What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-04 · 150 added, 266 removed, 393 unchanged (51% of the section changed)

3 unchanged sentences

(in millions, except share data)

September 30, December 31,

March 31, December 31,

Current Assets:

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Preferred stock, $ 0.01 par value;

3,000,000,000 authorized shares, none issued or outstanding as of September 30, 2020 and December 31, 2019

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

Common stock, $ 0.01 par value;

10,000,000,000 authorized shares, 330,350,372 issued and 277,430,022 outstanding as of September 30, 2020 and 333,159,770 issued and 278,985,125 outstanding as of December 31, 2019

10,000,000,000 authorized shares, 331,448,235 issued and 278,527,885 outstanding as of March 31, 2021 and 330,511,254 issued and 277,590,904 outstanding as of December 31, 2020

Treasury stock, at cost;

52,920,350 shares as of September 30, 2020 and 54,174,645 shares as of December 31, 2019

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

( 4,453 ) ( 4,453 )

13 unchanged sentences

(in millions, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Franchise and licensing fees $ 242 $ 339

3 unchanged sentences

Other revenues 17 23

385 961 1,216 2,820

Other revenues from managed and franchised properties

548 1,434 2,201 4,263

Total revenues 874 1,920

Owned and leased hotels

144 310 478 942

Depreciation and amortization 51 91

General and administrative 97 60

Reorganization costs — — 38 —

Impairment losses — 112

Other expenses 10 14

330 514 1,158 1,571

Other expenses from managed and franchised properties

592 1,443 2,482 4,284

Total expenses 853 1,852

Gain on sale of assets, net

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

Operating income 21 68

Interest expense ( 103 ) ( 94 )

Gain (loss) on foreign currency transactions

( 12 ) 7 ( 16 ) 4

Other non-operating income (loss), net

3 — ( 20 ) ( 8 )

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

Income tax benefit (expense)

33 ( 131 ) 80 ( 291 )

Gain on foreign currency transactions

Loss on debt extinguishment ( 69 ) —

Other non-operating income, net

Loss before income taxes ( 144 ) ( 17 )

Income tax benefit

Net income (loss) ( 109 ) 18

Net loss (income) attributable to noncontrolling interests

2 ( 2 ) 4 ( 4 )

Net loss attributable to noncontrolling interests

Net income (loss) attributable to Hilton stockholders $ ( 108 ) $ 18

7 unchanged sentences

(in millions)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Net income (loss) $ ( 109 ) $ 18

2 unchanged sentences

( 29 ) ( 24 )

Pension liability adjustment, net of tax of $( 1 ), $ — , $( 2 ) and $( 1 )

Pension liability adjustment, net of tax (1)

Cash flow hedge adjustment, net of tax of $( 2 ) and $ 13

1 ( 8 ) ( 39 ) ( 48 )

Total other comprehensive income (loss) 28 ( 42 ) ( 13 ) ( 66 )

Comprehensive income (loss) ( 53 ) 248 ( 508 ) 644

Comprehensive loss (income) attributable to noncontrolling interests

2 ( 2 ) 4 ( 4 )

Comprehensive income (loss) attributable to Hilton stockholders

Total other comprehensive loss ( 20 ) ( 59 )

Comprehensive loss ( 129 ) ( 41 )

Comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to Hilton stockholders

$ ( 128 ) $ ( 41 )

(1) Amounts were less than $1 million for both periods.

See notes to condensed consolidated financial statements.

2 unchanged sentences

(in millions)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities:

Net income (loss) $ ( 109 ) $ 18

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

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

Amortization of contract acquisition costs 7 8

1 unchanged sentence

Impairment losses — 112

Gain on sale of assets, net — ( 81 )

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

Share-based compensation 37 123

Gain on foreign currency transactions ( 2 ) ( 9 )

Share-based compensation expense (benefit) 39 ( 12 )

Deferred income taxes ( 39 ) ( 37 )

3 unchanged sentences

Working capital changes and other ( 52 ) ( 98 )

Net cash provided by operating activities 846 1,182

Net cash provided by (used in) operating activities ( 171 ) 129

Investing Activities:

Capital expenditures for property and equipment

( 38 ) ( 66 )

Proceeds from asset disposition — 120

Capitalized software costs ( 8 ) ( 17 )

4 unchanged sentences

Repayment of debt ( 2,016 ) ( 205 )

Debt issuance costs ( 14 ) ( 29 )

Debt issuance costs and redemption premium ( 74 ) —

Dividends paid — ( 42 )

1 unchanged sentence

Share-based compensation tax withholdings and other ( 34 ) ( 47 )

Other ( 1 ) —

Net cash provided by (used in) financing activities ( 624 ) 1,100

Effect of exchange rate changes on cash, restricted cash and cash equivalents ( 5 ) ( 7 )

Net increase in cash, restricted cash and cash equivalents 2,838 325

Net increase (decrease) in cash, restricted cash and cash equivalents ( 816 ) 1,175

Cash, restricted cash and cash equivalents, beginning of period 3,263 630

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

As of September 30, 2020, we managed, franchised, owned or leased 6,333 hotels and resorts, including timeshare properties, totaling 998,282 rooms in 118 countries and territories.

