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Item 1. Financial Statements

2023-08-01 compared with 2023-05-02 · 87 added, 52 removed, 303 unchanged (31% of the section changed)

3 unchanged sentences

(in millions, except per share amounts)

Three Months Ended

March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Base management fees $ 318 $ 269 $ 611 $ 482

6 unchanged sentences

Cost reimbursement revenue 4,457 3,920 8,604 7,066

6,075 5,338 11,690 9,537

OPERATING COSTS AND EXPENSES

4 unchanged sentences

Reimbursed expenses 4,366 3,827 8,502 7,006

4,979 4,388 9,643 8,029

OPERATING INCOME 1,096 950 2,047 1,508

13 unchanged sentences

(in millions)

Three Months Ended

March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Net income $ 726 $ 678 $ 1,483 $ 1,055

Other comprehensive income

Other comprehensive income (loss)

Foreign currency translation adjustments ( 77 ) ( 327 ) 7 ( 313 )

Other adjustments, net of tax 8 4 6 4

Total other comprehensive income, net of tax 82 14

Total other comprehensive income (loss), net of tax ( 69 ) ( 323 ) 13 ( 309 )

Comprehensive income $ 657 $ 355 $ 1,496 $ 746

3 unchanged sentences

(in millions)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets

38 unchanged sentences

(in millions)

Three Months Ended

March 31, 2023 March 31, 2022

Six Months Ended

June 30, 2023 June 30, 2022

OPERATING ACTIVITIES

8 unchanged sentences

Working capital changes ( 215 ) ( 379 )

Other 64 ( 37 )

Net cash provided by operating activities 1,538 1,048

1 unchanged sentence

Capital and technology expenditures ( 194 ) ( 119 )

Asset acquisition ( 102 ) —

Loan advances ( 17 ) ( 3 )

13 unchanged sentences

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

$ 571 $ 1,067

(1) The 2023 amounts include beginning restricted cash of $ 18 million at December 31, 2022, and ending restricted cash of $ 17 million at March 31, 2023, which we present in the “Prepaid expenses and other” and “Other noncurrent assets” captions of our Balance Sheets.

(1) The 2023 amounts include beginning restricted cash of $ 18 million at December 31, 2022, and ending restricted cash of $ 16 million at June 30, 2023, 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.

13 unchanged sentences

Accordingly, ultimate results could differ from those estimates.

The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of March 31, 2023 and December 31, 2022 and the results of our operations and cash flows for the three months ended March 31, 2023 and March 31, 2022.

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.

The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of June 30, 2023 and December 31, 2022, the results of our operations for the three and six months ended June 30, 2023 and June 30, 2022, and cash flows for the six months ended June 30, 2023 and June 30, 2022.

Interim results may not be indicative of fiscal year performance because of seasonal and short-term variations.

We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements.

1 unchanged sentence

The table below illustrates the reconciliation of the earnings and number of shares used in our calculations of basic and diluted earnings per share, the latter of which uses the treasury stock method to calculate the dilutive effect of the Company’s potential common stock:

Three Months Ended

(in millions, except per share amounts) March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

(in millions, except per share amounts) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Computation of Basic Earnings Per Share

10 unchanged sentences

STOCK-BASED COMPENSATION

We granted 1.0 million restricted stock units (“RSUs”) during the 2023 first quarter 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 2023 first quarter to certain executives, which are earned subject to continued employment and the satisfaction of certain performance and market conditions based on the degree of achievement of pre-established targets for 2025 adjusted EBITDA performance and relative total stockholder return over the 2023 to 2025 performance period.

RSUs, including PSUs, granted in the 2023 first quarter had a weighted average grant-date fair value of $ 167 per unit.

We recorded stock-based compensation expense for RSUs and PSUs of $ 33 million in the 2023 first quarter and $ 42 million in the 2022 first quarter.

Deferred compensation costs for unvested awards for RSUs and PSUs totaled $ 315 million at March 31, 2023 and $ 179 million at December 31, 2022.

Our effective tax rate decreased to 10.3 percent for the 2023 first quarter compared to 20.7 percent for the 2022 first quarter, primarily due to the current year release of tax reserves.

Our unrecognized tax benefit balance decreased by $ 99 million to $ 156 million at March 31, 2023 from $ 255 million at December 31, 2022, primarily due to the completion of a prior year tax audit.

Our unrecognized tax benefit balance included $ 145 million at March 31, 2023 and $ 241 million at December 31, 2022 of tax positions that, if recognized, would impact our effective tax rate.

We granted 1.0 million restricted stock units (“RSUs”) during the 2023 first half to certain officers and employees, and those units vest generally over four years in equal annual installments commencing one year after the grant date.

We also granted 0.1 million performance-based RSUs (“PSUs”) in the 2023 first half to certain executives, which are earned subject to continued employment and the satisfaction of certain performance and market conditions based on the degree of achievement of pre-established targets for 2025 adjusted EBITDA performance and relative total stockholder return over the 2023 to 2025 performance period.

