UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________ 

FORM 10-Q

_________________________________________________ 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 1-13881

_________________________________________________ 

MARRIOTT INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 _______________________________________

Delaware			52-2055918
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
7750 Wisconsin Avenue	Bethesda	Maryland	20814
(Address of principal executive offices)			(Zip Code)

(301) 380-3000

(Registrant’s telephone number, including area code)

 

10400 Fernwood Road
Bethesda	Maryland	20817

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A Common Stock, $0.01 par value	MAR	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 324,551,358 shares of Class A Common Stock, par value $0.01 per share, outstanding at July 26, 2022.

MARRIOTT INTERNATIONAL, INC.

FORM 10-Q TABLE OF CONTENTS

		Page No.
Part I.	Financial Information (Unaudited):
Item 1.	Financial Statements
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Cautionary Statement	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
Part II.	Other Information:
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	27
	Signature	28

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MARRIOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

($ in millions, except per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
REVENUES
Base management fees	$	269	$	156	$	482	$	262
Franchise fees	669		431		1,169		737
Incentive management fees	135		55		237		88
Gross fee revenues	1,073		642		1,888		1,087
Contract investment amortization	(19)		(18)		(43)		(35)
Net fee revenues	1,054		624		1,845		1,052
Owned, leased, and other revenue	364		187		626		295
Cost reimbursement revenue	3,920		2,338		7,066		4,118
	5,338		3,149		9,537		5,465
OPERATING COSTS AND EXPENSES
Owned, leased, and other-direct	281		168		478		303
Depreciation, amortization, and other	49		50		97		102
General, administrative, and other	231		187		439		398
Restructuring, merger-related charges, and other	—		3		9		4
Reimbursed expenses	3,827		2,255		7,006		4,088
	4,388		2,663		8,029		4,895
OPERATING INCOME	950		486		1,508		570
Gains and other income, net	2		5		6		6
Interest expense	(95)		(109)		(188)		(216)
Interest income	6		7		11		14
Equity in earnings (losses)	15		(8)		17		(20)
INCOME BEFORE INCOME TAXES	878		381		1,354		354
(Provision) benefit for income taxes	(200)		41		(299)		57
NET INCOME	$	678	$	422	$	1,055	$	411
EARNINGS PER SHARE
Earnings per share - basic	$	2.06	$	1.29	$	3.21	$	1.26
Earnings per share - diluted	$	2.06	$	1.28	$	3.20	$	1.25

See Notes to Condensed Consolidated Financial Statements.

3

MARRIOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in millions)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Net income	$	678	$	422	$	1,055	$	411
Other comprehensive income (loss):
Foreign currency translation adjustments	(327)		96		(313)		(59)
Other adjustments, net of tax	4		—		4		—
Total other comprehensive income (loss), net of tax	(323)		96		(309)		(59)
Comprehensive income	$	355	$	518	$	746	$	352

See Notes to Condensed Consolidated Financial Statements.

4

MARRIOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in millions)

	(Unaudited)
	June 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and equivalents	$	546	$	1,393
Accounts and notes receivable, net	2,282		1,982
Prepaid expenses and other	278		251
	3,106		3,626
Property and equipment, net	1,532		1,503
Intangible assets
Brands	5,854		5,979
Contract acquisition costs and other	2,892		2,947
Goodwill	8,920		9,073
	17,666		17,999
Equity method investments	363		387
Notes receivable, net	146		144
Deferred tax assets	228		228
Operating lease assets	1,002		1,062
Other noncurrent assets	572		604
	$	24,615	$	25,553
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	558	$	805
Accounts payable	773		726
Accrued payroll and benefits	1,071		1,187
Liability for guest loyalty program	3,115		2,522
Accrued expenses and other	1,336		1,167
	6,853		6,407
Long-term debt	8,230		9,333
Liability for guest loyalty program	3,529		3,949
Deferred tax liabilities	223		169
Deferred revenue	1,085		1,181
Operating lease liabilities	1,048		1,098
Other noncurrent liabilities	1,875		2,002
Stockholders’ equity
Class A Common Stock	5		5
Additional paid-in-capital	5,872		5,892
Retained earnings	11,262		10,305
Treasury stock, at cost	(14,716)		(14,446)
Accumulated other comprehensive loss	(651)		(342)
	1,772		1,414
	$	24,615	$	25,553

See Notes to Condensed Consolidated Financial Statements.

