MARRIOTT INTERNATIONAL INC /MD/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement All statements in this report are made as of the date this Form 10-Q is filed with the U.S. Securities and Exchange Commission (the “SEC”). We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise. We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information available to us through the date this Form 10-Q is filed with the SEC. Forward-looking statements include information related to the future effects on our business of the coronavirus pandemic (“COVID-19”); Revenue per Available Room (“RevPAR”), average daily rate (“ADR”), occupancy and other future demand and recovery trends and expectations; our expectations regarding rooms growth; our expectations regarding our ability to meet our liquidity requirements; our capital expenditures and other investment spending expectations; our expectations regarding future dividends and share repurchases; and other statements that are preceded by, followed by, or include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “foresees,” or similar expressions; and similar statements concerning anticipated future events and expectations that are not historical facts. We caution you that these statements are not guarantees of future performance and are subject to numerous evolving risks and uncertainties that we may not be able to accurately predict or assess, including the risks and uncertainties we describe in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”), Part II, Item 1A of this report, and other factors we describe from time to time in our periodic filings with the SEC. BUSINESS AND OVERVIEW We are a worldwide operator, franchisor, and licensor of hotel, residential, and timeshare properties under numerous brand names at different price and service points. Consistent with our focus on management, franchising, and licensing, we own very few of our lodging properties. We discuss our operations in the following reportable business segments: U.S. & Canada and International. We earn base management fees and, under many agreements, incentive management fees from the properties that we manage, and we earn franchise fees on the properties that others operate under franchise agreements with us. In most markets, base management and franchise fees typically consist of a percentage of property-level revenue, or certain property-level revenue in the case of franchise fees, while incentive management fees typically consist of a percentage of net house profit after a specified owner return. For our hotels in the Middle East and Africa, Asia Pacific excluding China, and Greater China regions, incentive management fees typically consist of a percentage of gross operating profit without adjustment for a specified owner return. Net house profit is calculated as gross operating profit (also referred to as “house profit”) less non-controllable expenses such as property insurance, real estate taxes, and furniture, fixtures, and equipment (“FF&E”) reserves. Additionally, we earn franchise fees for use of our intellectual property, including fees from our co-brand credit card, timeshare, and residential programs. Performance Measures We believe RevPAR, which we calculate by dividing room sales for comparable properties by room nights available for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties. RevPAR may not be comparable to similarly titled measures, such as revenues, and should not be viewed as necessarily correlating with our fee revenue. We also believe occupancy and ADR, which are components of calculating RevPAR, are meaningful indicators of our performance. Occupancy, which we calculate by dividing occupied rooms by total rooms available (including rooms in hotels temporarily closed due to issues related to COVID-19), measures the utilization of a property’s available capacity. ADR, which we calculate by dividing property room revenue by total rooms sold, measures average room price and is useful in assessing pricing levels. Comparisons to prior periods are on a systemwide constant U.S. dollar basis for comparable properties, unless otherwise stated. We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period. 