MARRIOTT INTERNATIONAL INC /MD/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement All statements in this report are made as of the date this Form 10-Q is filed with the U.S. Securities and Exchange Commission (the “SEC”). We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise. We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information available to us through the date this Form 10-Q is filed with the SEC. Forward-looking statements include information related to the future effects on our business of the coronavirus pandemic (“COVID-19”); Revenue per Available Room (“RevPAR”), average daily rate (“ADR”), occupancy and other future demand and recovery trends and expectations; our expectations 14 Table of Contents regarding rooms growth; our expectations regarding our ability to meet our liquidity requirements; our capital expenditures and other investment spending expectations; our expectations regarding future dividends and share repurchases; 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; and similar statements concerning anticipated future events and expectations that are not historical facts. We caution you that these statements are not guarantees of future performance and are subject to numerous evolving risks and uncertainties that we may not be able to accurately predict or assess, including the risks and uncertainties we describe in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”), Part II, Item 1A of this report, and other factors we describe from time to time in our periodic filings with the SEC. BUSINESS AND OVERVIEW We are a worldwide operator, franchisor, and licensor of hotel, residential, and timeshare properties under numerous brand names at different price and service points. Consistent with our focus on management, franchising, and licensing, we own very few of our lodging properties. We discuss our operations in the following reportable business segments: (1) U.S. & Canada and (2) International. We earn base management fees and, under many agreements, incentive management fees from the properties that we manage, and we earn franchise fees on the properties that others operate under franchise agreements with us. In most markets, base management and franchise fees typically consist of a percentage of property-level revenue, or certain property-level revenue in the case of franchise fees, while incentive management fees typically consist of a percentage of net house profit after a specified owner return. For our hotels in the Middle East and Africa, Asia Pacific excluding China, and Greater China regions, incentive management fees typically consist of a percentage of gross operating profit without adjustment for a specified owner return. Net house profit is calculated as gross operating profit (also referred to as “house profit”) less non-controllable expenses such as property insurance, real estate taxes, and furniture, fixtures, and equipment (“FF&E”) reserves. Additionally, we earn franchise fees for use of our intellectual property, including fees from our co-brand credit card, timeshare, and residential programs. Performance Measures We believe RevPAR, which we calculate by dividing room sales for comparable properties by room nights available for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties. RevPAR may not be comparable to similarly titled measures, such as revenues, and should not be viewed as necessarily correlating with our fee revenue. We also believe occupancy and ADR, which are components of calculating RevPAR, are meaningful indicators of our performance. Occupancy, which we calculate by dividing occupied rooms by total rooms available (including rooms in hotels temporarily closed due to issues related to COVID-19), measures the utilization of a property’s available capacity. ADR, which we calculate by dividing property room revenue by total rooms sold, measures average room price and is useful in assessing pricing levels. 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. We define our comparable properties as our properties that were open and operating under one of our brands since the beginning of the last full calendar year (since January 1, 2021 for the current period) and have not, in either the current or previous year: (1) undergone significant room or public space renovations or expansions, (2) been converted between company-operated and franchised, or (3) sustained substantial property damage or business interruption, with the exception of properties closed or otherwise experiencing interruptions related to COVID-19, which we continue to classify as comparable. 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. 