What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-07-29 compared with 2021-05-05 · 186 added, 170 removed, 373 unchanged (49% of the section changed)

3 unchanged sentences

(in millions, except share data)

March 31, December 31,

June 30, December 31,

Current Assets:

33 unchanged sentences

Preferred stock, $ 0.01 par value;

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

3,000,000,000 authorized shares, none issued or outstanding as of June 30, 2021 and December 31, 2020

Common stock, $ 0.01 par value;

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

10,000,000,000 authorized shares, 331,605,741 issued and 278,685,391 outstanding as of June 30, 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 March 31, 2021 and December 31, 2020

52,920,350 shares as of June 30, 2021 and December 31, 2020

( 4,447 ) ( 4,453 )

13 unchanged sentences

(in millions, except per share data)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Franchise and licensing fees $ 369 $ 132 $ 611 $ 471

3 unchanged sentences

Other revenues 21 10 38 33

574 176 927 831

Other revenues from managed and franchised properties

755 388 1,276 1,653

Total revenues 1,329 564 2,203 2,484

Owned and leased hotels

142 95 252 334

Depreciation and amortization 46 88 97 179

General and administrative 98 63 195 123

Reorganization costs — 38 — 38

Impairment losses — 15 — 127

Other expenses 9 13 19 27

295 312 563 828

Other expenses from managed and franchised properties

810 554 1,395 1,890

Total expenses 1,105 866 1,958 2,718

Operating income 21 68

Operating income (loss) 224 ( 302 ) 245 ( 234 )

Interest expense ( 101 ) ( 106 ) ( 204 ) ( 200 )

Gain on foreign currency transactions

Gain (loss) on foreign currency transactions

( 1 ) ( 13 ) 1 ( 4 )

Loss on debt extinguishment — — ( 69 ) —

Other non-operating income, net

Loss before income taxes ( 144 ) ( 17 )

Other non-operating income (loss), net

5 ( 23 ) 10 ( 23 )

Income (loss) before income taxes 127 ( 444 ) ( 17 ) ( 461 )

Income tax benefit

10 unchanged sentences

(in millions)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Net income (loss) $ 128 $ ( 432 ) $ 19 $ ( 414 )

2 unchanged sentences

8 20 ( 21 ) ( 4 )

Pension liability adjustment, net of tax (1)

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

Cash flow hedge adjustment, net of tax of $( 2 ), $ 1 , $( 4 ) and $ 14

Total other comprehensive loss ( 20 ) ( 59 )

Comprehensive loss ( 129 ) ( 41 )

4 ( 4 ) 11 ( 40 )

Total other comprehensive income (loss) 14 18 ( 6 ) ( 41 )

Comprehensive income (loss) 142 ( 414 ) 13 ( 455 )

Comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to Hilton stockholders

Comprehensive income (loss) attributable to Hilton stockholders

$ 144 $ ( 412 ) $ 16 $ ( 453 )

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

See notes to condensed consolidated financial statements.

2 unchanged sentences

(in millions)

Three Months Ended

Six Months Ended

Operating Activities:

4 unchanged sentences

Impairment losses — 127

Gain on foreign currency transactions ( 2 ) ( 9 )

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

Loss (gain) on foreign currency transactions ( 1 ) 4

Share-based compensation expense 92 12

Deferred income taxes ( 35 ) ( 118 )

22 unchanged sentences

Supplemental Disclosures:

Cash paid during the year:

Cash paid during the period:

Interest $ 174 $ 200

6 unchanged sentences

(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 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.

As of June 30, 2021, we managed, franchised, owned or leased 6,676 hotels and resorts, including timeshare properties, totaling 1,050,331 rooms in 119 countries and territories.

Basis of Presentation

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.

The accompanying condensed consolidated financial statements for the three and six months ended June 30, 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 disclosures normally included in annual financial statements presented in accordance with GAAP but that are not required for interim reporting purposes.

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, 2020.

1 unchanged sentence

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 months ended March 31, 2021 and 2020 when compared to periods prior to the onset of the pandemic in early 2020.

In particular, the novel coronavirus ("COVID-19") pandemic had a material adverse impact on our results for the three and six months ended June 30, 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.

