WYNDHAM HOTELS RESORTS INC

Previous wording

References herein to “Wyndham Hotels,” the “Company,” “we,” “our” and “us” refer to Wyndham Hotels & Resorts, Inc. and its consolidated subsidiaries for time periods following the consummation of the spin-off.

Current wording

References herein to “Wyndham Hotels,” the “Company,” “we,” “our” and “us” refer to Wyndham Hotels & Resorts, Inc. and its consolidated subsidiaries.

Previous wording

In the first quarter of 2023, we changed the composition of our reportable segments to reflect the recent changes in our Hotel Management segment due to the exit from the select-service management business, the sale of our two owned hotels and the exit from substantially all of our U.S. full-service management business in 2022. The remaining hotel management business, which is predominately the full-service international managed business, no longer meets the quantitative thresholds to be considered a reportable segment and as a result, we have aggregated, on a prospective basis, such management business within our Hotel Franchising segment.

Current wording

Beginning with the first quarter of 2023, as a result of the changes in our Hotel Management segment including the exit from the select-service management business, the sale of our two owned hotels and the exit from substantially all of its U.S. full-service management business, the Hotel Management segment no longer met the quantitative thresholds to be disclosed as a reportable segment. As a result, we aggregated, on a prospective basis, the remaining hotel management business, which is predominately the full-service international managed business within our Hotel Franchising segment.

Previous wording

The Consolidated Financial Statements presented herein have been prepared on a stand-alone basis. The Consolidated Financial Statements include the Company’s assets, liabilities, revenues, expenses and cash flows and all entities in which it has a controlling financial interest.

Current wording

The Consolidated Financial Statements presented herein have been prepared on a stand-alone basis. The Consolidated Financial Statements include our assets, liabilities, revenues, expenses and cash flows and all entities in which we have a controlling financial interest.

Previous wording

(a) Reflects the impact of the adoption of the new accounting standard in 2020 for the measurement of credit losses on financial instruments and the 2019 accounting standard for lease accounting.

Current wording

(a) Reflects the impact of the adoption of the new accounting standard in 2020 for the measurement of credit losses on financial instruments.

Previous wording

(b) “Adjusted EBITDA” is defined as net income/(loss) excluding net interest expense, depreciation and amortization, early extinguishment of debt charges, impairment charges, restructuring and related charges, contract termination costs, separation-related items, transaction-related items (acquisition-, disposition-, or debt-related), (gain)/loss on asset sales, foreign currency impacts of highly inflationary countries, stock-based compensation expense, income taxes and development advance notes amortization. We believe that adjusted EBITDA is a useful measure of performance for our segments which, when considered with U.S. Generally Accepted Accounting Principles (“GAAP”) measures, allows a more complete understanding of our operating performance. We use this measure internally to assess operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. Our presentation of adjusted EBITDA may not be comparable to similarly titled measures used by other companies. During the first quarter of 2021, the Company modified the definition of adjusted EBITDA to exclude the amortization of development advance notes to reflect how the Company’s chief operating decision maker reviews operating performance beginning in 2021. The Company has applied the modified definition of adjusted EBITDA to all periods presented.

Current wording

(b) “Adjusted EBITDA” is defined as net income/(loss) excluding net interest expense, depreciation and amortization, early extinguishment of debt charges, impairment charges, restructuring and related charges, contract termination costs, separation-related items, transaction-related items (acquisition-, disposition-, or debt-related), (gain)/loss on asset sales, foreign currency impacts of highly inflationary countries, stock-based compensation expense, income taxes and development advance notes amortization. We believe that adjusted EBITDA is a useful measure of performance and, when considered with U.S. Generally Accepted Accounting Principles (“GAAP”) measures, gives a more complete understanding of our operating performance. We use this measure internally to assess operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. Adjusted EBITDA is not a recognized term under U.S. GAAP and should not be considered as an alternative to net income or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. Our presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. During the first quarter of 2021, the Company modified the definition of adjusted EBITDA to exclude the amortization of development advance notes to reflect how the Company’s chief operating decision maker reviews operating performance beginning in 2021. The Company has applied the modified definition of adjusted EBITDA to all periods presented.