15 Table of Contents Impact of COVID-19 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 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. In the U.S. & 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. At the property level, we continue to work with owners and franchisees by adjusting renovation requirements for certain properties. At the corporate level, we remain focused on managing our corporate general and administrative costs and are being disciplined with respect to our capital expenditures and other investment spending. As lodging demand continues to recover from the lows seen in the early months of the pandemic, we have seen and continue to see industry-wide labor shortages causing challenges in hiring or re-hiring for certain positions, primarily in certain U.S. markets. In response, we have enhanced our recruitment and retention efforts and increased compensation where needed to maintain competitiveness. 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. We believe COVID-19 will continue to have a negative impact on our future results for a period of time that we are currently unable to predict. The overall operational and financial impact is highly dependent on the risk factors disclosed under the heading “Risks Relating to COVID-19” in Part I, Item 1A, “Risk Factors,” of our 2021 Form 10-K and could be affected by other factors we are not currently able to predict. Starwood Data Security Incident On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). The Starwood reservations database is no longer used for busi ness operations. 16 Table of Contents 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. Although our insurance program includes coverage designed to limit our exposure to losses such as those related to the Data Security Incident, that insurance may not be sufficient or available to cover all of our expenses or other losses (including monetary payments to regulators and/or litigants) related to the Data Security Incident. In addition, certain expenses by their nature (such as, for example, expenses related to enhancing our cybersecurity program) are not covered by our insurance program. We expect to incur significant expenses associated with the Data Security Incident in future periods 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 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 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. & Canada. 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 September 30, 2022, we operated, franchised, and licensed the following properties and rooms: Managed Franchised/Licensed Owned/Leased Residential Total Properties Rooms Properties Rooms Properties Rooms Properties Rooms Properties Rooms U.S. & Canada 633 215,948 5,093 732,399 26 6,483 66 6,935 5,818 961,765 International 1,326 338,913 844 170,834 38 9,209 44 3,928 2,252 522,884 Timeshare — — 92 22,701 — — — — 92 22,701 Total 1,959 554,861 6,029 925,934 64 15,692 110 10,863 8,162 1,507,350 17 Table of Contents Lodging Statistics The following tables present RevPAR, occupancy, and ADR statistics for comparable properties. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties. Three Months Ended September 30, 2022 and Change vs. Three Months Ended September 30, 2021 RevPAR Occupancy Average Daily Rate 2022 vs. 2021 2022 vs. 2021 2022 vs. 2021 Comparable Company-Operated Properties U.S. & Canada $ 164.32 41.2 % 69.4 % 12.2 % pts. $ 236.69 16.4 % Greater China $ 67.48 5.3 % 59.3 % 4.3 % pts. $ 113.87 (2.3) % Asia Pacific excluding China $ 88.15 169.8 % 62.7 % 29.5 % pts. $ 140.52 42.9 % Caribbean & Latin America $ 111.98 42.8 % 59.1 % 12.9 % pts. $ 189.46 11.8 % Europe $ 188.55 93.1 % 73.3 % 24.5 % pts. $ 257.08 28.6 % Middle East & Africa $ 97.67 43.3 % 61.6 % 10.1 % pts. $ 158.65 19.9 % International - All (1) $ 102.53 61.7 % 63.1 % 16.1 % pts. $ 162.61 20.4 % Worldwide (2) $ 129.91 49.5 % 65.9 % 14.4 % pts. $ 197.20 16.9 % Comparable Systemwide Properties U.S. & Canada $ 128.94 28.5 % 71.8 % 7.9 % pts. $ 179.58 14.3 % Greater China $ 64.78 8.2 % 58.3 % 5.4 % pts. $ 111.12 (1.8) % Asia Pacific excluding China $ 87.91 139.3 % 62.7 % 27.2 % pts. $ 140.15 35.4 % Caribbean & Latin America $ 96.11 45.0 % 57.5 % 12.6 % pts. $ 167.27 13.4 % Europe $ 156.10 90.3 % 72.0 % 25.0 % pts. $ 216.92 24.1 % Middle East & Africa $ 94.78 49.7 % 62.0 % 10.8 % pts. $ 152.92 23.7 % International - All (1) $ 101.37 66.1 % 63.3 % 17.3 % pts. $ 160.11 20.7 % Worldwide (2) $ 120.60 36.3 % 69.2 % 10.8 % pts. $ 174.19 15.1 % Nine Months Ended September 30, 2022 and Change vs. Nine Months Ended September 30, 2021 RevPAR Occupancy Average Daily Rate 2022 vs. 2021 2022 vs. 2021 2022 vs. 2021 Comparable Company-Operated Properties U.S. & Canada $ 157.56 86.2 % 65.3 % 21.3 % pts. $ 241.46 25.3 % Greater China $ 54.38 (18.2) % 47.9 % (7.7) % pts. $ 113.51 (5.0) % Asia Pacific excluding China $ 75.29 129.3 % 55.5 % 23.4 % pts. $ 135.72 32.4 % Caribbean & Latin America $ 121.10 84.1 % 59.7 % 20.6 % pts. $ 202.84 20.7 % Europe $ 146.25 187.8 % 62.2 % 33.7 % pts. $ 235.21 31.7 % Middle East & Africa $ 110.94 66.7 % 62.6 % 16.0 % pts. $ 177.07 24.1 % International - All (1) $ 90.07 64.4 % 55.7 % 13.7 % pts. $ 161.76 24.0 % Worldwide (2) $ 120.00 76.4 % 59.9 % 17.1 % pts. $ 200.26 26.1 % Comparable Systemwide Properties U.S. & Canada $ 119.16 56.4 % 67.5 % 13.7 % pts. $ 176.60 24.6 % Greater China $ 52.09 (16.6) % 47.0 % (7.0) % pts. $ 110.95 (4.2) % Asia Pacific excluding China $ 75.03 116.9 % 55.6 % 22.6 % pts. $ 134.93 28.9 % Caribbean & Latin America $ 100.89 89.2 % 56.9 % 19.6 % pts. $ 177.18 24.2 % Europe $ 119.44 183.6 % 59.8 % 33.0 % pts. $ 199.71 27.2 % Middle East & Africa $ 104.51 70.4 % 62.2 % 16.4 % pts. $ 168.02 25.5 % International - All (1) $ 87.29 77.2 % 55.5 % 16.5 % pts. $ 157.25 24.5 % Worldwide (2) $ 109.53 60.9 % 63.9 % 14.6 % pts. $ 171.52 24.2 % (1) Includes Greater China, Asia Pacific excluding China, Caribbean & Latin America, Europe, and Middle East & Africa. (2) Includes U.S. & Canada and International - All. 18 Table of Contents CONSOLIDATED RESULTS 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. Fee Revenues Three Months Ended Nine Months Ended ($ in millions) September 30, 2022 September 30, 2021 Change 2022 vs. 2021 September 30, 2022 September 30, 2021 Change 2022 vs. 2021 Base management fees $ 275 $ 190 $ 85 45 % $ 757 $ 452 $ 305 67 % Franchise fees 678 533 145 27 % 1,847 1,270 577 45 % Incentive management fees 106 53 53 100 % 343 141 202 143 % Gross fee revenues 1,059 776 283 36 % 2,947 1,863 1,084 58 % Contract investment amortization (22) (21) (1) (5) % (65) (56) (9) (16) % Net fee revenues $ 1,037 $ 755 $ 282 37 % $ 2,882 $ 1,807 $ 1,075 59 % 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 $84 million, respectively). The increases in incentive management fees in the 2022 third quarter and 2022 first three quarters primarily reflected higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19. Owned, Leased, and Other Three Months Ended Nine Months Ended ($ in millions) September 30, 2022 September 30, 2021 Change 2022 vs. 2021 September 30, 2022 September 30, 2021 Change 2022 vs. 2021 Owned, leased, and other revenue $ 345 $ 241 $ 104 43 % $ 971 $ 536 $ 435 81 % Owned, leased, and other - direct expenses 301 204 97 48 % 779 507 272 54 % 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 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 $31 million, respectively). 19 Table of Contents Cost Reimbursements Three Months Ended Nine Months Ended ($ in millions) September 30, 2022 September 30, 2021 Change 2022 vs. 2021 September 30, 2022 September 30, 2021 Change 2022 vs. 2021 Cost reimbursement revenue $ 3,931 $ 2,950 $ 981 33 % $ 10,997 $ 7,068 $ 3,929 56 % Reimbursed expenses 3,786 2,917 869 30 % 10,792 7,005 3,787 54 % Cost reimbursements, net $ 145 $ 33 $ 112 339 % $ 205 $ 63 $ 142 225 % Cost reimbursements, net (cost reimbursement revenue, net of reimbursed expenses) varies due to timing differences between the costs we incur for centralized programs and services and the related rei mbursemen ts we receive from hotel owners and franchisees. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively. 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 Nine Months Ended ($ in millions) September 30, 2022 September 30, 2021 Change 2022 vs. 2021 September 30, 2022 September 30, 2021 Change 2022 vs. 2021 Depreciation, amortization, and other $ 50 $ 64 $ (14) (22) % $ 147 $ 166 $ (19) (11) % General, administrative, and other 216 212 4 2 % 655 610 45 7 % Restructuring, merger-related charges, and other 2 4 (2) (50) % 11 8 3 38 % 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 Nine Months Ended ($ in millions) September 30, 2022 September 30, 2021 Change 2022 vs. 2021 September 30, 2022 September 30, 2021 Change 2022 vs. 2021 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 % Interest income 7 8 (1) (13) % 18 22 (4) (18) % Equity in earnings (losses) 1 (4) 5 125 % 18 (24) 42 175 % * 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. 20 Table of Contents 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 ($23 million) and the ongoing recovery in lodging demand from the impacts of COVID-19. Income Taxes Three Months Ended Nine Months Ended ($ in millions) September 30, 2022 September 30, 2021 Change 2022 vs. 2021 September 30, 2022 September 30, 2021 Change 2022 vs. 2021 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 ($27 million). BUSINESS SEGMENTS Our segment results in the 2022 third quarter and 2022 first three quarters continued to be impacted by COVID-19. See the “Impact of COVID-19” section above for more information about the impact to our business during the 2022 third quarter and 2022 first three quarters and the discussion below for additional analysis of the operating results of our reportable business segments. Three Months