms, or more than half, were under construction . We do not consider any individual development project to be material to us.

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, excluding the hotels distributed in the spin-offs; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results are not available. Of the 5,509 hotels in our system as of September 30, 2018 , 4,257 hotels have been classified as comparable hotels. Our 1,252 non-comparable hotels included 203 hotels, or approximately four 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 not available.

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 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 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 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: 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, 2018 and 2017 use the exchange rates for the three and nine months ended September 30, 2018 .

EBITDA and Adjusted EBITDA

EBITDA reflects net income (loss), excluding interest expense, a provision for income taxes 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 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 expenses; (ix) amortization of contract acquisition costs; (x) the net effect of reimbursable costs included in other revenues and expenses from managed and franchised properties; and (xi) other items.

During the first quarter of 2018, we modified the definition of Adjusted EBITDA to exclude the amortization of contract acquisition costs and the net effect of reimbursable costs included in other revenues and expenses from managed and franchised properties. We believe that excluding these items is useful for the reasons set forth below and have applied the modified definition of Adjusted EBITDA to all periods presented.

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 to be consistent with the treatment of FF&E for owned and leased hotels where it is capitalized and depreciated over the life of the FF&E; (ii) share-based compensation expense, 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 agreements; and (iv) other items that are not core to our operations and are not reflective of our 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 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
	September 30, 2018			2018 vs. 2017			September 30, 2018			2018 vs. 2017
U.S.
Occupancy	79.1		%	(0.5	)%	pts.	77.6		%	0.6	%	pts.
ADR	$	149.52		1.7	%		$	149.81		1.7	%
RevPAR	$	118.34		1.0	%		$	116.30		2.5	%

Americas (excluding U.S.)
Occupancy	76.1		%	0.8	%	pts.	72.4		%	1.6	%	pts.
ADR	$	126.99		3.9	%		$	129.07		4.0	%
RevPAR	$	96.58		5.0	%		$	93.43		6.3	%

Europe
Occupancy	82.7		%	1.1	%	pts.	77.4		%	2.3	%	pts.
ADR	$	151.22		5.5	%		$	150.03		3.5	%
RevPAR	$	125.03		6.9	%		$	116.15		6.7	%

MEA
Occupancy	71.7		%	1.1	%	pts.	71.6		%	3.3	%	pts.
ADR	$	141.90		(0.3	)%		$	151.37		(2.5	)%
RevPAR	$	101.75		1.3	%		$	108.37		2.3	%

Asia Pacific
Occupancy	76.5		%	1.9	%	pts.	73.2		%	3.7	%	pts.
ADR	$	131.77		2.3	%		$	135.68		2.2	%
RevPAR	$	100.74		5.0	%		$	99.38		7.6	%

System-wide
Occupancy	78.9		%	(0.1	)%	pts.	76.9		%	1.1	%	pts.
ADR	$	147.29		2.1	%		$	148.01		1.9	%
RevPAR	$	116.29		2.0	%		$	113.84		3.3	%

During the three and nine months ended September 30, 2018 , we experienced system-wide RevPAR growth, largely driven by improved ADR. Growth in our international portfolio outpaced growth in the U.S., with particularly strong trends in the Europe and Asia Pacific regions. Continued strength in Europe was driven primarily by increased ADR, most notably in Turkey, as it continues to recover from political and economic turmoil, and also in the United Kingdom, Ireland and France. Growth in Asia Pacific was primarily attributable to increased occupancy in China resulting from new hotels maturing in the system. Additionally, strong ADR in Japan drove RevPAR growth, modestly tempered by natural disasters in the quarter. In the Americas (excluding U.S.), increases in RevPAR were largely attributable to positive performance in the Caribbean and

Canada, driven by increases in occupancy and ADR. RevPAR grew moderately in MEA, primarily due to increases in occupancy in Saudi Arabia and Egypt, and, for the three months ended September 30, 2018, increased ADR in Egypt. In the U.S., RevPAR was affected by unfavorable calendar shifts, including the Fourth of July and Jewish religious holidays, as well as natural disasters, driving increased occupancy for the three and nine months ended September 30, 2017 and softening results during the three and nine months ended September 30, 2018.

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018		2017
	(in millions)
Net income	$	164		$	160		$	544	$	359
Interest expense	99			85			277		260
Income tax expense	129			96			268		213
Depreciation and amortization	81			83			242		252
EBITDA	473			424			1,331		1,084
Loss (gain) on foreign currency transactions	6			(2		)	7		(3		)
Loss on debt extinguishment	—			—			—		60
FF&E replacement reserves	12			16			39		37
Share-based compensation expense	35			32			103		91
Amortization of contract acquisition costs	6			4			20		12
Net other expenses from managed and franchised properties	28			31			46		99
Other adjustment items ⁽¹⁾	(3		)	6			11		45
Adjusted EBITDA	$	557		$	511		$	1,557	$	1,425

____________


⁽¹⁾	Includes adjustments for severance and other items and, for the three and nine months ended September 30, 2017 , also includes transaction costs.

Revenues



	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2018		2017		2018 vs. 2017	2018		2017		2018 vs. 2017
	(in millions)					(in millions)
Franchise fees	$	407	$	358	13.7	$	1,142	$	995	14.8

Base and other management fees	$	80	$	84	(4.8)	$	241	$	246	(2.0)
Incentive management fees	57		53		7.5	171		159		7.5
Total management fees	$	137	$	137	—	$	412	$	405	1.7

The addition of new managed and franchised properties to our system and the increases in RevPAR at our comparable managed and franchised hotels yielded increases in management and franchise fees in all periods.

Including new development and ownership type transfers, from January 1, 2017 to September 30, 2018 , we added 704 managed and franchised properties on a net basis, providing an additional 125,347 rooms to our managed and franchised segment. As new hotels stabilize in our system, we expect the fees received from such hotels to increase as they are part of our system for full periods.

Franchise fees also increased during the three and nine months ended September 30, 2018 as a result of increases in license and other fees of $26 million and $71 million, respectively, and, for the nine months ended September 30, 2018, an increase in RevPAR at our comparable franchised hotels of 2.6 percent, driven by increases in both ADR and occupancy.

Management fees remained relatively consistent during the three and nine months ended September 30, 2018 due to increases in RevPAR at our comparable managed hotels of 3.9 percent and 4.8 percent, respectively, only partially offsetting the decreases in base and other management fees that were the result of termination fees recognized during the three and nine months ended September 30, 2017.



	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2018		2017		2018 vs. 2017	2018		2017		2018 vs. 2017
	(in millions)					(in millions)
Owned and leased hotels	$	373	$	383	(2.6)	$	1,099	$	1,052	4.5

The changes in owned and leased hotel revenues during the three and nine months ended September 30, 2018 compared to the three and nine months ended September 30, 2017 were primarily the result of foreign currency exchange rates, which decreased revenues by $10 million for the three months ended September 30, 2018 and increased revenues by $34 million during the nine months ended September 30, 2018.

