What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-02 · 116 added, 99 removed, 230 unchanged (48% of the section changed)

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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 rooms growth;

our expectations regarding our ability to meet our liquidity requirements;

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our expectations regarding future dividends and share repurchases;

our expectations regarding our acquisition of the City Express brand and the addition of the City Express hotels to our franchise system;

and other statements that are preceded by, followed by, or include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “foresees,” or similar expressions;

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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.

RevPAR, occupancy, and ADR statistics are on a systemwide basis for comparable properties, unless otherwise stated.

Comparisons to prior periods are on a constant U.S.

dollar basis.

We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period.

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(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.

RevPAR, occupancy, and ADR 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 September 30, 2022, June 30, 2022, or March 31, 2022 (as applicable), even if in 2019 they were not open and operating for the full year or did not meet all the other criteria listed above.

Unless otherwise stated, all comparisons to pre-pandemic or 2019 are comparing to the same time period each year.

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.

While COVID-19 continues to negatively impact our business and industry, primarily in Greater China and Asia Pacific excluding China, we continued to see strong global RevPAR improvement in the 2022 third quarter.

For the first time since the pandemic began, quarterly worldwide RevPAR exceeded 2019 levels, with growth of 1.8 percent compared to the 2019 third quarter, reflecting ADR growth of 10.2 percent compared to pre-pandemic levels and rising occupancy.

In the 2022 third quarter, occupancy reached 69.2 percent, a decline of only 5.8 percentage points compared to the same period in 2019, which was an improvement from the 2022 second quarter decline of 7.1 percentage points and the 2022 first quarter decline of 13.7 percentage points compared to the same periods in 2019.

The global recovery continued across all customer segments, led by robust leisure demand and strengthening group demand.

Business transient demand also continued to improve during the quarter, although it continues to lag behind 2019 levels.

RevPAR in the 2022 third quarter compared to the 2021 third quarter improved 28.5 percent in our U.S.

& Canada segment, 66.1 percent in our International segment, and 36.3 percent worldwide.

RevPAR in the 2022 first half compared to the 2021 first half increased 78.6 percent in our U.S.

RevPAR in the 2022 first three quarters compared to the 2021 first three quarters increased 56.4 percent in our U.S.

& Canada segment, 77.2 percent in our International segment, and 60.9 percent worldwide.

& 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.

& Canada, RevPAR improved 3.5 percent in the 2022 third quarter compared to the same period in 2019, due to ADR growth of 10.4 percent, partially offset by a decline in occupancy of 4.7 percentage points.

In the 2022 first three quarters, RevPAR declined 2.8 percent compared to the same period in 2019, due to a decline in occupancy of 6.9 percentage points, partially offset by ADR growth of 7.1 percent.

The decline in occupancy as compared to 2019 improved sequentially in each of the 2022 first three quarters, reflecting stronger demand in many markets across the region.

Internationally, RevPAR declined 2.4 percent in the 2022 third quarter compared to the same period in 2019, due to a decline in occupancy of 7.9 percentage points, partially offset by ADR growth of 9.8 percent.

In the 2022 first three quarters, RevPAR declined 16.3 percent compared to the same period in 2019, due to a decline in occupancy of 13.3 percentage points, partially offset by ADR growth of 3.8 percent.

In the 2022 third quarter, RevPAR remained constrained in Greater China and Asia Pacific excluding China, but exceeded pre-pandemic 2019 levels in the Caribbean & Latin America, Europe, and Middle East & Africa, driven by strengthening demand and an increase in cross-border travel.

We continue to take measures to mitigate the negative financial and operational impacts of COVID-19 for our hotel owners and our own business.

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In response, we have enhanced our recruitment and retention efforts and increased compensation where needed to maintain competitiveness.

As a result of these efforts, we have made good progress staffing our hotels despite the challenging labor market.

The impact of COVID-19 on the Company remains fluid, as does our corporate and property-level response.

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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.

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 recorded.

However, we do not believe this incident will impact our long-term financial health.

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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.