Ended Nine Months Ended ($ in millions) September 30, 2022 September 30, 2021 Change 2022 vs. 2021 September 30, 2022 September 30, 2021 Change 2022 vs. 2021 U.S. & Canada Segment revenues $ 4,000 $ 3,006 $ 994 33 % $ 11,388 $ 7,055 $ 4,333 61 % Segment profit 652 485 167 34 % 1,833 972 861 89 % International Segment revenues 908 621 287 46 % 2,458 1,534 924 60 % Segment profit 227 86 141 164 % 568 142 426 300 % Properties Rooms September 30, 2022 September 30, 2021 vs. September 30, 2021 September 30, 2022 September 30, 2021 vs. September 30, 2021 U.S. & 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 % 21 Table of Contents U.S. & Canada Third Quarter U.S. & Canada quarterly segment profit increased, primarily due to the following: • $171 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; and • $17 million of higher cost reimbursement revenue, net of reimbursed expenses; 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 U.S. & 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; and • $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 Third Quarter International quarterly segment profit increased primarily due to: • $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; and • $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; 22 Table of Contents • $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; and • $38 million of higher cost reimbursement revenue, net of reimbursed expenses. STOCK-BASED COMPENSATION See Note 3 for more information. LIQUIDITY AND CAPITAL RESOURCES Our long-term financial objectives include diversifying our financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At the end of the 2022 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. We also remain focused on managing our corporate general and administrative costs and our capital expenditures and other investment spending. We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to fund our liquidity needs. We currently believe the Credit Facility, our cash on hand, and our access to capital markets remain adequate to meet our liquidity requirements. Sources of Liquidity Our Credit Facility Our Credit Facility provides for up to $4.5 billion of aggregate borrowings for general corporate needs, including working capital, capital expenditures, letters of credit, acquisitions, and to support our commercial paper program if and when we resume issuing commercial paper. Borrowings under the Credit Facility generally bear interest at LIBOR (the London Interbank Offered Rate) plus a spread, based on our public debt rating. We also pay quarterly fees on the Credit Facility at a rate based on our public debt rating. We classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings (if any) as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis. The Credit Facility expires on June 28, 2024. As of 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”). The debt leverage covenant in the Credit Facility, which is tested each quarter and was waived pursuant to the Credit Facility Amendments through and including the fourth quarter of 2021, resumed beginning with the quarter that ended March 31, 2022. The Credit Facility Amendments adjusted the required leverage levels for this covenant starting at 5.50 to 1.00 for the test period that ended on March 31, 2022 and gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal quarters, as further described in the Credit Facility. The Credit Facility Amendments also amended certain other terms of the Credit Facility, including reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency Rate. Our outstanding public debt does not contain a corresponding financial covenant or a requirement that we maintain certain financial ratios. We currently satisfy the covenants in our Credit Facility. Commercial Paper Due to changes to our credit ratings as a result of the impact of COVID-19 on our business, we currently are not issuing commercial paper. As a result, we have had to rely more on borrowings under the Credit Facility and issuance of senior notes. 23 Table of Contents Uses of Cash 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 $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 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. 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 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 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 Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our 2021 Form 10-K. We 24 Table of Contents have made no material changes to our critical accounting policies or the methodologies or assumptions that we apply under them. Item 3. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk has not materially changed since December 31, 2021. See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K for more information on our exposure to market risk.