5

MARRIOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

(Unaudited)

	Six Months Ended
	June 30, 2022		June 30, 2021
OPERATING ACTIVITIES
Net income	$	1,055	$	411
Adjustments to reconcile to cash provided by operating activities:
Depreciation, amortization, and other	140		137
Stock-based compensation	96		96
Income taxes	174		(277)
Liability for guest loyalty program	44		90
Contract acquisition costs	(51)		(108)
Restructuring, merger-related charges, and other	6		(4)
Working capital changes	(379)		(120)
Deferred revenue changes and other	(37)		(99)
Net cash provided by operating activities	1,048		126
INVESTING ACTIVITIES
Capital and technology expenditures	(119)		(70)
Dispositions	—		7
Loan advances	(3)		(2)
Loan collections	9		5
Other	22		(12)
Net cash used in investing activities	(91)		(72)
FINANCING ACTIVITIES
Credit Facility, net	(750)		(500)
Issuance of long-term debt	—		1,089
Repayment of long-term debt	(576)		(770)
Issuance of Class A Common Stock	—		2
Dividends paid	(98)		—
Purchase of treasury stock	(300)		—
Stock-based compensation withholding taxes	(87)		(83)
Other	—		(7)
Net cash used in financing activities	(1,811)		(269)
DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(854)		(215)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period (1)	1,421		894
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1)	$	567	$	679

(1)The 2022 amounts include beginning restricted cash of $28 million at December 31, 2021, and ending restricted cash of $21 million at June 30, 2022, which we present in the “Prepaid expenses and other” and “Other noncurrent assets” captions of our Balance Sheets.

See Notes to Condensed Consolidated Financial Statements.

6

MARRIOTT INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The condensed consolidated financial statements present the results of operations, financial position, and cash flows of Marriott International, Inc. and subsidiaries (referred to in this report as “we,” “us,” “Marriott,” or the “Company”). In order to make this report easier to read, we also refer throughout to (1) our Condensed Consolidated Financial Statements as our “Financial Statements,” (2) our Condensed Consolidated Statements of Income as our “Income Statements,” (3) our Condensed Consolidated Balance Sheets as our “Balance Sheets,” (4) our Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (5) our properties, brands, or markets in the United States and Canada as “U.S. & Canada,” and (6) our properties, brands, or markets in our Caribbean and Latin America, Europe, Middle East and Africa, Greater China, and Asia Pacific excluding China regions, as “International.” In addition, references throughout to numbered “Notes” refer to these Notes to Condensed Consolidated Financial Statements, unless otherwise stated.

These Financial Statements have not been audited. We have condensed or omitted certain information and disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements in this report should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”). Certain terms not otherwise defined in this Form 10-Q have the meanings specified in our 2021 Form 10-K.

Preparation of financial statements that conform with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. The uncertainty created by the coronavirus pandemic (“COVID-19”) has made such estimates more difficult and subjective. Accordingly, ultimate results could differ from those estimates.

The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of June 30, 2022 and December 31, 2021, the results of our operations for the three and six months ended June 30, 2022 and June 30, 2021, and cash flows for the six months ended June 30, 2022 and June 30, 2021. Interim results may not be indicative of fiscal year performance because of seasonal and short-term variations, as well as the impact of COVID-19. We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements.

NOTE 2. EARNINGS PER SHARE

The table below presents the reconciliation of the earnings and number of shares used in our calculations of basic and diluted earnings per share:

	Three Months Ended				Six Months Ended
(in millions, except per share amounts)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Computation of Basic Earnings Per Share
Net income	$	678	$	422	$	1,055	$	411
Shares for basic earnings per share	328.2		327.1		328.3		326.9
Basic earnings per share	$	2.06	$	1.29	$	3.21	$	1.26
Computation of Diluted Earnings Per Share
Net income	$	678	$	422	$	1,055	$	411
Shares for basic earnings per share	328.2		327.1		328.3		326.9
Effect of dilutive securities
Stock-based compensation	1.3		2.0		1.5		2.1
Shares for diluted earnings per share	329.5		329.1		329.8		329.0
Diluted earnings per share	$	2.06	$	1.28	$	3.20	$	1.25

7

NOTE 3. STOCK-BASED COMPENSATION

We granted 1.0 million restricted stock units (“RSUs”) during the 2022 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 2022 first half to certain executives, which are earned, subject to continued employment and the satisfaction of certain performance and market conditions, generally based on the degree of achievement of pre-established targets for 2024 adjusted EBITDA performance and relative total stockholder return over the 2022 to 2024 performance period. RSUs, including PSUs, granted in the 2022 first half had a weighted average grant-date fair value of $169 per unit.

