What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-01 · 104 added, 100 removed, 223 unchanged (48% of the section changed)

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and similar statements concerning anticipated future events and expectations that are not historical facts.

uncertainties we describe in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“2022 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.

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, 2022 (“2022 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, timeshare, and other lodging properties under 31 brand names.

We are a worldwide operator, franchisor, and licensor of hotel, residential, timeshare, and other lodging properties under more than 30 brand names.

Under our asset-light business model, we typically manage or franchise hotels, rather than own them .

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Business Trends

We saw strong global RevPAR improvement during the 2023 second quarter and 2023 first half compared to the same periods in 2022.

For the 2023 second quarter, worldwide RevPAR increased 13.5 percent compared to the 2022 second quarter, reflecting ADR growth of 6.0 percent and occupancy improvement of 4.7 percentage points.

For the 2023 first half, worldwide RevPAR increased 22.4 percent compared to the 2022 first half, reflecting ADR growth of 8.1 percent and occupancy improvement of 8.0 percentage points.

We saw strong global RevPAR improvement during the 2023 third quarter and 2023 first three quarters compared to the same periods in 2022.

For the 2023 third quarter, worldwide RevPAR increased 8.8 percent compared to the 2022 third quarter, reflecting ADR growth of 4.1 percent and occupancy improvement of 3.2 percentage points.

For the 2023 first three quarters, worldwide RevPAR increased 17.5 percent compared to the 2022 first three quarters, reflecting ADR growth of 6.7 percent and occupancy improvement of 6.4 percentage points.

The increases in RevPAR were driven by improvement in all customer segments, including robust leisure demand as well as strengthening group and business transient demand as compared to the same periods in 2022.

& Canada, RevPAR improved 6.0 percent in the 2023 second quarter compared to the 2022 second quarter, driven by ADR growth of 4.1 percent and occupancy improvement of 1.3 percentage points.

While demand continued to be strong in the 2023 second quarter, year over year demand began to normalize.

In the 2023 first half, U.S.

& Canada RevPAR improved 14.3 percent compared to the 2022 first half due to strong demand and an improvement in ADR in many markets.

Internationally, RevPAR improved 39.1 percent in the 2023 second quarter and 49.5 percent in the 2023 first half compared to the same periods in 2022.

The improvement in RevPAR was driven by strengthening demand and meaningful growth in ADR in all regions, as compared to the same periods in 2022, which in various geographic markets were impacted by COVID-19 and government-imposed travel restrictions.

The lifting of travel restrictions throughout Asia Pacific, particularly in Greater China, significantly boosted 2023 second quarter and 2023 first half demand in that region.

Our business is subject to the effects of changes in global and regional economic conditions and these conditions can change rapidly.

We continue to monitor economic conditions, and although we are not currently seeing signs of a slowdown in lodging demand in most markets, the lodging booking window is short and trends can change quickly.

& Canada, RevPAR improved 4.3 percent in the 2023 third quarter compared to the 2022 third quarter, driven by ADR growth of 2.7 percent and occupancy improvement of 1.1 percentage points.

In the 2023 first three quarters, U.S.

& Canada RevPAR improved 10.8 percent compared to the 2022 first three quarters, driven

by ADR growth of 5.2 percent and occupancy improvement of 3.5 percentage points.

While demand continued to be strong in the 2023 third quarter, the year-over-year growth in RevPAR continued to stabilize.

Internationally, RevPAR improved 21.8 percent in the 2023 third quarter and 38.7 percent in the 2023 first three quarters compared to the same periods in 2022.

The improvement in RevPAR compared to 2022 was driven by strengthening demand, particularly in Greater China and Asia Pacific excluding China, where various geographic markets were impacted by COVID-19 and government-imposed travel restrictions during the 2022 comparable periods.

Our business is subject to the effects of changes in global and regional economic, geopolitical and other conditions and these conditions can change rapidly.

We continue to monitor these conditions, and although we are not currently seeing signs of a slowdown in lodging demand in most markets, the lodging booking window is short and trends can change quickly.

Starwood Data Security Incident

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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 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).

We expect to incur ongoing legal and other expenses associated with the Data Security Incident in future periods, and we believe it is reasonably possible that we may incur additional monetary payments to regulators and/or litigants in excess of the amounts already recorded and costs in connection with compliance with any settlements or resolutions of matters.

