What changed in this filing

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Item 1. Financial Statements

2022-05-03 compared with 2021-10-27 · 125 added, 252 removed, 321 unchanged (54% of the section changed)

3 unchanged sentences

(in millions, except share data)

September 30, December 31,

March 31, 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 September 30, 2021 and December 31, 2020

3,000,000,000 authorized shares, none issued or outstanding as of March 31, 2022 and December 31, 2021

Common stock, $ 0.01 par value;

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

10,000,000,000 authorized shares, 332,821,509 issued and 278,994,111 outstanding as of March 31, 2022 and 332,011,359 issued and 279,091,009 outstanding as of December 31, 2021

Treasury stock, at cost;

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

53,827,398 shares as of March 31, 2022 and 52,920,350 shares as of December 31, 2021

( 4,573 ) ( 4,443 )

13 unchanged sentences

(in millions, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Franchise and licensing fees $ 413 $ 242

3 unchanged sentences

Other revenues 18 17

743 385 1,670 1,216

Other revenues from managed and franchised properties

1,006 548 2,282 2,201

Total revenues 1,721 874

Owned and leased hotels

200 144 452 478

Depreciation and amortization 44 51

General and administrative 91 97

Reorganization costs — — — 38

Impairment losses — 9 — 136

Other expenses 11 10

365 330 928 1,158

Other expenses from managed and franchised properties

944 592 2,339 2,482

Total expenses 1,352 853

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

Operating income (loss) 432 11 677 ( 223 )

Operating income 369 21

Interest expense ( 90 ) ( 103 )

Gain (loss) on foreign currency transactions

— ( 12 ) 1 ( 16 )

Loss on debt extinguishment — ( 69 )

Other non-operating income (loss), net

6 3 16 ( 20 )

Other non-operating income, net

Income (loss) before income taxes 291 ( 144 )

Income tax benefit (expense)

( 100 ) 33 ( 64 ) 80

Net income (loss) 211 ( 109 )

4 unchanged sentences

Diluted $ 0.75 $ ( 0.39 )

Cash dividends declared per share $ — $ — $ — $ 0.15

See notes to condensed consolidated financial statements.

2 unchanged sentences

(in millions)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Net income (loss) $ 211 $ ( 109 )

Other comprehensive income (loss), net of tax benefit (expense):

Other comprehensive income (loss), net of tax expense:

Currency translation adjustment, net of tax of $ — (1) and $( 3 )

( 5 ) 25 ( 26 ) 21

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

Pension liability adjustment, net of tax (1)

Cash flow hedge adjustment, net of tax of $( 20 ) and $( 2 )

— 1 11 ( 39 )

Total other comprehensive income (loss) 59 ( 20 )

3 unchanged sentences

$ 271 $ ( 128 )

(1) Amounts were less than $ 1 million.

See notes to condensed consolidated financial statements.

2 unchanged sentences

(in millions)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities:

2 unchanged sentences

Amortization of contract acquisition costs 8 7

Depreciation and amortization 143 269

Impairment losses — 136

Depreciation and amortization expenses 44 51

Loss (gain) on foreign currency transactions 4 ( 2 )

1 unchanged sentence

Deferred income taxes ( 3 ) ( 39 )

Contract acquisition costs ( 160 ) ( 37 )

Change in deferred revenues ( 286 ) 496

Change in liability for guest loyalty program 107 413

Contract acquisition costs, net of refunds ( 15 ) ( 43 )

Working capital changes and other ( 91 ) ( 75 )

2 unchanged sentences

Capital expenditures for property and equipment

( 17 ) ( 38 )

Capitalized software costs ( 10 ) ( 8 )

Investments in unconsolidated affiliates ( 20 ) —

Other 8 ( 5 )

4 unchanged sentences

Debt issuance costs and redemption premium — ( 74 )

Dividends paid — ( 42 )

Repurchases of common stock ( 121 ) —

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

Other — ( 1 )

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

Share-based compensation tax withholdings ( 55 ) ( 46 )

