UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 20182020
or
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o☐ | 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)
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| Delaware | | 52-2055918 |
(State or other jurisdiction of
incorporation or organization)
| | (IRS Employer
Identification No.)
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10400 Fernwood Road Bethesda, Maryland | | Bethesda | | Maryland | | 20817 |
| (Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s Telephone Number, Including Area Code (301) 380-3000
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
Class A Common Stock, $0.01 par value (339,668,839 shares outstanding as of February 20, 2019)
| | MAR | | Nasdaq Global Select Market Chicago Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in ruleRule 405 of the Securities Act. Yes ý☒ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý☒
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 o
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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. |
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| Large accelerated filer | ý☒ | | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | o☐ |
| | | Emerging growth company | o☐ |
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.o |
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No ý☒
The aggregate market value of shares of common stock held by non-affiliates at June 29, 2018,30, 2020, was $36,386,234,246.$23,156,431,539.
There were 324,414,150 shares of Class A Common Stock, par value $0.01 per share, outstanding at February 10, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 20192021 Annual Meeting of ShareholdersStockholders are incorporated by reference into Part III of this report.
EXPLANATORY NOTE
We filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 with the Securities and Exchange Commission (“SEC”) on February 18, 2021 (the “Original Filing”). This Amendment No. 1 on Form 10-K/A (this “Amendment”) is being filed solely to amend Part II, Item 8, “Report of Independent Registered Public Accounting Firm” of the Original Filing to correct a typographical error in Ernst & Young LLP’s (“EY”) financial statement audit opinion (the “Audit Opinion”). Both management and EY concluded at the time of the Original Filing, as stated in management’s report on internal control over financial reporting (“ICFR”) and EY’s attestation report on ICFR, that Marriott’s ICFR was effective as of December 31, 2020. However, EY’s Audit Opinion incorrectly referred to EY’s separate attestation on ICFR as having expressed an “adverse” opinion thereon, when it should have referred to such attestation report on ICFR as having expressed an “unqualified” opinion thereon. This Amendment corrects that typographical error in the Audit Opinion by replacing the word “adverse” with the word “unqualified.”
Except as described above, no other changes to the Original Filing are included in this Amendment. This Amendment speaks only as of the date of the Original Filing, and the Amendment does not modify or update the disclosures presented in the Original Filing other than as noted above, and does not reflect events occurring after the Original Filing.
MARRIOTT INTERNATIONAL, INC.
FORM 10-K TABLE OF CONTENTS
FISCAL YEAR ENDED DECEMBER 31, 20182020
Throughout this report, we refer to Marriott International, Inc., together with its consolidated subsidiaries, as “we,” “us,” “Marriott,” or “the Company.the “Company.” In order to make this report easier to read, we also refer throughout to (i)(1) our Consolidated Financial Statements as our “Financial Statements,” (ii)(2) our Consolidated Statements of (Loss) Income as our “Income Statements,” (iii)(3) our Consolidated Balance Sheets as our “Balance Sheets,” (iv)(4) our Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (v)(5) our properties, brands, or markets in the United States (“U.S.”) and Canada as “North America” or “North American,“U.S. & Canada,” and (vi)(6) our properties, brands, or markets in our Caribbean and Latin America region, Europe, and Middle East and Africa regions as “Other International,”segment, and together with those in our Asia Pacific segment as “International.” In addition, references throughout to numbered “Footnotes”“Notes” refer to the numbered Notes to our Financial Statements, unless otherwise stated.
Cautionary Statement
All statements in this report are made as of the date this Form 10-K 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-K is filed with the SEC. Forward-looking statements include information related to the possible effects on our business of the coronavirus pandemic and efforts to contain it (“COVID-19”), including the performance of the Company’s hotels; Revenue per Available Room (“RevPAR”) and occupancy trends and expectations; the nature and impact of contingency plans, restructuring plans and cost reduction plans; rooms growth; our expectations regarding our ability to meet our liquidity requirements; our expectations regarding COVID-19’s impact on our cash from operations; our capital expenditures and other investment spending expectations; statements related to leadership changes and the structure of the Company’s management operations; other statements throughout this report 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 below and other factors we describe from time to time in our periodic filings with the SEC. Risks that could affect our results of operations, liquidity and capital resources, and other aspects of our business discussed in this Form 10-K include the duration and scope of COVID-19, including the availability and distribution of effective vaccines or treatments; its short and longer-term impact on the demand for travel, transient and group business, and levels of consumer confidence; actions governments, businesses and individuals have taken or may take in response to the pandemic, including limiting or banning travel and/or in-person gatherings or imposing occupancy or other restrictions on lodging or other facilities; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies, travel, and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; the ability of our owners and franchisees to successfully navigate the impacts of COVID-19; the pace of recovery when the pandemic subsides or effective treatments or vaccines become widely available; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the effects of steps we and our property owners and franchisees have taken and may continue to take to reduce operating costs and/or enhance certain health and cleanliness protocols at our hotels; the impacts of our employee furloughs and reduced work week schedules, our voluntary transition program and our other restructuring activities; competitive conditions in the Financial Statements sectionlodging industry; relationships with customers and property owners; the availability of capital to finance hotel growth and refurbishment; the extent to which we experience adverse effects from data security incidents; and changes in tax laws in countries in which we earn significant income.