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 2023 second quarter, our system had 8,590 properties (1,565,258 rooms), compared to 8,288 properties (1,525,407 rooms) at year-end 2022 and 8,120 properties (1,500,744 rooms) at the end of the 2022 second quarter.

At the end of the 2023 third quarter, our system had 8,675 properties (1,581,002 rooms), compared to 8,288 properties (1,525,407 rooms) at year-end 2022 and 8,162 properties (1,507,350 rooms) at the end of the 2022 third quarter.

The increase compared to year-end 2022 reflected gross additions of 430 properties (61,304 rooms), including 149 properties (17,300 rooms) from the City Express acquisition, and deletions of 42 properties (5,840 rooms).

Our 2023 first half gross room additions included approximately 34,300 rooms located outside U.S.

Our 2023 first three quarters gross room additions included approximately 47,300 rooms located outside U.S.

& Canada and approximately 10,500 rooms converted from competitor brands.

At the end of the 2023 second quarter, we had nearly 547,000 hotel rooms in our development pipeline, which includes roughly 31,500 hotel rooms approved for development but not yet under signed contracts.

More than 240,000 hotel rooms in the pipeline, including approximately 37,000 rooms from the exclusive, long-term strategic licensing agreement with MGM Resorts International that we announced in July 2023, were under construction as of the end of the second quarter.

At the end of the 2023 third quarter, we had nearly 557,000 hotel rooms in our development pipeline, which includes roughly 40,300 hotel rooms approved for development but not yet under signed contracts.

Approximately 238,000 hotel rooms in the pipeline, including approximately 37,000 rooms from the exclusive, long-term strategic licensing agreement with MGM Resorts International that we announced in July 2023, were under construction as of the end of the 2023 third quarter.

Over half of the rooms in our development pipeline are outside U.S.

We currently expect full-year 2023 net rooms growth of approximately 6.4 to 6.7 percent, including an anticipated 2.4 percent increase as a result of the expected addition of rooms to our system in the 2023 fourth quarter under our agreement with MGM Resorts International discussed above.

We currently expect full-year 2023 net rooms growth of approximately 4.2 to 4.5 percent.

This estimate excludes the anticipated addition of rooms to our system under our agreement with MGM Resorts International discussed above, which we now expect to be added in early 2024.

Properties and Rooms

At June 30, 2023, we operated, franchised, and licensed the following properties and rooms:

At September 30, 2023, 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, 2023 and Change vs.

Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 and Change vs.

Three Months Ended September 30, 2022

RevPAR Occupancy Average Daily Rate

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$ 179.84 4.1 %

Six Months Ended June 30, 2023 and Change vs.

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2023 and Change vs.

Nine Months Ended September 30, 2022

RevPAR Occupancy Average Daily Rate

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CONSOLIDATED RESULTS

Our consolidated results in the 2023 second quarter and 2023 first half improved significantly compared to the 2022 second quarter and 2022 first half due to the continued recovery in lodging demand from the impacts of COVID-19.

The discussion below presents an additional analysis of our consolidated results of operations for the 2023 second quarter compared to the 2022 second quarter and for the 2023 first half compared to the 2022 first half.

Three Months Ended Six Months Ended

(in millions) June 30, 2023 June 30, 2022 Change 2023 vs.

2022 June 30, 2023 June 30, 2022 Change 2023 vs.

Our consolidated results in the 2023 third quarter and 2023 first three quarters improved compared to the 2022 third quarter and 2022 first three quarters due to the continued recovery in lodging demand from the impacts of COVID-19.

The discussion below presents an additional analysis of our consolidated results of operations for the 2023 third quarter compared to the 2022 third quarter and for the 2023 first three quarters compared to the 2022 first three quarters.

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 30, 2022 Change 2023 vs.

2022 September 30, 2023 September 30, 2022 Change 2023 vs.

Base management fees $ 306 $ 275 $ 31 11 % $ 917 $ 757 $ 160 21 %

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Net fee revenues $ 1,174 $ 1,037 $ 137 13 % $ 3,514 $ 2,882 $ 632 22 %

The increases in base management fees in the 2023 second quarter and 2023 first half primarily reflected higher RevPAR.

The increases in franchise fees in the 2023 second quarter and 2023 first half primarily reflected higher RevPAR, unit growth ($25 million and $43 million, respectively), and higher co-branded credit card fees ($7 million and $27 million, respectively).