On a currency neutral basis, revenues at our comparable owned and leased hotels increased $7 million and $30 million during the three and nine months ended September 30, 2018 , respectively, due to increases in RevPAR of 4.6 percent and 4.9 percent, respectively, driven by increases in both occupancy and ADR. These increases were offset by the decreases in revenues at our non-comparable owned and leased hotels of $7 million and $17 million, respectively, primarily due to hotel renovations and the net effect of properties that were opened or disposed of between January 1, 2017 and September 30, 2018 .



	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2018		2017		2018 vs. 2017	2018		2017		2018 vs. 2017
	(in millions)					(in millions)
Other revenues	$	27	$	21	28.6	$	72	$	78	(7.7)

Other revenues increased during the three months ended September 30, 2018 primarily as a result of an increase in revenues from our purchasing operations.

Other revenues decreased during the nine months ended September 30, 2018 primarily as a result of a recovery from the settlement of a claim by Hilton to a third party relating to our defined benefit plans during the nine months ended September 30, 2017 , which was partially offset by an increase in revenues from our purchasing operations.

Operating Expenses



	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2018		2017		2018 vs. 2017	2018		2017		2018 vs. 2017
	(in millions)					(in millions)
Owned and leased hotels	$	331	$	340	(2.6)	$	1,003	$	935	7.3

The changes in owned and leased hotel expenses during the three and nine months ended September 30, 2018 compared to the three and nine months ended September 30, 2017 were largely the result of foreign currency exchange rates, which decreased expenses by $10 million during the three months ended September 30, 2018 and increased expenses by $31 million during the nine months ended September 30, 2018.

On a currency neutral basis, expenses at comparable owned and leased hotels increased $6 million and $39 million for the three and nine months ended September 30, 2018, respectively, primarily due to increased contingent rent expense resulting from improved performance and higher variable operating costs related to increased occupancy. Additionally, during the nine months ended September 30, 2018, owned and leased hotel expenses increased $4 million compared to the prior year due to the refund of rent related to a lease termination that was recognized in 2017. These increases were offset by decreases in owned and leased hotel expenses at our non-comparable hotels primarily as a result of properties opened or disposed of between January 1, 2017 and September 30, 2018, which, on a net basis, decreased expenses by $7 million and $6 million during the three and nine months ended September 30, 2018, respectively.



	Three Months Ended				Percent	Nine Months Ended				Percent
	September 30,				Change	September 30,				Change
	2018		2017		2018 vs. 2017	2018		2017		2018 vs. 2017
	(in millions)					(in millions)
Depreciation and amortization	$	81	$	83	(2.4)	$	242	$	252	(4.0)
General and administrative	109		106		2.8	328		330		(0.6)
Other expenses	10		7		42.9	36		41		(12.2)

The decrease in depreciation and amortization expense during the nine months ended September 30, 2018 was due to a $5 million decrease in depreciation expense, primarily related to our leased hotels as a result of a lease termination and assets being fully depreciated in 2017, and a $5 million decrease in amortization expense primarily due to certain capitalized software costs being fully amortized between September 30, 2017 and September 30, 2018 .

The changes in general and administrative expenses during the three and nine months ended September 30, 2018 were the result of decreases in costs associated with the spin-offs of $2 million and $17 million, respectively, and severance costs related to the 2015 sale of the Waldorf Astoria New York of $2 million and $8 million, respectively. These decreases were offset by increases in payroll and compensation costs, including share-based compensation .

Other expenses decreased during the nine months ended September 30, 2018 primarily as a result of costs for the settlement of the claim relating to our defined benefit plans that were recognized during the nine months ended September 30, 2017 , which was partially offset by an increase in expenses from our purchasing operations.

Non-operating Income and Expenses



	Three Months Ended						Percent	Nine Months Ended						Percent
	September 30,						Change	September 30,						Change
	2018			2017			2018 vs. 2017	2018			2017			2018 vs. 2017
	(in millions)							(in millions)
Interest expense	$	(99	)	$	(85	)	16.5	$	(277	)	$	(260	)	6.5
Gain (loss) on foreign currency transactions	(6		)	2			NM ⁽¹⁾	(7		)	3			NM ⁽¹⁾
Loss on debt extinguishment	—			—			NM ⁽¹⁾	—			(60		)	NM ⁽¹⁾
Other non-operating income, net	13			7			85.7	26			16			62.5
Income tax expense	(129		)	(96		)	34.4	(268		)	(213		)	25.8

____________


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

The increases in interest expense during the three and nine months ended September 30, 2018 were primarily attributable to the issuance of the 2026 Senior Notes in April 2018 and, for the nine months ended September 30, 2018, also from the issuance of the 2025 and 2027 Senior Notes in March 2017. These increases were partially offset by the decrease in interest expense due to the partial repayment of the Term Loans in April 2018 and, for the nine months ended September 30, 2018, from the repayment of the 2021 Senior Notes in March 2017. See Note 6 : " Debt " in our unaudited condensed consolidated financial statements for additional information.

The gains and losses on foreign currency transactions primarily related to changes in foreign currency exchange rates on our short-term cross-currency intercompany loans for all periods. For the nine months ended September 30, 2018 , the changes were predominantly for loans denominated in the euro and the British pound ("GBP") and, for the three months ended September 30, 2018 , also for loans denominated in the Australian dollar ("AUD"). For the three and nine months ended September 30, 2017 , the changes were predominantly for loans denominated in the euro, GBP and AUD.

The loss on debt extinguishment related to the repayment of the 2021 Senior Notes and included a redemption premium of $42 million and the accelerated recognition of $18 million of unamortized debt issuance costs during the nine months ended September 30, 2017 .

Other non-operating income, net increased for the three and nine months ended September 30, 2018 due to a $6 million gain on the August 2018 early repayment of a loan we issued that financed the construction of a hotel that we manage. The increase during the nine months ended September 30, 2018 was also due to a $6 million gain on the refinancing of that same loan in March 2018 and a reduction in fees incurred for the amendments of our Term Loans in 2018 and 2017, which was

partially offset by the accelerated recognition of $5 million of debt issuance costs and discount resulting from the April 2018 repayment on the Term Loans.

The increases in income tax expense during the three and nine months ended September 30, 2018 were primarily attributable to the effect of the September Distribution and adjustments to our provisional amounts related to the TCJ Act, partially offset by the decrease in the annual effective tax rate as a result of the TCJ Act. See Note 9 : " Income Taxes " in our unaudited condensed consolidated financial statements for additional information.