We recorded stock-based compensation expense for RSUs and PSUs of $49 million in the 2022 second quarter, $41 million in the 2021 second quarter, $91 million in the 2022 first half, and $90 million in the 2021 first half. Deferred compensation costs for unvested awards for RSUs and PSUs totaled $270 million at June 30, 2022 and $189 million at December 31, 2021.

NOTE 4. INCOME TAXES

Our effective tax rate was 22.8 percent for the 2022 second quarter compared to (10.9) percent for the 2021 second quarter, and 22.1 percent for the 2022 first half compared to (16.3) percent for the 2021 first half. The changes in our effective tax rates were primarily due to the prior year tax benefit from the release of tax reserves due to the favorable resolution of Legacy-Starwood tax audits.

We paid cash for income taxes, net of refunds, of $125 million in the 2022 first half and $220 million in the 2021 first half.

NOTE 5. COMMITMENTS AND CONTINGENCIES

Guarantees

We present the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for our debt service, operating profit, and other guarantees (excluding contingent purchase obligations) for which we are the primary obligor at June 30, 2022 in the following table:

($ in millions) Guarantee Type	Maximum Potential Amount of Future Fundings		Recorded Liability for Guarantees
Debt service	$	77	$	11
Operating profit	174		108
Other	16		4
	$	267	$	123

Our maximum potential guarantees listed in the preceding table include $39 million of guarantees that will not be in effect until the underlying properties open and we begin to operate the properties or certain other events occur.

Contingent Purchase Obligation

Sheraton Grand Chicago. In 2017, we granted the owner a one-time right to require us to purchase the leasehold interest in the land and the hotel for $300 million in cash (the “put option”). In the 2021 third quarter, we entered into an amendment with the owner to move the exercise period of the put option from the 2022 first half to the 2024 first half. If the owner exercises the put option, the closing is expected to occur in the 2024 fourth quarter, and we have the option to purchase, at the same time the put transaction closes, the fee simple interest in the underlying land for an additional $200 million in cash. We account for the put option as a guarantee, and our recorded liability was $300 million at June 30, 2022 and December 31, 2021.

8

Starwood Data Security Incident

Description of Event

On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). Working with leading security experts, we determined that there was unauthorized access to the Starwood network since 2014 and that an unauthorized party had copied information from the Starwood reservations database and taken steps towards removing it. The Starwood reservations database is no longer used for business operations.

Litigation, Claims, and Government Investigations

Following our announcement of the Data Security Incident, approximately 100 lawsuits were filed by consumers and others against us in U.S. federal, U.S. state and Canadian courts related to the incident. The plaintiffs in the cases that remain pending, who generally purport to represent various classes of consumers, generally claim to have been harmed by alleged actions and/or omissions by the Company in connection with the Data Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief. The active U.S. cases are consolidated in the U.S. District Court for the District of Maryland, pursuant to orders of the U.S. Judicial Panel on Multidistrict Litigation (the “MDL”). On May 3, 2022, the U.S. District Court for the District of Maryland granted in part and denied in part class certification of various U.S. groups of consumers. We appealed the District Court’s decision, and on July 14, 2022, the U.S. Court of Appeals for the Fourth Circuit granted our petition to appeal. The Canadian cases have effectively been consolidated into a single case in the province of Ontario. We dispute the allegations in these lawsuits and are vigorously defending against such claims.

On August 18, 2020, a purported representative action was brought against us in the High Court of Justice for England and Wales on behalf of an alleged claimant class of English and Welsh residents alleging breaches of the General Data Protection Regulation and/or the U.K. Data Protection Act 2018 in connection with the Data Security Incident. The plaintiffs informed us that they have decided not to pursue this case and the case was discontinued in May 2022.

