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Item 1. Financial Statements

2023-04-26 compared with 2022-10-26 · 119 added, 214 removed, 308 unchanged (52% of the section changed)

3 unchanged sentences

(in millions, except share data)

September 30, December 31,

March 31, December 31,

Current Assets:

32 unchanged sentences

Equity (Deficit):

Preferred stock, $ 0.01 par value;

3,000,000,000 authorized shares, none issued or outstanding as of September 30, 2022 and December 31, 2021

Common stock, $ 0.01 par value;

10,000,000,000 authorized shares, 332,944,066 issued and 271,541,523 outstanding as of September 30, 2022 and 332,011,359 issued and 279,091,009 outstanding as of December 31, 2021

10,000,000,000 authorized shares, 265,439,134 outstanding as of March 31, 2023 and 267,860,301 outstanding as of December 31, 2022

Treasury stock, at cost;

61,402,543 shares as of September 30, 2022 and 52,920,350 shares as of December 31, 2021

68,402,352 shares as of March 31, 2023 and 65,217,085 shares as of December 31, 2022

( 6,489 ) ( 6,040 )

13 unchanged sentences

(in millions, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Franchise and licensing fees $ 508 $ 413

3 unchanged sentences

Other revenues 35 18

1,024 743 2,667 1,670

Other revenues from managed and franchised properties

1,344 1,006 3,662 2,282

Total revenues 2,293 1,721

Owned and leased hotels

263 200 705 452

Depreciation and amortization 37 44

1 unchanged sentence

Other expenses 21 11

408 365 1,150 928

Other expenses from managed and franchised properties

1,337 944 3,589 2,339

Total expenses 1,795 1,352

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

Operating income 498 369

Interest expense ( 116 ) ( 90 )

Gain on foreign currency transactions

Loss on debt extinguishment — — — ( 69 )

Loss on foreign currency transactions

Loss on investments in unconsolidated affiliate ( 92 ) —

Other non-operating income, net

3 unchanged sentences

Net income 209 211

Net loss attributable to noncontrolling interests

Net loss (income) attributable to noncontrolling interests

Net income attributable to Hilton stockholders $ 206 $ 212

5 unchanged sentences

HILTON WORLDWIDE HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Net income $ 209 $ 211

1 unchanged sentence

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

( 22 ) ( 5 ) ( 47 ) ( 26 )

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

2 unchanged sentences

Comprehensive income 191 270

Comprehensive loss attributable to noncontrolling interests

Comprehensive loss (income) attributable to noncontrolling interests

Comprehensive income attributable to Hilton stockholders

$ 376 $ 238 $ 1,021 $ 254

(1) Amount was less than $1 million.

3 unchanged sentences

(in millions)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities:

Net income $ 209 $ 211

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

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of contract acquisition costs 10 8

Depreciation and amortization expenses 37 44

Gain on foreign currency transactions ( 4 ) ( 1 )

Loss on foreign currency transactions — 4

Loss on investments in unconsolidated affiliate 92 —

Share-based compensation expense 33 37

2 unchanged sentences

Working capital changes and other 74 ( 91 )

Net cash provided by (used in) operating activities 1,199 ( 22 )

Net cash provided by operating activities 330 195

Investing Activities:

Capital expenditures for property and equipment

( 19 ) ( 17 )

Issuance of other financing receivables ( 46 ) ( 3 )

Issuance of financing receivables ( 8 ) —

Undesignated derivative financial instruments ( 12 ) 12

6 unchanged sentences

Repayment of debt ( 12 ) ( 13 )

Debt issuance costs and redemption premium — ( 76 )

Debt issuance costs ( 9 ) —

Dividends paid ( 41 ) —

9 unchanged sentences

Supplemental Disclosures:

Cash paid during the period:

Cash paid (received) during the period:

Interest $ 90 $ 78

Income taxes, net of refunds 253 79

Income tax refunds, net of payments ( 25 ) ( 44 )

See notes to condensed consolidated financial statements.