Segment Results

We evaluate our business segment operating performance using operating income. Refer to Note 13 : " Business Segments " in our unaudited condensed consolidated financial statements for a reconciliation of segment operating income to income before income taxes and additional information on the evaluation of the performance of our segments using operating income. The following table sets forth revenues and operating income by segment:



	Three Months Ended						Percent	Nine Months Ended						Percent
	September 30,						Change	September 30,						Change
	2018			2017			2018 vs. 2017	2018			2017			2018 vs. 2017
	(in millions)							(in millions)
Revenues:
Management and franchise ⁽¹⁾	$	561		$	511		9.8	$	1,604		$	1,441		11.3
Ownership	373			383			(2.6)	1,099			1,052			4.5
Segment revenues	934			894			4.5	2,703			2,493			8.4
Amortization of contract acquisition costs	(6		)	(4		)	50.0	(20		)	(12		)	66.7
Other revenues	27			21			28.6	72			78			(7.7)
Other revenues from managed and franchised properties	1,309			1,192			9.8	3,893			3,533			10.2
Intersegment fees elimination ⁽¹⁾	(11		)	(12		)	(8.3)	(30		)	(29		)	3.4
Total revenues	$	2,253		$	2,091		7.7	$	6,618		$	6,063		9.2

Operating Income ⁽¹⁾ :
Management and franchise	$	561		$	511		9.8	$	1,604		$	1,441		11.3
Ownership	31			31			—	66			88			(25.0)
Segment operating income	$	592		$	542		9.2	$	1,670		$	1,529		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 $50 million and $163 million during the three and nine months ended September 30, 2018 , respectively, as a result of the net addition of managed and franchised properties to our system, increases in RevPAR at our comparable managed and franchised hotels of 1.8 percent and 3.2 percent, respectively, and increases in licensing and other fees. Refer to "—Revenues" for further discussion of the increases in revenues from our managed and franchised properties.

Ownership segment revenues decreased $10 million during the three months ended September 30, 2018 and increased $47 million during the nine months ended September 30, 2018 primarily as a result of foreign exchange rates. Ownership segment revenues for both periods also included increases in revenues from comparable owned and leased hotels due to increases in RevPAR, as well as net decreases in revenues from non-comparable owned and leased hotels. Ownership operating income decreased $22 million during the nine months ended September 30, 2018 as a result of the increase in owned and leased hotel expenses, only partially offset by increases in segment revenues. Refer to "—Revenues" and "—Operating Expenses" for further discussion of the changes in revenues and operating expenses at our owned and leased hotels.

Liquidity and Capital Resources

Overview

As of September 30, 2018 , we had total cash and cash equivalents of $700 million , including $79 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.

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 related benefits, 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. 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 finance our business activities primarily with existing cash and cash generated from our operations. We believe that this cash 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. The objectives of our cash management policy are to maintain the availability of liquidity and minimize 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 and our affiliates may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

During the nine months ended September 30, 2018 , we repurchased 21.3 million shares of our common stock for $1,561 million , which we funded with borrowings and available cash. See Note 6 : " Debt " and Note 11 : " Stockholders' Equity and Accumulated Other Comprehensive Loss " in our unaudited condensed consolidated financial statements for additional information.

Sources and Uses of Our Cash and Cash Equivalents

The following table summarizes our net cash flows:



	Nine Months Ended September 30,						Percent Change
	2018			2017			2018 vs. 2017
	(in millions)
Net cash provided by operating activities	$	914		$	595		53.6
Net cash used in investing activities	(80		)	(95		)	(15.8)
Net cash used in financing activities	(790		)	(1,396		)	(43.4)

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 $319 million increase in net cash provided by operating activities was primarily a result of improved operating results in our management and franchise business, as well as decreases in net cash paid for income taxes and cash paid for interest of $147 million and $17 million, respectively. The increase was partially offset by an increase in contract acquisition costs.

Investing Activities

For the nine months ended September 30, 2018 and 2017 , net cash used in investing activities consisted primarily of capital expenditures for property and equipment and capitalized software costs. Our capital expenditures for property and equipment primarily consisted of expenditures related to the renovation of hotels in our ownership segment and our corporate facilities. Our capitalized software costs related to various systems initiatives, both for the benefit of our hotel owners and our

overall corporate operations. Additionally, during the nine months ended September 30, 2018, these expenditures were offset by the repayment of a loan we issued that financed the construction of a hotel that we manage.

Financing Activities

The $606 million decrease in net cash used in financing activities was primarily attributable to the transfer of cash in connection with the spin-offs during the nine months ended September 30, 2017 and the issuance of the $1.5 billion 2026 Senior Notes during the nine months ended September 30, 2018 . These decreases were partially offset by the $500 million repayment of the Term Loans, as well as $1.7 billion of capital returned to our stockholders, which includes dividends and share repurchases, during the nine months ended September 30, 2018 compared to $772 million of capital returned during the nine months ended September 30, 2017 .

Debt and Borrowing Capacity

As of September 30, 2018 , our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $7.7 billion . For additional information on our total indebtedness, debt issuances and repayments, availability under our Revolving Credit Facility and guarantees on our debt, refer to Note 6 : " Debt " and Note 15 : " 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, issue additional equity securities or draw on our Revolving Credit Facility. 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.

Contractual Obligations

Other than the issuance of the 2026 Senior Notes and the repayment of the Term Loans as described above, 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, 2017 .

Off-Balance Sheet Arrangements

See Note 14 : " Commitments and Contingencies " in our unaudited condensed consolidated financial statements for a discussion of our off-balance sheet arrangements.

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, 2017 . Since the date of our Annual Report on Form 10-K, we adopted ASU 2014-09, which has changed our critical accounting policies and estimates related to Hilton Honors. See Note 2 : " Basis of Presentation and Summary of Significant Accounting Policies " in our unaudited condensed consolidated financial statements for additional information.

Hilton Honors

Hilton Honors records a point redemption liability for amounts received from participating hotels and program partners in an amount equal to the estimated cost per point of the future redemption obligation. We engage outside actuaries to assist in determining the fair value of the future award redemption obligation using statistical formulas that project future point redemptions based on factors that require judgment, including an estimate of "breakage" (points that will never be redeemed), an estimate of the points that will eventually be redeemed and the cost of the points to be redeemed. The cost of the points to be redeemed includes further estimates of available room nights, occupancy rates, room rates and any devaluation or appreciation of points based on changes in reward prices or changes in points earned per stay. Any amounts received from participating hotels and program partners in excess of the actuarial determined cost per point are recorded as deferred revenues and recognized as revenue upon point redemption.

In addition to the Hilton Honors fees we receive from hotel owners to operate the program, we earn fees from co-brand credit card arrangements for the use of our IP license and the issuance of Hilton Honors points. The allocation of the overall

fees from the co-brand credit card arrangements between the IP license and the Hilton Honors points is based on their estimated standalone selling prices. The estimated standalone selling price of the IP license is determined using a relief-from-royalty method using statistical formulas based on factors that require significant judgment, including estimates of credit card usage, an appropriate royalty rate and a discount rate to be applied to the projected cash flows. The estimated standalone selling price of the future reward redemptions under the co-brand credit card arrangements is calculated using a discounted cash flow analysis with the same assumptions related to the point redemption liability as discussed above, adjusted for an appropriate margin.

