What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-02 · 89 added, 60 removed, 324 unchanged (32% of the section changed)

3 unchanged sentences

($ in millions, except per share amounts)

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Base management fees $ 275 $ 190 $ 757 $ 452

16 unchanged sentences

Gains and other income, net 3 — 9 6

Loss on extinguishment of debt — ( 164 ) — ( 164 )

Interest expense ( 100 ) ( 107 ) ( 288 ) ( 323 )

2 unchanged sentences

INCOME BEFORE INCOME TAXES 869 278 2,223 632

(Provision) benefit for income taxes ( 200 ) 41 ( 299 ) 57

Provision for income taxes ( 239 ) ( 58 ) ( 538 ) ( 1 )

NET INCOME $ 630 $ 220 $ 1,685 $ 631

6 unchanged sentences

($ in millions)

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Net income $ 630 $ 220 $ 1,685 $ 631

8 unchanged sentences

($ in millions)

September 30,

2022 December 31,

39 unchanged sentences

($ in millions)

Six Months Ended

June 30, 2022 June 30, 2021

Nine Months Ended

September 30, 2022 September 30, 2021

OPERATING ACTIVITIES

8 unchanged sentences

Working capital changes ( 225 ) 71

Loss on extinguishment of debt

Deferred revenue changes and other 19 ( 95 )

12 unchanged sentences

Issuance of Class A Common Stock — 2

Debt extinguishment costs — ( 155 )

Dividends paid ( 195 ) —

1 unchanged sentence

Stock-based compensation withholding taxes ( 88 ) ( 85 )

Other — ( 7 )

Net cash used in financing activities ( 2,138 ) ( 761 )

2 unchanged sentences

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1)

(1) The 2022 amounts include beginning restricted cash of $ 28 million at December 31, 2021, and ending restricted cash of $ 21 million at June 30, 2022, which we present in the “Prepaid expenses and other” and “Other noncurrent assets” captions of our Balance Sheets.

$ 1,068 $ 797

(1) The 2022 amounts include beginning restricted cash of $ 28 million at December 31, 2021, and ending restricted cash of $ 23 million at September 30, 2022, which we present in the “Prepaid expenses and other” and “Other noncurrent assets” captions of our Balance Sheets.

See Notes to Condensed Consolidated Financial Statements.

14 unchanged sentences

Accordingly, ultimate results could differ from those estimates.

The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of June 30, 2022 and December 31, 2021, the results of our operations for the three and six months ended June 30, 2022 and June 30, 2021, and cash flows for the six months ended June 30, 2022 and June 30, 2021.

The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of September 30, 2022 and December 31, 2021, the results of our operations for the three and nine months ended September 30, 2022 and September 30, 2021, and cash flows for the nine months ended September 30, 2022 and September 30, 2021.

Interim results may not be indicative of fiscal year performance because of seasonal and short-term variations, as well as the impact of COVID-19.

2 unchanged sentences

The table below presents the reconciliation of the earnings and number of shares used in our calculations of basic and diluted earnings per share:

Three Months Ended Six Months Ended

(in millions, except per share amounts) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

(in millions, except per share amounts) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Computation of Basic Earnings Per Share

10 unchanged sentences

STOCK-BASED COMPENSATION

We granted 1.0 million restricted stock units (“RSUs”) during the 2022 first half to certain officers and employees, and those units vest generally over four years in equal annual installments commencing one year after the grant date.

We also granted 0.1 million performance-based RSUs (“PSUs”) in the 2022 first half to certain executives, which are earned, subject to continued employment and the satisfaction of certain performance and market conditions, generally based on the degree of achievement of pre-established targets for 2024 adjusted EBITDA performance and relative total stockholder return over the 2022 to 2024 performance period.

RSUs, including PSUs, granted in the 2022 first half had a weighted average grant-date fair value of $ 169 per unit.

We recorded stock-based compensation expense for RSUs and PSUs of $ 49 million in the 2022 second quarter, $ 41 million in the 2021 second quarter, $ 91 million in the 2022 first half, and $ 90 million in the 2021 first half.

Deferred compensation costs for unvested awards for RSUs and PSUs totaled $ 270 million at June 30, 2022 and $ 189 million at December 31, 2021.