4 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 intellectual property ("IP"), including brand names, trademarks and service marks.

As of September 30, 2022 , we managed, franchised, owned or leased 7,061 hotels and resorts, including timeshare properties, totaling 1,111,147 rooms in 123 countries and territories.

As of March 31, 2023, we managed, franchised, owned or leased 7,215 hotels and resorts, including timeshare properties, totaling 1,133,277 rooms in 122 countries and territories.

Basis of Presentation

The accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021 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, 2023 and 2022 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 coronavirus ("COVID-19") pandemic (the "pandemic") had an adverse impact on certain of our results for the three and nine months ended September 30, 2022 and 2021;

however, our results experienced significant recovery during the three and nine months ended September 30, 2022 when compared to prior year periods.

As such, these interim periods, as well as upcoming periods, may not 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, 2022:

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, 2023:

(in millions)

2 unchanged sentences

Revenue recognized (1)

Balance as of September 30, 2022

Balance as of March 31, 2023

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

(2) Revenue recognized during the three months ended September 30, 2022 was $ 139 million.

Revenue recognized during the three and nine months ended September 30, 2022 included a net increase in revenue of $ 7 million and $ 4 million, respectively, for Hilton Honors points redeemed 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 the issuance of Hilton Honors points, which had no effect on revenues.

(2) Represents the changes in estimated transaction prices for our performance obligations related to the issuance of Hilton Honors points, which had no effect on revenues .

Performance Obligations

As of September 30, 2022 , we had deferred revenues for unsatisfied performance obligations consisting of:

As of March 31, 2023, we had deferred revenues for unsatisfied performance obligations consisting of:

(i) $ 644 million related to Hilton Honors that will be recognized as revenue over approximately the next two years ;

(ii) $ 669 million related to application, initiation and other fees;

(ii) $ 684 million related to advance consideration received from hotel owners for application, initiation and other fees and certain indirect reimbursements;

and (iii) $ 23 million related to other obligations.

2 unchanged sentences

Consolidated Variable Interest Entities

As of September 30, 2022 and December 31, 2021, we consolidated two variable interest entities ("VIEs") that each lease one 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.

As of March 31, 2023 and December 31, 2022, we consolidated two variable interest entities ("VIEs") that each lease one hotel property, both of which are located in Japan.

We consolidate 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 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:

September 30, December 31,

Our condensed consolidated balance sheets include the assets and liabilities of these entities, including the effect of foreign currency translation, which primarily comprised the following:

March 31, December 31,

(in millions)

5 unchanged sentences

Long-term debt (1)(2)

Other long-term liabilities 14 16

(1) Includes finance lease liabilities of $ 109 million and $ 153 million as of September 30, 2022 and December 31, 2021, respectively.

During the nine months ended September 30, 2022, our consolidated VIEs borrowed a net 2.7 billion JPY (equivalent to $ 19 million as of September 30, 2022), with a weighted average interest rate of 1.22 percent as of September 30, 2022 and maturity dates ranging from May 2023 to February 2029;

these borrowings are included in current maturities of long-term debt and long-term debt in our condensed consolidated balance sheet as of September 30, 2022.

As of December 31, 2021, one of our consolidated VIEs had drawn 500 million JPY (equivalent to $ 4 million as of December 31, 2021) under a revolving credit facility, which was fully repaid by July 2022.

Finite-Lived Intangible Assets

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

Management and franchise contracts, net were as follows:

September 30, 2022

Gross Carrying Value Accumulated Amortization Net

Carrying Value

(in millions)

Management contracts recorded at Merger (1)

$ 283 $ ( 265 ) $ 18

Contract acquisition costs

936 ( 195 ) 741

Development commissions and other

145 ( 30 ) 115

$ 1,364 $ ( 490 ) $ 874

December 31, 2021

Gross Carrying Value Accumulated Amortization Net

Carrying Value

(in millions)

Management contracts recorded at Merger (1)

$ 310 $ ( 275 ) $ 35

Contract acquisition costs

780 ( 170 ) 610

Development commissions and other

140 ( 27 ) 113

$ 1,230 $ ( 472 ) $ 758

(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").