RSUs, including PSUs, granted in the 2023 first half had a weighted average grant-date fair value of $ 166 per unit.

We recorded stock-based compensation expense for RSUs and PSUs of $ 49 million in the 2023 second quarter, $ 49 million in the 2022 second quarter, $ 82 million in the 2023 first half, and $ 91 million in the 2022 first half.

Deferred compensation costs for unvested awards for RSUs and PSUs totaled $ 267 million at June 30, 2023 and $ 179 million at December 31, 2022.

Our effective tax rate increased to 24.7 percent for the 2023 second quarter compared to 22.8 percent for the 2022 second quarter, primarily due to a shift in earnings to jurisdictions with higher tax rates.

Our effective tax rate decreased to 18.0 percent for the 2023 first half compared to 22.1 percent for the 2022 first half, primarily due to the current year release of tax reserves, partially offset by the shift in earnings to jurisdictions with higher tax rates.

Our unrecognized tax benefit balance decreased by $ 98 million to $ 157 million at June 30, 2023 from $ 255 million at December 31, 2022, primarily due to the completion of a prior year tax audit.

Our unrecognized tax benefit balance included $ 146 million at June 30, 2023 and $ 241 million at December 31, 2022 of tax positions that, if recognized, would impact our effective tax rate.

It is reasonably possible that within the next 12 months we will reach resolution of income tax examinations in one or more jurisdictions.

2 unchanged sentences

We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world.

Internal Revenue Service (“IRS”) has examined our federal income tax returns, and as of March 31, 2023, we have settled all issues for tax years through 2019.

Internal Revenue Service (“IRS”) has examined our federal income tax returns, and as of June 30, 2023, we have settled all issues for tax years through 2019.

Our 2020 through 2023 tax year audits are currently ongoing.

Various foreign, state, and local income tax returns are also under examination by the applicable taxing authorities.

We paid cash for income taxes, net of refunds, of $ 68 million in the 2023 first quarter and $ 38 million in the 2022 first quarter.

We paid cash for income taxes, net of refunds, of $ 406 million in the 2023 first half and $ 125 million in the 2022 first half.

COMMITMENTS AND CONTINGENCIES

We present the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for our debt service, operating profit, and other guarantees (excluding contingent purchase obligations) for which we are the primary obligor at March 31, 2023 in the following table:

(in millions)

9 unchanged sentences

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

We account for the put option as a guarantee, and our recorded liability was $ 300 million at March 31, 2023 and December 31, 2022.

We account for the put option as a guarantee, and our recorded liability was $ 300 million at June 30, 2023 and December 31, 2022.

Starwood Data Security Incident

2 unchanged sentences

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 .

We discontinued use of t he Starwood reservations database for business operations at the end of 2018 .

Litigation, Claims, and Government Investigations

18 unchanged sentences

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 we recorded an accrual in 2022 for an estimated loss contingency;

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

Based on the ongoing discussions, we believe it is probable that we will incur losses, and as of June 30, 2023, we have an accrual for an estimated loss contingency, which is not material to our Financial Statements.

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:

2 unchanged sentences

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 March 31, 2023 and year-end 2022:

(in millions) March 31,

We provide detail on our long-term debt balances, net of discounts, premiums, and debt issuance costs, in the following table as of June 30, 2023 and year-end 2022:

(in millions) June 30,

2023 December 31,

38 unchanged sentences

$ 10,403 $ 9,380

We paid cash for interest, net of amounts capitalized, of $ 15 million in the 2023 first quarter and $ 29 million in the 2022 first quarter.

We paid cash for interest, net of amounts capitalized, of $ 196 million in the 2023 first half and $ 179 million in the 2022 first half.

In March 2023, we issued $ 800 million aggregate principal amount of 4.9 percent Series KK Notes due April 15, 2029 (the “Series KK Notes”).

9 unchanged sentences

for $ 100 million.

As a result of the transaction, we added approximately 150 properties located in Mexico, Costa Rica, Colombia, and Chile to our franchise portfolio.

As a result of the transaction, we added 149 properties located in Mexico, Costa Rica, Colombia, and Chile to our franchise portfolio.

We accounted for the transaction as an asset acquisition and allocated the cost of the acquisition, including direct and incremental transaction costs, to an indefinite-lived brand asset of approximately $ 85 million and franchise contract assets, with a weighted-average term of 20 years, totaling $ 21 million.