15 Table of Contents We define our comparable properties as our properties that were open and operating under one of our brands since the beginning of the last full calendar year (since January 1, 2021 for the current period) and have not, in either the current or previous year: (1) undergone significant room or public space renovations or expansions, (2) been converted between company-operated and franchised, or (3) sustained substantial property damage or business interruption, with the exception of properties closed or otherwise experiencing interruptions related to COVID-19, which we continue to classify as comparable. The RevPAR, ADR, and occupancy comparisons between 2022 and 2019, which we discuss under the “Impact of COVID-19” caption below, reflect properties that are defined as comparable as of June 30, 2022, even if in 2019 they were not open and operating for the full year or did not meet all the other criteria listed above. Impact of COVID-19 While COVID-19 continues to negatively impact our business and industry, we continued to see strong global RevPAR improvement in the 2022 second quarter, with worldwide RevPAR only 2.9 percent below the 2019 second quarter, driven by ADR growth of 7.2 percent compared to the 2019 second quarter and occupancy of 68 percent. In the 2022 first half, we saw consecutive worldwide RevPAR improvements each month compared to 2019, and in June 2022, monthly worldwide RevPAR surpassed 2019 for the first time since the pandemic began. The global recovery continued across all customer segments, led by robust leisure demand and significant improvement in group demand during the quarter. In addition, business transient demand continued to increase, though more moderately, and we also continued to see more trips that appear to combine leisure and business. RevPAR in the 2022 second quarter compared to the 2021 second quarter improved 66.1 percent in our U.S. & Canada segment, 87.8 percent in our International segment, and 70.6 percent worldwide. RevPAR in the 2022 first half compared to the 2021 first half increased 78.6 percent in our U.S. & Canada segment, 87.1 percent in our International segment, and 80.5 percent worldwide. In the U.S. & Canada, compared to pre-pandemic 2019 levels, RevPAR improved 1.3 percent in the 2022 second quarter and declined 6.1 percent in the 2022 first half. RevPAR growth in the 2022 second quarter compared to 2019 was driven by strong ADR, which exceeded the 2019 second quarter by 8 percent. Internationally, compared to pre-pandemic 2019 levels, RevPAR declined 14.1 percent in the 2022 second quarter and declined 22.9 percent in the 2022 first half. RevPAR in the 2022 second quarter reflected the lifting of travel restrictions in many countries and the resulting increase in cross-border travel, although RevPAR remained constrained in Greater China and Asia Pacific excluding China. We continue to take measures to mitigate the negative financial and operational impacts of COVID-19 for our hotel owners and our own business. At the property level, we continue to work with owners and franchisees by adjusting renovation requirements for certain properties. At the corporate level, we remain focused on managing our corporate general and administrative costs and are being disciplined with respect to our capital expenditures and other investment spending. As lodging demand continues to recover from the lows seen in the early months of the pandemic, we have seen and continue to see industry-wide labor shortages causing challenges in hiring or re-hiring for certain positions, primarily in certain U.S. markets. In response, we have enhanced our recruitment and retention efforts and increased compensation where needed to maintain competitiveness. The impact of COVID-19 on the Company remains fluid, as does our corporate and property-level response. We believe COVID-19 will continue to have a negative impact on our future results for a period of time that we are currently unable to predict. The overall operational and financial impact is highly dependent on the risk factors disclosed under the heading “Risks Relating to COVID-19” in Part I, Item 1A, “Risk Factors,” of our 2021 Form 10-K and could be affected by other factors we are not currently able to predict. 