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

(in millions)

Recognized in depreciation and amortization expenses (1)

$ 27 $ 32 $ 88 $ 103

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 $ 11 million for both the three months ended September 30, 2022 and 2021 and $ 34 million and $ 35 million for the nine months ended September 30, 2022 and 2021, respectively.

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of September 30, 2022, were as follows:

September 30, December 31,

(1) Includes finance lease liabilities of $ 106 million and $ 115 million as of March 31, 2023 and December 31, 2022, respectively.

(2) Includes current maturities of $ 18 million and $ 22 million as of March 31, 2023 and December 31, 2022, respectively .

Loss on Investments in Unconsolidated Affiliate

We strategically provide equity and debt financing to certain unconsolidated affiliates with an objective of supporting the growth of our network.

The assets relating to these investments are classified as other current assets or other non-current assets in our condensed consolidated balance sheets based on the expected maturity of the respective investment.

In the current period, as a result of the continued rise in interest rates, one of our third-party unconsolidated affiliates (the "Fund"), which has underlying investments in hotels that we currently or in the future will manage or franchise, failed to comply with certain requirements of its debt agreements.

As a result, as of March 31, 2023, we determined that:

(i) our investment in the Fund was fully impaired and (ii) subordinated financing receivables due to us from the Fund within twelve months or less were uncollectible.

As such, we recognized an other-than-temporary impairment loss on our investment of $ 44 million and credit losses of $ 48 million to fully reserve the financing receivables, such that their net carrying values were zero as of March 31, 2023.

These losses were recognized in loss on investments in unconsolidated affiliate in our condensed consolidated statement of operations for the three months ended March 31, 2023.

"Fair Value Measurements" for additional information.

Long-term debt balances, including obligations for finance leases, and associated interest rates and maturities as of March 31, 2023, were as follows:

March 31, December 31,

(in millions)

14 unchanged sentences

$ 8,706 $ 8,708

(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.

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

(2) Long-term debt of our consolidated VIEs included in finance lease liabilities and other debt of consolidated VIEs as applicable;

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 borrowings 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.

As of September 30, 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.

"Consolidated Variable Interest Entities" for additional information .

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

Our senior secured credit facilities consist of a 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, except for HOC, the named borrower on the senior secured credit facilities.

In January 2023, we amended the credit agreement governing our Revolving Credit Facility to increase the borrowing capacity from $ 1.75 billion to $ 2.0 billion, $ 250 million of which is available in the form of letters of credit, and, based on the terms of the agreement, we expect the extended maturity date to be January 2028.

In connection with this amendment, we incurred $ 9 million of debt issuance costs, which were recognized in other non-current assets in our condensed consolidated balance sheet.

As of March 31, 2023, there were no borrowings outstanding and $ 60 million of letters of credit outstanding under the Revolving Credit Facility, resulting in an available borrowing capacity of $ 1,940 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, 2022

March 31, 2023

Hierarchy Level

Carrying Value Level 1 Level 2 Level 3

Carrying Value (1)

Level 1 Level 2 Level 3

(in millions)

Cash equivalents $ 499 $ — $ 499 $ —

Interest rate swap $ 86 $ — $ 86 $ —

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Hierarchy Level

Carrying Value Level 1 Level 2 Level 3

Carrying Value (1)

Level 1 Level 2 Level 3

(in millions)

Cash equivalents $ 622 $ — $ 622 $ —

Interest rate swap $ 108 $ — $ 108 $ —

Long-term debt (2)

8,619 5,292 — 2,616

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 nine months ended September 30, 2022, one of the interest rate swaps that was outstanding as of December 31, 2021 matured.

The remaining interest rate swap outstanding as of September 30, 2022 will mature in March 2026.