Our effective tax rate was 22.8 percent for the 2022 second quarter compared to ( 10.9 ) percent for the 2021 second quarter, and 22.1 percent for the 2022 first half compared to ( 16.3 ) percent for the 2021 first half.

The changes in our effective tax rates were primarily due to the prior year tax benefit from the release of tax reserves due to the favorable resolution of Legacy-Starwood tax audits.

We paid cash for income taxes, net of refunds, of $ 125 million in the 2022 first half and $ 220 million in the 2021 first half.

We granted 1.1 million restricted stock units (“RSUs”) during the 2022 first three quarters to certain officers and employees, and those units vest generally over four years in equal annual installments commencing one year after the grant date.

We also granted 0.1 million performance-based RSUs (“PSUs”) in the 2022 first three quarters to certain executives, which are earned, subject to continued employment and the satisfaction of certain performance and market conditions, generally based on the degree of achievement of pre-established targets for 2024 adjusted EBITDA performance and relative total stockholder return over the 2022 to 2024 performance period.

RSUs, including PSUs, granted in the 2022 first three quarters had a weighted average grant-date fair value of $ 169 per unit.

We recorded stock-based compensation expense for RSUs and PSUs of $ 45 million in the 2022 third quarter, $ 40 million in the 2021 third quarter, $ 136 million in the 2022 first three quarters, and $ 130 million in the 2021 first three quarters.

Deferred compensation costs for unvested awards for RSUs and PSUs totaled $ 223 million at September 30, 2022 and $ 189 million at December 31, 2021.

Our effective tax rate was 27.5 percent for the 2022 third quarter compared to 21.1 percent for the 2021 third quarter.

The increase in our effective tax rate was primarily due to the current year tax expense from the completion of prior years’ tax audits.

Our effective tax rate was 24.2 percent for the 2022 first three quarters compared to 0.2 percent for the 2021 first three quarters.

The increase in our effective tax rate was primarily due to the prior year tax benefit from the release of tax reserves due to the favorable resolution of Legacy-Starwood tax audits, as well as the current year tax expense from the completion of prior years’ tax audits.

We paid cash for income taxes, net of refunds, of $ 341 million in the 2022 first three quarters and $ 293 million in the 2021 first three quarters.

COMMITMENTS AND CONTINGENCIES

We present the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for our debt service, operating profit, and other guarantees (excluding contingent purchase obligations) for which we are the primary obligor at June 30, 2022 in the following table:

($ in millions)

9 unchanged sentences

If the owner exercises the put option, the closing is expected to occur in the 2024 fourth quarter, and we have the option to purchase, at the same time the put transaction closes, the fee simple interest in the underlying land for an additional $ 200 million in cash.

We account for the put option as a guarantee, and our recorded liability was $ 300 million at June 30, 2022 and December 31, 2021.

We account for the put option as a guarantee, and our recorded liability was $ 300 million at September 30, 2022 and December 31, 2021.

Starwood Data Security Incident

10 unchanged sentences

cases are consolidated in the U.S.

District Court for the District of Maryland, pursuant to orders of the U.S.

District Court for the District of Maryland (the “District Court”), pursuant to orders of the U.S.

Judicial Panel on Multidistrict Litigation (the “MDL”).

On May 3, 2022, the U.S.

District Court for the District of Maryland granted in part and denied in part class certification of various U.S.

On May 3, 2022, the District Court granted in part and denied in part class certification of various U.S.

groups of consumers.

1 unchanged sentence

Court of Appeals for the Fourth Circuit granted our petition to appeal.

On September 8, 2022, the District Court held that the City of Chicago (which brought claims against us that are consolidated in the MDL proceeding) could not pursue injunctive claims but could pursue monetary claims.

The Canadian cases have effectively been consolidated into a single case in the province of Ontario.

We dispute the allegations in these lawsuits and are vigorously defending against such claims.

On August 18, 2020, a purported representative action was brought against us in the High Court of Justice for England and Wales on behalf of an alleged claimant class of English and Welsh residents alleging breaches of the General Data Protection Regulation and/or the U.K.

Data Protection Act 2018 in connection with the Data Security Incident.

The plaintiffs informed us that they have decided not to pursue this case and the case was discontinued in May 2022.

In addition, numerous U.S.