As of September 30, 2018 , we had a $1,629 million liability for guest loyalty program, including $723 million reflected as a current liability, and deferred revenues of $478 million , including $193 million reflected as a current liability. Changes in the estimates used in developing our breakage rate or other expected future program operations could result in material changes to our liability for guest loyalty program and deferred revenues.

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 financial arrangements 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 that they are not hedged. We enter into derivative financial arrangements to the extent they meet the objectives described above and we do not use derivatives for trading or speculative purposes. See Note 7 : " Derivative Instruments and Hedging Activities " in our unaudited condensed consolidated financial statements for additional information. 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, 2017 .

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

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. 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

As of September 30, 2018 , there have been no material changes from the risk factors previously disclosed in response to "Part I —Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 .

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

(a) Unregistered Sales of Securities

None.

(b) Use of Proceeds

None.

The following table sets forth information regarding our purchases of shares of our common stock during the three months ended September 30, 2018 :



	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, 2018 to July 31, 2018	524,051	$	80.16	524,051	$	799
August 1, 2018 to August 31, 2018	536,599	77.35		536,599	757
September 1, 2018 to September 30, 2018	481,086	78.96		481,086	719
Total	1,541,736	78.81		1,541,736

____________


⁽¹⁾	This price includes per share commissions paid.

⁽²⁾

During 2017, our board of directors authorized a publicly announced stock repurchase program for up to $2.0 billion of the Company's common stock. Under the program, the Company is 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 (File No. 001-36243) 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 (File No. 001-36243) 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 (File No. 001-36243) filed on November 17, 2017).
10.1		Hilton Worldwide Holdings Inc. 2019 Executive Severance Plan.*
12		Computation of Ratio of Earnings to Fixed Charges.
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		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

____________


*	This document has been identified as a management contract or compensatory plan or arrangement.

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 24, 2018

Exhibit 10.1

HILTON WORLDWIDE HOLDINGS INC.

2019 EXECUTIVE SEVERANCE PLAN

Hilton Worldwide Holdings Inc., a Delaware corporation (the “ Company ”), has adopted this Hilton Worldwide Holdings Inc. 2019 Executive Severance Plan (the “ Plan ”), effective as of January 1, 2019, for the benefit of the Executive Officers of the Company and its wholly-owned subsidiaries (as defined below), on the terms and conditions hereinafter stated. This Plan is a successor plan to the Company’s 2013 Executive Severance Plan which expired in accordance with its terms on December 31, 2018.

1. Defined Terms . For purposes of the Plan, the following terms shall have the meanings indicated below:

1.1 “ Annual Base Salary ” means a Participant’s annual base salary at the rate in effect immediately prior to a Qualifying Termination.

1.2 “ Board ” means the Board of Directors of the Company.

1.3 “ Business ” shall mean the business of operating, managing or franchising hotel and lodging properties.

1.4 “ Cause ” means any of the following: (a) a Participant’s willful failure substantially to perform the lawful instructions of the Company or one of its Subsidiaries (other than as a result of total or partial incapacity due to physical or mental illness) following written notice by the Company to the Participant of such failure and 10 days within which to cure such failure; (b) a Participant’s theft or embezzlement of Company property; (c) dishonesty in the performance of a Participant’s duties resulting in material harm to the Company; (d) any act on the part of a Participant that constitutes (i) a felony under the laws of the United States or any state thereof or, where applicable, any other equivalent offence (including a crime subject to a custodial sentence) under the laws of the applicable jurisdiction, or (ii) any other crime involving moral turpitude; (e) a Participant’s willful or gross misconduct in connection with the Participant’s duties to the Company which, in the reasonable good faith judgment of the Board, could reasonably be expected to be materially injurious to the financial condition or business reputation of the Company, its Subsidiaries or affiliates, or (f) a Participant’s breach of the provisions of any restrictive covenants with the Company, its Subsidiaries or affiliates.

1.5 A “ Change in Control ” shall be deemed to have occurred if:

(a) any one person, or more than one person acting as a group (as defined under Treasury Regulation § 1.409A-3(i)(5)(v)(B)) other than the Company or any employee benefit plan sponsored by the Company, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total Voting Power of the stock of the Company;

(b) any one person, or more than one person acting as a group (as defined under Treasury Regulation § 1.409A-3(i)(5)(v)(B)) other than the Company or any employee benefit plan sponsored by the Company acquires (or has acquired during the 12-month period ending on the date of the most recent

acquisition by such person or persons) ownership of stock of the Company possessing 30 percent or more of the total Voting Power of the stock of the Company;

(c) a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of each appointment or election; or

(d) any one person, or more than one person acting as a group (as defined in Treasury Regulation § 1.409A-3(i)(5)(v)(B)) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or in excess of 40 percent of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions. For purposes of subsection (d), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

The foregoing subsections (a) through (d) shall be interpreted in a manner that is consistent with the Treasury Regulations promulgated pursuant to Section 409A of the Code so that all, and only, such transactions or events that could qualify as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5)(i) will be deemed to be a Change in Control for purposes of this Plan.

1.6 “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

1.7 “ Committee ” means the Compensation Committee of the Board.

1.8 “ Company ” means Hilton Worldwide Holdings Inc., a Delaware corporation, and includes each of its wholly-owned subsidiaries.

1.9 “ Competitor ” shall mean any Person engaged in the Business.

1.10 “ Date of Termination ” shall mean the date that a Participant’s employment with the Company terminates for all purposes, as reflected in the writing documenting the termination from the party terminating the employment relationship to the other party, in accordance with Section 8 hereof.

1.11 “ Employment Term ” shall mean the entire time period of Participant’s employment with the Company or its Subsidiaries or affiliates.

1.12 “ Executive Officer ” means an active, full-time employee holding a position that has been designated in the Human Resources Information System maintained by Hilton Domestic Operating Company Inc. as having one of the following corporate titles:


(a)	Chief Executive Officer (CEO)


(b)	Executive Vice President (EVP)


(c)	Senior Vice President (SVP)

regardless of whether the employee is employed by Hilton Worldwide Holdings Inc. or one of its affiliates.

1.13 “ Good Reason ” means any of the following, without the Participant’s written consent:

(a) a material diminution in a Participant’s base salary or annual bonus opportunity;

(b) a material diminution in a Participant’s authority, duties or responsibilities;

(c) a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Participant is required to report, including a situation where a Participant who initially reported to the Board as of the effective date of becoming a Participant is subsequently required to report to a corporate officer or employee instead of reporting directly to the Board.

(d) a material change in the geographic location at which the Participant must perform the services.

(e) any other action or inaction that constitutes a material breach by the service recipient of the agreement under which the Participant provides services.

provided, however, that a termination by the Participant for any of the reasons listed in (a) through (e) above shall not constitute termination for Good Reason unless the Participant shall first have delivered to the Company written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason (which notice must be given no later than sixty (60) days after the initial occurrence of such event), and the Company fails to cure such event within 30 days after receipt of this written notice. The Participant’s employment must be terminated for Good Reason within 120 days after the occurrence of an event of Good Reason. A resignation by the Participant for Good Reason effectively constitutes an involuntary separation from service within the meaning of Section 409A of the Code and Treas. Reg. Section 1.409A-1(n)(2). Good Reason shall not include the Participant’s death or disability.