(2) The carrying values include the deduction for unamortized deferred financing costs and any applicable discounts.

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

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

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of September 30, 2022 and December 31, 2021.

(1) The fair values of cash equivalents and restricted cash equivalents approximate their carrying values due to their short-term maturities.

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

(2) The carrying values and fair values exclude the deduction for unamortized deferred financing costs and any applicable discounts, as well as all finance lease liabilities and other debt of consolidated VIEs;

refer to Note 5:

"Debt" for additional information.

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

During the three months ended March 31, 2023, we measured a financial asset, an equity method investment in the Fund, which derives its market value from the underlying hotel assets it owns, at fair value on a non-recurring basis.

Given the Fund's failure to comply with its debt agreements in the current period, as discussed in Note 4:

"Loss on Investments in Unconsolidated Affiliate," and the lack of an active market or observable inputs for the fair value of the Fund, we determined that our investment had no market value as of March 31, 2023 using Level 3 valuation inputs.

As a result of the non-recurring fair value measurement, we recognized an other-than-temporary impairment loss of $ 44 million during the three months ended March 31, 2023.

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

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

In August 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law in the U.S.

We do not expect the IRA to have a material impact on our consolidated financial statements, including our annual estimated effective tax rate.

Share-Based Compensation

We recognized share-based compensation expense of $ 42 million and $ 52 million during the three months ended September 30, 2022 and 2021, respectively, and $ 126 million and $ 144 million during the nine months ended September 30, 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 September 30, 2022, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 141 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, 2022, we granted 507,000 RSUs with a weighted average grant date fair value per share of $ 150.58 , which vest in equal annual installments over two or three years from the date of grant.

During the nine months ended September 30, 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 nine months ended September 30, 2022 was $ 51.15 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

We recognized share-based compensation expense of $ 33 million and $ 37 million during the three months ended March 31, 2023 and 2022, respectively, which included amounts reimbursed by hotel owners.

As of March 31, 2023, unrecognized compensation costs for unvested awards under the 2017 Plan were approximately $ 233 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, 2023, we granted 588,000 RSUs with a grant date fair value per share of $ 146.19 , which vest in equal annual installments over two or three years from the date of grant.

During the three months ended March 31, 2023, we granted 333,000 options with an exercise price per share of $ 146.19 , 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, 2023 was $ 52.32 , which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

Expected volatility (1)

3 unchanged sentences

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

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

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

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

(2) Estimated based on the quarterly dividend and the three-month average stock price at the date of grant.

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

2 unchanged sentences

Performance Shares

During the nine months ended September 30, 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 September 30, 2022, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the average of the 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.

During the three months ended March 31, 2023, we granted 238,000 performance shares with a grant date fair value per share of $ 146.19 .

We recognize compensation expense based on the total number of performance shares that are expected to vest three years from the date of grant, 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, 2023, we determined that all of the performance measures for the outstanding performance shares were probable of achievement, with the average of the applicable achievement factors estimated to be between the target and maximum achievement percentages for the performance shares granted in 2021 and 2022 and at the target achievement percentage for the performance shares granted in 2023.

Earnings Per Share

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

(in millions, except per share amounts)

Net income attributable to Hilton stockholders

$ 347 $ 241 $ 927 $ 263

Weighted average shares outstanding 266 279

1 unchanged sentence

Net income attributable to Hilton stockholders

$ 347 $ 241 $ 927 $ 263

Weighted average shares outstanding (1)

275 281 279 281

Diluted EPS $ 0.77 $ 0.75

(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 1 million shares for both the three and nine months ended September 30, 2022, and less than 1 million shares for both the three and nine months ended September 30, 2021.

(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 each of the three months ended March 31, 2023 and 2022.