Proceeds from share-based compensation 4 12

Net cash used in financing activities ( 167 ) ( 624 )

Effect of exchange rate changes on cash, restricted cash and cash equivalents ( 4 ) ( 5 )

Net increase (decrease) in cash, restricted cash and cash equivalents ( 1,876 ) 2,838

Net decrease in cash, restricted cash and cash equivalents ( 2 ) ( 816 )

Cash, restricted cash and cash equivalents, beginning of period 1,512 3,263

1 unchanged sentence

Supplemental Disclosures:

Cash paid during the period:

Cash paid (received) during the period:

Interest $ 78 $ 72

5 unchanged sentences

Hilton Worldwide Holdings Inc.

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

As of September 30, 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.

As of March 31, 2022 , we managed, franchised, owned or leased 6,892 hotels and resorts, including timeshare properties, totaling 1,082,728 rooms in 122 countries and territories.

Basis of Presentation

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.

The accompanying condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 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 nine months ended September 30, 2021 and 2020 when compared to periods prior to the onset of the pandemic in early 2020.

In particular, the coronavirus ("COVID-19") pandemic (the "pandemic") had an adverse impact on our results for the three months ended March 31, 2022 and 2021, when compared to periods prior to the onset of the pandemic;

however, our results experienced significant recovery during the three months ended March 31, 2022 when compared to the prior year period.

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.

Management has made estimates and judgments in light of these circumstances.

In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods.

2 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 nine months ended September 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 three months ended March 31, 2022:

(in millions)

2 unchanged sentences

Revenue recognized (1)(2)

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 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.

Balance as of March 31, 2022

(1) Primarily related to Hilton Honors, our guest loyalty program, including co-branded credit card arrangements.

(2) Revenue recognized during the three months ended March 31, 2022 included $ 10 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.

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

Hilton Honors Points Pre-Sale

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

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

cards and for promotions, rewards and incentive programs or certain other activities 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;

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

In April 2020, we pre-sold Hilton Honors points to American Express for $ 1.0 billion in cash (the "Honors Points Pre-Sale") for their use of points in connection with Hilton Honors co-branded credit cards for promotions, rewards and other such incentive programs.

Upon receipt of the cash in 2020, we recognized $ 636 million in deferred revenues and the remainder in liability for guest loyalty program.

The deferred revenues remaining as of March 31, 2022 is included in our co-branded credit card arrangement performance obligation described below.

Performance Obligations

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 ;

(ii) $ 236 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) $ 622 million related to application, initiation and other fees that is expected to be recognized as revenue over the terms of the related contracts.

As of March 31, 2022 , we had deferred revenues for unsatisfied performance obligations consisting of:

(i) $ 335 million related to Hilton Honors that will be recognized as revenue over approximately the next two years ;

(ii) $ 61 million related to co-branded credit card arrangements;

and (iii) $ 642 million related to application, initiation and other fees.

These performance obligations are recognized as revenue as discussed in Note 2:

"Basis of Presentation and Summary of Significant Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Consolidated Variable Interest Entities

As of September 30, 2021 and December 31, 2020, we consolidated two variable interest entities ("VIEs") that each lease a hotel property.

As of March 31, 2022 and December 31, 2021, 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.

2 unchanged sentences

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

September 30, December 31,

March 31, December 31,

(in millions)

6 unchanged sentences

Other long-term liabilities 16 16

(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.

(1) Includes finance lease liabilities of $ 135 million and $ 153 million as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, our VIEs had revolving credit facilities with borrowing capacities totaling 4.5 billion Japanese yen ("JPY") (equivalent to $ 37 million as of March 31, 2022), with 500 million JPY (equivalent to $ 4 million as of March 31, 2022) drawn and included in long-term debt in our condensed consolidated balance sheets, resulting in available borrowing capacities totaling 4.0 billion JPY (equivalent to $ 33 million as of March 31, 2022).

