MARRIOTT INTERNATIONAL INC /MD/ 10-Q

Item 1 . Financial Statements MARRIOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME ($ in millions, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 REVENUES Base management fees $ 275 $ 190 $ 757 $ 452 Franchise fees 678 533 1,847 1,270 Incentive management fees 106 53 343 141 Gross fee revenues 1,059 776 2,947 1,863 Contract investment amortization ( 22 ) ( 21 ) ( 65 ) ( 56 ) Net fee revenues 1,037 755 2,882 1,807 Owned, leased, and other revenue 345 241 971 536 Cost reimbursement revenue 3,931 2,950 10,997 7,068 5,313 3,946 14,850 9,411 OPERATING COSTS AND EXPENSES Owned, leased, and other-direct 301 204 779 507 Depreciation, amortization, and other 50 64 147 166 General, administrative, and other 216 212 655 610 Restructuring, merger-related charges, and other 2 4 11 8 Reimbursed expenses 3,786 2,917 10,792 7,005 4,355 3,401 12,384 8,296 OPERATING INCOME 958 545 2,466 1,115 Gains and other income, net 3 — 9 6 Loss on extinguishment of debt — ( 164 ) — ( 164 ) Interest expense ( 100 ) ( 107 ) ( 288 ) ( 323 ) Interest income 7 8 18 22 Equity in earnings (losses) 1 ( 4 ) 18 ( 24 ) INCOME BEFORE INCOME TAXES 869 278 2,223 632 Provision for income taxes ( 239 ) ( 58 ) ( 538 ) ( 1 ) NET INCOME $ 630 $ 220 $ 1,685 $ 631 EARNINGS PER SHARE Earnings per share - basic $ 1.94 $ 0.67 $ 5.15 $ 1.93 Earnings per share - diluted $ 1.94 $ 0.67 $ 5.13 $ 1.92 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents MARRIOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ($ in millions) (Unaudited) 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 Other comprehensive income (loss): Foreign currency translation adjustments ( 340 ) ( 138 ) ( 653 ) ( 197 ) Other adjustments, net of tax 1 — 5 — Total other comprehensive income (loss), net of tax ( 339 ) ( 138 ) ( 648 ) ( 197 ) Comprehensive income $ 291 $ 82 $ 1,037 $ 434 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents MARRIOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ($ in millions) (Unaudited) September 30, 2022 December 31, 2021 ASSETS Current assets Cash and equivalents $ 1,045 $ 1,393 Accounts and notes receivable, net 2,378 1,982 Prepaid expenses and other 261 251 3,684 3,626 Property and equipment, net 1,509 1,503 Intangible assets Brands 5,727 5,979 Contract acquisition costs and other 2,880 2,947 Goodwill 8,765 9,073 17,372 17,999 Equity method investments 332 387 Notes receivable, net 132 144 Deferred tax assets 228 228 Operating lease assets 947 1,062 Other noncurrent assets 559 604 $ 24,763 $ 25,553 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current portion of long-term debt $ 558 $ 805 Accounts payable 746 726 Accrued payroll and benefits 1,260 1,187 Liability for guest loyalty program 3,094 2,522 Accrued expenses and other 1,454 1,167 7,112 6,407 Long-term debt 8,860 9,333 Liability for guest loyalty program 3,552 3,949 Deferred tax liabilities 273 169 Deferred revenue 1,085 1,181 Operating lease liabilities 1,007 1,098 Other noncurrent liabilities 1,811 2,002 Stockholders’ equity Class A Common Stock 5 5 Additional paid-in-capital 5,919 5,892 Retained earnings 11,795 10,305 Treasury stock, at cost ( 15,666 ) ( 14,446 ) Accumulated other comprehensive loss ( 990 ) ( 342 ) 1,063 1,414 $ 24,763 $ 25,553 See Notes to Condensed Consolidated Financial Statements. 5 Table of Contents MARRIOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in millions) (Unaudited) Nine Months Ended September 30, 2022 September 30, 2021 OPERATING ACTIVITIES Net income $ 1,685 $ 631 Adjustments to reconcile to cash provided by operating activities: Depreciation, amortization, and other 212 222 Stock-based compensation 144 138 Income taxes 197 ( 292 ) Liability for guest loyalty program ( 17 ) 54 Contract acquisition costs ( 92 ) ( 143 ) Restructuring, merger-related charges, and other ( 1 ) ( 5 ) Working capital changes ( 225 ) 71 Loss on extinguishment of debt — 164 Deferred revenue changes and other 19 ( 95 ) Net cash provided by operating activities 1,922 745 INVESTING ACTIVITIES Capital and technology expenditures ( 192 ) ( 114 ) Dispositions — 8 Loan advances ( 10 ) ( 10 ) Loan collections 12 38 Other 53 ( 3 ) Net cash used in investing activities ( 137 ) ( 81 ) FINANCING ACTIVITIES Credit Facility, net ( 1,050 ) ( 150 ) Issuance of long-term debt 983 1,787 Repayment of long-term debt ( 578 ) ( 2,172 ) Issuance of Class A Common Stock — 2 Debt extinguishment costs — ( 155 ) Dividends paid ( 195 ) — Purchase of treasury stock ( 1,235 ) — Stock-based compensation withholding taxes ( 88 ) ( 85 ) Other 25 12 Net cash used in financing activities ( 2,138 ) ( 761 ) DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 353 ) ( 97 ) CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period (1) 1,421 894 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1) $ 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. 