16 Table of Contents Starwood Data Security Incident On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). The Starwood reservations database is no longer used for busi ness operations. We are currently unable to reasonably estimate the range of total possible financial impact to the Company from the Data Security Incident in excess of the expenses already incurred. However, we do not believe this incident will impact our long-term financial health. Although our insurance program includes coverage designed to limit our exposure to losses such as those related to the Data Security Incident, that insurance may not be sufficient or available to cover all of our expenses or other losses (including monetary payments to regulators and/or litigants) related to the Data Security Incident. In addition, certain expenses by their nature (such as, for example, expenses related to enhancing our cybersecurity program) are not covered by our insurance program. We expect to incur significant expenses associated with the Data Security Incident in future periods, primarily related to legal proceedings and regulatory investigations (including possible additional monetary payments to regulators and/or litigants), increased expenses and capital investments for information technology and information security and data privacy, and increased expenses for compliance activities and to meet increased legal and regulatory requirements. See Note 5 for additional information related to legal proceedings and governmental investigations related to the Data Security Incident. System Growth and Pipeline At the end of the 2022 second quarter, our system had 8,120 properties (1,500,744 rooms), compared to 7,989 properties (1,479,179 rooms) at year-end 2021 and 7,797 properties (1,451,609 rooms) at the end of the 2021 second quarter. The increase compared to year-end 2021 reflects gross additions of 172 properties (28,716 rooms) and deletions of 41 properties (7,155 rooms). Approximately 24 percent of our 2022 first half gross room additions were conversions from competitor brands. We currently expect full-year 2022 total gross rooms growth to approach 5.0 percent and net rooms growth of 3.0 to 3.5 percent, which includes the impact of the Company’s decision to suspend its operations in Russia. At the end of the 2022 second quarter, we had more than 495,000 hotel rooms in our development pipeline, which includes approximately 203,300 hotel rooms under construction and roughly 27,400 hotel rooms approved for development but not yet subject to signed contracts. Over half of the rooms in our development pipeline are outside U.S. & Canada. Properties and Rooms At June 30, 2022, we operated, franchised, and licensed the following properties and rooms: Managed Franchised/Licensed Owned/Leased Residential Total Properties Rooms Properties Rooms Properties Rooms Properties Rooms Properties Rooms U.S. & Canada 633 216,227 5,065 728,380 26 6,483 66 6,935 5,790 958,025 International 1,327 337,992 831 169,136 38 9,199 42 3,691 2,238 520,018 Timeshare — — 92 22,701 — — — — 92 22,701 Total 1,960 554,219 5,988 920,217 64 15,682 108 10,626 8,120 1,500,744 Lodging Statistics The following tables present RevPAR, occupancy, and ADR statistics for comparable properties. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties. 17 Table of Contents Three Months Ended June 30, 2022 and Change vs. Three Months Ended June 30, 2021 RevPAR Occupancy Average Daily Rate 2022 vs. 2021 2022 vs. 2021 2022 vs. 2021 Comparable Company-Operated Properties U.S. & Canada $ 177.42 106.4 % 71.7 % 26.5 % pts. $ 247.36 30.1 % Greater China $ 44.13 (44.9) % 43.1 % (21.5) % pts. $ 102.42 (17.3) % Asia Pacific excluding China $ 79.22 156.3 % 58.6 % 28.9 % pts. $ 135.16 29.8 % Caribbean & Latin America $ 126.33 76.6 % 60.8 % 20.2 % pts. $ 207.76 17.8 % Europe $ 164.92 357.5 % 69.6 % 46.5 % pts. $ 237.13 51.9 % Middle East & Africa $ 106.13 60.7 % 60.3 % 14.5 % pts. $ 175.94 22.0 % International - All (1) $ 91.80 64.4 % 56.2 % 13.4 % pts. $ 163.23 25.1 % Worldwide (2) $ 130.20 87.7 % 63.2 % 19.3 % pts. $ 206.07 30.4 % Comparable Systemwide Properties U.S. & Canada $ 131.53 66.1 % 72.4 % 15.9 % pts. $ 181.79 29.7 % Greater China $ 42.08 (43.9) % 41.8 % (20.9) % pts. $ 100.73 (15.7) % Asia Pacific excluding China $ 79.01 151.5 % 58.9 % 29.1 % pts. $ 134.08 27.5 % Caribbean & Latin America $ 108.21 87.5 % 59.6 % 20.7 % pts. $ 181.57 22.3 % Europe $ 135.51 355.4 % 67.5 % 46.1 % pts. $ 200.79 44.3 % Middle East & Africa $ 99.71 64.1 % 59.9 % 15.4 % pts. $ 166.49 21.9 % International - All (1) $ 90.91 87.8 % 57.2 % 18.6 % pts. $ 158.86 26.6 % Worldwide (2) $ 119.37 70.6 % 67.8 % 16.7 % pts. $ 175.99 28.6 % Six Months Ended June 30, 2022 and Change vs. Six