The increases in incentive management fees in the 2023 second quarter and 2023 first half primarily reflected higher profits at many managed hotels.

The increases in base management fees in the 2023 third quarter and 2023 first three quarters primarily reflected higher RevPAR.

The increase in the 2023 first three quarters was also due to unit growth ($19 million), partially offset by net unfavorable foreign exchange rates ($18 million).

The increases in franchise fees in the 2023 third quarter and 2023 first three quarters primarily reflected higher RevPAR, unit growth ($29 million and $73 million, respectively), and higher co-branded credit card fees ($15 million and $43 million, respectively).

The increases in incentive management fees in the 2023 third quarter and 2023 first three quarters primarily reflected higher profits at many managed hotels.

Owned, Leased, and Other

Three Months Ended Six Months Ended

(in millions) June 30, 2023 June 30, 2022 Change 2023 vs.

2022 June 30, 2023 June 30, 2022 Change 2023 vs.

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 30, 2022 Change 2023 vs.

2022 September 30, 2023 September 30, 2022 Change 2023 vs.

Owned, leased, and other revenue $ 363 $ 345 $ 18 5 % $ 1,109 $ 971 $ 138 14 %

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Owned, leased, and other, net $ 70 $ 44 $ 26 59 % $ 248 $ 192 $ 56 29 %

Owned, leased, and other revenue, net of direct expenses, increased in the 2023 second quarter primarily due to stronger results at our owned and leased properties.

Owned, leased, and other revenue, net of direct expenses, increased in the 2023 first half primarily due to stronger results at our owned and leased properties, partially offset by $29 million of subsidies received for certain of our leased hotels in the 2022 first half under German government COVID-19 assistance programs.

Owned, leased, and other revenue, net of direct expenses, increased in the 2023 third quarter primarily due to an estimated monetary payment of $19 million recorded in the 2022 third quarter related to a portfolio of 12 leased hotels in the U.S.

Owned, leased, and other revenue, net of direct expenses, increased in the 2023 first three quarters primarily due to stronger results at our owned and leased properties and an estimated monetary payment of $31 million recorded in the 2022 first three quarters related to a portfolio of 12 leased hotels in the U.S.

& Canada, partially offset by $29 million of subsidies received for certain of our leased hotels in the 2022 first three quarters under German government COVID-19 assistance programs.

Cost Reimbursements

Three Months Ended Six Months Ended

(in millions) June 30, 2023 June 30, 2022 Change 2023 vs.

2022 June 30, 2023 June 30, 2022 Change 2023 vs.

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 30, 2022 Change 2023 vs.

2022 September 30, 2023 September 30, 2022 Change 2023 vs.

Cost reimbursement revenue $ 4,391 $ 3,931 $ 460 12 % $ 12,995 $ 10,997 $ 1,998 18 %

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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 decrease in cost reimbursements, net in the 2023 second quarter primarily reflected higher expenses related to our insurance program and lower revenues, net of expenses, for our centralized programs and services, partially offset by Loyalty Program activity, primarily due to higher program revenues.

The increase in cost reimbursements, net in the 2023 first half primarily reflected Loyalty Program activity, primarily due to higher program revenues, and higher revenues, net of expenses, for our centralized programs and services, partially offset by higher expenses related to our insurance program.

The increases in cost reimbursements, net in the 2023 third quarter and 2023 first three quarters primarily reflected Loyalty Program activity, primarily due to higher program revenues, and higher revenues, net of expenses, for our centralized programs and services.

The increase in the 2023 first three quarters was partially offset by higher expenses related to our insurance program.

Other Operating Expenses

Three Months Ended Six Months Ended

(in millions) June 30, 2023 June 30, 2022 Change 2023 vs.

2022 June 30, 2023 June 30, 2022 Change 2023 vs.

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 30, 2022 Change 2023 vs.

2022 September 30, 2023 September 30, 2022 Change 2023 vs.

Depreciation, amortization, and other $ 46 $ 50 $ (4) (8) % $ 138 $ 147 $ (9) (6) %

General, administrative, and other 239 216 23 11 % 681 655 26 4 %

Merger-related charges and other 38 — 38 nm* 39 9 30 333 %

* Percentage change is not meaningful.

Merger-related charges and other expenses increased in the 2023 second quarter and the 2023 first half primarily due to the Data Security Incident discussed in Note 5.