During the three months ended March 31, 2022, our consolidated VIEs borrowed an aggregate of 2.1 billion JPY (equivalent to $ 17 million as of March 31, 2022), with a weighted average interest rate of 0.9 percent as of March 31, 2022 and maturity dates in February 2029, which was also included in long-term debt in our condensed consolidated balance sheet as of March 31, 2022.

Finite-Lived Intangible Assets

1 unchanged sentence

Management and franchise contracts, net were as follows:

September 30, 2021

Gross Carrying Value Accumulated Amortization Net Carrying Value

March 31, 2022

Gross Carrying Value Accumulated Amortization Net

Carrying Value

(in millions)

7 unchanged sentences

December 31, 2021

Gross Carrying Value Accumulated Amortization Net Carrying Value

Gross Carrying Value Accumulated Amortization Net

Carrying Value

(in millions)

6 unchanged sentences

$ 1,230 $ ( 472 ) $ 758

(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.

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

(the "Merger").

(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 Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

(in millions)

Recognized in depreciation and amortization expense (1)

$ 32 $ 76 $ 103 $ 227

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

(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,

Recognized in depreciation and amortization expenses (1)

Recognized as a reduction of franchise and licensing fees and

base and other management fees

(1) Includes amortization expense associated with assets that were initially recorded at fair value at the time of the Merger of $ 12 million for both the three months ended March 31, 2022 and 2021.

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of March 31, 2022, were as follows:

March 31, December 31,

(in millions)

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

Senior secured term loan facility with a rate of 2.21 %, due 2026

Senior notes with a rate of 5.375 %, due 2025

$ 2,619 $ 2,619

Senior notes with a rate of 5.375 %, due 2025 (1)

6 unchanged sentences

Finance lease liabilities with a weighted average rate of 5.87 %, due 2022 to 2030

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

Other debt of consolidated VIEs with a weighted average rate of 1.63 %, due 2022 to 2029 (2)

unamortized deferred financing costs and discount ( 84 ) ( 87 )

2 unchanged sentences

$ 8,720 $ 8,712

(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").

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

(2) Refer to Note 3:

"Consolidated Variable Interest Entities" for additional information on the debt of our consolidated VIEs .

(3) Represents current maturities of finance lease liabilities and 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 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 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.

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

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

In connection with the redemption, we paid a redemption premium of $ 55 million and accelerated the recognition of the unamortized deferred financing costs 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 nine months ended September 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.

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

As of March 31, 2022, we had $ 60 million of letters of credit outstanding under the Revolving Credit Facility, resulting in an available borrowing capacity of $ 1,690 million.

Fair Value Measurements

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

September 30, 2021

March 31, 2022

Hierarchy Level

2 unchanged sentences

Cash equivalents $ 601 $ — $ 601 $ —

Interest rate swap (1)

Long-term debt (2)

8,535 5,784 — 2,590

Interest rate swaps 66 — 66 —

December 31, 2021

6 unchanged sentences

Interest rate swaps (1)

(1) Interest rate swaps are included in other non-current assets or other long-term liabilities in our condensed consolidated balance sheets depending on their value to us as of the balance sheet date.

During the three months ended March 31, 2022, one of the interest rate swaps that was outstanding as of December 31, 2021 matured.

The remaining interest rate swap as of March 31, 2022 will mature in March 2026.

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

1 unchanged sentence

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 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 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.

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 nine months ended September 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 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.

We are under regular and recurring audit by the Internal Revenue Service ("IRS") and other taxing authorities on open tax positions.

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

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

and foreign tax authorities.

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

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of March 31, 2022 and December 31, 2021.

Our effective income tax rate for the three months ended March 31, 2022 was based on our estimated effective income tax rate expected to be applied for the full year.

The effective income tax rate is determined by the level and composition of income (loss) before income taxes, which is subject to federal, state, local and foreign income taxes.

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 $ 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:

We recognized share-based compensation expense of $ 37 million and $ 39 million during the three months ended March 31, 2022 and 2021, respectively, which included amounts reimbursed by hotel owners.