As of March 31, 2021, we managed, franchised, owned or leased 6,567 hotels and resorts, including timeshare properties, totaling 1,032,412 rooms in 119 countries and territories.

Basis of Presentation

The accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") and are unaudited.

The accompanying condensed consolidated financial statements for the three months ended March 31, 2021 and 2020 have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") and are unaudited.

We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP.

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Additionally, interim results are not necessarily indicative of full year performance.

In particular, the novel coronavirus ("COVID-19") pandemic had a material adverse impact on our results for the three and nine months ended September 30, 2020, and we expect it to continue to have a material adverse impact on our results for an indeterminate length of time.

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

In particular, the novel coronavirus ("COVID-19") pandemic had a material adverse impact on our results for the three months ended March 31, 2021 and 2020 when compared to periods prior to the onset of the pandemic in early 2020.

As such, this interim period, as well as upcoming periods, are unlikely to be comparable to periods prior to the onset of the pandemic or to other periods affected by the pandemic, and are not indicative of future performance.

In 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.

Reorganization

We recognized $ 38 million of reorganization costs in our condensed consolidated statement of operations during the nine months ended September 30, 2020 related to organizational changes, including reductions in our workforce and the associated costs, as part of our efforts to reduce future costs for our corporate operations in response to the COVID-19 pandemic.

As of September 30, 2020, $ 15 million of such reorganization costs were included in accounts payable, accrued expenses and other in our condensed consolidated balance sheet.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No.

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

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

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

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

As a result of the adoption, we consider forecasted business conditions, in addition to current business conditions and historical collection activity, in calculating our allowance for credit losses on our financial instruments.

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

However, during the nine months ended September 30, 2020, we revised our expected credit loss rates from those used at adoption, primarily for our accounts receivable balances, in light of business conditions in the current environment.

In particular, we considered the expected impact on our hotel owners' and customers'

ability to ultimately settle receivables that are or will be due to us and recorded provisions for credit losses of $ 30 million and $ 45 million during the three and nine months ended September 30, 2020, respectively.

In September 2019, we completed the sale of the Hilton Odawara Resort & Spa ("Hilton Odawara") for a price of 13 billion Japanese yen (equivalent to $ 122 million as of the closing date) and subsequently entered into a 30-year management contract with the purchaser of the hotel.

As a result of the sale, we recognized a pre-tax gain of $ 81 million included in gain on sale of assets, net in our condensed consolidated statements of operations for the three and nine months ended September 30, 2019.

Revenues from Contracts with Customers

Contract Liabilities

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

The following table summarizes the activity of our contract liabilities, which are classified as a component of current and long-term deferred revenues, during the three months ended March 31, 2021:

(in millions)

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Revenue recognized (1)

Balance as of September 30, 2020

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

(2) As a result of the Hilton Honors points pre-sale to American Express, we recorded $ 636 million of deferred revenues;

see below for additional information.

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

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

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

Balance as of March 31, 2021

(1) Revenue recognized during the three months ended March 31, 2021 included $ 46 million related to Hilton Honors, our guest loyalty program.

Revenue recognized during the three months ended March 31, 2020 was $ 54 million, which included $ 40 million related to Hilton Honors.

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

Hilton Honors Points Pre-Sale

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

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

We recognize revenue from licensing fees related to these Hilton Honors points when American Express issues the points to customers and other revenues from managed and franchised properties when customers redeem the Hilton Honors points.

Upon receipt of the cash, we recognized $ 636 million in deferred revenues and the remainder in liability for guest loyalty program;

see below for additional information on the revenue recognition of the related deferred revenues.

Performance Obligations

As of September 30, 2020, we had deferred revenues for unsatisfied performance obligations consisting of:

(i) $ 444 million related to Hilton Honors that will be recognized as revenues when the points are redeemed, which we estimate will occur over approximately the next two to three years ;

(ii) $ 504 million related to the Honors Points Pre-Sale of which a portion will be recognized as revenue when points are awarded, with the remaining portion recognized as revenues when the points are redeemed;

and (iii) $ 658 million related to application, initiation and licensing fees that is expected to be recognized as revenues over the terms of the related contracts.

As of March 31, 2021, we had deferred revenues for unsatisfied performance obligations consisting of:

(i) $ 241 million related to Hilton Honors that will be recognized as revenue when the points are redeemed, which we estimate will occur over approximately the next two years ;

(ii) $ 407 million related to co-branded credit card arrangements, primarily consisting of deferred revenues for the Honors Points Pre-Sale of which a portion will be recognized as revenue when points are awarded, with the remaining portion recognized as revenue when the points are redeemed;

and (iii) $ 596 million related to application, initiation and other fees that is expected to be recognized as revenue over the terms of the related contracts.