Merger-related charges and other 13 2 11 550 % 52 11 41 373 %

Merger-related charges and other expenses increased in the 2023 first three quarters primarily due to the Data Security Incident discussed in Note 5.

Non-Operating Income (Expense)

Three Months Ended Six Months Ended

(in millions) June 30, 2023 June 30, 2022 Change 2023 vs.

2022 June 30, 2023 June 30, 2022 Change 2023 vs.

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 30, 2022 Change 2023 vs.

2022 September 30, 2023 September 30, 2022 Change 2023 vs.

Gains and other income, net $ 28 $ 3 $ 25 833 % $ 33 $ 9 $ 24 267 %

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Equity in earnings 1 1 — — % 9 18 (9) (50) %

Interest expense increased in the 2023 second quarter and 2023 first half primarily due to higher debt balances driven by Senior Notes issuances, net of maturities ($19 million and $29 million, respectively) and higher average borrowings and interest rates related to our commercial paper and Credit Facility program ($17 million and $29 million, respectively).

Equity in earnings decreased in the 2023 second quarter and 2023 first half primarily due to gains recorded in the prior year on the sale of properties held by equity method investees ($13 million and $21 million, respectively).

Three Months Ended Six Months Ended

(in millions) June 30, 2023 June 30, 2022 Change 2023 vs.

2022 June 30, 2023 June 30, 2022 Change 2023 vs.

Gains and other income, net increased in the 2023 third quarter and 2023 first three quarters primarily due to a gain on the sale of a hotel in the Caribbean & Latin America region ($24 million).

Interest expense increased in the 2023 third quarter and 2023 first three quarters primarily due to higher commercial paper borrowings and interest rates ($23 million and $57 million, respectively) and higher debt balances driven by Senior Notes issuances, net of maturities ($19 million and $48 million, respectively).

The increase in the 2023 first three quarters was also due to higher interest rates on floating rate debt, including the effect of interest rate swaps ($17 million).

Equity in earnings decreased in the 2023 first three quarters primarily due to gains recorded in the prior year on the sale of properties held by equity method investees ($23 million).

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 30, 2022 Change 2023 vs.

2022 September 30, 2023 September 30, 2022 Change 2023 vs.

Provision for income taxes $ (237) $ (239) $ 2 1 % $ (562) $ (538) $ (24) (4) %

Provision for income taxes increased by $38 million in the 2023 second quarter primarily due to the increase in operating income ($24 million) and a shift in earnings to jurisdictions with higher tax rates ($7 million).

Provision for income taxes increased by $26 million in the 2023 first half primarily due to the increase in operating income ($110 million) and a shift in earnings to jurisdictions with higher tax rates ($15 million), partially offset by the current year release of tax reserves ($103 million), which was mostly due to the completion of a prior year tax audit.

Provision for income taxes decreased by $2 million in the 2023 third quarter primarily due to the prior year tax expense from the completion of tax audits ($27 million), partially offset by the increase in operating income ($23 million).

Provision for income taxes increased by $24 million in the 2023 first three quarters primarily due to the increase in operating income ($133 million) and a shift in earnings to jurisdictions with higher tax rates ($17 million), partially offset by the current year release of tax reserves ($103 million), which was mostly due to the completion of a prior year tax audit, and the prior year tax expense from the completion of tax audits ($27 million).

BUSINESS SEGMENTS

Our segment results in the 2023 second quarter and 2023 first half improved significantly compared to the 2022 second quarter and 2022 first half due to the continued recovery in lodging demand from the impacts of COVID-19.

The following discussion presents an additional analysis of the operating results of our reportable business segments for the 2023 second quarter compared to the 2022 second quarter and for the 2023 first half compared to the 2022 first half.

Three Months Ended Six Months Ended

(in millions) June 30, 2023 June 30, 2022 Change 2023 vs.

2022 June 30, 2023 June 30, 2022 Change 2023 vs.

Our segment results in the 2023 third quarter and 2023 first three quarters improved compared to the 2022 third quarter and 2022 first three quarters due to the continued recovery in lodging demand from the impacts of COVID-19.

The following discussion presents an additional analysis of the operating results of our reportable business segments for the 2023 third quarter compared to the 2022 third quarter and for the 2023 first three quarters compared to the 2022 first three quarters.

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 30, 2022 Change 2023 vs.