Previous wording

(e) Represents the number of hotels at the end of the period.

Current wording

(d) Represents the number of affiliated hotels at the end of the period.

Previous wording

Discussed below are our key operating statistics, consolidated results of operations and the results of operations for each of our reportable segments. The reportable segments presented below represent our operating segments for which discrete financial information is available and used on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our operating segments. Management evaluates the operating results of each of our reportable segments based upon net revenues and adjusted EBITDA. Adjusted EBITDA is defined as net income/(loss) excluding net interest expense, depreciation and amortization, early extinguishment of debt charges, impairment charges, restructuring and related charges, contract termination costs, separation-related items, transaction-related items (acquisition-, disposition-, or debt-related), (gain)/loss on asset sales, foreign currency impacts of highly inflationary countries, stock-based compensation expense, income taxes and development advance notes amortization. We believe that adjusted EBITDA is a useful measure of performance for our segments and, when considered with U.S. Generally Accepted Accounting Principles (“GAAP”) measures, gives a more complete understanding of our operating performance. We use this measure internally to assess operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. Adjusted EBITDA is not a recognized term under U.S. GAAP and should not be considered as an alternative to net income or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. Our presentation of adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

Current wording

Discussed below are our key operating statistics, consolidated results of operations and the results of operations for our reportable segment. The reportable segment presented below represents our operating segment for which discrete financial information is available and used on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segment, we also consider the nature of services provided by our operating segment. Management evaluates the operating results of our reportable segment based upon net revenues and adjusted EBITDA. Hotel Franchising adjusted EBITDA, Corporate adjusted EBITDA and adjusted EBITDA are defined as net income/(loss) excluding net interest expense, depreciation and amortization, early extinguishment of debt charges, impairment charges, restructuring and related charges, contract termination costs, separation-related items, transaction-related items (acquisition-, disposition-, or debt-related), (gain)/loss on asset sales, foreign currency impacts of highly inflationary countries, stock-based compensation expense, income taxes and development advance notes amortization. Adjusted EBITDA is reported on a consolidated basis, as Hotel Franchising adjusted EBITDA and corporate adjusted EBITDA are reported at a segment level. We believe that Hotel Franchising adjusted EBITDA, Corporate adjusted EBITDA and adjusted EBITDA are useful measures of performance and, when considered with U.S. Generally Accepted Accounting Principles (“GAAP”) measures, gives a more complete understanding of our operating performance. We use this measure internally to assess operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. Hotel Franchising adjusted EBITDA, Corporate adjusted EBITDA and adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as an alternative to net income or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. Our presentation of Hotel Franchising adjusted EBITDA, Corporate adjusted EBITDA and adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

Previous wording

Rooms as of December 31, 2023 increased 3% compared to the prior year, reflecting 1% growth in the U.S. and 7% growth internationally. As expected, these increases included strong growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 3% and 13%, respectively. We also achieved our goal of increasing our retention rate by 30 bps year-over-year.

Current wording

Rooms as of December 31, 2024 increased 4% compared to the prior year, driven by 1% growth in the U.S. and 7% growth internationally. As expected, these increases included 4% growth in the higher RevPAR midscale and above segments in the U.S., along with 7% combined growth in our higher RevPAR EMEA and Latin America regions.

Previous wording

U.S. average royalty rate was consistent and international average royalty rate increased 30 basis points compared to the prior year. Global average royalty rate for the year ended December 31, 2023 remained consistent at 3.9%, compared to the prior year due to faster system growth internationally.

Current wording

Global average royalty rate for the year ended December 31, 2024 was 3.95%. Global average royalty rate increased 6 basis points compared to the prior year, including 10 basis points in the U.S. and 12 basis points internationally.