3 unchanged sentences

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 three months ended March 31, 2021:

The following table summarizes the activity of our contract liabilities, which are classified as components of current and long-term deferred revenues, during the six months ended June 30, 2021:

(in millions)

2 unchanged sentences

Revenue recognized (1)

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.

Balance as of June 30, 2021

(1) Includes $ 88 million related to Hilton Honors, our guest loyalty program.

Revenue recognized during the three months ended June 30, 2021 and 2020, was $ 54 million and $ 56 million, respectively, and, during the six months ended June 30, 2020, was $ 110 million.

(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.

1 unchanged sentence

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.

time to time.

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

1 unchanged sentence

Performance Obligations

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

As of June 30, 2021, we had deferred revenues for unsatisfied performance obligations consisting of:

(i) $ 210 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;

(ii) $ 323 million related to co-branded credit card arrangements, primarily from 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) $ 607 million related to application, initiation and other fees that is expected to be recognized as revenue over the terms of the related contracts.

Incentive Management Fees

We update our estimates of the expected achievement of incentive management fee targets, generally measured over one- calendar year, each reporting period and constrain the recognition of revenue to the extent that we do not expect to achieve the thresholds as specified in our management contracts with incentive fees.

During the three months ended June 30, 2020, we reversed certain incentive fees that were recognized during the three months ended March 31, 2020, due to revisions of the estimates that were used during that reporting period.

Consolidated Variable Interest Entities

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

As of June 30, 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.

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:

March 31, December 31,

Additionally, we have the obligation to absorb 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 and the liabilities of the consolidated VIEs are non-recourse to us.

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

June 30, December 31,

(in millions)

6 unchanged sentences

Other long-term liabilities 17 17

(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.

(1) Includes finance lease liabilities of $ 163 million and $ 184 million as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021, the VIEs had revolving credit facilities with borrowing capacities totaling 4.5 billion Japanese yen (equivalent to $ 41 million as of such date), and there were no amounts drawn under these facilities as of June 30, 2021 or December 31, 2020.

Finite-Lived Intangible Assets

Finite-lived intangible assets were as follows:

March 31, 2021

Our finite-lived intangible assets consist of management and franchise contracts and other intangible assets.

Management and franchise contracts, net were as follows:

June 30, 2021

Gross Carrying Value Accumulated Amortization Net Carrying Value

(in millions)

Management and franchise contracts:

Management contracts recorded at Merger (1)

5 unchanged sentences

$ 1,176 $ ( 452 ) $ 724

Other intangible assets:

$ 141 $ ( 81 ) $ 60

Capitalized software costs

529 ( 403 ) 126

Hilton Honors (1)

341 ( 286 ) 55

$ 1,011 $ ( 770 ) $ 241

December 31, 2020

1 unchanged sentence

(in millions)

Management and franchise contracts:

Management contracts recorded at Merger (1)

5 unchanged sentences

$ 1,081 $ ( 428 ) $ 653

Other intangible assets:

Leases (1)(2)

$ 157 $ ( 95 ) $ 62

Capitalized software costs

522 ( 378 ) 144

Hilton Honors (1)

342 ( 282 ) 60

$ 1,021 $ ( 755 ) $ 266

(1) Represents intangible assets that were initially recorded at their fair value as part of the October 2007 transaction whereby we became a wholly owned subsidiary of affiliates of The Blackstone Group Inc.

(the "Merger").

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

(2) During the three and six months ended June 30, 2020, we recognized $ 9 million of impairment losses included in our condensed consolidated statements of operations.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in millions)

Recognized in depreciation and amortization expense (1)

$ 33 $ 74 $ 71 $ 151

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

(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

Year (in millions)

2021 (remaining) $ 94 $ 23

Thereafter 124 393

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,

(1) Includes amortization expense of $ 12 million and $ 47 million for the three months ended June 30, 2021 and 2020, respectively, and $ 24 million and $ 96 million for the six months ended June 30, 2021 and 2020, respectively, associated with assets that were initially recorded at their fair value at the time of the Merger, some of which fully amortized during 2020.