Months Ended June 30, 2021 RevPAR Occupancy Average Daily Rate 2022 vs. 2021 2022 vs. 2021 2022 vs. 2021 Comparable Company-Operated Properties U.S. & Canada $ 154.77 124.5 % 63.1 % 26.0 % pts. $ 245.11 32.1 % Greater China $ 48.79 (29.4) % 42.6 % (13.8) % pts. $ 114.47 (6.6) % Asia Pacific excluding China $ 68.62 109.4 % 51.8 % 20.4 % pts. $ 132.45 26.9 % Caribbean & Latin America $ 128.74 109.3 % 59.2 % 23.7 % pts. $ 217.38 25.6 % Europe $ 123.50 370.5 % 56.3 % 38.4 % pts. $ 219.54 49.1 % Middle East & Africa $ 117.34 78.9 % 63.2 % 19.0 % pts. $ 185.75 25.1 % International - All (1) $ 84.82 68.1 % 52.2 % 13.0 % pts. $ 162.48 26.2 % Worldwide (2) $ 116.23 97.8 % 57.1 % 18.8 % pts. $ 203.50 32.5 % Comparable Systemwide Properties U.S. & Canada $ 114.31 78.6 % 65.2 % 16.7 % pts. $ 175.20 33.0 % Greater China $ 46.57 (28.4) % 41.7 % (13.3) % pts. $ 111.73 (5.5) % Asia Pacific excluding China $ 68.61 104.3 % 52.1 % 20.2 % pts. $ 131.79 24.9 % Caribbean & Latin America $ 104.65 119.2 % 56.4 % 22.7 % pts. $ 185.63 30.8 % Europe $ 99.99 368.1 % 53.4 % 37.0 % pts. $ 187.41 43.8 % Middle East & Africa $ 109.21 81.4 % 62.3 % 19.3 % pts. $ 175.32 25.3 % International - All (1) $ 80.95 87.1 % 51.8 % 16.6 % pts. $ 156.40 27.2 % Worldwide (2) $ 104.33 80.5 % 61.2 % 16.6 % pts. $ 170.45 31.5 % (1) Includes Greater China, Asia Pacific excluding China, Caribbean & Latin America, Europe, and Middle East & Africa. (2) Includes U.S. & Canada and International - All. CONSOLIDATED RESULTS Our results in the 2022 second quarter and 2022 first half continued to be impacted by COVID-19. See the “Impact of COVID-19” section above for more information about the impact to our business during the 2022 second quarter and 2022 first half, and the discussion below for additional analysis of our consolidated results of operations for the 2022 second quarter compared to the 2021 second quarter and for the 2022 first half compared to the 2021 first half. 18 Table of Contents Fee Revenues Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change 2022 vs. 2021 June 30, 2022 June 30, 2021 Change 2022 vs. 2021 Base management fees $ 269 $ 156 $ 113 72 % $ 482 $ 262 $ 220 84 % Franchise fees 669 431 238 55 % 1,169 737 432 59 % Incentive management fees 135 55 80 145 % 237 88 149 169 % Gross fee revenues 1,073 642 431 67 % 1,888 1,087 801 74 % Contract investment amortization (19) (18) (1) (6) % (43) (35) (8) (23) % Net fee revenues $ 1,054 $ 624 $ 430 69 % $ 1,845 $ 1,052 $ 793 75 % The increases in base management fees in the 2022 second quarter and 2022 first half primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19. The increases in franchise fees in the 2022 second quarter and 2022 first half primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19, higher co-brand credit card fees ($40 million and $76 million, respectively), and unit growth ($30 million and $55 million, respectively). The increases in incentive management fees in the 2022 second quarter and 2022 first half primarily reflected higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19. Owned, Leased, and Other Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change 2022 vs. 2021 June 30, 2022 June 30, 2021 Change 2022 vs. 2021 Owned, leased, and other revenue $ 364 $ 187 $ 177 95 % $ 626 $ 295 $ 331 112 % Owned, leased, and other - direct expenses 281 168 113 67 % 478 303 175 58 % Owned, leased, and other, net $ 83 $ 19 $ 64 337 % $ 148 $ (8) $ 156 1,950 % Owned, leased, and other revenue, net of direct expenses increased in the 2022 second quarter primarily due to stronger results at our owned and leased properties driven by the ongoing recovery in lodging demand from the impacts of COVID-19, partially offset by $18 million of subsidies under German government COVID-19 assistance programs for certain of our leased hotels received in the 2021 second quarter. Owned, leased, and other revenue, net of direct expenses increased in the 2022 first half primarily due to stronger results at our owned and leased properties driven by the ongoing recovery in lodging demand from the impacts of COVID-19, partially offset by lower termination fees ($16 million). Cost Reimbursements Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change 2022 vs. 2021 June 30, 2022 June 30, 2021 Change 2022 vs. 2021 Cost reimbursement revenue $ 3,920 $ 2,338 $ 1,582 68 % $ 7,066 $ 4,118 $ 2,948 72 % Reimbursed expenses 3,827 2,255 1,572 70 % 7,006 4,088 2,918 71 % Cost reimbursements, net $ 93 $ 83 $ 10 12 % $ 60 $ 30 $ 30 100 % Cost reimbursements, net (cost reimbursement revenue, net of reimbursed expenses) varies due to timing differences between the costs we incur for centralized programs and services and the related rei mbursemen ts we receive from hotel owners and franchisees. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively. 19 Table of Contents The increase in cost reimbursements, net in the 2022 second quarter primarily reflects higher revenues, net of expenses, related to our insurance program and for our centralized programs and services, partially offset by Loyalty Program activity, primarily due to higher program expenses. The increase in cost reimbursements, net in the 2022 first half primarily reflects higher revenues, net of expenses, for our centralized programs and services and lower expenses related to our insurance program, partially offset by Loyalty Program activity, primarily due to higher program expenses. Other Operating Expenses Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change 2022 vs. 2021 June 30, 2022 June 30, 2021 Change 2022 vs. 2021 Depreciation, amortization, and other $ 49 $ 50 $ (1) (2) % $ 97 $ 102 $ (5) (5) % General, administrative, and other 231 187 44 24 % 439 398 41 10 % Restructuring, merger-related charges, and other — 3 (3) (100) % 9 4 5 125 % General, administrative, and other expenses increased in the 2022 second quarter and 2022 first half primarily due to higher compensation costs and higher administrative costs. Non-Operating Income (Expense) Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change 2022 vs. 2021 June 30, 2022 June 30, 2021 Change 2022 vs. 2021 Gains and other income, net $ 2 $ 5 $ (3) (60) % $ 6 $ 6 $ — — % Interest expense (95) (109) 14 13 % (188) (216) 28 13 % Interest income 6 7 (1) (14) % 11 14 (3) (21) % Equity in earnings (losses) 15 (8) 23 288 % 17 (20) 37 185 % Interest expense decreased in the 2022 first half, primarily due to lower debt balances driven by Senior Notes maturities and repurchases, net of issuances. Equity in earnings (losses) changed in the 2022 second quarter and 2022 first half primarily due to our share of the gains on the sales of properties held by equity method investees ($13 million and $21 million, respectively) and the ongoing recovery in lodging demand from the impacts of COVID-19. Income Taxes Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change 2022 vs. 2021 June 30, 2022 June 30, 2021 Change 2022 vs. 2021 (Provision) benefit for income taxes $ (200) $ 41 $ (241) (588) % $ (299) $ 57 $ (356) (625) % Our tax provision changed in the 2022 second quarter and 2022 first half, compared to our tax benefit in the 2021 second quarter and 2021 first half, primarily due to the increase in operating income ($125 million and $226 million, respectively) and the release of tax reserves in the 2021 second quarter due to the favorable resolution of Legacy-Starwood tax audits ($118 million). 20 Table of Contents BUSINESS SEGMENTS Our segment results in the 2022 second quarter and 2022 first half continued to be impacted by COVID-19. See the “Impact of COVID-19” section above for more information about the impact to our business during the 2022 second quarter and 2022 first half and the discussion below for additional analysis of the operating results of our reportable business segments. Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change 2022 vs. 2021 June 30, 2022 June 30, 2021 Change 2022 vs. 2021 U.S. & Canada Segment revenues $ 4,117 $ 2,328 $ 1,789 77 % $ 7,388 $ 4,049 $ 3,339 82 % Segment profit 727 344 383 111 % 1,181 487 694 143 % International Segment revenues 875 522 353 68 % 1,550 913 637 70 % Segment profit 210 79 131 166 % 341 56 285 509 % Properties Rooms June 30, 2022 June 30, 2021 vs. June 30, 2021 June 30, 2022 June 30, 2021 vs. June 30, 2021 U.S. & Canada 5,790 5,600 190 3 % 958,025 932,172 25,853 3 % International 2,238 2,105 133 6 % 520,018 496,679 23,339 5 % U.S. & Canada Second Quarter U.S. & Canada quarterly segment profit increased, primarily due to the following: • $310 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy and higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, as well as unit growth; • $53 million of higher cost reimbursement revenue, net of reimbursed expenses; and • $24 million of increased owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19. First Half U.S. & Canada 2022 first half segment profit increased primarily due to: • $549 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy and higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, as well as unit growth, partially offset by lower residential branding fees; • $86 million of higher cost reimbursement revenue, net of reimbursed expenses; • $48 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19; and • $17 million of higher equity in earnings. 