In addition, numerous U.S. federal, U.S. state and foreign governmental authorities made inquiries, opened investigations, or requested information and/or documents related to the Data Security Incident and related matters. Although some of these matters have been resolved or no longer appear to be active, some remain open. We are in discussions with the Attorney General offices from 49 states and the District of Columbia, the Federal Trade Commission, and regulatory authorities in Canada and Australia to resolve their investigations and requests.

While we believe it is reasonably possible that we may incur additional losses 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 loss or range of loss, if any, in excess of the amounts already incurred that might result from adverse judgments, settlements, fines, penalties or other resolution of these proceedings and investigations based on: (i) in the case of the above described MDL proceedings, the current stage of these proceedings, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, and the lack of resolution of significant factual and legal issues; and (ii) in the case of the above described regulatory investigations, the lack of resolution of significant factual and legal issues in our discussions with the Federal Trade Commission and the state Attorneys General.

9

NOTE 6. LONG-TERM DEBT

We provide detail on our long-term debt balances, net of discounts, premiums, and debt issuance costs, in the following table as of June 30, 2022 and year-end 2021:

($ in millions)	June 30, 2022		December 31, 2021
Senior Notes:
Series L Notes, interest rate of 3.3%, face amount of $173, redeemed June 15, 2022 (effective interest rate of 3.4%)	$	—	$	173
Series P Notes, interest rate of 3.8%, face amount of $350, maturing October 1, 2025 (effective interest rate of 4.0%)	348		347
Series Q Notes, interest rate of 2.3%, face amount of $399, matured January 15, 2022 (effective interest rate of 2.5%)	—		399
Series R Notes, interest rate of 3.1%, face amount of $750, maturing June 15, 2026 (effective interest rate of 3.3%)	746		746
Series U Notes, interest rate of 3.1%, face amount of $291, maturing February 15, 2023 (effective interest rate of 3.1%)	291		291
Series V Notes, interest rate of 3.8%, face amount of $318, maturing March 15, 2025 (effective interest rate of 2.8%)	326		327
Series W Notes, interest rate of 4.5%, face amount of $278, maturing October 1, 2034 (effective interest rate of 4.1%)	289		290
Series X Notes, interest rate of 4.0%, face amount of $450, maturing April 15, 2028 (effective interest rate of 4.2%)	446		445
Series Z Notes, interest rate of 4.2%, face amount of $350, maturing December 1, 2023 (effective interest rate of 4.4%)	349		349
Series AA Notes, interest rate of 4.7%, face amount of $300, maturing December 1, 2028 (effective interest rate of 4.8%)	298		297
Series CC Notes, interest rate of 3.6%, face amount of $550, maturing April 15, 2024 (effective interest rate of 3.9%)	541		566
Series DD Notes, interest rate of 2.1%, face amount of $224, maturing October 3, 2022 (effective interest rate of 1.2%)	224		226
Series EE Notes, interest rate of 5.8%, face amount of $600, maturing May 1, 2025 (effective interest rate of 6.0%)	596		595
Series FF Notes, interest rate of 4.6%, face amount of $1,000, maturing June 15, 2030 (effective interest rate of 4.8%)	988		987
Series GG Notes, interest rate of 3.5%, face amount of $1,000, maturing October 15, 2032 (effective interest rate of 3.7%)	986		986
Series HH Notes, interest rate of 2.9%, face amount of $1,100, maturing April 15, 2031 (effective interest rate of 3.0%)	1,090		1,090
Series II Notes, interest rate of 2.8%, face amount of $700, maturing October 15, 2033 (effective interest rate of 2.8%)	694		693
Credit Facility	300		1,050
Finance lease obligations	143		146
Other	133		135
	$	8,788	$	10,138
Less current portion	(558)		(805)
	$	8,230	$	9,333

We paid cash for interest, net of amounts capitalized, of $179 million in the 2022 first half and $196 million in the 2021 first half.

In June 2022, we redeemed all $173 million aggregate principal amount of our outstanding Series L Notes due in September 2022.