In addition, various U.S.

federal, U.S.

1 unchanged sentence

Although some of these matters have been resolved or no longer appear to be active, some remain open.

We are in discussions with the Attorney General offices from 49 states and the District of Columbia, the Federal Trade Commission, and regulatory authorities in Canada and Australia to resolve their investigations and requests.

While we believe it is reasonably possible that we may incur additional losses associated with the above described MDL proceedings and regulatory investigations related to the Data Security Incident, it is not possible to reasonably estimate the amount of loss or range of loss, if any, in excess of the amounts already incurred that might result from adverse judgments, settlements, fines, penalties or other resolution of these proceedings and investigations based on:

(i) in the case of the above described MDL proceedings, the current stage of these proceedings, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, and the lack of resolution of significant factual and legal issues;

and (ii) in the case of the above described regulatory investigations, the lack of resolution of significant factual and legal issues in our discussions with the Federal Trade Commission and the state Attorneys General.

We are in discussions with the Attorney General offices from 49 states and the District of Columbia and the Federal Trade Commission.

Based on the ongoing discussions, we believe it is probable that we will incur losses and have recorded an accrual in the 2022 third quarter for an estimated loss contingency;

the amount of this accrual is not material to our Financial Statements.

We are also in discussion with the regulatory authority in Australia to resolve its investigation and requests.

While we believe it is reasonably possible that we may incur losses in excess of the amounts recorded associated with the above described MDL proceedings and regulatory investigations related to the Data Security Incident, it is not possible to reasonably estimate the amount of such losses or range of loss that might result from adverse judgments, settlements, fines, penalties or other resolution of these proceedings and investigations based on:

(1) in the case of the above described MDL proceedings, the current stage of these proceedings, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, and the lack of resolution of significant factual and legal issues;

and (2) in the case of the above described regulatory investigations, the lack of resolution with the Federal Trade Commission and the state Attorneys General.

LONG-TERM DEBT

We provide detail on our long-term debt balances, net of discounts, premiums, and debt issuance costs, in the following table as of June 30, 2022 and year-end 2021:

($ in millions) June 30,

We provide detail on our long-term debt balances, net of discounts, premiums, and debt issuance costs, in the following table as of September 30, 2022 and year-end 2021:

($ in millions) September 30,

2022 December 31,

22 unchanged sentences

(effective interest rate of 3.9 %)

Series DD Notes, interest rate of 2.1 %, face amount of $ 224 , maturing October 3, 2022

Series DD Notes, interest rate of 2.1 %, face amount of $ 224 , matured October 3, 2022

(effective interest rate of 1.2 %)

9 unchanged sentences

(effective interest rate of 2.8 %)

Series JJ Notes, interest rate of 5.0 %, face amount of $ 1,000 , maturing October 15, 2027

(effective interest rate of 5.4 %)

Credit Facility — 1,050

Finance lease obligations 141 146

Other 133 135

$ 9,418 $ 10,138

1 unchanged sentence

$ 8,860 $ 9,333

We paid cash for interest, net of amounts capitalized, of $ 179 million in the 2022 first half and $ 196 million in the 2021 first half.

We paid cash for interest, net of amounts capitalized, of $ 203 million in the 2022 first three quarters and $ 251 million in the 2021 first three quarters.

In September 2022, we issued $ 1.0 billion aggregate principal amount of 5.000 percent Series JJ Notes due October 15, 2027 (the “Series JJ Notes”).

We will pay interest on the Series JJ Notes in April and October of each year, commencing in April 2023.

We received net proceeds of approximately $ 983 million from the offering of the Series JJ Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes, including working capital, capital expenditures, acquisitions, stock repurchases or repayment of outstanding indebtedness.

In June 2022, we redeemed all $ 173 million aggregate principal amount of our outstanding Series L Notes due in September 2022.

4 unchanged sentences

The Credit Facility expires on June 28, 2024.

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”).

2 unchanged sentences

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.

In the 2022 fourth quarter, we announced that we reached an agreement with Hoteles City Express, S.A.B.

to acquire the City Express brand portfolio for $ 100 million.

As of October 19, 2022, the portfolio included 152 mid-scale hotels ( 17,356 rooms) located in Mexico, Costa Rica, Colombia, and Chile.