2022 September 30, 2023 September 30, 2022 Change 2023 vs.

Segment revenues $ 4,333 $ 4,000 $ 333 8 % $ 13,113 $ 11,388 $ 1,725 15 %

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Properties Rooms

June 30, 2023 June 30, 2022 vs.

June 30, 2022 June 30, 2023 June 30, 2022 vs.

June 30, 2022

September 30, 2023 September 30, 2022 vs.

September 30, 2022 September 30, 2023 September 30, 2022 vs.

September 30, 2022

& Canada 5,927 5,818 109 2 % 975,391 961,765 13,626 1 %

International 2,654 2,252 402 18 % 582,717 522,884 59,833 11 %

Second Quarter

& Canada 2023 second quarter segment profit increased primarily due to:

Third Quarter

& Canada 2023 third quarter segment profit increased primarily due to:

• $41 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy, as well as unit growth;

partially offset by:

• $40 million of lower cost reimbursement revenue, net of reimbursed expenses.

& Canada 2023 first half segment profit increased primarily due to:

• $251 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy, higher profits at certain managed hotels, and unit growth;

• $25 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at our owned and leased properties;

• $13 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting a $19 million estimated monetary payment recorded in the 2022 third quarter related to a portfolio of 12 leased hotels in the U.S.

First Three Quarters

& Canada 2023 first three quarters segment profit increased primarily due to:

• $292 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy, unit growth, and higher profits at certain managed hotels;

• $38 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting a $31 million estimated monetary payment recorded in the 2022 first three quarters related to a portfolio of 12 leased hotels in the U.S.

partially offset by:

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International

Second Quarter

International 2023 second quarter segment profit increased primarily due to:

• $102 million of higher gross fee revenues, primarily reflecting higher profits at certain managed hotels and higher comparable systemwide RevPAR driven by increases in both ADR and occupancy in all regions;

partially offset by:

• $15 million of lower cost reimbursement revenue, net of reimbursed expenses.

International 2023 first half segment profit increased primarily due to:

Third Quarter

International 2023 third quarter segment profit increased primarily due to:

• $78 million of higher gross fee revenues, primarily reflecting higher profits at certain managed hotels and higher comparable systemwide RevPAR driven by increases in both ADR and occupancy in nearly all regions;

• $25 million of higher gains and other income, net, primarily reflecting a gain on the sale of a hotel property in the Caribbean & Latin America region ($24 million).

First Three Quarters

International 2023 first three quarters segment profit increased primarily due to:

• $294 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy in all regions, higher profits at certain managed hotels, and unit growth, partially offset by net unfavorable foreign exchange rates;

• $13 million of lower general, administrative, and other expenses, primarily reflecting a lower provision for credit losses;

• $22 million of higher gains and other income, net, primarily reflecting a gain on the sale of a hotel in the Caribbean & Latin America region ($24 million);

partially offset by:

• $28 million of lower cost reimbursement revenue, net of reimbursed expenses;

• $10 million of lower owned, leased, and other revenue, net of direct expenses, primarily reflecting subsidies received for certain of our leased hotels in the 2022 first half under German government COVID-19 assistance programs, partially offset by stronger results at our owned and leased properties.

• $2 million of lower owned, leased, and other revenue, net of direct expenses, primarily reflecting subsidies received for certain of our leased hotels in the 2022 first three quarters under German government COVID-19 assistance programs, partially offset by stronger results at our owned and leased properties.

LIQUIDITY AND CAPITAL RESOURCES

Our long-term financial objectives include maintaining diversified financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital.

At the end of the 2023 second quarter, our long-term debt had a weighted average interest rate of 4.3 percent and a weighted average maturity of approximately 5.5 years.

Including the effect of interest rate swaps, the ratio of our fixed-rate long-term debt to our total long-term debt was 0.8 to 1.0 at the end of the 2023 second quarter.

At the end of the 2023 third quarter, our long-term debt had a weighted average interest rate of 4.4 percent and a weighted average maturity of approximately 5.2 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 2023 third quarter.

Sources of Liquidity

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We do not expect that fluctuations in the demand for commercial paper will affect our liquidity, given our borrowing capacity under the Credit Facility and access to capital markets.

Cash, cash equivalents, and restricted cash totaled $579 million at June 30, 2023, an increase of $54 million from year-end 2022, primarily due to net cash provided by operating activities ($1,538 million), commercial paper borrowings ($736 million), and Senior Notes issuances, net of repayments ($493 million), partially offset by share repurchases ($2,046 million), dividends paid ($281 million), capital and technology expenditures ($194 million), the City Express asset acquisition ($102 million), and financing outflows for employee stock-based compensation withholding taxes ($79 million).