10

We are party to a multicurrency revolving credit agreement (as amended, the “Credit Facility”) that provides for up to $4.5 billion of aggregate borrowings for general corporate needs, including working capital, capital expenditures, letters of credit, acquisitions, and to support our commercial paper program if and when we resume issuing commercial paper. Borrowings under the Credit Facility generally bear interest at LIBOR (the London Interbank Offered Rate) plus a spread, based on our public debt rating. We also pay quarterly fees on the Credit Facility at a rate based on our public debt rating. We classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings (if any) as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis. The Credit Facility expires on June 28, 2024. In July 2022, we repaid $275 million of 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.

NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS

We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. We present the carrying values and the fair values of noncurrent financial assets and liabilities that qualify as financial instruments in the following table:

	June 30, 2022				December 31, 2021
($ in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior, mezzanine, and other loans	$	146	$	135	$	144	$	131
Total noncurrent financial assets	$	146	$	135	$	144	$	131
Senior Notes	$	(7,697)	$	(7,149)	$	(8,009)	$	(8,480)
Credit Facility	(300)		(300)		(1,050)		(1,050)
Other long-term debt	(100)		(95)		(135)		(140)
Other noncurrent liabilities	(401)		(401)		(414)		(414)
Total noncurrent financial liabilities	$	(8,498)	$	(7,945)	$	(9,608)	$	(10,084)

See Note 12. Fair Value of Financial Instruments and the “Fair Value Measurements” caption of Note 2. Summary of Significant Accounting Policies of our 2021 Form 10-K for more information on the input levels we use in determining fair value.

11

NOTE 8. ACCUMULATED OTHER COMPREHENSIVE LOSS AND STOCKHOLDERS’ EQUITY

The following tables detail the accumulated other comprehensive loss activity for the 2022 first half and 2021 first half:

($ 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)	(313)		5		(308)
Reclassification adjustments	—		(1)		(1)
Net other comprehensive income	(313)		4		(309)
Balance at June 30, 2022	$	(664)	$	13	$	(651)

($ in millions)	Foreign Currency Translation Adjustments		Other Adjustments		Accumulated Other Comprehensive Loss
Balance at year-end 2020	$	(139)	$	4	$	(135)
Other comprehensive loss before reclassifications (1)	(59)		—		(59)
Reclassification adjustments	—		—		—
Net other comprehensive loss	(59)		—		(59)
Balance at June 30, 2021	$	(198)	$	4	$	(194)

(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 gains of $44 million for the 2022 first half and $18 million for the 2021 first half.

The following tables detail the changes in common shares outstanding and stockholders’ equity for the 2022 first half and 2021 first half:

(in millions, except per share amounts)
Common Shares Outstanding		Total		Class A Common Stock		Additional Paid-in-Capital		Retained Earnings		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss
326.3	Balance at year-end 2021	$	1,414	$	5	$	5,892	$	10,305	$	(14,446)	$	(342)
—	Net income	377		—		—		377		—		—
—	Other comprehensive income	14		—		—		—		—		14
1.0	Stock-based compensation plans	(33)		—		(61)		—		28		—
327.3	Balance at March 31, 2022	$	1,772	$	5	$	5,831	$	10,682	$	(14,418)	$	(328)
—	Net income	678		—		—		678		—		—
—	Other comprehensive loss	(323)		—		—		—		—		(323)
—	Dividends ($0.30 per share)	(98)		—		—		(98)		—		—
—	Stock-based compensation plans	43		—		41		—		2		—
(1.9)	Purchase of treasury stock	(300)		—		—		—		(300)		—
325.4	Balance at June 30, 2022	$	1,772	$	5	$	5,872	$	11,262	$	(14,716)	$	(651)

Common Shares Outstanding		Total		Class A Common Stock		Additional Paid-in-Capital		Retained Earnings		Treasury Stock, at Cost		Accumulated Other Comprehensive Loss
324.4	Balance at year-end 2020	$	430	$	5	$	5,851	$	9,206	$	(14,497)	$	(135)
—	Net loss	(11)		—		—		(11)		—		—
—	Other comprehensive loss	(155)		—		—		—		—		(155)
1.2	Stock-based compensation plans	(30)		—		(64)		—		34		—
325.6	Balance at March 31, 2021	$	234	$	5	$	5,787	$	9,195	$	(14,463)	$	(290)
—	Net income	422		—		—		422		—		—
—	Other comprehensive income	96		—		—		—		—		96
—	Stock-based compensation plans	44		—		43		1		—		—
325.6	Balance at June 30, 2021	$	796	$	5	$	5,830	$	9,618	$	(14,463)	$	(194)