Consolidated Variable Interest Entities

As of September 30, 2020 and December 31, 2019, we consolidated two variable interest entities ("VIEs") that lease hotel properties.

As of March 31, 2021 and December 31, 2020, we consolidated two variable interest entities ("VIEs") that each lease a hotel property.

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

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

September 30, December 31,

March 31, December 31,

(in millions)

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Other long-term liabilities 17 17

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

To provide financial flexibility in response to the business disruption caused by the COVID-19 pandemic, each of our consolidated VIEs entered into revolving credit facilities during the nine months ended September 30, 2020.

These revolving credit facilities have borrowing capacities totaling 2.75 billion Japanese yen and 2 billion Japanese yen (equivalent to $ 26 million and $ 19 million, respectively, as of September 30, 2020), and mature in June 2021 and August 2021, respectively.

As of September 30, 2020, no amounts have been drawn under these revolving credit facilities.

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

(1) Includes finance lease liabilities of $ 164 million and $ 184 million as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021 and December 31, 2020, there were no amounts drawn under the VIEs' revolving credit facilities that had borrowing capacities totaling 4.75 billion Japanese yen (equivalent to $ 43 million as of March 31, 2021).

We did not provide any financial or other support to any consolidated VIEs that we were not previously contractually required to provide during the three months ended March 31, 2021 and 2020.

Finite-Lived Intangible Assets

Finite-lived intangible assets were as follows:

September 30, 2020

March 31, 2021

Gross Carrying Value Accumulated Amortization Net Carrying Value

1 unchanged sentence

Management and franchise contracts:

Management and franchise contracts recorded at Merger (1)

Management contracts recorded at Merger (1)

$ 314 $ ( 264 ) $ 50

5 unchanged sentences

Other intangible assets:

Leases (1)(3)

$ 141 $ ( 81 ) $ 60

8 unchanged sentences

Management and franchise contracts:

Management and franchise contracts recorded at Merger (1)

Management contracts recorded at Merger (1)

$ 317 $ ( 261 ) $ 56

5 unchanged sentences

Other intangible assets:

Leases (1)(2)

$ 157 $ ( 95 ) $ 62

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(the "Merger").

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

(3) During the nine months ended September 30, 2020, we recognized impairment losses of $ 46 million, which in total reduced the gross carrying value and accumulated amortization of our leases intangible assets by $ 138 million and $ 92 million , respectively.

"Fair Value Measurements" for additional information.

(2) During the three months ended March 31, 2020, we recognized $ 46 million of impairment losses included in our condensed consolidated statement of operations.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(in millions)

Recognized in depreciation and amortization expense (1)

$ 76 $ 71 $ 227 $ 212

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

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

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

(1) Includes amortization expense of $ 12 million and $ 49 million for the three months ended March 31, 2021 and 2020, respectively, associated with assets that were initially recorded at their fair value at the time of the Merger, some of which became fully amortized during 2020.

We estimate future amortization of our finite-lived intangible assets as of March 31, 2021 to be as follows:

Recognized in Depreciation and Amortization Expense Recognized as a Reduction of Franchise and Licensing Fees and Base and Other Management Fees

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Thereafter 124 393

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

September 30, December 31,

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of March 31, 2021, were as follows:

March 31, December 31,

(in millions)

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

Senior secured revolving credit facility with a rate of 1.11 %, due 2024

$ 1,190 $ 1,690

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Senior notes with a rate of 4.000 %, due 2031

Senior notes with a rate of 3.625 %, due 2032

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

Other debt with a rate of 3.08 %, due 2026

10,053 10,580

unamortized deferred financing costs and discount ( 97 ) ( 93 )

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(1) Represents current maturities of finance lease liabilities.

Our senior secured credit facilities consist of a $ 1.75 billion senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility (the "Term Loans").

Our senior secured credit facilities consist of a $ 1.75 billion senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility (the "Term Loan").

The obligations of our senior secured credit facilities are unconditionally and irrevocably guaranteed by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries.

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

As of September 30, 2020, in addition to our outstanding debt balance of $ 1.69 billion under our Revolving Credit Facility, we also had $ 60 million of letters of credit outstanding under the Revolving Credit Facility.

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

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

The 4.250 % Senior Notes due 2024, the 4.625 % Senior Notes due 2025, the 5.375 % 2025 Senior Notes, the 5.125 % Senior Notes due 2026, the 4.875 % Senior Notes due 2027, the 2028 Senior Notes and the 4.875 % Senior Notes due 2030 are collectively referred to as the Senior Notes and are jointly and severally guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries, other than Hilton Domestic Operating Company Inc.