FAIR VALUE OF FINANCIAL INSTRUMENTS

1 unchanged sentence

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

9 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE LOSS AND STOCKHOLDERS’ EQUITY

The following tables detail the accumulated other comprehensive loss activity for the 2023 first quarter and 2022 first quarter:

The following tables detail the accumulated other comprehensive loss activity for the 2023 first half and 2022 first half:

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

Balance at year-end 2022 $ ( 740 ) $ 11 $ ( 729 )

Other comprehensive income (loss) before reclassifications (1)

Other comprehensive income before reclassifications (1)

Reclassification adjustments — 2 2

Net other comprehensive income (loss) 84 ( 2 ) 82

Balance at March 31, 2023 $ ( 656 ) $ 9 $ ( 647 )

Net other comprehensive income 7 6 13

Balance at June 30, 2023 $ ( 733 ) $ 17 $ ( 716 )

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

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

Other comprehensive income before reclassifications (1)

Other comprehensive (loss) income before reclassifications (1)

( 313 ) 5 ( 308 )

Reclassification adjustments — ( 1 ) ( 1 )

Net other comprehensive income 14 — 14

Balance at March 31, 2022 $ ( 337 ) $ 9 $ ( 328 )

(1) Other comprehensive 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 losses of $ 12 million for the 2023 first quarter and gains of $ 12 million for the 2022 first quarter.

The following tables detail the changes in common shares outstanding and stockholders’ equity for the 2023 first quarter and 2022 first quarter:

Net other comprehensive (loss) income ( 313 ) 4 ( 309 )

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

(1) Other comprehensive income (loss) before reclassifications for foreign currency translation adjustments includes intra-entity foreign currency transactions that are of a long-term investment nature, which resulted in losses of $ 14 million for the 2023 first half and gains of $ 44 million for the 2022 first half.

The following tables detail the changes in common shares outstanding and stockholders’ equity for the 2023 first half and 2022 first half:

(in millions, except per share amounts)

9 unchanged sentences

$ 140 $ 5 $ 5,906 $ 12,975 $ ( 18,099 ) $ ( 647 )

— Net income 726 — — 726 — —

— Other comprehensive loss ( 69 ) — — — — ( 69 )

— Dividends ($ 0.52 per share)

( 157 ) — — ( 157 ) — —

0.1 Stock-based compensation plans 48 — 46 — 2 —

( 5.2 ) Purchase of treasury stock ( 912 ) — — — ( 912 ) —

299.6 Balance at June 30, 2023

$ ( 224 ) $ 5 $ 5,952 $ 13,544 $ ( 19,009 ) $ ( 716 )

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

5 unchanged sentences

$ 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 )

CONTRACTS WITH CUSTOMERS

Our current and noncurrent liability for guest loyalty program increased by $ 137 million, to $ 6,731 million at March 31, 2023, from $ 6,594 million at December 31, 2022, primarily reflecting an increase in points earned by members.

Our current and noncurrent liability for guest loyalty program increased by $ 191 million, to $ 6,785 million at June 30, 2023, from $ 6,594 million at December 31, 2022, primarily reflecting an increase in points earned by members.

This includes a $ 61 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-branded credit cards, which were prepaid by the financial institutions in 2020.

The increase was partially offset by $ 745 million of revenue recognized in the 2023 first quarter, that was deferred as of December 31, 2022.

current portion of our liability for guest loyalty program increased compared to December 31, 2022, due to higher estimated redemptions in the short-term.

Our allowance for credit losses was $ 194 million at March 31, 2023 and $ 191 million at December 31, 2022 .

The increase was partially offset by $ 1,572 million of revenue recognized in the 2023 first half, that was deferred as of December 31, 2022.

Our current and noncurrent deferred revenue decreased by $ 48 million, to $ 1,283 million at June 30, 2023, from $ 1,331 million at December 31, 2022, primarily as a result of $ 148 million of revenue recognized in the 2023 first half that was deferred as of December 31, 2022, 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 revenue deferred in the 2023 first half related to our co-branded credit cards, gift cards, certain centralized programs and services fees, and franchise application and relicensing fees.

Our allowance for credit losses decreased to $ 187 million at June 30, 2023 from $ 191 million at December 31, 2022.

BUSINESS SEGMENTS

6 unchanged sentences

Segment Revenues

The following table presents our revenues disaggregated by segment and major revenue stream for the 2023 first quarter and 2022 first quarter:

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

The following tables present our revenues disaggregated by segment and major revenue stream for the 2023 second quarter, 2022 second quarter, 2023 first half, and 2022 first half:

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

(in millions) U.S.

10 unchanged sentences

$ 6,075 $ 5,338

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

(in millions) U.S.

& Canada International Total U.S.

& Canada International Total

Gross fee revenues $ 1,423 $ 605 $ 2,028 $ 1,172 $ 389 $ 1,561

Contract investment amortization ( 33 ) ( 10 ) ( 43 ) ( 29 ) ( 14 ) ( 43 )

Net fee revenues 1,390 595 1,985 1,143 375 1,518

Owned, leased, and other revenue 233 456 689 216 370 586

Cost reimbursement revenue 7,157 1,081 8,238 6,029 805 6,834

Total reportable segment revenue $ 8,780 $ 2,132 $ 10,912 $ 7,388 $ 1,550 $ 8,938

Unallocated corporate and other

Total revenue

$ 11,690 $ 9,537

Segment Profits

Three Months Ended

(in millions) March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

(in millions) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

& Canada $ 756 $ 727 $ 1,413 $ 1,181

5 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 1. Financial Statements