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NOTE 9. CONTRACTS WITH CUSTOMERS

Our current and noncurrent liability for guest loyalty program increased by $173 million, to $6,644 million at June 30, 2022, from $6,471 million at December 31, 2021, primarily reflecting an increase in points earned by members. This includes a $128 million reclassification from deferred revenue to the liability for guest loyalty program primarily due to points that were earned during the period by members using our U.S.-issued co-brand credit cards, which were prepaid by the financial institutions in 2020. The increase was partially offset by $1,324 million of revenue recognized in the 2022 first half, that was deferred as of December 31, 2021. The current portion of our liability for guest loyalty program increased compared to December 31, 2021, due to higher estimated redemptions in the short-term.

Current and noncurrent deferred revenue decreased by $138 million, to $1,389 million at June 30, 2022, from $1,527 million at December 31, 2021, primarily as a result of $186 million of revenue recognized in the 2022 first half that was deferred as of December 31, 2021, as well as the reclassification from deferred revenue to the liability for guest loyalty program, which we discuss above. The decrease was partially offset by deferred cash received related to our co-brand credit cards and gift cards, as well as an increase in franchise application and relicensing fees.

Our allowance for credit losses increased to $212 million at June 30, 2022 from $187 million at December 31, 2021, primarily reflecting our provision for credit losses. Our provision for credit losses totaled $14 million in the 2022 second quarter and $33 million in the 2022 first half.

NOTE 10. BUSINESS SEGMENTS

We discuss our operations in the following two operating segments, both of which meet the applicable criteria for separate disclosure as a reportable business segment: U.S. & Canada and International.

We evaluate the performance of our operating segments using “segment profit/loss” which is based largely on the results of the segment without allocating corporate expenses, income taxes, indirect general, administrative, and other expenses, merger-related costs, or most above-property restructuring charges. We assign gains and losses, equity in earnings or losses, direct general, administrative, and other expenses, and other restructuring charges to each of our segments. “Unallocated corporate and other” includes a portion of our revenues (including license fees we receive from our credit card programs and fees from vacation ownership licensing agreements), revenues and expenses for our Loyalty Program, general, administrative, and other expenses, restructuring, merger-related charges, and other expenses, equity in earnings or losses, and other gains or losses that we do not allocate to our segments.

Our chief operating decision maker monitors assets for the consolidated Company but does not use assets by operating segment when assessing performance or making operating segment resource allocations.

Segment Revenues

The following tables present our revenues disaggregated by segment and major revenue stream for the 2022 second quarter, 2021 second quarter, 2022 first half, and 2021 first half:

	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
($ in millions)	U.S. & Canada		International		Total		U.S. & Canada		International		Total
Gross fee revenues	$	683	$	212	$	895	$	373	$	132	$	505
Contract investment amortization	(15)		(4)		(19)		(13)		(5)		(18)
Net fee revenues	668		208		876		360		127		487
Owned, leased, and other revenue	124		217		341		57		120		177
Cost reimbursement revenue	3,325		450		3,775		1,911		275		2,186
Total reportable segment revenue	$	4,117	$	875	$	4,992	$	2,328	$	522	$	2,850
Unallocated corporate and other					346						299
Total revenue					$	5,338					$	3,149

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	Six Months Ended June 30, 2022						Six Months Ended June 30, 2021
($ in millions)	U.S. & Canada		International		Total		U.S. & Canada		International		Total
Gross fee revenues	$	1,172	$	389	$	1,561	$	623	$	219	$	842
Contract investment amortization	(29)		(14)		(43)		(26)		(9)		(35)
Net fee revenues	1,143		375		1,518		597		210		807
Owned, leased, and other revenue	216		370		586		92		186		278
Cost reimbursement revenue	6,029		805		6,834		3,360		517		3,877
Total reportable segment revenue	$	7,388	$	1,550	$	8,938	$	4,049	$	913	$	4,962
Unallocated corporate and other					599						503
Total revenue					$	9,537					$	5,465

Segment Profit

	Three Months Ended				Six Months Ended
($ in millions)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
U.S. & Canada	$	727	$	344	$	1,181	$	487
International	210		79		341		56
Unallocated corporate and other	30		60		9		13
Interest expense, net of interest income	(89)		(102)		(177)		(202)
(Provision) benefit for income taxes	(200)		41		(299)		57
Net income	$	678	$	422	$	1,055	$	411

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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 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; 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: U.S. & Canada and 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. Comparisons to prior periods are on a systemwide constant U.S. dollar basis for comparable properties, unless otherwise stated. We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period.