Net cash provided by operating activities increased by $490 million in the 2023 first half compared to the 2022 first half, primarily due to higher net income (adjusted for non-cash items) and working capital changes driven by accounts receivable timing, partially offset by higher cash paid for income taxes.

first half and 2022 first half, and will in the future reduce, the amount of cash we receive from these card issuers.

Cash, cash equivalents, and restricted cash totaled $743 million at September 30, 2023, an increase of $218 million from year-end 2022, primarily due to net cash provided by operating activities ($2,419 million), Senior Notes issuances, net of repayments ($1,627 million), net commercial paper borrowings ($100 million), and the sale of a hotel in the Caribbean & Latin America region ($61 million), partially offset by share repurchases ($2,988 million), dividends paid ($435 million), capital and technology expenditures ($318 million), financing outflows for

employee stock-based compensation withholding taxes ($105 million), and the City Express asset acquisition ($102 million).

Net cash provided by operating activities increased by $497 million in the 2023 first three quarters compared to the 2022 first three quarters, primarily due to higher net income (adjusted for non-cash items), working capital changes driven by accounts receivable timing, and higher cash generated by our Loyalty Program, partially offset by higher cash paid for income taxes.

Cash inflow from our Loyalty Program in 2020 included $920 million of cash received from the prepayment of certain future revenues under the 2020 amendments to our existing U.S.-issued co-branded credit card agreements, which reduced in both the 2023 first three quarters 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 2023 second quarter.

Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of the 2023 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 $194 million in the 2023 first half and $119 million in the 2022 first half.

We expect capital expenditures and other investments will total approximately $900 million to $1 billion for the 2023 full year, including capital and technology expenditures, the completed City Express acquisition, loan advances, contract acquisition costs, and other investing activities (including approximately $200 million for maintenance capital spending).

This estimate also includes higher than typical spending on our worldwide technology systems, which is overwhelmingly expected to be reimbursed over time.

We made capital and technology expenditures of $318 million in the 2023 first three quarters and $192 million in the 2022 first three quarters.

Capital and technology expenditures in the 2023 first three quarters increased by $126 million compared to the 2022 first three quarters, primarily reflecting higher spending on improvements to our worldwide technology systems, the overwhelming portion of which is expected to be reimbursed over time.

We expect capital expenditures and other investments will total approximately $900 million to $950 million for the 2023 full year, including capital and technology expenditures, the completed City Express acquisition, loan advances, contract acquisition costs, and other investing activities (including approximately $200 million for maintenance capital spending).

Share Repurchases and Dividends

We repurchased 5.2 million shares of our common stock for $903 million in the 2023 second quarter.

Year-to-date through July 28, 2023, we repurchased 13.6 million shares for $2.3 billion.

We repurchased 4.8 million shares of our common stock for $950 million in the 2023 third quarter.

Year-to-date through October 31, 2023, we repurchased 18.3 million shares for $3.3 billion.

For additional information, see “Issuer Purchases of Equity Securities” in Part II, Item 2.

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(1) $0.40 per share declared on February 10, 2023 and paid on March 31, 2023 to stockholders of record on February 24, 2023;

and (2) $0.52 per share declared on May 12, 2023 and paid on June 30, 2023 to stockholders of record on May 26, 2023.

(2) $0.52 per share declared on May 12, 2023 and paid on June 30, 2023 to stockholders of record on May 26, 2023;

and (3) $0.52 per share declared on August 3, 2023 and paid on September 29, 2023 to stockholders of record on August 17, 2023.

We expect to continue to return cash to stockholders through a combination of share repurchases and cash dividends.

Material Cash Requirements

As of the end of the 2023 second quarter, there have been no material changes to our cash requirements as disclosed in our 2022 Form 10-K.

As of the end of the 2023 third quarter, there have been no material changes to our cash requirements as disclosed in our 2022 Form 10-K.

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2022 Form 10-K for more information about our cash requirements.

Also, see Note 6 for information on our long-term debt.

At June 30, 2023, 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 $245 million, of which $111 million is payable within the next 12 months from June 30, 2023.

At September 30, 2023, 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 $243 million, of which $108 million is payable within the next 12 months from September 30, 2023.

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 2022 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

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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