Previous wording

•$102 million of lower cost-reimbursement revenues associated with the exit of all of our U.S. full-service management business, which have no impact on net income; and

Current wording

•$9 million of lower cost-reimbursement revenues, which have no impact on net income; and

Previous wording

Total expenses during 2023 decreased $46 million, or 5%, compared to the prior year, primarily driven by:

Current wording

Total expenses during 2024 increased $19 million, or 2%, compared to the prior year, primarily driven by:

Previous wording

• $102 million of lower cost-reimbursement expenses associated with the exit of all of our U.S. full-service management business, which have no impact on net income;

Current wording

•$9 million of lower cost-reimbursement expenses, which have no impact on net income;

Previous wording

Interest expense, net during 2023 increased $22 million, or 28%, compared to the prior year primarily due to a higher variable interest rate on our term loan A in 2023 and a higher debt balance.

Current wording

Interest expense, net during 2024 increased $22 million, or 22%, compared to the prior year primarily due to a higher average debt balance.

Previous wording

Our effective tax rate increased to 27.4% in 2023 from 25.4% in 2022. The change was primarily related to a foreign tax assessment received in 2023 that we are currently challenging.

Current wording

Our effective tax rate decreased to 21.5% in 2024 from 27.4% in 2023. During 2024, the effective tax rate was lower primarily due to tax credits received in Puerto Rico and a non-taxable reversal of a separation-related reserve. The 2023 effective tax rate was higher primarily from a foreign tax assessment that we are currently challenging.

Previous wording

As a result of these items, net income during 2023, decreased $66 million compared to the prior year.

Current wording

As a result of these items, net income during 2024 was unchanged year-over-year.

Previous wording

A reconciliation of net income to adjusted EBITDA is represented below:

Current wording

A reconciliation of net income to adjusted EBITDA for Hotel Franchising segment, Corporate and Total Company is represented below:

Previous wording

Following is a discussion of the results of our Hotel Franchising segment and Corporate and Other for 2023 compared to 2022:

Current wording

Following is a discussion of the results of our Hotel Franchising segment and Corporate for 2024 compared to 2023:

Previous wording

Adjusted EBITDA during 2023 increased $48 million compared to the prior-year period, primarily driven by the revenue increases discussed above, partially offset by $45 million of higher marketing, reservation and loyalty expenses as well as $7 million of higher operating expenses principally driven by revenue-generating activities and $6 million of higher general and administrative expenses.

Current wording

Adjusted EBITDA during 2024 increased $40 million compared to the prior-year period primarily driven by:

Previous wording

Adjusted EBITDA during 2023 was unfavorable by $2 million compared to the prior year.

Current wording

Adjusted EBITDA during 2024 was unfavorable by $5 million compared to the prior year.

Previous wording

On December 31, 2023, our global development pipeline consisted of over 1,950 hotels and approximately 240,000 rooms, representing another record high level and a 10% increase year-over-year, including 8% growth in the U.S and 11% internationally. This represented the 14 th consecutive quarter of sequential pipeline growth. Approximately 70% of our pipeline is in the midscale and above segments and 58% is international. Additionally, approximately 79% of our pipeline is new construction, of which approximately 34% has broken ground. During 2023, we awarded 766 new contracts for our legacy brands, an increase of 8% compared to 2022. Additionally, we awarded 98 additional new contracts for our ECHO Suites Extended Stay by Wyndham brand, bringing the total number of contracts awarded for the brand to 268 representing over 33,000 rooms since its launch.

Current wording

On December 31, 2024, our global development pipeline consisted of approximately 2,100 hotels and 252,000 rooms, representing another record-high level and a 5% year-over-year increase, including 7% growth in the U.S and 4% internationally. Approximately 70% of our pipeline is in the midscale and above segments and 17% is in the extended stay segment. Approximately 58% of our pipeline is international. Additionally, approximately 78% of our pipeline is new construction, of which approximately 35% has broken ground.

Previous wording

Total assets decreased $90 million from December 31, 2022 to December 31, 2023 primarily related to utilizing our excess cash for share repurchases in 2023. Such decrease in cash was partially offset by higher development advance notes. Total liabilities increased $126 million year-over-year primarily related to an increase in our debt balance relating to borrowings under our revolving credit facility. Total equity decreased $216 million year-over-year primarily due to $397 million of stock repurchases and $119 million of dividend payments, partially offset by our net income.