("HOC"), a wholly owned subsidiary of the Parent, which is the issuer of each of the series of Senior Notes.

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

During the three months ended March 31, 2021, we repaid $ 500 million of the outstanding debt balance on the Revolving Credit Facility.

As of March 31, 2021, in addition to the outstanding debt balance, we had $ 60 million of letters of credit outstanding on our Revolving Credit Facility, resulting in an available borrowing capacity of $ 500 million.

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

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

We used the net proceeds from the issuance, together with available cash, to redeem all $ 1.5 billion in aggregate principal amount of our outstanding 5.125 % Senior Notes due 2026 (the "2026 Senior Notes"), plus accrued and unpaid interest.

In connection with the redemption, we paid a redemption premium of $ 55 million and accelerated the recognition of the unamortized deferred financing costs on the 2026 Senior Notes of $ 14 million, which were both included in loss on debt extinguishment in our condensed consolidated statement of operations for the three months ended March 31, 2021.

The 5.375 % Senior Notes due 2025 (the "2025 Senior Notes"), the 4.875 % Senior Notes due 2027, the 5.750 % Senior Notes due 2028 (the "2028 Senior Notes"), the 3.750 % Senior Notes due 2029, the 4.875 % Senior Notes due 2030, the 4.000 % Senior Notes due 2031 and the 2032 Senior Notes are collectively referred to as the Senior Notes and are jointly and severally guaranteed on a senior unsecured basis by the Parent and substantially all of its direct and indirect wholly owned domestic subsidiaries, other than Hilton Domestic Operating Company Inc.

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

The contractual maturities of our long-term debt as of March 31, 2021 were as follows:

Year (in millions)

5 unchanged sentences

The fair values of certain financial instruments and the hierarchy level we used to estimate the fair values are shown below:

September 30, 2020

March 31, 2021

Hierarchy Level

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Our interest rate swaps are included in other long-term liabilities in our condensed consolidated balance sheets.

Our nonfinancial assets that were measured at fair value on a non-recurring basis during the nine months ended September 30, 2020, and for which we recorded impairment losses, were related to certain hotel properties under operating and finance leases in our ownership segment.

"Finite-Lived Intangible Assets" and Note 9:

"Leases" for additional information on the impairment losses related to our leased properties.

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

(in millions)

Other intangible assets, net (1)

Operating lease right-of-use assets (1)

Property and equipment, net (1)

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

Additionally, certain of these assets were fully impaired at March 31, 2020, June 30, 2020 and September 30, 2020.

We recognized impairment losses during the six months ended June 30, 2020 related to certain hotel properties under operating and finance leases.

During the three months ended September 30, 2020, the short-term expected results for certain leased hotels declined from estimates used in the assessment of recoverability at June 30, 2020, generally due to extensions of government restrictions and additional visibility into expected hotel customer engagement at such properties.

As a result, further analysis of the recoverability of the carrying value of the assets related to leased hotel properties was necessary at September 30, 2020.

We assessed recoverability of the assets included in the table above using estimates of undiscounted net cash flows, and concluded that the carrying values of the assets were not fully recoverable.

We then estimated the fair value of these assets using discounted cash flow analyses, which included an estimate of the impact of the COVID-19 pandemic on each leased property based on the expected recovery term.

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

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

As a result of these non-recurring fair value measurements, we recognized impairment losses of $ 3 million and $ 121 million during the three and nine months ended September 30, 2020, respectively.

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

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

We lease hotel properties, land, corporate office space and equipment used at hotels and corporate offices, with our most significant lease liabilities related to hotel properties.

As of September 30, 2020, we leased 49 hotels under operating leases and six hotels under finance leases, two of which were the liabilities of consolidated VIEs and were non-recourse to us.

As of March 31, 2021, we leased 48 hotels under operating leases and six hotels under finance leases, two of which were the liabilities of consolidated VIEs and were non-recourse to us.

Our hotel leases expire at various dates, with varying renewal and termination options.

During the nine months ended September 30, 2020, we recognized $ 51 million of impairment losses related to certain operating lease ROU assets, and during the three and nine months ended September 30, 2020, we recognized $ 3 million and $ 24 million of impairment losses related to property and equipment, respectively, including $ 2 million and $ 4 million of finance lease ROU assets, respectively.

All of these impairment losses were included in impairment losses in our condensed consolidated statements of operations;

"Fair Value Measurements" for additional information.

During the three months ended March 31, 2020, we recognized impairment losses in our condensed consolidated statement of operations related to certain hotel properties in our ownership segment under operating and finance leases, including $ 45 million of operating lease right-of-use ("ROU") assets and $ 21 million of property and equipment, net, of which $ 2 million related to finance lease ROU assets.