6 Table of Contents MARRIOTT INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. BASIS OF PRESENTATION The condensed consolidated financial statements present the results of operations, financial position, and cash flows of Marriott International, Inc. and subsidiaries (referred to in this report as “we,” “us,” “Marriott,” or the “Company”). In order to make this report easier to read, we also refer throughout to (1) our Condensed Consolidated Financial Statements as our “Financial Statements,” (2) our Condensed Consolidated Statements of Income as our “Income Statements,” (3) our Condensed Consolidated Balance Sheets as our “Balance Sheets,” (4) our Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (5) our properties, brands, or markets in the United States and Canada as “U.S. & Canada,” and (6) our properties, brands, or markets in our Caribbean and Latin America, Europe, Middle East and Africa, Greater China, and Asia Pacific excluding China regions, as “International.” In addition, references throughout to numbered “Notes” refer to these Notes to Condensed Consolidated Financial Statements, unless otherwise stated. These Financial Statements have not been audited. We have condensed or omitted certain information and disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements in this report should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”). Certain terms not otherwise defined in this Form 10-Q have the meanings specified in our 2021 Form 10-K. Preparation of financial statements that conform with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. The uncertainty created by the coronavirus pandemic (“COVID-19”) has made such estimates more difficult and subjective. 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 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. We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements. NOTE 2. EARNINGS PER SHARE 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 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 Net income $ 630 $ 220 $ 1,685 $ 631 Shares for basic earnings per share 324.5 327.3 327.0 327.0 Basic earnings per share $ 1.94 $ 0.67 $ 5.15 $ 1.93 Computation of Diluted Earnings Per Share Net income $ 630 $ 220 $ 1,685 $ 631 Shares for basic earnings per share 324.5 327.3 327.0 327.0 Effect of dilutive securities Stock-based compensation 1.2 2.0 1.4 2.1 Shares for diluted earnings per share 325.7 329.3 328.4 329.1 Diluted earnings per share $ 1.94 $ 0.67 $ 5.13 $ 1.92 7 Table of Contents NOTE 3. STOCK-BASED COMPENSATION 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. NOTE 4. INCOME TAXES 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. NOTE 5. COMMITMENTS AND CONTINGENCIES Guarantees 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 September 30, 2022 in the following table: ($ in millions) Guarantee Type Maximum Potential Amount of Future Fundings Recorded Liability for Guarantees Debt service $ 77 $ 11 Operating profit 174 104 Other 15 4 $ 266 $ 119 Our maximum potential guarantees listed in the preceding table include $ 42 million of guarantees that will not be in effect until the underlying properties open and we begin to operate the properties or certain other events occur. Contingent Purchase Obligation Sheraton Grand Chicago . In 2017, we granted the owner a one-time right to require us to purchase the leasehold interest in the land and the hotel for $ 300 million in cash (the “put option”). In the 2021 third quarter, we entered into an amendment with the owner to move the exercise period of the put option from the 2022 first half to the 2024 first half. 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 September 30, 2022 and December 31, 2021. 8 Table of Contents Starwood Data Security Incident Description of Event On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). Working with leading security experts, we determined that there was unauthorized access to the Starwood network since 2014 and that an unauthorized party had copied information from the Starwood reservations database and taken steps towards removing it. The Starwood reservations database is no longer used for business operations . Litigation, Claims, and Government Investigations Following our announcement of the Data Security Incident, approximately 100 lawsuits were filed by consumers and others against us in U.S. federal, U.S. state and Canadian courts related to the incident. The plaintiffs in the cases that remain pending, who generally purport to represent various classes of consumers, generally claim to have been harmed by alleged actions and/or omissions by the Company in connection with the Data Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief. The active U.S. cases are consolidated in 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 District Court granted in part and denied in part class certification of various U.S. groups of consumers. We appealed the District Court’s decision, and on July 14, 2022, the U.S. 