What changed in this filing

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Item 1. Financial Statements

2021-10-27 compared with 2021-07-29 · 124 added, 110 removed, 449 unchanged (34% of the section changed)

3 unchanged sentences

(in millions, except share data)

June 30, December 31,

September 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 June 30, 2021 and December 31, 2020

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

Common stock, $ 0.01 par value;

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

10,000,000,000 authorized shares, 331,639,032 issued and 278,718,682 outstanding as of September 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 June 30, 2021 and December 31, 2020

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

( 4,447 ) ( 4,453 )

13 unchanged sentences

(in millions, except per share data)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

19 unchanged sentences

Total expenses 1,309 922 3,267 3,640

Loss on sale of assets, net ( 8 ) — ( 8 ) —

Operating income (loss) 432 11 677 ( 223 )

6 unchanged sentences

Income (loss) before income taxes 340 ( 114 ) 323 ( 575 )

Income tax benefit

Income tax benefit (expense)

( 100 ) 33 ( 64 ) 80

Net income (loss) 240 ( 81 ) 259 ( 495 )

9 unchanged sentences

(in millions)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

15 unchanged sentences

(in millions)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities:

14 unchanged sentences

Capital expenditures for property and equipment

( 17 ) ( 38 )

Capitalized software costs ( 28 ) ( 38 )

8 unchanged sentences

Share-based compensation tax withholdings and other ( 22 ) ( 36 )

Other — ( 1 )

Net cash provided by (used in) financing activities ( 1,814 ) 2,087

13 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 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.

As of September 30, 2021, we managed, franchised, owned or leased 6,758 hotels and resorts, including timeshare properties, totaling 1,061,686 rooms in 122 countries and territories.

Basis of Presentation

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.

The accompanying condensed consolidated financial statements for the three and nine months ended September 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.

2 unchanged sentences

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 six months ended June 30, 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 nine months ended September 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 components of current and long-term deferred revenues, during the six months ended June 30, 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 nine months ended September 30, 2021:

(in millions)

2 unchanged sentences

Revenue recognized (1)

Balance as of June 30, 2021

Balance as of September 30, 2021

(1) Includes $ 245 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.

Revenue recognized during the three months ended September 30, 2021 was $ 170 million, including $ 34 million for performance obligations that were satisfied in prior periods as a result of a change to the estimated breakage of Hilton Honors points for which point expirations have been temporarily suspended.

During the three and nine months ended September 30, 2020, revenue recognized was $ 54 million and $ 164 million, respectively.

(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 that they may establish or engage in from

time to time.

American Express and their respective designees may use the points in connection with Hilton Honors co-branded credit

cards and for promotions, rewards and incentive programs or certain other activities that they may establish or engage in from time to time.

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

1 unchanged sentence

Performance Obligations

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

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

(i) $ 188 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 ;

1 unchanged sentence

and (iii) $ 622 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 June 30, 2021 and December 31, 2020, we consolidated two variable interest entities ("VIEs") that each lease a hotel property.

As of September 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 losses and the right to receive benefits that could be significant to them.

Additionally, we have the obligation to absorb losses and the right to receive benefits that could be significant to each of the VIEs individually.

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,

September 30, December 31,

(in millions)

6 unchanged sentences

Other long-term liabilities 17 17

(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.

(1) Includes finance lease liabilities of $ 159 million and $ 184 million as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021, the VIEs had revolving credit facilities with borrowing capacities totaling 4.5 billion Japanese yen (equivalent to $ 40 million), with 500 million Japanese yen (equivalent to $ 5 million) drawn under these facilities, resulting in an available borrowing capacity totaling 4.0 billion Japanese yen (equivalent to $ 35 million).

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

"Debt" for additional information.

Finite-Lived Intangible Assets

1 unchanged sentence

Management and franchise contracts, net were as follows:

June 30, 2021

September 30, 2021

Gross Carrying Value Accumulated Amortization Net Carrying Value

17 unchanged sentences

$ 1,081 $ ( 428 ) $ 653

(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.

(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 Blackstone Inc.

(the "Merger").

(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.

(2) During the three and nine months ended September 30, 2020, we recognized $ 6 million and $ 15 million, respectively, of impairment losses related to our contract acquisition costs included in our condensed consolidated statements of operations.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

3 unchanged sentences

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

(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,

(1) Includes amortization expense of $ 11 million and $ 47 million for the three months ended September 30, 2021 and 2020, respectively, and $ 35 million and $ 143 million for the nine months ended September 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 September 30, 2021, were as follows:

September 30, December 31,

(in millions)

10 unchanged sentences

Finance lease liabilities with a weighted average rate of 5.89 %, due 2021 to 2030

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

Other debt of consolidated VIEs with a weighted average rate of 2.69 %, due 2022 and 2026

unamortized deferred financing costs and discount ( 90 ) ( 93 )

2 unchanged sentences

$ 8,713 $ 10,431

(1) Represents current maturities of finance lease liabilities.