Supplemental cash flow information related to leases was as follows:

Nine Months Ended

September 30,

Three Months Ended

(in millions)

2 unchanged sentences

Finance leases 3 11

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

Our future minimum lease payments as of March 31, 2021 were as follows:

Leases Finance

5 unchanged sentences

Total lease liabilities $ 1,127 $ 227

At the end of each quarter, we estimate the effective income tax rate expected to be applied for the full year to ordinary income, which excludes discrete items.

Discrete items that were recognized during the nine months ended September 30, 2020 included impairment losses and the vesting of certain share-based compensation awards, which provided us with tax benefits.

The effective income tax rate for the full year is determined by the level and composition of income (loss) before income taxes, excluding discrete items as discussed above, which is subject to federal, state, local and foreign income taxes.

The Company's forecast includes losses for the full year in many foreign jurisdictions.

For certain foreign jurisdictions, we expect to have net operating losses ("NOLs"), which we expect to be utilized in future periods.

However, as future utilization of NOLs reduces foreign taxes paid, we expect U.S.

foreign tax credits to be reduced, thereby reducing or eliminating the tax benefit of the NOLs on a global basis.

Because of the reduced global tax benefit of NOLs in these specific jurisdictions, our effective income tax rate estimate is lower than the combined U.S.

statutory rate.

Due to forecasted losses before income taxes for the full year, the Company is forecasting an overall tax benefit.

The Company's income tax provision for interim reporting periods has historically been calculated by applying an estimate of the annual effective income tax rate for the full year to "ordinary" income (loss) for the interim reporting period, which is calculated as pre-tax income (loss) excluding unusual and infrequently occurring discrete items.

For the three months ended March 31, 2021, we calculated the income tax provision using a discrete effective income tax rate method as if the interim year to date period was an annual period.

We determined that since normal changes in estimated "ordinary" income (loss) would result in disproportionate changes in the estimated annual effective income tax rate, the Company's historic method of calculating its income tax provision for interim reporting periods would not provide a reliable estimate for the three months ended March 31, 2021.

We file income tax returns, including returns for our subsidiaries, with federal, state, local and foreign tax jurisdictions.

3 unchanged sentences

and foreign tax authorities.

As of September 30, 2020, we remain subject to federal and state examinations of our income tax returns for tax years from 2005 through 2019 and foreign examinations of our income tax returns for tax years from 1996 through 2019.

Our total unrecognized tax benefits as of September 30, 2020 and December 31, 2019 were $ 432 million and $ 395 million, respectively.

As of September 30, 2020 and December 31, 2019, we had accrued approximately $ 64 million and $ 52 million, respectively, for interest and penalties related to these unrecognized tax benefits.

Included in the balances of unrecognized tax benefits as of September 30, 2020 and December 31, 2019 were $ 393 million and $ 380 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate.

As of March 31, 2021, we remain subject to federal and state examinations of our income tax returns for tax years from 2005 through 2019 and foreign examinations of our income tax returns for tax years from 1996 through 2020.

Our total unrecognized tax benefits as of March 31, 2021 and December 31, 2020 were $ 444 million and $ 451 million, respectively.

As of March 31, 2021 and December 31, 2020, we had accrued approximately $ 67 million and $ 65 million, respectively, for interest and penalties related to these unrecognized tax benefits.

Included in the balances of unrecognized tax benefits as of March 31, 2021 and December 31, 2020 were $ 399 million and $ 400 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective income tax rate.

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

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However, based on continuing appeals process discussions with the IRS, we believe that it is more likely than not that we will not recognize the full benefit related to certain of the issues being appealed.

Accordingly, as of September 30, 2020, we had recorded $ 76 million of unrecognized tax benefits related to these issues.

Accordingly, as of March 31, 2021, we had recorded $ 93 million of unrecognized tax benefits related to these issues.

Share-Based Compensation

As part of the Hilton 2017 Omnibus Incentive Plan (the "2017 Plan"), we award time-vesting restricted stock units and restricted stock (collectively, "RSUs"), nonqualified stock options ("options") and performance-vesting RSUs ("performance shares") to our eligible employees.

We recognized share-based compensation expense of $ 25 million and $ 42 million during the three months ended September 30, 2020 and 2019, respectively, and $ 37 million and $ 123 million during the nine months

ended September 30, 2020 and 2019, respectively, which included amounts reimbursed by hotel owners in all periods.

The expenses recognized during the three and nine months ended September 30, 2020 were net of the reversal of expenses recognized in prior periods, as a result of the determination that the performance conditions of certain share-based compensation awards were no longer probable of achievement, as described in further detail below.

As of September 30, 2020, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 87 million, which are expected to be recognized over a weighted-average period of 1.9 years on a straight-line basis.