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, 2022

Three Months Ended March 31, 2023

Equity (Deficit) Attributable to Hilton Stockholders

5 unchanged sentences

(in millions)

Balance as of June 30, 2022 275.5 $ 3 $ ( 5,048 ) $ 10,753 $ ( 5,783 ) $ ( 714 ) $ — $ ( 789 )

Net income (loss) — — — — 347 — ( 1 ) 346

Balance as of December 31, 2022 267.9 $ 3 $ ( 6,040 ) $ 10,831 $ ( 5,190 ) $ ( 706 ) $ 4 $ ( 1,098 )

Net income — — — — 206 — 3 209

Other comprehensive income

6 unchanged sentences

0.7 — — ( 16 ) — — — ( 16 )

Balance as of September 30, 2022 271.5 $ 3 $ ( 5,545 ) $ 10,791 $ ( 5,477 ) $ ( 685 ) $ ( 1 ) $ ( 914 )

Three 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 June 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,603 $ ( 6,710 ) $ ( 866 ) $ 1 $ ( 1,416 )

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

Other comprehensive loss

— — — — — ( 3 ) — ( 3 )

Share-based compensation

— — — 51 — — — 51

Balance as of September 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,654 $ ( 6,469 ) $ ( 869 ) $ — $ ( 1,128 )

Nine Months Ended September 30, 2022

Balance as of March 31, 2023 265.4 $ 3 $ ( 6,489 ) $ 10,815 $ ( 5,025 ) $ ( 724 ) $ 7 $ ( 1,413 )

Three Months Ended March 31, 2022

Equity (Deficit) Attributable to Hilton Stockholders

9 unchanged sentences

— — — — — 59 — 59

Dividends (1)

— — — — ( 82 ) — — ( 82 )

Repurchases of common stock (2)

2 unchanged sentences

0.8 — — ( 18 ) — — — ( 18 )

Balance as of September 30, 2022 271.5 $ 3 $ ( 5,545 ) $ 10,791 $ ( 5,477 ) $ ( 685 ) $ ( 1 ) $ ( 914 )

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 277.6 $ 3 $ ( 4,453 ) $ 10,552 $ ( 6,732 ) $ ( 860 ) $ 4 $ ( 1,486 )

Net income (loss) — — — — 263 — ( 4 ) 259

Other comprehensive loss

— — — — — ( 9 ) — ( 9 )

Share-based compensation

1.1 — 6 102 — — — 108

Balance as of September 30, 2021 278.7 $ 3 $ ( 4,447 ) $ 10,654 $ ( 6,469 ) $ ( 869 ) $ — $ ( 1,128 )

Balance as of March 31, 2022 279.0 $ 3 $ ( 4,573 ) $ 10,702 $ ( 6,110 ) $ ( 720 ) $ 1 $ ( 697 )

(1) During the three months ended June 30, 2022, we resumed payment of regular quarterly cash dividends.

(2) During the three months ended March 31, 2022, we resumed share repurchases under our previously authorized stock repurchase program.

Beginning January 1, 2023, amount includes excise tax as imposed by the Inflation Reduction Act of 2022.

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

4 unchanged sentences

Balance as of December 31, 2022 $ ( 548 ) $ ( 259 ) $ 101 $ ( 706 )

Other comprehensive income (loss) before reclassifications

Other comprehensive loss before reclassifications

( 6 ) — ( 11 ) ( 17 )

Amounts reclassified from accumulated other comprehensive loss

— 2 ( 3 ) ( 1 )

Net current period other comprehensive income (loss)

( 6 ) 2 ( 14 ) ( 18 )

Balance as of September 30, 2022 $ ( 587 ) $ ( 206 ) $ 108 $ ( 685 )

Balance as of March 31, 2023 $ ( 554 ) $ ( 257 ) $ 87 $ ( 724 )

Currency Translation Adjustment (1)

3 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 )

(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, 2022 and 2021 relate to the liquidation of investments in foreign entities and were recognized in gain on foreign currency transactions and loss on sale of assets, net, respectively, in our condensed consolidated statements of operations.

Amount reclassified during the three months ended March 31, 2022 relates 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 relate 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 unchanged sentences

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

(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

(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 from Hilton Grand Vacations Inc.

