10-Q 1 hlt-20210930.htm 10-Q hlt-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 001-36243
Hilton Worldwide Holdings Inc.
(Exact name of registrant as specified in its charter)
Delaware
27-4384691
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
7930 Jones Branch Drive, Suite 1100, McLean, VA
22102
(Address of Principal Executive Offices)(Zip Code)

Registrant’s telephone number, including area code: (703) 883-1000
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareHLTNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ☐    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of shares outstanding of the registrant's common stock, par value $0.01 per share, as of October 20, 2021 was 278,721,682.



HILTON WORLDWIDE HOLDINGS INC.
FORM 10-Q TABLE OF CONTENTS

1


PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)

September 30,December 31,
20212020
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$1,288 $3,218 
Restricted cash and cash equivalents
99 45 
Accounts receivable, net of allowance for credit losses of $130 and $132
1,012 771 
Prepaid expenses124 70 
Other
171 98 
Total current assets (variable interest entities $31 and $53)
2,694 4,202 
Intangibles and Other Assets:
Goodwill
5,078 5,095 
Brands
4,890 4,904 
Management and franchise contracts, net730 653 
Other intangible assets, net208 266 
Operating lease right-of-use assets
719 772 
Property and equipment, net
303 346 
Deferred income tax assets
244 194 
Other
448 323 
Total intangibles and other assets (variable interest entities $181 and $199)
12,620 12,553 
TOTAL ASSETS$15,314 $16,755 
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable, accrued expenses and other
$1,433 $1,302 
Current maturities of long-term debt
54 56 
Current portion of deferred revenues
298 370 
Current portion of liability for guest loyalty program837 703 
Total current liabilities (variable interest entities $52 and $57)
2,622 2,431 
Long-term debt8,713 10,431 
Operating lease liabilities899 971 
Deferred revenues
790 1,004 
Deferred income tax liabilities718 649 
Liability for guest loyalty program1,739 1,766 
Other961 989 
Total liabilities (variable interest entities $217 and $248)
16,442 18,241 
Commitments and contingencies see Note 12
Equity (Deficit):
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
  
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
3 3 
Treasury stock, at cost; 52,920,350 shares as of September 30, 2021 and December 31, 2020
(4,447)(4,453)
Additional paid-in capital
10,654 10,552 
Accumulated deficit(6,469)(6,732)
Accumulated other comprehensive loss
(869)(860)
Total Hilton stockholders' deficit
(1,128)(1,490)
Noncontrolling interests
 4 
Total deficit(1,128)(1,486)
TOTAL LIABILITIES AND EQUITY (DEFICIT)$15,314 $16,755 

See notes to condensed consolidated financial statements.
2


HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)

Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Revenues
Franchise and licensing fees$451 $241 $1,062 $712 
Base and other management fees49 24 116 92 
Incentive management fees26 7 60 25 
Owned and leased hotels199 94 376 335 
Other revenues18 19 56 52 
743 385 1,670 1,216 
Other revenues from managed and franchised properties
1,006 548 2,282 2,201 
Total revenues1,749 933 3,952 3,417 
Expenses
Owned and leased hotels
200 144 452 478 
Depreciation and amortization46 90 143 269 
General and administrative107 66 302 189 
Reorganization costs   38 
Impairment losses 9  136 
Other expenses12 21 31 48 
365 330 928 1,158 
Other expenses from managed and franchised properties
944 592 2,339 2,482 
Total expenses1,309 922 3,267 3,640 
Loss on sale of assets, net(8) (8) 
Operating income (loss)432 11 677 (223)
Interest expense(98)(116)(302)(316)
Gain (loss) on foreign currency transactions
 (12)1 (16)
Loss on debt extinguishment  (69) 
Other non-operating income (loss), net
6 3 16 (20)
Income (loss) before income taxes340 (114)323 (575)
Income tax benefit (expense)
(100)33 (64)80 
Net income (loss)240 (81)259 (495)
Net loss attributable to noncontrolling interests
1 2 4 4 
Net income (loss) attributable to Hilton stockholders$241 $(79)$263 $(491)
Earnings (loss) per share:
Basic$0.86 $(0.29)$0.94 $(1.77)
Diluted$0.86 $(0.29)$0.94 $(1.77)
Cash dividends declared per share$ $ $ $0.15 

See notes to condensed consolidated financial statements.
3


HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)

Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Net income (loss)$240 $(81)$259 $(495)
Other comprehensive income (loss), net of tax benefit (expense):
Currency translation adjustment, net of tax of $(2), $(11), $(4) and $(2)
(5)25 (26)21 
Pension liability adjustment, net of tax of $(1), $(1), $(2) and $(2)
2 2 6 5 
Cash flow hedge adjustment, net of tax of $, $(1), $(4) and $13
 1 11 (39)
Total other comprehensive income (loss)(3)28 (9)(13)
Comprehensive income (loss)237 (53)250 (508)
Comprehensive loss attributable to noncontrolling interests
1 2 4 4 
Comprehensive income (loss) attributable to Hilton stockholders
$238 $(51)$254 $(504)