We expect to incur significant expenses associated with the Data Security Incident in future periods in excess of the amounts already recorded, primarily related to legal proceedings and regulatory investigations (including possible additional monetary payments to regulators and/or litigants as well as costs associated with compliance with any settlements or resolutions of matters), 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.

At the end of the 2022 third quarter, our system had 8,162 properties (1,507,350 rooms), compared to 7,989 properties (1,479,179 rooms) at year-end 2021 and 7,892 properties (1,463,692 rooms) at the end of the 2021 third quarter.

The increase compared to year-end 2021 reflects gross additions of 249 properties (42,787 rooms) and deletions of 76 properties (14,595 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.

Approximately 25 percent of our 2022 first three quarters gross room additions were conversions from competitor brands.

At the end of the 2022 third quarter, we had more than 502,000 hotel rooms in our development pipeline, which includes approximately 204,800 hotel rooms under construction and roughly 33,300 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.

We currently expect full-year 2022 total gross rooms growth of approximately 4.5 percent and net rooms growth of approximately 3.0 percent, which includes the impact of the Company’s decision to suspend its operations in Russia and does not include the rooms associated with the City Express brand acquisition discussed in Note 7.

The decrease in our expectation for gross rooms growth in 2022, compared to our previous estimate, is primarily due to delayed openings in Greater China where COVID-19 restrictions have resulted in extended construction timelines.

Properties and Rooms

At June 30, 2022, we operated, franchised, and licensed the following properties and rooms:

At September 30, 2022, we operated, franchised, and licensed the following properties and rooms:

Managed Franchised/Licensed Owned/Leased Residential Total

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Systemwide statistics include data from our franchised properties, in addition to our company-operated properties.

Three Months Ended June 30, 2022 and Change vs.

Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 and Change vs.

Three Months Ended September 30, 2021

RevPAR Occupancy Average Daily Rate

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$ 174.19 15.1 %

Six Months Ended June 30, 2022 and Change vs.

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2022 and Change vs.

Nine Months Ended September 30, 2021

RevPAR Occupancy Average Daily Rate

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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.

Three Months Ended Six Months Ended

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

2021 June 30, 2022 June 30, 2021 Change

Our results in the 2022 third quarter and 2022 first three quarters 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 third quarter and 2022 first three quarters, and the discussion below for additional analysis of our consolidated results of operations for the 2022 third quarter compared to the 2021 third quarter and for the 2022 first three quarters compared to the 2021 first three quarters.

Three Months Ended Nine Months Ended

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

2021 September 30, 2022 September 30, 2021 Change

Base management fees $ 275 $ 190 $ 85 45 % $ 757 $ 452 $ 305 67 %

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Net fee revenues $ 1,037 $ 755 $ 282 37 % $ 2,882 $ 1,807 $ 1,075 59 %

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.

The increases in base management fees in the 2022 third quarter and 2022 first three quarters 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 third quarter and 2022 first three quarters primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19, higher co-brand credit card fees ($25 million and $101 million, respectively), and unit growth ($29 million and $84 million, respectively).

The increases in incentive management fees in the 2022 third quarter and 2022 first three quarters 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

2021 June 30, 2022 June 30, 2021 Change

Three Months Ended Nine Months Ended

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

2021 September 30, 2022 September 30, 2021 Change

Owned, leased, and other revenue $ 345 $ 241 $ 104 43 % $ 971 $ 536 $ 435 81 %

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Owned, leased, and other, net $ 44 $ 37 $ 7 19 % $ 192 $ 29 $ 163 562 %

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).

Owned, leased, and other revenue, net of direct expenses, increased in the 2022 third quarter and the 2022 first three quarters 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 ($23 million and $39 million, respectively) and an estimated monetary payment related to a portfolio of 12 leased hotels in the U.S.

& Canada ($19 million and $31 million, respectively).

Cost Reimbursements

Three Months Ended Six Months Ended

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

2021 June 30, 2022 June 30, 2021 Change

Three Months Ended Nine Months Ended

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

2021 September 30, 2022 September 30, 2021 Change

Cost reimbursement revenue $ 3,931 $ 2,950 $ 981 33 % $ 10,997 $ 7,068 $ 3,929 56 %

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Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively.