Current wording

Total assets increased $190 million from December 31, 2023 to December 31, 2024 primarily related to increases in development advance notes in support of our growth strategy, cash and accounts receivables. Total liabilities increased $286 million year-over-year primarily related to a $262 million increase in our outstanding debt. Total equity decreased $96 million year-over-year primarily due to $308 million of stock repurchases and $123 million of dividends declared, partially offset by our net income.

Previous wording

Historically, our business generates sufficient cash flow to not only support our current operations as well as our future growth needs and dividend payments to our stockholders, but also to create additional value for our stockholders in the form of share repurchases and business investment.

Current wording

Historically, our business generates sufficient cash flow to support current operations, future growth initiatives, and dividend payments to stockholders, while also enabling us to create additional value for our stockholders in the form of share repurchases.

Previous wording

As of December 31, 2023, our liquidity approximated $650 million. Given the minimal capital needs and flexible cost structure of our business, we believe that our existing cash, cash equivalents, cash generated through operations and our expected access to financing facilities, together with funding through our revolving credit facility, will be sufficient to fund our operating activities, anticipated capital expenditures and growth needs.

Current wording

As of December 31, 2024, our liquidity approximated $765 million. Given the minimal capital needs and flexible cost structure of our business, we believe that our existing cash, cash equivalents, cash generated through operations and our expected access to financing facilities, together with funding through our revolving credit facility, will be sufficient to fund our operating activities, anticipated capital expenditures and growth needs.

Previous wording

As of December 31, 2023, we were in compliance with the financial covenants of our credit agreement and expect to remain in such compliance. As of December 31, 2023, we had a term loan B with a principal outstanding balance of $1.1 billion maturing in 2030, a term loan A with a principal outstanding balance of $384 million maturing in 2027 and a five-year revolving credit facility maturing in 2027 with a maximum aggregate principal amount of $750 million, of which $160 million was outstanding and $9 million was allocated to outstanding letters of credit.

Current wording

As of December 31, 2024, we were in compliance with the financial covenants of our credit agreement and expect to remain in such compliance. As of December 31, 2024, we had a term loan B with a principal outstanding balance of $1.5 billion maturing in 2030, a term loan A with a principal outstanding balance of $364 million maturing in 2027, $500 million senior unsecured notes due in August 2028 and a five-year revolving credit facility maturing in 2027 with a maximum aggregate principal amount of $750 million, of which $88 million was outstanding.

Previous wording

The interest rate per annum applicable to our term loan B is equal to, at our option, either a base rate plus a margin of 1.25% or the Secured Overnight Financing Rate (“SOFR”) plus a margin of 2.25% plus a 0.10% SOFR adjustment. Our revolving credit facility and term loan A are subject to an interest rate per annum equal to, at our option, either a base rate plus a margin ranging from 0.50% to 1.00% or SOFR plus a 0.10% SOFR adjustment, plus a margin ranging from 1.50% to 2.00%, in either case based upon our total leverage ratio and the total leverage of our restricted subsidiaries. As of December 31, 2023, the margin on our term loan A was 1.75%.

Current wording

The interest rate per annum applicable to our term loan B is equal to, at our option, either a base rate plus an applicable rate of 0.75% or the Secured Overnight Financing Rate (“SOFR”) plus an applicable rate of 1.75%. Our revolving credit facility and term loan A are subject to an interest rate per annum equal to, at our option, either a base rate plus a margin ranging from 0.50% to 1.00% or SOFR plus a 0.10% SOFR adjustment, plus a margin ranging from 1.50% to 2.00%, in either case based upon our total leverage ratio and the total leverage of our restricted subsidiaries. As of December 31, 2024 the margin on our term loan A was 1.75%.