21 Table of Contents International Second Quarter International quarterly segment profit increased primarily due to: • $80 million of higher gross fee revenues, due to higher comparable systemwide RevPAR driven by increases in both ADR and occupancy in all regions except Greater China and higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19; • $32 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19, partially offset by subsidies under German government COVID-19 assistance programs for certain of our leased hotels received in the 2021 second quarter; and • $17 million of higher cost reimbursement revenue, net of reimbursed expenses; partially offset by: • $15 million of higher general, administrative, and other expenses, partially reflecting a higher provision for credit losses. First Half International 2022 first half segment profit increased primarily due to: • $170 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy in all regions except Greater China and higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, as well as unit growth, partially offset by net unfavorable foreign exchange rates; • $95 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19; and • $29 million of higher cost reimbursement revenue, net of reimbursed expenses; partially offset by: • $27 million of higher general, administrative, and other expenses, partially reflecting a higher provision for credit losses. STOCK-BASED COMPENSATION See Note 3 for more information. LIQUIDITY AND CAPITAL RESOURCES Our long-term financial objectives include diversifying our financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At the end of the 2022 second quarter, our long-term debt had a weighted average interest rate of 3.7 percent and a weighted average maturity of approximately 6.6 years. Including the effect of interest rate swaps, the ratio of our fixed-rate long-term debt to our total long-term debt was 0.9 to 1.0 at the end of the 2022 second quarter. We remain focused on preserving our financial flexibility and managing our debt maturities. We also remain focused on managing our corporate general and administrative costs and our capital expenditures and other investment spending. 22 Table of Contents We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to fund our liquidity needs. We currently believe the Credit Facility, our cash on hand, and our access to capital markets remain adequate to meet our liquidity requirements. Sources of Liquidity Our Credit Facility Our Credit Facility provides for up to $4.5 billion of aggregate borrowings for general corporate needs, including working capital, capital expenditures, letters of credit, acquisitions, and to support our commercial paper program if and when we resume issuing commercial paper. Borrowings under the Credit Facility generally bear interest at LIBOR (the London Interbank Offered Rate) plus a spread, based on our public debt rating. We also pay quarterly fees on the Credit Facility at a rate based on our public debt rating. We classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings (if any) as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis. The Credit Facility expires on June 28, 2024. As of June 30, 2022, we had total outstanding borrowings under the Credit Facility of $0.3 billion and remaining borrowing capacity of $4.2 billion. In July 2022, we repaid $275 million of outstanding borrowings under the Credit Facility. We entered into amendments to the Credit Facility in April 2020 and January 2021 (the “Credit Facility Amendments”). The debt leverage covenant in the Credit Facility, which is tested each quarter and was waived pursuant to the Credit Facility Amendments through and including the fourth quarter of 2021, resumed beginning with the quarter that ended March 31, 2022. The Credit Facility Amendments adjusted the required leverage levels for this covenant