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.

The increase in cost reimbursements, net in the 2022 third quarter primarily reflects higher revenues, net of expenses, for our centralized programs and services and higher Loyalty Program revenues, net of expenses.

The increase in cost reimbursements, net in the 2022 first three quarters 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

2021 June 30, 2022 June 30, 2021 Change

Three Months Ended Nine Months Ended

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

2021 September 30, 2022 September 30, 2021 Change

Depreciation, amortization, and other $ 50 $ 64 $ (14) (22) % $ 147 $ 166 $ (19) (11) %

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Restructuring, merger-related charges, and other 2 4 (2) (50) % 11 8 3 38 %

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.

Depreciation, amortization, and other expenses decreased in the 2022 first three quarters, primarily due to lower impairment charges.

General, administrative, and other expenses increased in the 2022 first three quarters 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

2021 June 30, 2022 June 30, 2021 Change

Gains and other income, net $ 2 $ 5 $ (3) (60) % $ 6 $ 6 $ — — %

Three Months Ended Nine Months Ended

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

2021 September 30, 2022 September 30, 2021 Change

Gains and other income, net $ 3 $ — $ 3 nm* $ 9 $ 6 $ 3 50 %

Loss on extinguishment of debt

— (164) 164 100 % — (164) 164 100 %

Interest expense (100) (107) 7 7 % (288) (323) 35 11 %

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Equity in earnings (losses) 1 (4) 5 125 % 18 (24) 42 175 %

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.

Three Months Ended Six Months Ended

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

2021 June 30, 2022 June 30, 2021 Change

(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).

* Percentage change is not meaningful.

The loss on extinguishment of debt in the 2021 third quarter was due to the September 2021 tender offer in which we purchased and retired $1 billion aggregate principal amount of our 5.750 percent Series EE Notes maturing May 1, 2025.

Interest expense decreased in the 2022 first three quarters, primarily due to lower average debt balances driven by Senior Notes maturities and repurchases.

Equity in earnings (losses) changed in the 2022 first three quarters primarily due to our share of the gains on the sales of properties held by equity method investees ($23 million) and the ongoing recovery in lodging demand from the impacts of COVID-19.

Three Months Ended Nine Months Ended

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

2021 September 30, 2022 September 30, 2021 Change

Provision for income taxes $ (239) $ (58) $ (181) (312) % $ (538) $ (1) $ (537) nm*

* Percentage change is not meaningful.

Our tax provision changed in the 2022 third quarter, compared to our tax provision in the 2021 third quarter, primarily due to the increase in operating income ($108 million), the prior year tax benefit from the loss on extinguishment of debt ($42 million), and the current year tax expense from the completion of prior years’ tax audits ($27 million).

Our tax provision changed in the 2022 first three quarters, compared to our tax provision in the 2021 first three quarters, primarily due to the increase in operating income ($335 million), the prior year release of tax reserves due to the favorable resolution of Legacy-Starwood tax audits ($118 million), the prior year tax benefit from the loss on extinguishment of debt ($42 million), and the current year tax expense from the completion of prior years’ tax audits ($27 million).

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

2021 June 30, 2022 June 30, 2021 Change

Our segment results in the 2022 third quarter and 2022 first three quarters 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 third quarter and 2022 first three quarters and the discussion below for additional analysis of the operating results of our reportable business segments.

Three Months Ended Nine Months Ended

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

2021 September 30, 2022 September 30, 2021 Change

Segment revenues $ 4,000 $ 3,006 $ 994 33 % $ 11,388 $ 7,055 $ 4,333 61 %

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Properties Rooms

June 30, 2022 June 30, 2021 vs.

June 30, 2021 June 30, 2022 June 30, 2021 vs.

June 30, 2021

September 30, 2022 September 30, 2021 vs.

September 30, 2021 September 30, 2022 September 30, 2021 vs.