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. In addition, various U.S. federal, U.S. state and foreign governmental authorities made inquiries, opened investigations, or requested information and/or documents related to the Data Security Incident and related matters. 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 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. 9 Table of Contents NOTE 6. 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 September 30, 2022 and year-end 2021: ($ in millions) September 30, 2022 December 31, 2021 Senior Notes: Series L Notes, interest rate of 3.3 %, face amount of $ 173 , redeemed June 15, 2022 (effective interest rate of 3.4 %) $ — $ 173 Series P Notes, interest rate of 3.8 %, face amount of $ 350 , maturing October 1, 2025 (effective interest rate of 4.0 %) 348 347 Series Q Notes, interest rate of 2.3 %, face amount of $ 399 , matured January 15, 2022 (effective interest rate of 2.5 %) — 399 Series R Notes, interest rate of 3.1 %, face amount of $ 750 , maturing June 15, 2026 (effective interest rate of 3.3 %) 747 746 Series U Notes, interest rate of 3.1 %, face amount of $ 291 , maturing February 15, 2023 (effective interest rate of 3.1 %) 291 291 Series V Notes, interest rate of 3.8 %, face amount of $ 318 , maturing March 15, 2025 (effective interest rate of 2.8 %) 325 327 Series W Notes, interest rate of 4.5 %, face amount of $ 278 , maturing October 1, 2034 (effective interest rate of 4.1 %) 289 290 Series X Notes, interest rate of 4.0 %, face amount of $ 450 , maturing April 15, 2028 (effective interest rate of 4.2 %) 446 445 Series Z Notes, interest rate of 4.2 %, face amount of $ 350 , maturing December 1, 2023 (effective interest rate of 4.4 %) 349 349 Series AA Notes, interest rate of 4.7 %, face amount of $ 300 , maturing December 1, 2028 (effective interest rate of 4.8 %) 298 297 Series CC Notes, interest rate of 3.6 %, face amount of $ 550 , maturing April 15, 2024 (effective interest rate of 3.9 %) 532 566 Series DD Notes, interest rate of 2.1 %, face amount of $ 224 , matured October 3, 2022 (effective interest rate of 1.2 %) 224 226 Series EE Notes, interest rate of 5.8 %, face amount of $ 600 , maturing May 1, 2025 (effective interest rate of 6.0 %) 596 595 Series FF Notes, interest rate of 4.6 %, face amount of $ 1,000 , maturing June 15, 2030 (effective interest rate of 4.8 %) 988 987 Series GG Notes, interest rate of 3.5 %, face amount of $ 1,000 , maturing October 15, 2032 (effective interest rate of 3.7 %) 986 986 Series HH Notes, interest rate of 2.9 %, face amount of $ 1,100 , maturing April 15, 2031 (effective interest rate of 3.0 %) 1,090 1,090 Series II Notes, interest rate of 2.8 %, face amount of $ 700 , maturing October 15, 2033 (effective interest rate of 2.8 %) 694 693 Series JJ Notes, interest rate of 5.0 %, face amount of $ 1,000 , maturing October 15, 2027 (effective interest rate of 5.4 %) 983 — Credit Facility — 1,050 Finance lease obligations 141 146 Other 91 135 $ 9,418 $ 10,138 Less current portion ( 558 ) ( 805 ) $ 8,860 $ 9,333 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. 10 Table of Contents In June 2022, we redeemed all $ 173 million aggregate principal amount of our outstanding Series L Notes due in September 2022. We are party to a multicurrency revolving credit agreement (as amended, the “Credit Facility”) that 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. 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. NOTE 7. ACQUISITION In the 2022 fourth quarter, we announced that we reached an agreement with Hoteles City Express, S.A.B. de C.V. 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. NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. We present the carrying values and the fair values of noncurrent financial assets and liabilities that qualify as financial instruments in the following table: September 30, 2022 December 31, 2021 ($ in millions) Carrying Amount Fair Value Carrying Amount Fair Value Senior, mezzanine, and other loans $ 132 $ 122 $ 144 $ 131 Total noncurrent financial assets $ 132 $ 122 $ 144 $ 131 Senior Notes $ ( 8,671 ) $ ( 7,808 ) $ ( 8,009 ) $ ( 8,480 ) Credit Facility — — ( 1,050 ) ( 1,050 ) Other long-term debt ( 56 ) ( 49 ) ( 135 ) ( 140 ) Other noncurrent liabilities ( 393 ) ( 393 ) ( 414 ) ( 414 ) Total noncurrent financial liabilities $ ( 9,120 ) $ ( 8,250 ) $ ( 9,608 ) $ ( 10,084 ) See Note 12. Fair Value of Financial Instruments and the “Fair Value Measurements” caption of Note 2. Summary of Significant Accounting Policies of our 2021 Form 10-K for more information on the input levels we use in determining fair value. 