(1) Represents current maturities of finance lease liabilities and, as of September 30, 2021, the outstanding borrowings under the revolving credit facility of a consolidated VIE.

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 restricted subsidiaries.

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.

During the nine months ended September 30, 2021, we fully repaid the $ 1,690 million outstanding debt balance on the Revolving Credit Facility.

As of September 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 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.

In August 2021, one of our consolidated VIEs borrowed 500 million Japanese yen (equivalent to $ 5 million as of September 30, 2021) on its revolving credit facility, which has a maturity date of June 2022.

"Consolidated Variable Interest Entities" for additional information.

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.

2 unchanged sentences

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

June 30, 2021

September 30, 2021

Hierarchy Level

17 unchanged sentences

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 June 30, 2021 and December 31, 2020.

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of September 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 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.

For the nine months ended September 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.

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

2 unchanged sentences

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.

deferred tax assets and other tax liabilities to the new rate, resulting in a $ 30 million tax benefit recognized during the nine months ended September 30, 2021.

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

statutory rate for the nine months ended September 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 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.

As of September 30, 2021, we remain subject to federal and state examinations of our income tax returns for tax years from 2005 through 2020 and foreign examinations of our income tax returns for tax years from 1996 through 2020.

Our total unrecognized tax benefits as of September 30, 2021 and December 31, 2020 were $ 438 million and $ 451 million, respectively.

As of September 30, 2021 and December 31, 2020, we had accrued approximately $ 71 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 September 30, 2021 and December 31, 2020 were $ 401 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.

We disagreed with several of the proposed adjustments in the RARs and filed formal appeals protests with the IRS.

The unsettled proposed adjustments sought by the IRS for the tax years with open audits would result in additional U.S.

We disagreed with several of the proposed adjustments in the RARs for those respective years and filed formal appeals protests with the IRS.

The unsettled proposed adjustments sought by the IRS for these open audit periods would result in additional U.S.

federal taxes owed of approximately $ 817 million, excluding interest and penalties and potential state income taxes.

We disagree with the IRS's position on each of their assertions and intend to vigorously contest them.

We disagree with the IRS's position on each of their assertions and are vigorously contesting them.

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

Accordingly, as of June 30, 2021, we had recorded $ 88 million of unrecognized tax benefits related to these issues.

Accordingly, as of September 30, 2021, we had recorded $ 86 million of unrecognized tax benefits related to these issues.

Share-Based Compensation

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:

We recognized share-based compensation expense of $ 52 million and $ 25 million during the three months ended September 30, 2021 and 2020, respectively, and $ 144 million and $ 37 million during the nine months ended September 30, 2021 and 2020, respectively, which included amounts reimbursed by hotel owners.

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 the performance shares that were originally awarded in 2018, 2019 and 2020 were no longer probable of achievement.

Refer to "Performance Shares" below for additional information.

As of September 30, 2021, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 157 million, which are expected to be recognized over a weighted-average period of 1.7 years on a straight-line basis.

During the nine months ended September 30, 2021, we granted 587,000 RSUs with a weighted average grant date fair value per share of $ 123.09 , which vest in equal annual installments over two or three years from the date of grant.

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

Expected volatility (1)

12 unchanged sentences

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 adverse impact of the pandemic.

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 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 .

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

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

During the nine months ended September 30, 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 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.

As of September 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 achievement percentages.

Earnings (Loss) Per Share

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

10 unchanged sentences

$ 0.86 $ ( 0.29 ) $ 0.94 $ ( 1.77 )

(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.

(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 both the three and nine months ended September 30, 2021, and, as revised, 3 million shares for both the three and nine months ended September 30, 2020.

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

The result of the revision is an immaterial decrease in the previously reported diluted EPS for the three and nine months ended September 30, 2020 of $ 0.01 .

Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss

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

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

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

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

Net income (loss) — — — — 241 — ( 1 ) 240

Other comprehensive income

Other comprehensive loss

— — — — — ( 3 ) — ( 3 )

1 unchanged sentence

— — — 51 — — — 51

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

Three Months Ended June 30, 2020

Balance as of September 30, 2021 279 $ 3 $ ( 4,447 ) $ 10,654 $ ( 6,469 ) $ ( 869 ) $ — $ ( 1,128 )

Three Months Ended September 30, 2020

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

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 )

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

3 unchanged sentences

— — — 26 — — — 26

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

Six Months Ended June 30, 2021

Distributions — — — — — — ( 1 ) ( 1 )

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

Nine Months Ended September 30, 2021

Equity (Deficit) Attributable to Hilton Stockholders

11 unchanged sentences

1 — 6 102 — — — 108

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

Six Months Ended June 30, 2020

Balance as of September 30, 2021 279 $ 3 $ ( 4,447 ) $ 10,654 $ ( 6,469 ) $ ( 869 ) $ — $ ( 1,128 )

Nine Months Ended September 30, 2020

Equity (Deficit) Attributable to Hilton Stockholders

15 unchanged sentences

1 — ( 9 ) 2 — — — ( 7 )

Distributions — — — — — — ( 1 ) ( 1 )

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

— — — — ( 10 ) — — ( 10 )

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

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

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

8 unchanged sentences

Balance as of December 31, 2020 $ ( 511 ) $ ( 289 ) $ ( 60 ) $ ( 860 )

Other comprehensive income (loss) before reclassifications

Other comprehensive loss before reclassifications

( 32 ) ( 2 ) ( 4 ) ( 38 )

2 unchanged sentences

( 26 ) 6 11 ( 9 )

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

Balance as of September 30, 2021 $ ( 537 ) $ ( 283 ) $ ( 49 ) $ ( 869 )

Currency Translation Adjustment (1)

3 unchanged sentences

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

Other comprehensive loss before reclassifications

Other comprehensive income (loss) before reclassifications

16 ( 3 ) ( 35 ) ( 22 )

2 unchanged sentences

21 5 ( 39 ) ( 13 )

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 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.

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

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

Amounts reclassified during the nine months ended September 30, 2021 and 2020 relate to the liquidation of investments in foreign entities and were recognized in loss on sale of assets, net and loss on foreign currency transactions, respectively, in our condensed consolidated statements 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.

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

(a) interest rate swaps, inclusive of interest rate swaps that were dedesignated and subsequently settled, with related amounts recognized in interest expense in our condensed consolidated statements of operations and (b) forward contracts that hedge our foreign currency denominated fees, with related amounts recognized in franchise and licensing fees, base and other management fees and other revenues from managed and franchised properties in our condensed consolidated statements of operations.

Business Segments

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("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 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, 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.

As of September 30, 2021, this segment included 735 managed hotels and 5,905 franchised hotels consisting of 1,033,282 total rooms.

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

As of September 30, 2021, all but 87 of these hotels were open.

As of September 30, 2021, our ownership segment included 59 properties totaling 19,056 rooms.

The segment comprised 51 hotels that we leased, one hotel owned by a consolidated non-wholly owned entity, two hotels that were each leased by a consolidated VIE and five hotels owned or leased by unconsolidated affiliates.

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

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

right-of-use ("ROU") assets and $ 46 million of other intangible assets, net during the nine months ended September 30, 2020 and, during the three and nine months ended September 30, 2020, $ 3 million and $ 24 million of property and equipment, net, respectively, of which $ 2 million and $ 4 million related to finance lease ROU assets, respectively.

The performance of our operating segments is evaluated primarily on operating income (loss), without allocating amortization of contract acquisition costs, other revenues and other expenses 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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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Base and other management fees (1)

57 30 135 108

Incentive management fees 26 7 60 25

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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,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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Other revenues, less other expenses 6 ( 2 ) 25 4

Net other expenses from managed and franchised properties

Net other revenues (expenses) from managed and franchised properties

62 ( 44 ) ( 57 ) ( 281 )

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Impairment losses — ( 9 ) — ( 136 )

Loss on sale of assets, net ( 8 ) — ( 8 ) —

Operating income (loss) 432 11 677 ( 223 )

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

As of September 30, 2021, we had six performance guarantees, with expirations ranging from 2023 to 2043, 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 June 30, 2021 and December 31, 2020, we accrued current liabilities of $ 1 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 September 30, 2021 and December 31, 2020, we accrued current liabilities of $ 2 million and $ 7 million, respectively, for our performance guarantees.

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

As of June 30, 2021, we guaranteed a $ 10 million loan, which matures in 2023, for two hotels that we will franchise.

As of September 30, 2021, we guaranteed a $ 10 million loan, which matures in 2023, for two hotels that we 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;

As of September 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.

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

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 September 30, 2021, resulted in $ 13 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 June 30, 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 September 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