Previous wording

As of December 31, 2023, our credit rating was Ba1 from Moody’s Investors Service and BB+ from both Standard and Poor’s Rating Agency and Fitch Ratings. A credit rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal by the assigning rating organization. Reference in this report to any such credit rating is intended for the limited purpose of discussing or referring to aspects of our liquidity and of our costs of funds. Any reference to a credit rating is not intended to be any guarantee or assurance of, nor should there be any undue reliance upon, any credit rating or change in credit rating, nor is any such reference intended as any inference concerning future performance, future liquidity or any future credit rating.

Current wording

As of December 31, 2024, our credit rating was Ba1 from Moody’s Investors Service and BB+ from both Standard and Poor’s Rating Agency and Fitch Ratings. A credit rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal by the assigning rating organization. Reference in this report to any such credit rating is intended for the limited purpose of discussing or referring to aspects of our liquidity and of our costs of funds. Any reference to a credit rating is not intended to be any guarantee or assurance of, nor should there be any undue reliance upon, any credit rating or change in credit rating, nor is any such reference intended as any inference concerning future performance, future liquidity or any future credit rating. Our liquidity and access to capital may be impacted by our credit ratings, financial performance and global credit market conditions.

Previous wording

During 2022, net cash provided by operating activities decreased $27 million compared to the prior year primarily due to higher development advances provided to franchisees in support of system growth, as well as the impact from the sale of our two owned hotels and the exit of our select-service management business and lower cash collected from 2020 COVID-19 related fee deferrals. Net cash provided by investing activities increased $213 million compared to the prior year, primarily due to the proceeds from the sales of our two owned hotels and the termination fee received from CorePoint Lodging associated with the exit of our select-service management business, partially offset by $44 million of cash used for the acquisition of the Vienna House brand. Net cash used in financing activities decreased $129 million compared to the prior year primarily due to the absence of cash used for the redemption of our $500 million 5.375% senior unsecured notes in 2021, partially offset by a $341 million increase in stock repurchases and a $34 million increase in dividend payments.

Current wording

During 2024, net cash provided by operating activities decreased $86 million compared to the prior year primarily due to $47 million of transaction-related payments related to the unsuccessful hostile takeover attempt and $37 million of higher development advance notes provided to franchisees in support of system growth. Net cash used in investing activities decreased $1 million compared to the prior year primarily due to the purchase of our corporate headquarters, partially offset by lower loan advances. Net cash used in financing activities decreased $227 million compared to the prior year primarily due to $163 million of higher net debt borrowings, $83 million of lower stock repurchases and $22 million of stock options exercises, partially offset by a $34 million finance lease payment associated with the purchase of our corporate headquarters.

Previous wording

Our first priority is to invest in the business. This includes deploying capital to attract high quality assets into our system, investing in select technology improvements across our business that further our strategic objectives and competitive position, brand refresh programs to improve quality and protect brand equity, business acquisitions that are accretive and strategically enhancing to our business, and/or other strategic initiatives. We also expect to maintain a regular dividend payment. Excess cash generated beyond these needs is expected to be available for enhanced stockholder return in the form of stock repurchases or potential acquisitions from time to time.

Current wording

Our first priority is to invest in the business. This includes deploying capital to attract high quality assets into our system, investing in select technology improvements across our business that further our strategic objectives and competitive position, brand refresh programs to improve quality and protect brand equity, business acquisitions that are accretive and strategically enhancing to our business, and/or other strategic initiatives. We also expect to maintain a regular dividend payment. Excess cash generated beyond these needs is expected to be available for enhanced stockholder return in the form of stock repurchases.

Previous wording

During 2023, we spent $37 million on capital expenditures, primarily related to information technology, including digital innovation. During 2024, we anticipate spending approximately $40 million on capital expenditures.

Current wording

During 2024, we spent $34 million on capital expenditures, related to information technology, including digital innovation, and $15 million for the purchase of our corporate headquarters. During 2025, we anticipate spending approximately $40-45 million on capital expenditures.

Previous wording

During 2023, we spent $72 million, net of repayments, on development advance notes. During 2024, we anticipate spending approximately $90 million on development advance notes. We may also provide other forms of financial support such as enhanced credit support to further assist in the growth of our business.