See notes to condensed consolidated financial statements.
4


HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

Nine Months Ended
September 30,
20212020
Operating Activities:
Net income (loss)$259 $(495)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of contract acquisition costs23 22 
Depreciation and amortization143 269 
Impairment losses 136 
Loss (gain) on foreign currency transactions(1)16 
Share-based compensation expense144 37 
Deferred income taxes6 (142)
Contract acquisition costs(160)(37)
Change in deferred revenues(286)496 
Change in liability for guest loyalty program107 413 
Working capital changes and other(257)131 
Net cash provided by (used in) operating activities(22)846 
Investing Activities:
Capital expenditures for property and equipment
(17)(38)
Capitalized software costs(28)(38)
Other11 (13)
Net cash used in investing activities(34)(89)
Financing Activities:
Borrowings1,505 2,690 
Repayment of debt(3,221)(214)
Debt issuance costs and redemption premium(76)(14)
Dividends paid (42)
Repurchases of common stock (296)
Share-based compensation tax withholdings and other(22)(36)
Other (1)
Net cash provided by (used in) financing activities(1,814)2,087 
Effect of exchange rate changes on cash, restricted cash and cash equivalents(6)(6)
Net increase (decrease) in cash, restricted cash and cash equivalents(1,876)2,838 
Cash, restricted cash and cash equivalents, beginning of period3,263 630 
Cash, restricted cash and cash equivalents, end of period$1,387 $3,468 
Supplemental Disclosures:
Cash paid during the period:
Interest$254 $276 
Income taxes, net of refunds79 67 

See notes to condensed consolidated financial statements.
5


HILTON WORLDWIDE HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1: Organization and Basis of Presentation

Organization

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.

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. We have condensed or omitted certain disclosures normally included in annual financial statements presented in accordance with GAAP but that are not required for interim reporting purposes. Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. 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. As such, this interim period, as well as upcoming periods, are unlikely to be comparable to periods prior to the onset of the pandemic or to other periods affected by the pandemic, and are not indicative of future performance. In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions have been eliminated in consolidation.

Note 2: Revenues from Contracts with Customers

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:

(in millions)
Balance as of December 31, 2020
$1,312 
Cash received in advance and not recognized as revenue
99 
Revenue recognized(1)
(284)
Other(2)
(81)
Balance as of September 30, 2021
$1,046 
____________
(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.
(2)Primarily represents changes in estimated transaction prices for our performance obligations related to points issued under Hilton Honors, which had no effect on revenues.

Hilton Honors Points Pre-Sale

In April 2020, we pre-sold Hilton Honors points to American Express for $1.0 billion in cash (the "Honors Points Pre-Sale"). American Express and their respective designees may use the points in connection with Hilton Honors co-branded credit
6


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.

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.

Note 3: 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. We consolidated these VIEs since we are the primary beneficiary, having the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb losses and the right to receive benefits that could be significant to 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,
20212020
(in millions)
Cash and cash equivalents$17 $40 
Property and equipment, net63 76 
Deferred income tax assets57 57 
Other non-current assets61 66 
Accounts payable, accrued expenses and other18 27 
Long-term debt(1)
181 203 
Other long-term liabilities17 17 
____________
(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. See Note 5: "Debt" for additional information.

Note 4: 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, 2021
Gross Carrying ValueAccumulated AmortizationNet Carrying Value
(in millions)
Management contracts recorded at Merger(1)
$311 $(271)$40 
Contract acquisition costs
741 (163)578 
Development commissions and other
138 (26)112 
$1,190 $(460)$730 

7


December 31, 2020
Gross Carrying ValueAccumulated AmortizationNet Carrying Value
(in millions)
Management contracts recorded at Merger(1)
$317 $(261)$56 
Contract acquisition costs(2)
632 (144)488 
Development commissions and other
132 (23)109 
$1,081 $(428)$653 
____________
(1)Represents intangible assets that were initially recorded at their fair value as part of the October 2007 transaction whereby we became a wholly owned subsidiary of affiliates of 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 EndedNine Months Ended
September 30,September 30,
2021202020212020
(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
9 7 23 22 
____________
(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.

Note 5: Debt

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,
20212020
(in millions)
Senior secured revolving credit facility, due 2024$ $1,690 
Senior secured term loan facility with a rate of 1.84%, due 2026
2,619 2,619 
Senior notes with a rate of 5.375%, due 2025
500 500 
Senior notes with a rate of 5.125%, due 2026
 1,500 
Senior notes with a rate of 4.875%, due 2027
600 600 
Senior notes with a rate of 5.750%, due 2028
500 500 
Senior notes with a rate of 3.750%, due 2029
800 800 
Senior notes with a rate of 4.875%, due 2030
1,000 1,000 
Senior notes with a rate of 4.000%, due 2031
1,100 1,100 
Senior notes with a rate of 3.625%, due 2032
1,500  
Finance lease liabilities with a weighted average rate of 5.89%, due 2021 to 2030
216 252 
Other debt of consolidated VIEs with a weighted average rate of 2.69%, due 2022 and 2026
22 19 
8,857 10,580 
Less: unamortized deferred financing costs and discount(90)(93)
Less: current maturities of long-term debt(1)
(54)(56)
$8,713 $10,431 
____________
(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.