As of September 30, 2020, there were 12,980,000 shares of common stock available for future issuance under the 2017 Plan, plus any shares subject to awards outstanding under the 2013 Omnibus Incentive Plan, which will become available for issuance under the 2017 Plan if such outstanding awards expire or are terminated or are canceled or forfeited.

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

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

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

We recognized an expense of $ 39 million and a benefit of $ 12 million related to share-based compensation during the three months ended March 31, 2021 and 2020, respectively, which included amounts reimbursed by hotel owners.

The benefit recognized during the three months ended March 31, 2020 was primarily due to the reversal of expense recognized in prior periods, as a result of the determination that the performance conditions of certain of the then-outstanding performance shares were no longer probable of achievement.

As of March 31, 2021, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 229 million, which are expected to be recognized over a weighted-average period of 1.9 years on a straight-line basis.

As of March 31, 2021, there were 12.1 million shares of common stock available for future issuance under the 2017 Plan, plus any shares subject to awards outstanding under the 2013 Omnibus Incentive Plan, which will become available for issuance under the 2017 Plan, if such outstanding awards expire or are terminated, canceled, forfeited or withheld for taxes.

During the three months ended March 31, 2021, we granted 573,000 RSUs with a weighted average grant date fair value per share of $ 123.02 , which vest in equal annual installments over two or three years from the date of grant.

During the three months ended March 31, 2021, we granted 361,000 options with an exercise price per share of $ 123.13 , which vest in equal annual installments over three years from the date of grant and terminate 10 years from the date of grant or earlier if the individual’s service terminates under certain circumstances.

The grant date fair value per share of the options granted during the three months ended March 31, 2021 was $ 41.15 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

Expected volatility (1)

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Expected term (in years) (4)

(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.

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

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

(2) We have historically paid regular quarterly cash dividends.

However, in March 2020, we suspended the declaration and payment of dividends as part of certain proactive measures we took to secure our liquidity position in response to the COVID-19 pandemic, and, at the time of the grant, we could not estimate when the payment of dividends would resume.

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

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

As of September 30, 2020, 1,889,000 options were exercisable.

Performance Shares

During the nine months ended September 30, 2020, we granted 347,000 performance shares with a weighted average grant date fair value per share of $ 93.33 .

The performance shares are settled at the end of the three -year performance period with:

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

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

As of September 30, 2020, we determined that the performance conditions for the outstanding 2018, 2019 and 2020 performance shares were not probable of achievement, which resulted in the reversal of prior expense recognized for the outstanding 2020 performance awards during the three months ended September 30, 2020 and the reversal of prior expense recognized for all outstanding performance awards during the nine months ended September 30, 2020.

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

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

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

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

During the three months ended March 31, 2021, we granted 241,000 performance shares with a grant date fair value per share of $ 123.13 .

We recognize compensation expense based on the total number of performance shares that are expected to vest as determined by the related performance measure's achievement factor, which is estimated each reporting period and ranges from zero percent to 200 percent, with 100 percent being the target.

As of March 31, 2021, we determined that the performance measures for all of the outstanding performance shares were probable of achievement, with the estimated applicable achievement factors at approximately target.

Earnings (Loss) Per Share

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(in millions, except per share amounts)

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Weighted average shares outstanding (1)

279 288 279 292

Diluted EPS $ ( 0.39 ) $ 0.06

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

(1) Approximately 3 million and 1 million share-based compensation awards were excluded from the computation of diluted EPS for the three months ended March 31, 2021 and 2020, respectively, because their effect would have been anti-dilutive under the treasury stock method.

Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss

The following tables present the changes in the components of stockholders' equity (deficit):

Three Months Ended September 30, 2020

Equity (Deficit) Attributable to Hilton Stockholders

Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Common Stock Noncontrolling

Shares Amount Total

(in millions)

Balance as of June 30, 2020 277 $ 3 $ ( 4,457 ) $ 10,465 $ ( 6,429 ) $ ( 881 ) $ 8 $ ( 1,291 )

Net loss — — — — ( 79 ) — ( 2 ) ( 81 )

Other comprehensive income

— — — — — 28 — 28

Share-based compensation

— — — 26 — — — 26

Distributions — — — — — — ( 1 ) ( 1 )

Balance as of September 30, 2020 277 $ 3 $ ( 4,457 ) $ 10,491 $ ( 6,508 ) $ ( 853 ) $ 5 $ ( 1,319 )

Three Months Ended September 30, 2019

Equity (Deficit) Attributable to Hilton Stockholders

Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Common Stock Noncontrolling

Shares Amount Total

(in millions)

Balance as of June 30, 2019 288 $ 3 $ ( 3,304 ) $ 10,419 $ ( 6,342 ) $ ( 806 ) $ 7 $ ( 23 )

Net income — — — — 288 — 2 290

Other comprehensive loss — — — — — ( 42 ) — ( 42 )

Dividends — — — — ( 43 ) — — ( 43 )