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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. The RevPAR, ADR, and occupancy comparisons between 2022 and 2019, which we discuss under the “Impact of COVID-19” caption below, reflect properties that are defined as comparable as of June 30, 2022, even if in 2019 they were not open and operating for the full year or did not meet all the other criteria listed above.

Impact of COVID-19

While COVID-19 continues to negatively impact our business and industry, we continued to see strong global RevPAR improvement in the 2022 second quarter, with worldwide RevPAR only 2.9 percent below the 2019 second quarter, driven by ADR growth of 7.2 percent compared to the 2019 second quarter and occupancy of 68 percent. In the 2022 first half, we saw consecutive worldwide RevPAR improvements each month compared to 2019, and in June 2022, monthly worldwide RevPAR surpassed 2019 for the first time since the pandemic began. The global recovery continued across all customer segments, led by robust leisure demand and significant improvement in group demand during the quarter. In addition, business transient demand continued to increase, though more moderately, and we also continued to see more trips that appear to combine leisure and business.

RevPAR in the 2022 second quarter compared to the 2021 second quarter improved 66.1 percent in our U.S. & Canada segment, 87.8 percent in our International segment, and 70.6 percent worldwide. RevPAR in the 2022 first half compared to the 2021 first half increased 78.6 percent in our U.S. & Canada segment, 87.1 percent in our International segment, and 80.5 percent worldwide.

In the U.S. & Canada, compared to pre-pandemic 2019 levels, RevPAR improved 1.3 percent in the 2022 second quarter and declined 6.1 percent in the 2022 first half. RevPAR growth in the 2022 second quarter compared to 2019 was driven by strong ADR, which exceeded the 2019 second quarter by 8 percent.

Internationally, compared to pre-pandemic 2019 levels, RevPAR declined 14.1 percent in the 2022 second quarter and declined 22.9 percent in the 2022 first half. RevPAR in the 2022 second quarter reflected the lifting of travel restrictions in many countries and the resulting increase in cross-border travel, although RevPAR remained constrained in Greater China and Asia Pacific excluding China.

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.

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.

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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 business operations.

We are currently unable to reasonably estimate the range of total possible financial impact to the Company from the Data Security Incident in excess of the expenses already incurred. 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, primarily related to legal proceedings and regulatory investigations (including possible additional monetary payments to regulators and/or litigants), increased expenses and capital investments for information technology and information security and data privacy, and increased expenses for compliance activities and to meet increased legal and regulatory requirements. See Note 5 for additional information related to legal proceedings and governmental investigations related to the Data Security Incident.

System Growth and Pipeline

At the end of the 2022 second quarter, our system had 8,120 properties (1,500,744 rooms), compared to 7,989 properties (1,479,179 rooms) at year-end 2021 and 7,797 properties (1,451,609 rooms) at the end of the 2021 second quarter. The increase compared to year-end 2021 reflects gross additions of 172 properties (28,716 rooms) and deletions of 41 properties (7,155 rooms). Approximately 24 percent of our 2022 first half gross room additions were conversions from competitor brands. We currently expect full-year 2022 total gross rooms growth to approach 5.0 percent and net rooms growth of 3.0 to 3.5 percent, which includes the impact of the Company’s decision to suspend its operations in Russia.

At the end of the 2022 second quarter, we had more than 495,000 hotel rooms in our development pipeline, which includes approximately 203,300 hotel rooms under construction and roughly 27,400 hotel rooms approved for development but not yet subject to signed contracts. Over half of the rooms in our development pipeline are outside U.S. & Canada.

Properties and Rooms

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

Managed		Franchised/Licensed		Owned/Leased	Residential	Total
Properties	Rooms	Properties	Rooms