8


Our senior secured credit facilities consist of a $1.75 billion senior secured revolving credit facility (the "Revolving Credit Facility") and a senior secured term loan facility (the "Term Loan"). The obligations of our senior secured credit facilities are unconditionally and irrevocably guaranteed by the Parent and substantially all of its direct and indirect wholly owned domestic restricted subsidiaries. During the 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. See Note 3: "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.

Note 6: 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
Hierarchy Level
Carrying ValueLevel 1Level 2Level 3
(in millions)
Assets:
Cash equivalents$624 $— $624 $— 
Liabilities:
Long-term debt(1)
8,529 6,171 — 2,601 
Interest rate swaps66 — 66 — 

December 31, 2020
Hierarchy Level
Carrying ValueLevel 1Level 2Level 3
(in millions)
Assets:
Cash equivalents$2,270 $— $2,270 $— 
Liabilities:
Long-term debt(1)
10,216 6,366 — 4,293 
Interest rate swaps82 — 82 — 
____________
(1)The carrying values include unamortized deferred financing costs and discount. The carrying values and fair values exclude finance lease liabilities and other debt of consolidated VIEs.

9


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.

Note 7: Income Taxes

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.

Note 8: 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.
10


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.

RSUs

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.

Options

During the nine months ended September 30, 2021, we granted 361,000 options with an exercise price per share of $123.13, which vest in equal annual installments over three years from the date of grant and terminate 10 years from the date of grant or earlier if the individual’s service terminates under certain circumstances.

The grant date fair value per share of the options granted during the nine months ended September 30, 2021 was $41.15, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

Expected volatility(1)
33.13 %
Dividend yield(2)
 %
Risk-free rate(3)
0.92 %
Expected term (in years)(4)
6.0
____________
(1)Estimated using a blended approach of historical and implied volatility. Historical volatility is based on the historical movement of Hilton's stock price for a period that corresponds to the expected life of the option.
(2)We have historically paid regular quarterly cash dividends. However, in March 2020, we suspended the declaration and payment of dividends as part of certain proactive measures we took to secure our liquidity position in response to the COVID-19 pandemic, and, at the time of the grant, we could not estimate when the payment of dividends would resume.
(3)Based on the yields of U.S. Department of Treasury instruments with similar expected lives.
(4)Estimated using the average of the vesting periods 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.

11


Note 9: Earnings (Loss) Per Share

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

Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
(in millions, except per share amounts)
Basic EPS:
Numerator:
Net income (loss) attributable to Hilton stockholders
$241 $(79)$263 $(491)
Denominator:
Weighted average shares outstanding279 277 278 277 
Basic EPS$0.86 $(0.29)$0.94 $(1.77)
Diluted EPS:
Numerator:
Net income (loss) attributable to Hilton stockholders
$241 $(79)$263 $(491)
Denominator:
Weighted average shares outstanding(1)
281 277 281 277 
Diluted EPS(1)
$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.

Note 10: 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
Equity (Deficit) Attributable to Hilton Stockholders
Treasury StockAdditional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Common StockNoncontrolling
Interests
SharesAmountTotal
(in millions)
Balance as of June 30, 2021279 $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, 2021279 $3 $(4,447)$10,654 $(6,469)$(869)$ $(1,128)

12


Three Months Ended September 30, 2020
Equity (Deficit) Attributable to Hilton Stockholders
Treasury StockAdditional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Common StockNoncontrolling
Interests
SharesAmountTotal
(in millions)
Balance as of June 30, 2020277 $3 $(4,457)$10,465 $(6,429)$(881)$8 $(1,291)
Net loss— — — — (79)— (2)(81)
Other comprehensive income
— — — — — 28 — 28 
Share-based compensation
 —  26 — — — 26 
Distributions— — — — — — (1)(1)
Balance as of September 30, 2020277 $3 $(4,457)$10,491 $(6,508)$(853)$5 $(1,319)

Nine Months Ended September 30, 2021
Equity (Deficit) Attributable to Hilton Stockholders
Treasury StockAdditional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Common StockNoncontrolling
Interests
SharesAmountTotal
(in millions)
Balance as of December 31, 2020278 $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 — 6 102 — — — 108 
Balance as of September 30, 2021279 $3 $(4,447)$10,654 $(6,469)$(869)$ $(1,128)

Nine Months Ended September 30, 2020
Equity (Deficit) Attributable to Hilton Stockholders
Treasury StockAdditional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Common StockNoncontrolling
Interests
SharesAmountTotal
(in millions)
Balance as of December 31, 2019279 $3 $(4,169)$