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of June 30, 2021, were as follows:

June 30, December 31,

(in millions)

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

$ 1,190 $ 1,690

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

Senior secured term loan facility with a rate of 1.84 %, due 2026

8 unchanged sentences

Finance lease liabilities with a weighted average rate of 5.87 %, due 2021 to 2030

Other debt with a rate of 3.08 %, due 2026

10,053 10,580

Other debt of consolidated VIEs with a rate of 3.08 %, due 2026

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

4 unchanged sentences

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.

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.

During the six months ended June 30, 2021, we fully repaid the $ 1,690 million outstanding debt balance on the Revolving Credit Facility, including $ 1,190 million during the three months ended June 30, 2021.

As of June 30, 2021, we had $ 60 million of letters of credit outstanding on the Revolving Credit Facility, resulting in an available borrowing capacity of $ 1,690 million.

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.

1 unchanged sentence

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.

In connection with the redemption, we paid a redemption premium of $ 55 million and accelerated the recognition of the unamortized deferred financing costs related to the 2026 Senior Notes of $ 14 million, which were both included in loss on debt extinguishment in our condensed consolidated statement of operations for the six months ended June 30, 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 restricted 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)

2021 (remaining) $ 40

Thereafter 8,227

Fair Value Measurements

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

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

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

March 31, 2021

June 30, 2021

Hierarchy Level

2 unchanged sentences

Cash equivalents $ 243 $ — $ 243 $ —

Restricted cash equivalents 9 — 9 —

Long-term debt (1)

6 unchanged sentences

Cash equivalents $ 2,270 $ — $ 2,270 $ —

Restricted cash equivalents 9 — 9 —

Long-term debt (1)

2 unchanged sentences

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

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

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

We measure our interest rate swaps at fair value, which was determined using a discounted cash flow analysis that reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs of similar instruments, including interest rate curves, as applicable.

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

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 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 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:

Three Months Ended

(in millions)

ROU assets obtained in exchange for lease liabilities in non-cash transactions:

Operating leases $ 28 $ 6

Finance leases 3 11

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

Leases Finance

Year (in millions)

2021 (remaining) $ 158 $ 49

Thereafter 746 104

Total minimum lease payments 1,448 285

imputed interest ( 321 ) ( 58 )

Total lease liabilities $ 1,127 $ 227

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of June 30, 2021 and December 31, 2020.

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.

For the six months ended June 30, 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 historical method of calculating its income tax provision for interim reporting periods would not provide a reliable estimate for the six months ended June 30, 2021.

In June 2021, the United Kingdom's ("U.K.") Finance Act 2021 (the "U.K.

Finance Act") was enacted, which included, among other items, an increase to the U.K.

corporate income tax rate from 19 percent to 25 percent.

We remeasured our U.K.

deferred tax assets and other tax liabilities to the new rate, resulting in a $ 30 million tax benefit recognized for the three and six months ended June 30, 2021.

Due to this remeasurement, our effective income tax rate on consolidated pre-tax loss is higher than the combined U.S.

statutory rate for the six months ended June 30, 2021.

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

1 unchanged sentence

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

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

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

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

and foreign tax authorities.

As of 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.

As of June 30, 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 June 30, 2021 and December 31, 2020 were $ 442 million and $ 451 million, respectively.

As of June 30, 2021 and December 31, 2020, we had accrued approximately $ 70 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 June 30, 2021 and December 31, 2020 were $ 402 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.

4 unchanged sentences

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

Accordingly, as of June 30, 2021, we had recorded $ 88 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 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:

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

We recognized share-based compensation expense of $ 53 million and $ 24 million during the three months ended June 30, 2021 and 2020, respectively, and $ 92 million and $ 12 million during the six months ended June 30, 2021 and 2020, respectively, which included amounts reimbursed by hotel owners.

The expenses recognized during the three and six months ended June 30, 2020 were net of the reversal of expenses recognized in prior periods as a result of the determination that the performance conditions of the performance shares that were originally awarded in 2018 and 2019 were no longer probable of achievement.

As of June 30, 2021, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 185 million, which are expected to be recognized over a weighted-average period of 1.7 years on a straight-line basis.

During the six months ended June 30, 2021, we granted 573,000 RSUs with a weighted average grant date fair value per share of $ 123.03 , which vest in equal annual installments over two or three years from the date of grant.