September 30, 2021

& Canada 5,818 5,656 162 3 % 961,765 938,103 23,662 3 %

International 2,252 2,144 108 5 % 522,884 502,888 19,996 4 %

Second Quarter

Third Quarter

& Canada quarterly segment profit increased, primarily due to the following:

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• $17 million of higher cost reimbursement revenue, net of reimbursed expenses;

• $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.

& Canada 2022 first half segment profit increased primarily due to:

partially offset by:

• $27 million of lower owned, leased, and other revenue, net of direct expenses, primarily reflecting lower termination fees and an estimated monetary payment related to a portfolio of 12 leased hotels in the U.S.

& Canada ($19 million), partially offset by stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19.

First Three Quarters

& Canada 2022 first three quarters segment profit increased primarily due to:

• $720 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;

• $103 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;

• $17 million of higher equity in earnings.

• $21 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 lower termination fees and an estimated monetary payment related to a portfolio of 12 leased hotels in the U.S.

& Canada ($31 million).

International

Second Quarter

Third 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;

• $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.

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;

• $85 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, partially offset by net unfavorable foreign exchange rates;

• $25 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.

First Three Quarters

International 2022 first three quarters segment profit increased primarily due to:

• $255 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;

• $120 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 lower termination fees;

• $38 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

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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.

At the end of the 2022 third quarter, our long-term debt had a weighted average interest rate of 3.9 percent and a weighted average maturity of approximately 6.0 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 third quarter.

We remain focused on preserving our financial flexibility and managing our debt maturities.

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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.

As of September 30, 2022, we had no outstanding borrowings under the Credit Facility.

We entered into amendments to the Credit Facility in April 2020 and January 2021 (the “Credit Facility Amendments”).

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As a result, we have had to rely more on borrowings under the Credit Facility and issuance of senior notes.

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.

Cash, cash equivalents, and restricted cash totaled $1,068 million at September 30, 2022, a decrease of $353 million from year-end 2021, primarily due to share repurchases ($1,235 million), Credit Facility repayments, net of borrowings ($1,050 million), dividends paid ($195 million), capital and technology expenditures ($192 million), and financing outflows for employee stock-based compensation withholding taxes ($88 million), partially offset by net cash provided by operating activities ($1,922 million) and Senior Notes issuances, net of repayments ($411 million).

Net cash provided by operating activities increased by $1,177 million in the 2022 first three quarters compared to the 2021 first three quarters, primarily due to higher net income (adjusted for non-cash items and the prior year loss on extinguishment of debt).

Cash inflow from our Loyalty Program in 2020 included $920 million of cash received from the prepayment of certain future revenues under the amendments to our existing U.S.-issued co-brand credit card agreements, which reduced in both the 2021 and 2022 first three quarters, and will in the future reduce, the amount of cash we receive from these card issuers.

We expect such reductions to end by year-end 2023.

Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of the 2022 third quarter.

We have significant borrowing capacity under our Credit Facility should we need additional working capital.

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).

We made capital and technology expenditures of $192 million in the 2022 first three quarters and $114 million in the 2021 first three quarters.

We expect capital expenditures and other investments will total approximately $500 million for the 2022 full year, including capital and technology expenditures, contract acquisition costs, loan advances, and other investing activities (including approximately $200 million for maintenance capital spending and our new headquarters).

If the City Express brand acquisition discussed in Note 7 closes in 2022, we will have an additional $100 million of investment spending.

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.

We purchased 6.2 million shares in the 2022 third quarter for $950 million.

Year-to-date through October 31, 2022, we repurchased 11.1 million shares for $1,700 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.

Our Board of Directors declared the following quarterly cash dividends in 2022:

(1) $0.30 per share declared on May 2, 2022 and paid on June 30, 2022 to stockholders of record on May 16, 2022;

and (2) $0.30 per share declared on August 4, 2022 and paid on September 30, 2022 to stockholders of record on August 18, 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.

As of the end of the 2022 third 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.

At September 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 $336 million, of which $89 million is payable within the next 12 months from September 30, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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.

have made no material changes to our critical accounting policies or the methodologies or assumptions that we apply under them.

Quantitative and Qualitative Disclosures About Market Risk

2 unchanged sentences

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 2. Management’s Discussion and Analysis