Upon closing of the transaction, which is subject to regulatory approval and other customary closing conditions, City Express will become our 31 st brand and the City Express hotels will become part of our franchise system.

We expect the transaction could close between the end of 2022 and the first half of 2023.

FAIR VALUE OF FINANCIAL INSTRUMENTS

1 unchanged sentence

We present the carrying values and the fair values of noncurrent financial assets and liabilities that qualify as financial instruments in the following table:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

($ in millions) Carrying Amount Fair Value Carrying Amount Fair Value

9 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE LOSS AND STOCKHOLDERS’ EQUITY

The following tables detail the accumulated other comprehensive loss activity for the 2022 first half and 2021 first half:

The following tables detail the accumulated other comprehensive loss activity for the 2022 first three quarters and 2021 first three quarters:

($ in millions) Foreign Currency Translation Adjustments Other Adjustments Accumulated Other Comprehensive Loss

Balance at year-end 2021 $ ( 351 ) $ 9 $ ( 342 )

Other comprehensive income before reclassifications (1)

Other comprehensive (loss) income before reclassifications (1)

( 653 ) 9 ( 644 )

Reclassification adjustments — ( 4 ) ( 4 )

Net other comprehensive income ( 313 ) 4 ( 309 )

Balance at June 30, 2022 $ ( 664 ) $ 13 $ ( 651 )

Net other comprehensive (loss) income ( 653 ) 5 ( 648 )

Balance at September 30, 2022 $ ( 1,004 ) $ 14 $ ( 990 )

($ in millions) Foreign Currency Translation Adjustments Other Adjustments Accumulated Other Comprehensive Loss

4 unchanged sentences

Net other comprehensive loss ( 197 ) — ( 197 )

Balance at June 30, 2021 $ ( 198 ) $ 4 $ ( 194 )

(1) Other comprehensive income (loss) before reclassifications for foreign currency translation adjustments includes intra-entity foreign currency transactions that are of a long-term investment nature, which resulted in gains of $ 44 million for the 2022 first half and $ 18 million for the 2021 first half.

The following tables detail the changes in common shares outstanding and stockholders’ equity for the 2022 first half and 2021 first half:

Balance at September 30, 2021 $ ( 336 ) $ 4 $ ( 332 )

(1) Other comprehensive (loss) income before reclassifications for foreign currency translation adjustments includes intra-entity foreign currency transactions that are of a long-term investment nature, which resulted in gains of $ 76 million for the 2022 first three quarters and $ 30 million for the 2021 first three quarters.

The following tables detail the changes in common shares outstanding and stockholders’ equity for the 2022 first three quarters and 2021 first three quarters:

(in millions, except per share amounts)

14 unchanged sentences

$ 1,772 $ 5 $ 5,872 $ 11,262 $ ( 14,716 ) $ ( 651 )

— Net income 630 — — 630 — —

— Other comprehensive loss ( 339 ) — — — — ( 339 )

— Dividends ($ 0.30 per share)

( 97 ) — — ( 97 ) — —

0.1 Stock-based compensation plans 47 — 47 — — —

( 6.2 ) Purchase of treasury stock ( 950 ) — — — ( 950 ) —

319.3 Balance at September 30, 2022

$ 1,063 $ 5 $ 5,919 $ 11,795 $ ( 15,666 ) $ ( 990 )

Outstanding Total Class A Common Stock Additional Paid-in-Capital Retained Earnings Treasury Stock, at Cost Accumulated Other Comprehensive Loss

10 unchanged sentences

$ 796 $ 5 $ 5,830 $ 9,618 $ ( 14,463 ) $ ( 194 )

— Net income 220 — — 220 — —

— Other comprehensive loss ( 138 ) — — — — ( 138 )

0.1 Stock-based compensation plans 40 — 39 — 1 —

325.7 Balance at September 30, 2021 $ 918 $ 5 $ 5,869 $ 9,838 $ ( 14,462 ) $ ( 332 )

CONTRACTS WITH CUSTOMERS

Our current and noncurrent liability for guest loyalty program increased by $ 173 million, to $ 6,644 million at June 30, 2022, from $ 6,471 million at December 31, 2021, primarily reflecting an increase in points earned by members.