11 Table of Contents NOTE 9. ACCUMULATED OTHER COMPREHENSIVE LOSS AND STOCKHOLDERS’ EQUITY 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 (loss) income before reclassifications (1) ( 653 ) 9 ( 644 ) Reclassification adjustments — ( 4 ) ( 4 ) 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 Balance at year-end 2020 $ ( 139 ) $ 4 $ ( 135 ) Other comprehensive loss before reclassifications (1) ( 197 ) — ( 197 ) Reclassification adjustments — — — Net other comprehensive loss ( 197 ) — ( 197 ) 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) Common Shares Outstanding Total Class A Common Stock Additional Paid-in-Capital Retained Earnings Treasury Stock, at Cost Accumulated Other Comprehensive Loss 326.3 Balance at year-end 2021 $ 1,414 $ 5 $ 5,892 $ 10,305 $ ( 14,446 ) $ ( 342 ) — Net income 377 — — 377 — — — Other comprehensive income 14 — — — — 14 1.0 Stock-based compensation plans ( 33 ) — ( 61 ) — 28 — 327.3 Balance at March 31, 2022 $ 1,772 $ 5 $ 5,831 $ 10,682 $ ( 14,418 ) $ ( 328 ) — Net income 678 — — 678 — — — Other comprehensive loss ( 323 ) — — — — ( 323 ) — Dividends ($ 0.30 per share) ( 98 ) — — ( 98 ) — — — Stock-based compensation plans 43 — 41 — 2 — ( 1.9 ) Purchase of treasury stock ( 300 ) — — — ( 300 ) — 325.4 Balance at June 30, 2022 $ 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 ) 12 Table of Contents Common Shares Outstanding Total Class A Common Stock Additional Paid-in-Capital Retained Earnings Treasury Stock, at Cost Accumulated Other Comprehensive Loss 324.4 Balance at year-end 2020 $ 430 $ 5 $ 5,851 $ 9,206 $ ( 14,497 ) $ ( 135 ) — Net loss ( 11 ) — — ( 11 ) — — — Other comprehensive loss ( 155 ) — — — — ( 155 ) 1.2 Stock-based compensation plans ( 30 ) — ( 64 ) — 34 — 325.6 Balance at March 31, 2021 $ 234 $ 5 $ 5,787 $ 9,195 $ ( 14,463 ) $ ( 290 ) — Net income 422 — — 422 — — — Other comprehensive income 96 — — — — 96 — Stock-based compensation plans 44 — 43 1 — — 325.6 Balance at June 30, 2021 $ 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 ) NOTE 10. CONTRACTS WITH CUSTOMERS 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 $ 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 $ 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. NOTE 11. BUSINESS SEGMENTS We discuss our operations in the following two operating segments, both of which meet the applicable criteria for separate disclosure as a reportable business segment: (1) U.S. & Canada and (2) International. We evaluate the performance of our operating segments using “segment profit/loss” which is based largely on the results of the segment without allocating corporate expenses, income taxes, indirect general, administrative, and other expenses, merger-related costs, or most above-property restructuring charges. 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 13 Table of Contents 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 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. & Canada International Total U.S. & Canada International Total Gross fee revenues $ 649 $ 241 $ 890 $ 478 $ 156 $ 634 Contract investment amortization ( 16 ) ( 6 ) ( 22 ) ( 15 ) ( 6 ) ( 21 ) Net fee revenues 633 235 868 463 150 613 Owned, leased, and other revenue 114 205 319 93 134 227 Cost reimbursement revenue 3,253 468 3,721 2,450 337 2,787 Total reportable segment revenue $ 4,000 $ 908 $ 4,908 $ 3,006 $ 621 $ 3,627 Unallocated corporate and other 405 319 Total revenue $ 5,313 $ 3,946 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 ($ in millions) U.S. & Canada International Total U.S. & Canada International Total Gross fee revenues $ 1,821 $ 630 $ 2,451 $ 1,101 $ 375 $ 1,476 Contract investment amortization ( 45 ) ( 20 ) ( 65 ) ( 41 ) ( 15 ) ( 56 ) Net fee revenues 1,776 610 2,386 1,060 360 1,420 Owned, leased, and other revenue 330 575 905 185 320 505 Cost reimbursement revenue 9,282 1,273 10,555 5,810 854 6,664 Total reportable segment revenue $ 11,388 $ 2,458 $ 13,846 $ 7,055 $ 1,534 $ 8,589 Unallocated corporate and other 1,004 822 Total revenue $ 14,850 $ 9,411 Segment Profit Three Months Ended Nine Months Ended ($ in millions) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 U.S. & Canada $ 652 $ 485 $ 1,833 $ 972 International 227 86 568 142 Unallocated corporate and other 83 ( 194 ) 92 ( 181 ) Interest expense, net of interest income ( 93 ) ( 99 ) ( 270 ) ( 301 ) Provision for income taxes ( 239 ) ( 58 ) ( 538 ) ( 1 ) Net income $ 630 $ 220 $ 1,685 $ 631