Repurchases of common stock

( 5 ) — ( 422 ) — — — — ( 422 )

Share-based compensation — — — 41 — — — 41

Balance as of September 30, 2019 283 $ 3 $ ( 3,726 ) $ 10,460 $ ( 6,097 ) $ ( 848 ) $ 9 $ ( 199 )

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Equity (Deficit) Attributable to Hilton Stockholders

9 unchanged sentences

— — — — — ( 20 ) — ( 20 )

Dividends — — — — ( 42 ) — — ( 42 )

Repurchases of common stock

( 3 ) — ( 279 ) — — — — ( 279 )

Share-based compensation

1 — — ( 5 ) — — — ( 5 )

Distributions — — — — — — ( 1 ) ( 1 )

Cumulative effect of the adoption of ASU 2016-13

— — — — ( 10 ) — — ( 10 )

Balance as of September 30, 2020 277 $ 3 $ ( 4,457 ) $ 10,491 $ ( 6,508 ) $ ( 853 ) $ 5 $ ( 1,319 )

Nine Months Ended September 30, 2019

Balance as of March 31, 2021 279 $ 3 $ ( 4,453 ) $ 10,547 $ ( 6,840 ) $ ( 880 ) $ 3 $ ( 1,620 )

Three Months Ended March 31, 2020

Equity (Deficit) Attributable to Hilton Stockholders

10 unchanged sentences

Dividends (1)

— — — — ( 42 ) — — ( 42 )

Repurchases of common stock (1)

4 unchanged sentences

— — — — ( 10 ) — — ( 10 )

Deconsolidation of a VIE — — — — — — ( 2 ) ( 2 )

Balance as of September 30, 2019 283 $ 3 $ ( 3,726 ) $ 10,460 $ ( 6,097 ) $ ( 848 ) $ 9 $ ( 199 )

In March 2020, we suspended share repurchases and the payment of dividends.

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

Balance as of March 31, 2020 277 $ 3 $ ( 4,462 ) $ 10,443 $ ( 5,999 ) $ ( 899 ) $ 10 $ ( 904 )

(1) In March 2020, we suspended share repurchases and the declaration of dividends.

(2) Relates to Accounting Standards Update No.

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

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

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

9 unchanged sentences

( 29 ) 2 7 ( 20 )

Balance as of September 30, 2020 $ ( 528 ) $ ( 264 ) $ ( 61 ) $ ( 853 )

Balance as of March 31, 2021 $ ( 540 ) $ ( 287 ) $ ( 53 ) $ ( 880 )

Currency Translation Adjustment (1)

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Amounts reclassified from accumulated other comprehensive loss

1 6 ( 8 ) ( 1 )

Net current period other comprehensive income (loss)

( 24 ) 1 ( 36 ) ( 59 )

Balance as of September 30, 2019 $ ( 568 ) $ ( 255 ) $ ( 25 ) $ ( 848 )

Balance as of March 31, 2020 $ ( 573 ) $ ( 268 ) $ ( 58 ) $ ( 899 )

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

Amounts reclassified related to the liquidation of investments in foreign entities and were recognized net of taxes in gain (loss) on foreign currency transactions in our condensed consolidated statements of operations.

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

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

The amount reclassified during the three months ended March 31, 2020 related to the liquidation of an investment in a foreign entity and was recognized in gain on foreign currency transactions in our condensed consolidated statement of operations.

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

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

Business Segments

2 unchanged sentences

These segments are managed and reported separately because of their distinct economic characteristics.

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

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

This segment also earns licensing fees from Hilton Grand Vacations Inc.

("HGV") and strategic partnerships for the right to use certain Hilton marks and IP, as well as fees for managing properties in our ownership segment.

As of September 30, 2020, this segment included 700 managed hotels and 5,516 franchised hotels consisting of 969,546 total rooms.

As a result of the COVID-19 pandemic, approximately 1,235 hotels in our management and franchise segment had temporarily suspended operations at some point in time during the nine months ended September 30, 2020, largely beginning in mid-March.

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

As of September 30, 2020, our ownership segment included 62 properties totaling 19,780 rooms.

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

The segment comprised 54 hotels that we wholly owned or leased, one hotel owned by a consolidated non-wholly owned entity, two hotels leased by consolidated VIEs and five hotels owned or leased by unconsolidated affiliates.

("HGV") and strategic partnerships, including co-branded credit card arrangements, for the right to use certain Hilton marks and IP, as well as fees for managing properties in our ownership segment.

As of March 31, 2021, this segment included 717 managed hotels and 5,733 franchised hotels consisting of 1,003,961 total rooms.

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

As of March 31, 2021, all but approximately 200 of these hotels were open.

As of March 31, 2021, our ownership segment included 61 properties totaling 19,400 rooms.