1.14 “ Participant ” shall mean one of the Executive Officers.

1.15 “ Person ” means any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever.

1.16 “ Plan ” means this Hilton Worldwide Holdings Inc. 2019 Executive Severance Plan, as such plan may be amended from time to time.

1.17 “ Qualifying Termination ” means the Participant’s termination of employment with the Company either by the Company without Cause or by the Participant for Good Reason. For the avoidance of doubt, in no event shall a Participant be deemed to have experienced a Qualifying Termination as a result of (a) the Participant’s death or disability, or (b) solely as a result of a Change in Control.

1.18 “ Restricted Period ” means a period of one year following the Date of Termination of the Participant under circumstances where Participant is entitled to receive Severance Benefits under this Plan.

1.19 “ Severance Benefits ” shall have the meaning provided in Section 4 hereof.

1.20 “ Subsidiary ” means a corporation, company or other entity (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture, limited liability company, or unincorporated association), but more than 50% of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company.

1.21 “ Target Bonus ” means a Participant’s target annual bonus for the year in which the Qualifying Termination occurs.

1.22 “ Voting Power ” over securities means beneficial ownership of the securities such that the Person has the power to vote, or to direct the voting of, the securities and/or investment power which includes the power to dispose, or to direct the disposition of, the securities.

2. Effectiveness of the Plan . This Plan becomes effective on January 1, 2019, as successor to the Company’s 2013 Executive Severance Plan.

3. Administration . Subject to Section 14.2 hereof, the Plan shall be interpreted, administered and operated by the Committee, which shall have complete authority, subject to the express provisions of the Plan, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may delegate any of its duties hereunder to a subcommittee, or to such person or persons from time to time as it may designate. All decisions, interpretations and other actions of the Committee shall be final, conclusive and binding on all parties who have an interest in the Plan.

4. Qualifying Termination Severance Benefits . Subject to the terms and conditions hereof, upon a Participant’s Qualifying Termination, the Participant shall receive the following benefits (collectively, the “ Severance Benefits ”):


(i)	a cash payment equal to the sum of (A) the multiple of the Participant’s Annual Base Salary set forth in the table below, and (B) the multiple of the Participant’s Target Bonus set forth in the table below, payable in a single lump sum within sixty (60) days following the Date of Termination;



Level	Base Severance
Senior Vice President (SVP)	1.0X Annual Base Salary 1.0X Target Bonus
Executive Vice President (EVP)	2.0X Annual Base Salary 2.0X Target Bonus
Chief Executive Officer (CEO)	2.99X Annual Base Salary 2.99X Target Bonus

(ii)

for twelve (12) months following the Date of Termination (the “ COBRA Reimbursement Period ”), monthly payments of an amount equal to the excess of (i) the COBRA cost of such coverage over (ii) the amount that Participant would have had to pay for such coverage if he had remained employed during the COBRA Reimbursement Period and paid the active employee rate for such coverage, less withholding for taxes and other similar items; provided , however , that (A) if the Participant becomes eligible to receive group health benefits under a program of a subsequent employer or otherwise (including coverage available to the Participant’s spouse), the Company’s obligation to pay any portion of the cost of health coverage as described herein shall cease, except as otherwise provided by law; (B) the COBRA Reimbursement Period shall only run for the period during which the Participant is eligible to elect health coverage under COBRA and timely elects such coverage; (C) nothing herein shall prevent the Company from amending, changing, or canceling any group medical, dental, vision and/or prescription drug plans during the COBRA Reimbursement Period; (D) the payments made under this subparagraph (ii) shall be paid in a manner consistent with Section 7 hereof and the Company may elect to accelerate such payments

to the extent permissible in accordance with Section 7 hereof; and (E) the monthly payments described in this subparagraph (ii) shall be taxable to the Participant and any applicable withholdings shall apply or such amounts shall be treated as imputed income to the Participant;

(iii)

to the extent the Company provides the Participant life insurance coverage immediately prior to the Qualifying Termination and this coverage is eligible for post-termination continuation or conversion to an individual policy, a cash payment equal to the amount required to continue such coverage as an individual policy for a period of twelve (12) months following the Date of Termination (and, if the Company deems necessary or advisable, to convert such coverage to an individual policy), payable in a single lump sum within sixty (60) days following the Date of Termination; and


(iv)	payment for executive outplacement services provided by a firm to be determined by the Company in its sole discretion for a period of twelve (12) months following the Date of Termination.

Notwithstanding the foregoing, subject to Section 7 below, the Company shall be obligated to provide the Severance Benefits only if (A) within sixty (60) days after the Date of Termination the Participant shall have executed a separation and release of claims and covenant not to sue agreement in a form acceptable to the Company (the “ Release Agreement ”) and such Release Agreement shall not have been revoked within the revocation period specified in the Release Agreement, and (B) the Participant fully complies with the obligations set forth in Section 6 hereof. The Release Agreement shall, at a minimum, require the release of claims against the Company and its successors, Subsidiaries, affiliates, and parents, and their respective past, present, and future officers, directors, employees, shareholders, counsel, insurers, investors and agents.

For the avoidance of doubt, inclusion of Target Bonus in the calculation of Severance Benefits does not affect and is not in lieu of a Participant’s annual bonus opportunity for the year in which the Date of Termination occurs, which shall be determined in accordance with the Company’s annual bonus plan as then in effect.

5. Non-Qualifying Termination . If a Participant’s status as an employee is terminated for any reason other than due to a Qualifying Termination, the Participant shall not be entitled to receive the Severance Benefits, and the Company shall not have any obligation to such Participant under this Plan.

6. Covenants . Any Release Agreement executed by a Participant as a condition to receiving Severance Benefits under this Plan shall require the Participant to acknowledge and accept the covenants under this Section 6.

6.1 Non-Competition; Non-Solicitation .

(a) Each Participant acknowledges and recognizes the highly competitive nature of the businesses of the Company and its Subsidiaries and affiliates and accordingly agrees as follows:

(i) During the Employment Term and subsequent Restricted Period, the Participant will not, whether on the Participant’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly solicit or assist in soliciting away from the Company the business of any then current or prospective client or customer with whom the Participant

(or his or her direct reports) had personal contact or dealings on behalf of the Company during the one-year period preceding the Date of Termination.

(ii) During the Restricted Period, the Participant will not directly or indirectly:

(A) enter the employ of, or render any services to, a Competitor, provided that this restriction shall not prevent Participants from working for or performing services on behalf of a Competitor if such Competitor is also engaged in other lines of business and if Participant’s employment or services are restricted to such other lines of business, and will not be providing support, advice, instruction, direction or other guidance to lines of business that constitute the Competitor;

(B) acquire a financial interest in, or otherwise become actively involved with, a Competitor, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or

(C) intentionally and adversely interfere with, or attempt to adversely interfere with, business relationships between the Company and any of its clients, customers, suppliers, partners, members or investors.