Current wording

In addition, during 2024, we invested $109 million in development advance notes (net of repayments), and we anticipate spending approximately $110 million on development advance notes in 2025. These investments play a crucial role in attracting higher “FeePAR” hotels into our system, strengthening our portfolio with more premium properties. We may also provide other forms of financial support, such as enhanced credit support, to drive our business growth and strengthen our competitive position.

Previous wording

Material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, purchase commitments and lease payments. See Note 12 - Long-Term Debt and Borrowing Arrangements and Note 19 - Leases to the Consolidated Financial Statements contained in Part IV of this report for more information. As of December 31, 2023, we had future long-term interest payment obligations of approximately $623 million of which $119 million is payable within twelve months. We have purchase commitments primarily consisting of non-cancelable obligations for marketing and technology related services. As of December 31, 2023, we had purchase commitments of $146 million of which $58 million is payable within twelve months.

Current wording

Material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, purchase commitments and lease payments. See Note 11 - Long-Term Debt and Borrowing Arrangements and Note 18 - Leases to the Consolidated Financial Statements contained in Part IV of this report for more information. As of December 31, 2024, we had future long-term interest payment obligations of approximately $606 million, of which $132 million is payable within twelve months. As of December 31, 2024, we had purchase commitments primarily consisting of non-cancelable obligations for marketing and technology related services of $142 million, of which $72 million is payable within twelve months.

Previous wording

In May 2018, our Board approved a share repurchase plan pursuant to which we were authorized to purchase up to $300 million of our common stock. Our Board has increased the capacity of the program by $300 million in 2019, $800 million in 2022, and $400 million in 2023. Under the plan, we may, from time to time, purchase our common stock through various means, including, without limitation, open market transactions, privately negotiated transactions or tender offers, subject to the terms of the tax matters agreement entered into in connection with our spin-off.

Current wording

In May 2018, our Board approved a share repurchase plan pursuant to which we were authorized to purchase up to $300 million of our common stock. Our Board has increased the capacity of the program by $300 million in 2019, $800 million in 2022, $400 million in 2023 and $400 million in 2024. Under the plan, we may, from time to time, purchase our common stock through various means, including, without limitation, open market transactions, privately negotiated transactions or tender offers, subject to the terms of the tax matters agreement entered into in connection with our spin-off.

Previous wording

Under our current stock repurchase program, we repurchased approximately 5.5 million shares at an average price of $72.25 per share for a cost of $397 million during 2023. Since inception of our stock repurchase program, we repurchased 20.7 million shares at an average price of $65.69 per share for a cost of $1.4 billion. As of December 31, 2023, we had $443 million of remaining availability under our program.

Current wording

Under our current stock repurchase program, we repurchased approximately 4.1 million shares at an average price of $75.63 for a cost of $308 million during 2024. Since inception of our stock repurchase program, we repurchased 24.8 million shares at an average price of $67.32 per share for a cost of $1.7 billion. As of December 31, 2024, we had $538 million of remaining availability under our program.

Previous wording

We declared cash dividends of $0.35 per share in each of the first, second, third and fourth quarters of 2023 ($119 million in aggregate). In February 2024, the Board approved an increase in the quarterly cash dividend to $0.38 per share.

Current wording

We declared cash dividends of $0.38 per share in each of the first, second, third and fourth quarters of 2024 ($123 million in aggregate). In January 2025, the Board approved an increase in the quarterly cash dividend to $0.41 per share.

Previous wording

Although the one-time mandatory deemed repatriation tax during 2017 and the territorial tax system created as a result of U.S. tax reform generally eliminate U.S. federal income taxes on dividends from foreign subsidiaries, we continue to assert that all of our undistributed foreign earnings of $84 million will be reinvested indefinitely as of December 31, 2023. In the event the Company determines not to continue to assert that all or part of its undistributed foreign earnings are permanently reinvested, such a determination in the future could result in the accrual and payment of additional foreign withholding taxes and U.S. taxes on currency transaction gains and losses, the determination of which is not practicable due to the complexities associated with the hypothetical calculation.