starting at 5.50 to 1.00 for the test period that ended on March 31, 2022 and gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal quarters, as further described in the Credit Facility. The Credit Facility Amendments also amended certain other terms of the Credit Facility, including reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency Rate. Our outstanding public debt does not contain a corresponding financial covenant or a requirement that we maintain certain financial ratios. We currently satisfy the covenants in our Credit Facility. Commercial Paper Due to changes to our credit ratings as a result of the impact of COVID-19 on our business, we currently are not issuing commercial paper. As a result, we have had to rely more on borrowings under the Credit Facility and issuance of senior notes. Uses of Cash Cash, cash equivalents, and restricted cash totaled $567 million at June 30, 2022, a decrease of $854 million from year-end 2021, primarily reflecting Credit Facility repayments ($750 million), Senior Notes repayments ($573 million), share repurchases ($300 million), capital and technology expenditures ($119 million), dividends paid ($98 million), and financing outflows for employee stock-based compensation withholding taxes ($87 million), partially offset by net cash provided by operating activities ($1,048 million). Net cash provided by operating activities increased by $922 million in the 2022 first half compared to the 2021 first half, primarily due to the net income recorded in the 2022 first half (adjusted for non-cash items) and lower cash paid for income taxes. In 2020, we received $920 million of cash from the prepayment of certain future revenues under the amendments to our existing U.S.-issued co-brand credit card agreements, which reduced in the 2022 first half and 2021 first half, and will in the future reduce, the amount of cash we receive from these card issuers. Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of the 2022 second quarter. We have significant borrowing capacity under our Credit Facility should we need additional working capital. 23 Table of Contents Capital Expenditures and Other Investments We made capital and technology expenditures of $119 million in the 2022 first half and $70 million in the 2021 first half. We expect capital expenditures and other investments will total approximately $600 million to $650 million for the 2022 full year, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities (including approximately $200 million for maintenance capital spending and our new headquarters). Share Repurchases and Dividends Given the improvements in the global demand environment and the restoration of our leverage ratio to within our target leverage ratio range, we resumed repurchases of our common stock in the 2022 second quarter. We purchased 1.9 million shares in the 2022 second quarter for $300 million. Year-to-date through July 29, 2022, we repurchased 2.9 million shares for $448 million. For additional information, see “Issuer Purchases of Equity Securities” in Part II, Item 2. On May 2, 2022, our Board of Directors declared a quarterly cash dividend of $0.30 per share, which was paid on June 30, 2022 to stockholders of record on May 16, 2022. We expect to continue to return cash to stockholders through share repurchases and dividends in the remainder of 2022. Material Cash Requirements As of the end of the 2022 second quarter, there have been no material changes to our cash requirements as disclosed in our 2021 Form 10-K. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2021 Form 10-K for more information about our cash requirements. Also, see Note 6 for information on our long-term debt. At June 30, 2022, projected Deemed Repatriation Transition Tax payments under the U.S. tax legislation enacted on December 22, 2017, commonly referred to as the 2017 Tax Cuts and Jobs Act, totaled $306 million, of which $80 million is payable within the next 12 months from June 30, 2022. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our 2021 Form 10-K. We have made no material changes to our critical accounting policies or the methodologies or assumptions that we apply under them. Item 3. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk has not materially changed since December 31, 2021. See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K for more information on our exposure to market risk.