Our current and noncurrent liability for guest loyalty program increased by $ 175 million, to $ 6,646 million at September 30, 2022, from $ 6,471 million at December 31, 2021, primarily reflecting an increase in points earned by members.

This includes a $ 191 million reclassification from deferred revenue to the liability for guest loyalty program primarily due to points that were earned during the period by members using our U.S.-issued co-brand credit cards, which were prepaid by the financial institutions in 2020.

The increase was partially offset by $ 1,324 million of revenue recognized in the 2022 first half, that was deferred as of December 31, 2021.

The increase was partially offset by $ 2,025 million of revenue recognized in the 2022 first three quarters, that was deferred as of December 31, 2021.

The current portion of our liability for guest loyalty program increased compared to December 31, 2021, due to higher estimated redemptions in the short-term.

Current and noncurrent deferred revenue decreased by $ 138 million, to $ 1,389 million at June 30, 2022, from $ 1,527 million at December 31, 2021, primarily as a result of $ 186 million of revenue recognized in the 2022 first half that was deferred as of December 31, 2021, as well as the reclassification from deferred revenue to the liability for guest loyalty program, which we discuss above .

The decrease was partially offset by deferred cash received related to our co-brand credit cards and gift cards, as well as an increase in franchise application and relicensing fees.

Our allowance for credit losses increased to $ 212 million at June 30, 2022 from $ 187 million at December 31, 2021, primarily reflecting our provision for credit losses.

Our provision for credit losses totaled $ 14 million in the 2022 second quarter and $ 33 million in the 2022 first half.

Current and noncurrent deferred revenue decreased by $ 162 million, to $ 1,365 million at September 30, 2022, from $ 1,527 million at December 31, 2021, primarily as a result of $ 256 million of revenue recognized in the 2022 first three quarters that was deferred as of December 31, 2021, as well as the reclassification from deferred revenue to the liability for guest loyalty program, which we discuss above .

The decrease was partially offset by deferred revenue related to our co-brand credit cards, gift cards, certain centralized programs and services fees, and franchise application and relicensing fees.

Our allowance for credit losses increased to $ 195 million at September 30, 2022 from $ 187 million at December 31, 2021, primarily reflecting our provision for credit losses, partially offset by write-offs of amounts deemed uncollectible.

In the 2022 third quarter, we recorded a $ 6 million net reversal of our provision for credit losses.

In the 2022 first three quarters, we recorded a $ 27 million provision for credit losses.

BUSINESS SEGMENTS

3 unchanged sentences

We assign gains and losses, equity in earnings or losses, direct general, administrative, and other expenses, and other restructuring charges to each of our segments.

“Unallocated corporate and other” includes a portion of our revenues (including license fees we receive from our credit card programs and fees from vacation ownership licensing agreements), revenues and expenses for our Loyalty Program, general, administrative, and other expenses, restructuring, merger-related charges, and other expenses, equity in earnings or losses, and other gains or losses that we do not allocate to our segments.

charges, and other expenses, equity in earnings or losses, and other gains or losses that we do not allocate to our segments.

Our chief operating decision maker monitors assets for the consolidated Company but does not use assets by operating segment when assessing performance or making operating segment resource allocations.

Segment Revenues

The following tables present our revenues disaggregated by segment and major revenue stream for the 2022 second quarter, 2021 second quarter, 2022 first half, and 2021 first half:

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

The following tables present our revenues disaggregated by segment and major revenue stream for the 2022 third quarter, 2021 third quarter, 2022 first three quarters, and 2021 first three quarters:

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

($ in millions) U.S.

10 unchanged sentences

$ 5,313 $ 3,946

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021

($ in millions) U.S.

11 unchanged sentences

Segment Profit

Three Months Ended Six Months Ended

($ in millions) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

& Canada $ 652 $ 485 $ 1,833 $ 972

1 unchanged sentence

Unallocated corporate and other

83 ( 194 ) 92 ( 181 )

Interest expense, net of interest income ( 93 ) ( 99 ) ( 270 ) ( 301 )

(Provision) benefit for income taxes ( 200 ) 41 ( 299 ) 57

Provision for income taxes ( 239 ) ( 58 ) ( 538 ) ( 1 )

Net income $ 630 $ 220 $ 1,685 $ 631

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