("HGV") and strategic partnerships, including co-branded credit card arrangements, for the right to use our IP;

Revenues from this segment include:

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

(ii) licensing fees from our strategic partners, including co-branded credit card providers, and Hilton Grand Vacations Inc.

("HGV") for the right to use our IP;

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

As of September 30, 2022, this segment included 759 managed hotels and 6,175 franchised hotels consisting of 1,080,454 total rooms.

As of September 30, 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.

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 nine months ended September 30, 2021, while no hotels in our ownership segment suspended operations as a result of the pandemic during the nine months ended September 30, 2022.

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, other revenues and other expenses from managed and franchised properties, depreciation and amortization expenses or general and administrative expenses.

As of March 31, 2023, this segment included 774 managed hotels and 6,308 franchised hotels consisting of 1,101,539 total rooms.

As of March 31, 2023, our ownership segment included 51 hotels totaling 17,485 rooms.

The segment comprised 44 hotels that we leased, two hotels that were each leased by a consolidated VIE and five hotels owned or leased by unconsolidated affiliates.

equity in earnings (losses) from unconsolidated affiliates.

Our chief operating decision maker does not use assets by operating

segment when assessing performance or making operating segment resource allocations.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

(in millions)

1 unchanged sentence

Base and other management fees (1)

88 57 235 135

Incentive management fees 65 34

5 unchanged sentences

Direct reimbursements from managed and franchised properties (2)

643 446 1,764 998

Indirect reimbursements from managed and franchised properties (2)

701 560 1,898 1,284

Intersegment fees elimination (1)

( 7 ) ( 3 ) ( 14 ) ( 6 )

Total revenues $ 2,293 $ 1,721

2 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

(in millions)

Management and franchise (1)

$ 718 $ 538 $ 1,911 $ 1,267

Ownership (1)

25 ( 4 ) 8 ( 82 )

Segment operating income 660 475

2 unchanged sentences

Net other revenues (expenses) from managed and franchised properties

7 62 73 ( 57 )

Depreciation and amortization expenses ( 37 ) ( 44 )

General and administrative expenses ( 91 ) ( 91 )

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

Operating income 498 369

Interest expense ( 116 ) ( 90 )

Gain on foreign currency transactions — — 4 1

Loss on debt extinguishment — — — ( 69 )

Loss on foreign currency transactions — ( 4 )

Loss on investments in unconsolidated affiliate ( 92 ) —

Other non-operating income, net 12 16

2 unchanged sentences

Commitments and Contingencies

We provide performance guarantees to certain owners of hotels that we operate under management contracts.

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

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

As of September 30, 2022, we had

performance guarantees with expirations ranging from 2025 to 2043 and potential cash outlays totaling $ 8 million.

In limited cases, we provide performance guarantees to certain owners of hotels that we operate under management contracts that obligate us to fund performance shortfalls if specified operating performance levels are not achieved.

As of March 31, 2023, we had performance guarantees with expirations ranging from 2025 to 2043 and possible cash outlays totaling approximately $ 7 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 September 30, 2022, we had extended debt guarantees and letters of credit with expirations ranging from 2023 to 2031 and potential cash outlays totaling $ 124 million to owners of certain hotels that we will in the future or do currently manage or franchise.

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

Additionally, as of March 31, 2023, we had extended debt guarantees and letters of credit with expirations ranging from 2023 to 2031 and possible

cash outlays totaling $ 124 million to owners of certain hotels that we currently or in the future will manage or franchise.

These guarantees create variable interests in the ownership entities of the hotels, of which we are not the primary beneficiary.

We receive fees from managed and franchised properties that we are contractually required to use to operate our marketing, sales and brands 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 September 30, 2022, amounts collected on behalf of these programs exceeded the amounts expended, and, as of December 31, 2021, amounts expended on behalf of these programs exceeded the amounts collected.

As of March 31, 2023 and December 31, 2022, the amounts expended 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, 2022 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, 2023 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