(iii) Notwithstanding anything to the contrary in this Section 6, the Participant may, directly or indirectly, own, solely as an investment, securities of any Person engaged in a Business (including, without limitation, a Competitor) which are publicly traded on a national or regional stock exchange or on the over-the-counter market if the Participant (i) is not a controlling person of, or a member of a group which controls, such person and (ii) does not, directly or indirectly, own 2% or more of any class of securities of such Person.

(iv) During the Restricted Period, the Participant will not, whether on the Participant’s own behalf or on behalf of or in conjunction with any Person or entity, directly or indirectly:

(A) solicit or encourage any employee of the Company to leave the employment of the Company; or

(B) hire any employee who was employed by the Company as of the Date of Termination or who left the employment of the Company coincident with, or within one year prior to or after, the Date of Termination, provided that this prohibition does not apply to (i) administrative personnel employed by the Company or (ii) any Company employee who is hired away from the Company as a result of responding to a generic job posting on a website or in a newspaper or periodical of general circulation, without any involvement or encouragement by Participant.

(v) During the Restricted Period, the Participant will not, whether on the Participant’s own behalf or on behalf of or in conjunction with any Person, directly and intentionally encourage any material consultant of the Company to cease working with the Company.

(b) It is expressly understood and agreed that, although the Participant and the Company consider the restrictions contained in this Section 6 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Appendix A is an unenforceable restriction against the Participant, the provisions of this Section 6 shall not be rendered void but shall be deemed amended to apply as to such maximum

time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Section 6 is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.

(c) The period of time during which the provisions of this Section 6 shall be in effect shall be extended by the length of time during which the Participant is in breach of the terms hereof as determined by any court of competent jurisdiction on the Company’s application for injunctive relief.

(d) The Company reserves the right to waive the enforcement of or limit the scope of the non-competition or non-solicitation provisions of this Plan as to an individual Participant as it deems appropriate in its sole discretion on a case-by-case basis.

6.2. Confidentiality .

(a) The Participant will not at any time (whether during or after the Participant’s employment with the Company) (x) retain or use for the benefit, purposes or account of the Participant or any other Person; or (y) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside the Company (other than its professional advisers who are bound by confidentiality obligations or otherwise in performance of the Participant’s duties under the Participant’s employment and pursuant to customary industry practice), any non-public, proprietary or confidential information – including without limitation trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals – concerning the past, current or future business, activities and operations of the Company, its Subsidiaries or affiliates and/or any third party that has disclosed or provided any of same to the Company on a confidential basis (“ Confidential Information ”) without the prior written authorization of the Board.

(b) “Confidential Information” shall not include any information that is (i) generally known to the industry or the public other than as a result of the Participant’s breach of this covenant; (ii) made legitimately available to the Participant by a third party without breach of any confidentiality obligation of which the Participant has knowledge; or (iii) required by law to be disclosed; provided that with respect to subsection (iii) the Participant shall give prompt written notice to the Company of such requirement, disclose no more information than is so required, and reasonably cooperate with any attempts by the Company to obtain a protective order or similar treatment.

(c) Upon termination of the Participant’s employment with the Company for any reason, the Participant shall (x) cease and not thereafter commence use of any Confidential Information or intellectual property (including without limitation, any patent, invention, copyright, trade secret, trademark, trade name, logo, domain name or other source indicator) owned or used by the Company, its Subsidiaries or affiliates; and (y) immediately destroy, delete, or return to the Company, at the Company’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in the Participant’s possession or control (including any of the foregoing stored or located in the Participant’s office, home, laptop or other computer, whether or not Company property) that contain Confidential Information, except that the

Participant may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information.

(d) Nothing contained in this Plan limits a Participant’s ability to (i) disclose any information to governmental agencies or commissions as may be required by law, or (ii) a Participant’s right to communicate, cooperate or file a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency or entity (collectively, a “ Governmental Entity ”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise make disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation, provided that in each case such communications and disclosures are consistent with applicable law, or (iii) a Participant’s right to receive an award from a Governmental Entity for information provided under any whistleblower program, without notice to the Company. This Plan does not limit a Participant’s right to seek and obtain a whistleblower award for providing information relating to a possible securities law violation to the Securities and Exchange Commission. The Participant will not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of a trade secret that is made (i) in confidence to a U.S. federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. If the Participant files a lawsuit for retaliation by an employer for reporting a suspected violation of law the Participant may disclose the trade secret to the attorney of the Participant and use the trade secret information in the court proceeding, if the Participant files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order. The Participant is not be required to give prior notice to (or get prior authorization from) the Company regarding any such communication or disclosure. Except as otherwise provided in this paragraph or under applicable law, under no circumstance is the Participant authorized to disclose any information covered by the Company’s or any of its affiliates’ attorney-client privilege or attorney work product or the Company’s or any of its affiliates’ trade secrets without the prior written consent of the Company.

6.3 Non-Disparagement.

As a condition to the receipt of the Qualifying Termination Severance Benefits, Executive agrees that Executive will not directly, or through any other Person, make any public or private statements that are disparaging of the Company, its affiliates or subsidiaries, or their respective businesses or employees, officers, directors, or stockholders.

7. Section 409A .

7.1 General . The Company intends that the payments and benefits provided under the Plan shall either be exempt from the application of, or comply with, the requirements of Section 409A of the Code (recognizing that, if the Plan is not exempt from or compliant with the requirements of Section 409A, non-compliant payments to Participants would be subject to significant tax penalties, which would be borne by the Participant). The Plan shall be construed in a manner that effects the Company’s intent to be exempt from or comply with Section 409A. Nevertheless, the tax treatment of the benefits provided under the Plan is not warranted or guaranteed. Neither the Company nor its respective directors, officers, employees or advisers (other than in his or her capacity as a Participant) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant or other taxpayer as a result of the Plan. Notwithstanding anything in the Plan to the contrary, the Committee may amend the Plan, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of remaining exempt from or complying with

the requirements of Section 409A of the Code and the administrative regulations and rulings promulgated thereunder.

7.2 Definitional Restrictions . Notwithstanding anything in the Plan to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code (“ Non-Exempt Deferred Compensation ”) would otherwise be payable or distributable under the Plan by reason of the occurrence of the Participant’s separation from service, such Non-Exempt Deferred Compensation will not be payable or distributable to the Participant by reason of such circumstance unless the circumstances giving rise to such separation from service meet any description or definition of “separation from service” in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition). This provision does not prohibit the vesting of any amount upon a separation from service, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant “separation from service,” or such later date as may be required by subsection 7.3 below.