Our share-based compensation primarily consists of awards that we grant to eligible employees under the Hilton 2017 Omnibus Incentive Plan (the "2017 Plan") and includes time-vesting restricted stock units ("RSUs"), nonqualified stock options ("options") and performance-vesting RSUs ("performance shares").

As of March 31, 2022, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 232 million, which are expected to be recognized over a weighted-average period of 1.9 years on a straight-line basis.

During the three months ended March 31, 2022, we granted 503,000 RSUs with a weighted average grant date fair value per share of $ 150.67 , which vest in equal annual installments over two or three years from the date of grant.

During the three months ended March 31, 2022, we granted 318,000 options with an exercise price per share of $ 150.67 , 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, 2022 was $ 51.15 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

Expected volatility (1)

4 unchanged sentences

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

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

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

(2) Estimated based on the expectation, at the date of grant, of the resumption of a quarterly $ 0.15 per share dividend beginning in the second quarter of 2022, as well as our three-month average stock price.

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

Department of Treasury instruments with similar expected lives.

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

(4) Estimated using the midpoint of the vesting period and the contractual term of the options.

Performance Shares

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.

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 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 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.

During the three months ended March 31, 2022, we granted 216,000 performance shares with a grant date fair value per share of $ 150.67 .

We recognize compensation expense based on the total number of performance shares that are expected to vest as determined by the projected achievement of each of the performance measures, which are estimated each reporting period and range from zero percent to 200 percent, with 100 percent being the target.

As of March 31, 2022, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the applicable achievement factors estimated to be between the target and maximum achievement percentages for the performance shares granted in 2020 and 2021 and at target for the performance shares granted in 2022.

Earnings (Loss) Per Share

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

(in millions, except per share amounts)

6 unchanged sentences

Weighted average shares outstanding (1)

281 277 281 277

Diluted EPS $ 0.75 $ ( 0.39 )

$ 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 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 .

(1) Certain shares related to share-based compensation were excluded from the calculations of diluted EPS because their effect would have been anti-dilutive under the treasury stock method, including less than 1 million and 3 million shares for the three months ended March 31, 2022 and 2021, respectively.

Stockholders' Equity (Deficit) and Accumulated Other Comprehensive Loss

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

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

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

Balance as of December 31, 2021 279 $ 3 $ ( 4,443 ) $ 10,720 $ ( 6,322 ) $ ( 779 ) $ 2 $ ( 819 )

Net income (loss) — — — — 212 — ( 1 ) 211

Other comprehensive loss

— — — — — ( 3 ) — ( 3 )

Share-based compensation

— — — 51 — — — 51

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

Treasury Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive

Common Stock Noncontrolling

Shares Amount Total

(in millions)

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

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

Other comprehensive income

— — — — — 59 — 59

Share-based compensation

— — — 26 — — — 26

Distributions — — — — — — ( 1 ) ( 1 )

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

Nine Months Ended September 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) — — — — 263 — ( 4 ) 259

Other comprehensive loss

Repurchases of common stock (1)

( 1 ) — ( 130 ) — — — — ( 130 )

1 unchanged sentence

1 — — ( 18 ) — — — ( 18 )

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

Nine Months Ended September 30, 2020

Balance as of March 31, 2022 279 $ 3 $ ( 4,573 ) $ 10,702 $ ( 6,110 ) $ ( 720 ) $ 1 $ ( 697 )

(1) Beginning in March 2022, we resumed share repurchases under our previously authorized stock repurchase program.

Three Months Ended March 31, 2021

Equity (Deficit) Attributable to Hilton Stockholders

9 unchanged sentences

— — — — — ( 20 ) — ( 20 )

Dividends (1)

— — — — ( 42 ) — — ( 42 )

Repurchases of common stock (1)

( 3 ) — ( 279 ) — — — — ( 279 )

Share-based compensation

1 — — ( 5 ) — — — ( 5 )

Distributions — — — — — — ( 1 ) ( 1 )

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

— — — — ( 10 ) — — ( 10 )

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.

(2) Relates to Accounting Standards Update No.