During the six months ended June 30, 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 six months ended June 30, 2021 was $ 41.15 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

Expected volatility (1)

10 unchanged sentences

Performance Shares

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.

In December 2020, we modified our performance shares that were originally awarded in 2018, 2019 and 2020 in response to the COVID-19 pandemic and its negative impact on the hospitality industry and, ultimately, the Company's performance.

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

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

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.

During the six months ended June 30, 2021, we granted 241,000 performance shares (the "2021 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 performance measures' achievement factors, which are estimated each reporting period and range from zero percent to 200 percent, with 100 percent being the target.

As of June 30, 2021, we determined that the performance measures for all of the outstanding performance shares were probable of achievement, with the applicable achievement factors estimated to be between the target and maximum percentages for the 2019 performance shares and at target for the 2020 performance shares and the 2021 performance shares.

Earnings (Loss) Per Share

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in millions, except per share amounts)

6 unchanged sentences

Weighted average shares outstanding (1)

281 277 281 277

Diluted EPS (1)

(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.

$ 0.46 $ ( 1.55 ) $ 0.08 $ ( 1.49 )

(1) Certain shares related to share-based compensation were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive under the treasury stock method, including less than 1 million shares for the three and six months ended June 30, 2021, and, as revised, 4 million and 3 million shares for the three and six months ended June 30, 2020, respectively.

The dilutive shares related to share-based compensation included in the previously reported weighted average shares outstanding of 278 million and 279 million for the three and six months ended June 30, 2020, respectively, were revised in the current period presentation, as the previously reported dilutive shares were determined to be anti-dilutive as a result of the net loss attributable to Hilton stockholders reported during those periods.

The result of the revision is an immaterial decrease in the previously reported diluted EPS for the six months ended June 30, 2020 of $ 0.01 , with no change to the diluted EPS previously reported for the three months ended June 30, 2020.

Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss

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

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

Balance as of December 31, 2020 278 $ 3 $ ( 4,453 ) $ 10,552 $ ( 6,732 ) $ ( 860 ) $ 4 $ ( 1,486 )

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

Net income (loss) — — — — 130 — ( 2 ) 128

Other comprehensive income

— — — — — 14 — 14

Share-based compensation

— — 6 56 — — — 62

Balance as of June 30, 2021 279 $ 3 $ ( 4,447 ) $ 10,603 $ ( 6,710 ) $ ( 866 ) $ 1 $ ( 1,416 )

Three Months Ended June 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 March 31, 2020 277 $ 3 $ ( 4,462 ) $ 10,443 $ ( 5,999 ) $ ( 899 ) $ 10 $ ( 904 )

Net loss — — — — ( 430 ) — ( 2 ) ( 432 )

Other comprehensive income

— — — — — 18 — 18

Share-based compensation

— — 5 22 — — — 27

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

Six Months Ended June 30, 2021

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 December 31, 2020 278 $ 3 $ ( 4,453 ) $ 10,552 $ ( 6,732 ) $ ( 860 ) $ 4 $ ( 1,486 )

Net income (loss) — — — — 22 — ( 3 ) 19

Other comprehensive loss

2 unchanged sentences

1 — 6 51 — — — 57

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

Three Months Ended March 31, 2020

Balance as of June 30, 2021 279 $ 3 $ ( 4,447 ) $ 10,603 $ ( 6,710 ) $ ( 866 ) $ 1 $ ( 1,416 )

Six Months Ended June 30, 2020

Equity (Deficit) Attributable to Hilton Stockholders

6 unchanged sentences

Balance as of December 31, 2019 279 $ 3 $ ( 4,169 ) $ 10,489 $ ( 5,965 ) $ ( 840 ) $ 10 $ ( 472 )

Net income — — — — 18 — — 18

Net loss — — — — ( 412 ) — ( 2 ) ( 414 )

Other comprehensive loss

8 unchanged sentences

— — — — ( 10 ) — — ( 10 )

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

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

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

13 unchanged sentences

( 21 ) 4 11 ( 6 )

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

Balance as of June 30, 2021 $ ( 532 ) $ ( 285 ) $ ( 49 ) $ ( 866 )

Currency Translation Adjustment (1)

8 unchanged sentences

( 4 ) 3 ( 40 ) ( 41 )

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

Balance as of June 30, 2020 $ ( 553 ) $ ( 266 ) $ ( 62 ) $ ( 881 )

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

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.