7.3 Six-Month Delay in Certain Circumstances . In the event that, notwithstanding the clear language of the Plan and the intent of the Company, any amount or benefit under this Plan constitutes Non-Exempt Deferred Compensation and is payable or distributable by reason of a Participant’s separation from service during a period in which the Participant qualifies as a “Specified Employee” under 409A, then, subject to any permissible acceleration of payment under 409A:

(a) the amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following the Participant’s separation from service under the terms of this Plan will be accumulated through and paid or provided on the first day of the seventh month following the Participant’s separation from service (or, if the Participant dies during such period, within thirty (30) days after the Participant’s death) (in either case, the “ Required Delay Period ”); and

(b) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.

For purposes of this Plan, the term “ Specified Employee ” has the meaning given such term in Code Section 409A and the final regulations thereunder.

7.4 Timing of Release . Whenever in this Plan a payment or benefit is conditioned on the Participant’s execution of a release of claims and covenant not to sue, the Company shall provide such release to the Participant promptly following the Date of Termination, and such release and covenant not to sue must be executed and all revocation periods shall have expired in accordance with terms set forth in the release, but in no case later than sixty (60) days after the Date of Termination; failing which such payment or benefit shall be forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection 7.3 above, such payment or benefit (including any installment payments) that would have otherwise been payable during such 60-day period shall be accumulated and paid on the 60th day after the Date of Termination provided such release shall have been executed and such revocation periods shall have expired. If such payment or benefit is exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.

8. Termination Procedures . Any purported termination of a Participant’s employment shall be documented in a writing appropriate to the nature of the termination from the party terminating the employment relationship to the other party:

(a) In the case of termination by the Company with Cause, the Company shall provide Participant with a written notice identifying (i) in reasonable detail the facts and circumstances giving rise to the determination that Cause exists, and (ii) the effective date of the termination of employment;

(b) In the case of a termination by the Participant for Good Reason, the Participant shall provide the Company with a written notice (the “ Notice of Good Reason ”) stating (i) in reasonable detail the facts and circumstances giving rise to the determination that Good Reason exists, and (ii) the effective date of the termination of employment absent cure, in compliance with the time periods set forth under the definition of “Good Reason”;

(c) In the case of all other terminations of employment, a document establishing the effective date of the termination of employment, in each case, subject to any other contractual obligations that may exist between the Company and the Participant. Under circumstances where the Participant will be eligible for payment and benefits under the terms of the Plan (i.e., a termination by the Company without Cause), the document will confirm Participant’s eligibility for these payments and benefits and summarize Participant’s entitlements post-termination.

9. No Mitigation . No Participant shall be required to seek other employment or to attempt in any way to reduce or mitigate any benefits payable under this Plan and the amount of any such benefits shall not be reduced by any other compensation paid or provided to any Participant following such Participant’s termination of service.

10. Successors .

10.1 Company Successors . This Plan shall inure to the benefit of and shall be binding upon the Company and its successors and assigns. Any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume and agree to perform the obligations of the Company under this Plan.

10.2 Participant Successors . This Plan shall inure to the benefit of and be enforceable by each Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, legatees or other beneficiaries. If a Participant shall die while any amount remains payable to such Participant hereunder, all such amounts shall be paid in accordance with the terms of this Plan to the executors, personal representatives or administrators of such Participant’s estate.

11. Notices . All communications relating to matters arising under this Plan shall be in writing and shall be deemed to have been duly given when hand delivered, faxed, emailed or mailed by reputable overnight carrier or United States certified mail, return receipt requested, addressed, if to a Participant, to the address on file with the Company and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

Hilton Domestic Operating Company Inc.

7930 Jones Branch Dr.

McLean, Virginia 22102

Attention: Chief Human Resources Officer

with a copy to:

Hilton Domestic Operating Company Inc.

7930 Jones Branch Dr.

McLean, Virginia 22102

Attention: General Counsel

12. Claims Procedure.

12.1 A Participant may file with the Chief Human Resources Officer or the General Counsel of Hilton Worldwide Holdings Inc., in accordance with Section 11 above, a written claim for benefits under the Plan. The Chief Human Resources Officer and General Counsel shall jointly review all such claims for benefits received and determine whether to accept or deny the claim. Within a reasonable time not to exceed forty-five (45) days after receipt of the claim, unless special circumstances require an extension of time of not more than an additional forty-five (45) days (in which event a Participant will be notified of the delay during the first forty-five (45) day period), the Chief Human Resources Officer and General Counsel shall provide notice in writing to any Participant whose claim for benefits shall have been denied, delivered in accordance with Section 11 above, setting forth the following in a manner calculated to be understood by the Participant: (a) the specific reason or reasons for the denial; (b) specific reference to the provision or provisions of the Plan on which the denial is based; (c) a description of any additional material or information required to perfect the claim, an explanation of why such material or information is necessary; and (d) information as to the steps to be taken in order that the denial of the claim may be reviewed.

12.2 If written notice of the denial of a claim has not been provided to a Participant, and such claim has not been granted within the time prescribed in Section 12.1 above (including any applicable extension), the claim for benefits shall be deemed denied.

12.3 A Participant whose claim for benefits shall have been denied in whole or in part pursuant to Section 12.1 above may, within sixty (60) days after either the receipt of the denial of the claim or from the time the claim is deemed denied (unless the notice of denial grants a longer period within which to respond), appeal such denial to the Company. The Company shall provide a full and fair review of the appeal, and the Participant shall be afforded the opportunity to submit written comments, documents, records, and other information related to the claim. The Participant may also, upon request, at this time review documents pertinent to his claim and may submit written issues and comments.

12.4 The Company shall notify a Participant of its decision within forty-five (45) days after an appeal is received, unless special circumstances require an extension of time of not more than an additional forty-five (45) days (in which event a Participant will be notified of the delay during the first forty-five (45) day period). Such decision shall be given in writing in accordance with Section 11 above in a manner calculated to be understood by the Participant and shall include the following: (a) specific reasons for the decision; and (b) specific reference to the provision or provisions of the Plan on which the decision is based.

13. Code Section 280G.

13.1 Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of the Participant (whether payable or distributable pursuant to the terms of this Plan or otherwise) (such benefits, payments or

distributions are hereinafter referred to as “ Payments ”) would, if paid, be subject to the excise tax (the “ Excise Tax ”) imposed by Section 4999 of the Code, then prior to the making of any of the Payments to the Participant, a calculation shall be made comparing (i) the net benefit to the Participant of the Payments after payment of the Excise Tax, to (ii) the net benefit to the Participant if the Payments had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payments shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “ Reduced Amount ”). The reduction of the Payments due hereunder, if applicable, shall be made by first reducing cash Payments and then, to the extent necessary, reducing those Payments having the next highest ratio of Parachute Value to actual present value of such Payments as of the date of the change of control, as determined by the Determination Firm (as defined in subsection (b) below). For purposes of this Section 13, present value shall be determined in accordance with Section 280G(d)(4) of the Code. For purposes of this Section 13, the “ Parachute Value ” of a Payment means the present value as of the date of the change of control of the portion of such Payment that constitutes a “parachute payment” under Section 280G(b)(2) of the Code, as determined by the Determination Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment.