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

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

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

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

4 unchanged sentences

Balance as of December 31, 2021 $ ( 540 ) $ ( 210 ) $ ( 29 ) $ ( 779 )

Other comprehensive loss before reclassifications

Other comprehensive income (loss) before reclassifications

( 3 ) ( 1 ) 55 51

2 unchanged sentences

( 2 ) 1 60 59

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

Balance as of March 31, 2022 $ ( 542 ) $ ( 209 ) $ 31 $ ( 720 )

Currency Translation Adjustment (1)

8 unchanged sentences

( 29 ) 2 7 ( 20 )

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

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

(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 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.

Amount reclassified during the three months ended March 31, 2022 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 and amortization of net loss and were recognized in other non-operating income, net in our condensed consolidated statements of operations.

(3) Amounts reclassified were 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 various revenue line items, as applicable, in our condensed consolidated statements of operations .

Business Segments

We are a hospitality company with operations organized in two distinct operating segments:

(i) management and franchise and (ii) ownership.

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

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

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

("HGV") and strategic partnerships, 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 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.

(i) management and franchise and (ii) ownership, each of which is reported as a segment based on (a) delivering a similar set of products and services and

(b) being managed separately given its distinct economic characteristics.

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

This segment generates its revenue from:

(i) management and franchise fees charged to third-party owners;

(ii) licensing fees for the right to use our IP from Hilton Grand Vacations Inc.

("HGV") and strategic partnerships, including co-branded credit card arrangements;

and (iii) fees for managing hotels in our ownership segment.

As of March 31, 2022, this segment included 740 managed hotels and 6,038 franchised hotels consisting of 1,055,088 total rooms.

As of March 31, 2022, our ownership segment included 54 properties totaling 18,151 rooms.

The segment comprised 46 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.

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 $ 51 million of operating lease

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.

As a result of the 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, compared with no hotels in our ownership segment having suspended operations as a result of the pandemic during the three months ended March 31, 2022.

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

(in millions)

1 unchanged sentence

Base and other management fees (1)

57 30 135 108

Incentive management fees 34 13

5 unchanged sentences

Direct reimbursements from managed and franchised properties (2)

446 244 998 1,185

Indirect reimbursements from managed and franchised properties (2)

560 304 1,284 1,016

Intersegment fees elimination (1)

( 3 ) ( 2 ) ( 6 ) ( 2 )

Total revenues $ 1,721 $ 874

(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.

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

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

(in millions)

Management and franchise (1)

$ 538 $ 281 $ 1,267 $ 853

Ownership (1)

4 unchanged sentences

Net other revenues (expenses) from managed and franchised properties

62 ( 44 ) ( 57 ) ( 281 )

Depreciation and amortization expenses ( 44 ) ( 51 )

General and administrative expenses ( 91 ) ( 97 )

Reorganization costs — — — ( 38 )

Impairment losses — ( 9 ) — ( 136 )

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

Operating income (loss) 432 11 677 ( 223 )

Operating income 369 21

Interest expense ( 90 ) ( 103 )

1 unchanged sentence

Loss on debt extinguishment — ( 69 )

Other non-operating income (loss), net 6 3 16 ( 20 )

Other non-operating income, net 16 5

Income (loss) before income taxes $ 291 $ ( 144 )

(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.

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 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 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 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 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.

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 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.

As of March 31, 2022, we had performance guarantees with expirations ranging from 2025 to 2043 and potential cash outlays totaling $ 9 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 for that particular hotel.

As of March 31, 2022, we had extended debt guarantees and letters of credit to owners of certain hotels that we will or currently manage or franchise with expirations ranging from 2023 to 2031 and potential cash outlays totaling $ 61 million.

We receive fees from managed and franchised properties that we are contractually required to use to operate our marketing, sales and brand programs on behalf of hotel owners.

If we collect amounts in excess of amounts expended, we have a commitment to spend these amounts on the related programs.

As of March 31, 2022 and December 31, 2021, amounts expended and recognized on behalf of these programs exceeded the amounts collected.

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums.

While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of September 30, 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 March 31, 2022 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