The amount reclassified during the six months ended June 30, 2020 related to the liquidation of an investment in a foreign entity and was recognized in loss 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 (loss), 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.

6 unchanged sentences

("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.

As of June 30, 2021, this segment included 723 managed hotels and 5,836 franchised hotels consisting of 1,021,969 total rooms.

As a result of the COVID-19 pandemic, during the six months ended June 30, 2021 and 2020, the operations of certain hotels in our management and franchise segment were suspended for some period of time.

As of June 30, 2021, all but approximately 100 of these hotels were open.

As of June 30, 2021, our ownership segment included 60 properties totaling 19,185 rooms.

The segment comprised 52 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.

As a result of the COVID-19 pandemic, certain hotels in our ownership segment began suspending operations in March 2020;

however, as of June 30, 2021, with the exception of one hotel owned by an unconsolidated affiliate, all of the hotels in our ownership segment were open.

During 2020, we recognized impairment losses in our condensed consolidated statements of operations related to certain hotel properties in our ownership segment under operating and finance leases, which included $ 6 million and $ 51 million of operating lease right-of-use ("ROU") assets during the three and six months ended June 30, 2020, respectively, and, during the six months ended June 30, 2020, $ 21 million of property and equipment, net, of which $ 2 million related to finance lease ROU assets, and $ 46 million of other intangible assets.

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

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in millions)

8 unchanged sentences

Direct reimbursements from managed and franchised properties (2)

329 196 552 941

Indirect reimbursements from managed and franchised properties (2)

426 192 724 712

Intersegment fees elimination (1)

( 2 ) 1 ( 3 ) —

Total revenues $ 1,329 $ 564 $ 2,203 $ 2,484

1 unchanged sentence

(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 loss before income taxes:

Three Months Ended

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

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in millions)

Management and franchise (1)

$ 441 $ 141 $ 729 $ 572

Ownership (1)

7 unchanged sentences

General and administrative expenses ( 98 ) ( 63 ) ( 195 ) ( 123 )

Reorganization costs — ( 38 ) — ( 38 )

Impairment losses — ( 15 ) — ( 127 )

Operating income 21 68

Operating income (loss) 224 ( 302 ) 245 ( 234 )

Interest expense ( 101 ) ( 106 ) ( 204 ) ( 200 )

Gain on foreign currency transactions 2 9

Gain (loss) on foreign currency transactions ( 1 ) ( 13 ) 1 ( 4 )

Loss on debt extinguishment — — ( 69 ) —

Other non-operating income, net 5 —

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

Other non-operating income (loss), net 5 ( 23 ) 10 ( 23 )

Income (loss) before income taxes $ 127 $ ( 444 ) $ ( 17 ) $ ( 461 )

(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 of our reportable segments, reconciled to consolidated amounts:

March 31, December 31,

(in millions)

Management and franchise $ 11,097 $ 11,065

Ownership 1,189 1,242

Corporate and other 3,688 4,448

$ 15,974 $ 16,755

Commitments and Contingencies

2 unchanged sentences

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

As of June 30, 2021, we had five performance guarantees, with expirations ranging from 2023 to 2039, and possible cash outlays totaling approximately $ 18 million.

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

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 have included the impact of the COVID-19 pandemic on these hotels in our expectations of their future operating performance and, as of June 30, 2021 and December 31, 2020, we accrued current liabilities of $ 1 million and $ 7 million, respectively, for our performance guarantees.

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

As of 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.

As of June 30, 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, contingent on certain criteria imposed on the owner.

As of June 30, 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, since we will not be obligated to fund such capital expenditures if certain terms of the agreement are not met.

In June 2021, Hilton provided two letters of credit totaling $ 26 million to the owner of a hotel that we will manage to satisfy debt service reserve requirements for their debt with a third party.

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

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.

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 June 30, 2021, resulted in $ 88 million of amounts expended and recognized on behalf of these programs exceeding the amounts collected.

As of December 31, 2020, we had collected and recognized 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 March 31, 2021 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 June 30, 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