Current wording

Although the one-time mandatory deemed repatriation tax during 2017 and the territorial tax system created as a result of U.S. tax reform generally eliminate U.S. federal income taxes on dividends from foreign subsidiaries, we continue to assert that all of our undistributed foreign earnings of $143 million will be reinvested indefinitely as of December 31, 2024. In the event the Company determines not to continue to assert that all or part of its undistributed foreign earnings are permanently reinvested, such a determination in the future could result in the accrual and payment of additional foreign withholding taxes and U.S. taxes on currency transaction gains and losses, the determination of which is not practicable due to the complexities associated with the hypothetical calculation.

Previous wording

Our credit facilities contain customary covenants that, among other things, impose limitations on indebtedness; liens; mergers, consolidations, liquidations and dissolutions; dispositions, restricted debt payments, restricted payments and transactions with affiliates. Events of default in these credit facilities include, among others, failure to pay interest, principal and fees when due; breach of a covenant or warranty; acceleration of or failure to pay other debt in excess of a threshold amount; unpaid judgments in excess of a threshold amount, insolvency matters; and a change of control. The credit facilities require us to comply with a financial covenant to be tested quarterly, consisting of a maximum first-lien leverage ratio of 5.0 times. The ratio is calculated by dividing consolidated first lien indebtedness (as defined in the credit agreement) net of consolidated unrestricted cash as of the measurement date by consolidated EBITDA (as defined in the credit agreement), as measured on a trailing four-fiscal-quarter basis preceding the measurement date. As of December 31, 2023, our first-lien leverage ratio was 2.5 times.

Current wording

Our credit facilities contain customary covenants that, among other things, impose limitations on indebtedness; liens; mergers, consolidations, liquidations and dissolutions; dispositions, restricted debt payments, restricted payments and transactions with affiliates. Events of default in these credit facilities include, among others, failure to pay interest, principal and fees when due; breach of a covenant or warranty; acceleration of or failure to pay other debt in excess of a threshold amount; unpaid judgments in excess of a threshold amount; insolvency matters; and a change of control. The credit facilities require us to comply with a financial covenant to be tested quarterly, consisting of a maximum first-lien leverage ratio of 5.0 times. The ratio is calculated by dividing consolidated first lien indebtedness (as defined in the credit agreement) net of consolidated unrestricted cash as of the measurement date by consolidated EBITDA (as defined in the credit agreement), as measured on a trailing four-fiscal-quarter basis preceding the measurement date. As of December 31, 2024, our annualized first-lien leverage ratio was 2.7 times.

Previous wording

We are involved in claims, legal and regulatory proceedings and governmental inquiries related to our business. Litigation is inherently unpredictable and, although we believe that our accruals are adequate and/or that we have valid defenses in these matters, unfavorable results could occur. As such, an adverse outcome from such proceedings for which claims are awarded in excess of the amounts accrued, if any, could be material to us with respect to earnings and/or cash flows in any given reporting period. As of December 31, 2023, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately $10 million in excess of recorded accruals. However, we do not believe that the impact of such litigation should result in a material liability to us in relation to our financial position or liquidity. For a more detailed description of our commitments and contingencies see Note 14 - Commitments and Contingencies to the Consolidated Financial Statements contained in Part IV of this report.

Current wording

We are involved in claims, legal and regulatory proceedings and governmental inquiries related to our business. Litigation is inherently unpredictable and, although we believe that our accruals are adequate and/or that we have valid defenses in these matters, unfavorable results could occur. As such, an adverse outcome from such proceedings for which claims are awarded in excess of the amounts accrued, if any, could be material to us with respect to earnings and/or cash flows in any given reporting period. As of December 31, 2024, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately $11 million in excess of recorded accruals. However, we do not believe that the impact of such litigation should result in a material liability to us in relation to our financial position or liquidity. For a more detailed description of our commitments and contingencies see Note 13 - Commitments and Contingencies to the Consolidated Financial Statements contained in Part IV of this report.