The segment comprised 53 hotels that we wholly owned or leased, one hotel owned by a consolidated non-wholly owned entity, two hotels that were each leased by a consolidated VIE and five hotels owned or leased by unconsolidated affiliates.

As a result of the COVID-19 pandemic, the operations of approximately 15 hotels in our ownership segment were suspended for some period of time during the three months ended March 31, 2021 and approximately five remained suspended as of March 31, 2021.

Although the operations of certain hotels in our ownership segment were suspended for some period of time during the three months ended March 31, 2020, the suspensions began in late March 2020.

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(in millions)

1 unchanged sentence

Base and other management fees (1)

30 95 108 293

Incentive management fees 13 23

5 unchanged sentences

Direct reimbursements from managed and franchised properties (2)

244 770 1,185 2,334

Indirect reimbursements from managed and franchised properties (2)

304 664 1,016 1,929

Intersegment fees elimination (1)

( 2 ) ( 12 ) ( 2 ) ( 31 )

Total revenues $ 874 $ 1,920

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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

Three Months Ended

(in millions)

Management and franchise (1)

$ 281 $ 596 $ 853 $ 1,737

Ownership (1)

5 unchanged sentences

( 64 ) ( 71 )

Depreciation and amortization ( 90 ) ( 86 ) ( 269 ) ( 256 )

Depreciation and amortization expenses ( 51 ) ( 91 )

General and administrative expenses ( 97 ) ( 60 )

Reorganization costs — — ( 38 ) —

Impairment losses — ( 112 )

Gain on sale of assets, net — 81 — 81

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

Operating income 21 68

Interest expense ( 103 ) ( 94 )

Gain (loss) on foreign currency transactions ( 12 ) 7 ( 16 ) 4

Other non-operating income (loss), net 3 — ( 20 ) ( 8 )

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

Gain on foreign currency transactions 2 9

Loss on debt extinguishment ( 69 ) —

Other non-operating income, net 5 —

Loss before income taxes $ ( 144 ) $ ( 17 )

(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,

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

March 31, December 31,

(in millions)

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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.

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

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

As of September 30, 2020, we had four performance guarantees, with expirations ranging from 2023 to 2039 , and possible cash outlays totaling approximately $ 18 million.

As of March 31, 2021, we had five performance guarantees, with expirations ranging from 2023 to 2039 , and possible cash outlays totaling approximately $ 20 million.

Our obligations under these guarantees in future periods are dependent on the operating performance level of the related hotel over the remaining term of the performance guarantee.

We have included the impact of the COVID-19 pandemic on these hotels in our expectations of their future operating performance and, as of September 30, 2020 and December 31, 2019, we accrued current liabilities of $ 7 million and $ 3 million, respectively, for our performance guarantees.

We have included the impact of the COVID-19 pandemic on these hotels in our expectations of their future operating performance and, as of March 31, 2021 and December 31, 2020, we accrued current liabilities of $ 5 million and $ 7 million, respectively, for our performance guarantees.

We may enter into new contracts containing performance guarantees in the future, which could increase our possible cash outlays.

We hold interests in VIEs, for which we are not the primary beneficiary, that have entered into loan agreements with third parties.

Under the terms of our contractual arrangements with certain of these VIEs, we may provide financial support to such entities under specified circumstances, including default of such a VIE under a third-party loan agreement, and may have the option to acquire a controlling financial interest in such an entity at a predetermined amount.

In a circumstance that we provide financial support or exercise our option to acquire an additional interest in a VIE, we may be required to reassess whether we are the primary beneficiary of the VIE.

If we determine that we are the primary beneficiary of the VIE, we would be required to consolidate the total assets, liabilities and results of operations of the VIE, which may be material upon consolidation.

As of September 30, 2020, we guaranteed one loan for two hotels that we will franchise for $ 10 million.

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

As of September 30, 2020, we had remaining possible cash outlays related to this agreement of approximately $ 10 million;

As of March 31, 2021, we guaranteed a $ 10 million loan, which matures in 2023, for two hotels that we will franchise.

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

As of March 31, 2021, we had remaining possible cash outlays related to this agreement of approximately $ 10 million;

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

We receive fees from managed and franchised properties to operate our marketing, sales and brand programs on behalf of hotel owners.

As of September 30, 2020 and December 31, 2019, we had collected an aggregate of $ 113 million and $ 350 million in excess of amounts expended, respectively, across all programs.

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

As a result of the adverse impact of the COVID-19 pandemic on our hotels' sales and, ultimately, the program fees we earn, our costs to operate these programs have outpaced the

fees received, which, as of March 31, 2021, resulted in $ 52 million of amounts expended on behalf of these programs exceeding the amounts collected.

As of December 31, 2020, we had collected an aggregate of $ 5 million in excess of amounts expended, 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, 2020 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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 March 31, 2021 will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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

What changed 10-Q

Item 1. Financial Statements