13.2 All determinations required to be made under this Section 13, including whether an Excise Tax would otherwise be imposed, whether the Payments shall be reduced, the amount of the Reduced Amount, and the assumptions to be utilized in arriving at such determinations, shall be made by an independent, nationally recognized accounting firm or compensation consulting firm mutually acceptable to the Company and the Participant (the “ Determination Firm ”) which shall provide detailed supporting calculations both to the Company and the Participant within fifteen (15) business days of the receipt of notice from the Participant that a Payment is due to be made, or such earlier time as is requested by the Company. All fees and expenses of the Determination Firm shall be borne solely by the Company. Any determination by the Determination Firm shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Determination Firm hereunder, it is possible that Payments hereunder will have been unnecessarily limited by this Section 13 (“ Underpayment ”), consistent with the calculations required to be made hereunder. The Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code, but no later than March 15 of the year after the year in which the Underpayment is determined to exist, which is when the legally binding right to such Underpayment arises.

13.3 In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this Section 13 shall be of no further force or effect.

14. Miscellaneous .

14.1 No Right to Continued Service . Nothing contained in this Plan shall (i) confer upon any Participant any right to continue as an employee of the Company, (ii) constitute any contract of employment or agreement to continue employment for any particular period, or (iii) interfere in any way with the right of the Company to terminate a service relationship with any Participant, with or without Cause.

14.2 Termination and Amendment of Plan .

(a) The Board and the Committee believe that an executive severance plan is vital to attract and retain the talent necessary for the Company’s long-term success. The Board and the Committee regard the Plan as a key recruitment and retention tool that is critical to securing and maintaining the employment and focus

of the Company’s Executive Officers. It is the Committee’s express intent that the Company will at all times maintain a severance plan for its Executives as a recruitment and retention device, and to provide the Executive with assurances that they will be treated fairly in the context of a termination of their employment without Cause or by the Executive for Good Reason.

(b) The Committee may, in its sole discretion, terminate or amend this Plan by resolution at any time; provided that no Plan termination or amendment approved within six months prior to or following a Change in Control shall adversely affect the rights of an individual who is an Executive Officer as of the date immediately preceding the effective date of any such Plan amendment or termination without such Participant’s written consent. Furthermore, no Plan termination or amendment occurring after a Participant’s Qualifying Termination shall adversely affect the rights or entitlements of that Participant.

(c) The termination of the Plan in accordance with this Section 14.2 shall not affect the rights of the Company or any Participant who was subject to a Qualifying Termination prior to the effective date of such Plan termination, which rights shall continue to be governed by the applicable terms and conditions of the Plan.

(d) Notwithstanding anything in the Plan to the contrary, the Committee may amend the Plan, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan to any present or future law relating to plans of this or similar nature (including, but not limited to, Section 409A of the Code), and to the administrative regulations and rulings promulgated thereunder. By participating in this Plan, a Participant agrees to any amendment made pursuant to this Section 14.2(d) without further consideration or action.

14.3 Withholding . The Company shall have the authority and the right to deduct and withhold an amount sufficient to satisfy federal, state, local and foreign taxes required by law to be withheld with respect to any benefits payable under this Plan.

14.4 Benefits not Assignable . Except as otherwise provided herein or by law, no right or interest of any Participant under the Plan shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution, levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective; and no right or interest of any Participant under the Plan shall be liable for, or subject to, any obligation or liability of such Participant. When a payment is due under this Plan to a Participant who is unable to care for his or her affairs, payment may be made directly to his or her legal guardian or personal representative.

14.5 Applicable Law . This Plan shall be construed and interpreted in accordance with the laws of the Commonwealth of Virginia without reference to the conflict of laws provisions thereof, to the extent not preempted by federal law, which shall otherwise control.

14.6 Validity . The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect.

14.7 Captions . The captions contained in this Plan are for convenience only and shall have no bearing on the meaning, construction or interpretation of the Plan’s provisions.

14.8 Expenses . The expenses of administering the Plan shall be borne by the Company.

14.9 Unfunded Plan . The Plan is intended to be an “unfunded” plan for severance benefits. Nothing contained in the Plan shall give the Participant any rights that are greater than those of a general unsecured creditor of the Company.

14.10 Non-Duplication of Benefits . Notwithstanding anything to the contrary herein, any Participant that is or may become entitled to cash separation payments or benefits under any employment, consulting or severance agreement or other plan, program or arrangement of the Company, shall not be entitled to benefits under this Plan, provided, however that, if the payments and benefits available to a Participant under this Plan exceed those contemplated under the Participant’s employment, consulting or severance agreement or other plan, program or arrangement with the Company, then Participant shall be entitled to receive the payments and benefits under this Plan if the Participant agrees to forego the separation payments and/or benefits Participant might have been entitled to receive under the Participant’s employment, consulting or severance agreement or other plan, program or arrangement with the Company in exchange for the payments and benefits provided under the Plan, subject to all of the terms and conditions of the Plan.

Exhibit 12

HILTON WORLDWIDE HOLDINGS INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(in millions, except ratio amounts)

(unaudited)



	Nine Months Ended
	September 30,
	2018			2017
Earnings:
Income before income taxes	$	812		$	572
Equity in earnings from unconsolidated affiliates	(2		)	(2		)
	810			570
Add:
Fixed charges	359			348
Distributed income of equity method investees	4			1
Subtract:
Interest capitalized	(1		)	(1		)
Earnings available for fixed charges	$	1,172		$	918

Fixed Charges:
Interest expense ⁽¹⁾	$	277		$	260
Interest capitalized	1			1
Estimated interest included in rent expense	81			87
Total Fixed Charges	$	359		$	348

Ratio of Earnings to Fixed Charges	3.3			2.6

____________

⁽¹⁾ Includes the amortization of debt discount and capitalized expenses related to indebtedness.

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Christopher J. Nassetta, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 of Hilton Worldwide Holdings Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



By:	/s/ Christopher J. Nassetta
	Christopher J. Nassetta
	President and Chief Executive Officer
	(Principal Executive Officer)
	October 24, 2018

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Kevin J. Jacobs, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 of Hilton Worldwide Holdings Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



By:	/s/ Kevin J. Jacobs
	Kevin J. Jacobs
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)
	October 24, 2018

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Hilton Worldwide Holdings Inc. (the "Company") for the fiscal quarter ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher J. Nassetta, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



By:	/s/ Christopher J. Nassetta
	Christopher J. Nassetta
	President and Chief Executive Officer
	(Principal Executive Officer)

October 24, 2018

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Hilton Worldwide Holdings Inc. (the "Company") for the fiscal quarter ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin J. Jacobs, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



By:	/s/ Kevin J. Jacobs
	Kevin J. Jacobs
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

October 24, 2018