As discussed in this Form 10-K, COVID-19 is materially impacting our operations and financial results. COVID-19, and the volatile regional and global economic conditions stemming from it, and additional or unforeseen effects from the COVID-19 pandemic, could also give rise to or aggravate the other risk factors that we identify within Part I, Item 1A of this report.report, which in turn could materially adversely affect our business, liquidity, financial condition, and results of operations. Further, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.
PART I
Item 1. Business.
Corporate Structure and Business
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 were organized as a corporation in Delaware in 1997 and became a public company in 1998 when we were “spun off” as a separate entity by the company formerly named “Marriott International, Inc.”
We believe thatThe following table shows our portfolio of brands shown in the following table, is the largest and most compelling range of brands and properties of any lodging company in the world.at year-end 2020.
We discuss our operations in the following three reportable business segments: North American Full-Service, North American Limited-Service,United States and Canada (“U.S. & Canada”), Asia Pacific. OurPacific, and Europe, Middle East and Africa and(“EMEA”). Our Caribbean and Latin America (“CALA”) operating segments dosegment does not individually meet the applicable accounting criteria for separate disclosure as a reportable segments.business segment, and we include its results in “Unallocated corporate and other.” In the 2020 fourth quarter, we changed the name of our largest segment from “North America” to “U.S. & Canada.” Other than the name change, we made no other changes to the composition of this segment. In January 2021, we modified our reportable segment structure as a result of a change in the way management intends to evaluate results and allocate resources within the Company. Beginning with the 2021 first quarter, we will report the following two operating segments: U.S. & Canada and International. See Note 15 for more information.
COVID-19
COVID-19 has had an unprecedented impact on the travel industry and the Company. As the virus and efforts to contain it spread around the world, demand at our hotels dropped significantly. While 2020 generally got off to a great start, we saw sudden, sharp declines in hotel occupancy, beginning in Greater China in January 2020 and then extending around the world. In April 2020, comparable systemwide constant dollar RevPAR experienced a record decline, decreasing 90 percent worldwide compared to the prior year period, and 27 percent of our hotels were temporarily closed. Although business at our hotels improved throughout the remainder of 2020 as compared to the extremely low levels in April 2020, COVID-19 continues to constrain recovery and to have a significant negative impact on demand. COVID-19 also resulted in significantly lower new room additions than we had budgeted for 2020 and historically high levels of cancellations by group and other travelers for future periods. As a result, our revenues and profitability declined dramatically in 2020 compared to 2019.
We continue to take substantial measures to mitigate the negative financial and operational impacts of COVID-19 for our hotel owners and our own business, and we remain focused on taking care of our guests and associates. We have made significant changes to our business and enhanced our liquidity position, while remaining focused on how to best position ourselves for recovery and for growth over the longer term. At the property level, we implemented plans to help our hotel owners and franchisees reduce their cash outlays and mitigate costs, and we implemented a multi-pronged platform to elevate cleanliness standards and hospitality norms for the health and safety of our guests and associates. At the corporate level, we made significant cuts in general and administrative costs and spending on capital and other investments. We have substantially completed our above-property restructuring program, and we have implemented and are continuing to develop restructuring plans to achieve cost savings specific to each of our company-operated properties. With the steps we have taken, and any additional measures we may take to adapt our operations and plans to the evolving situation, along with the power of our Marriott Bonvoy loyalty program, our strengthened liquidity position, and our incredible team of associates around the world, we believe that our business is well positioned now and for the future.
For further information about COVID-19’s impact to our business, see Part I, Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Acquisition of Starwood Hotels & Resorts Worldwide
On September 23, 2016 (the “Merger Date”), we completed the acquisition of Starwood Hotels & Resorts Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), through a series of transactions (the “Starwood Combination”), after which Starwood became an indirect wholly-owned subsidiary of Marriott. Our Financial Statements and related discussions in this report include Starwood’s results of operations only from the Merger Date through year-end 2018 and reflect the financial position of our combined company at December 31, 2018 and 2017 except where we specifically state otherwise, such as certain statistics described under the caption “Performance Measures” in Part II, Item 7.Company. We refer to our business associated with brands that were in our portfolio before the Starwood Combination as “Legacy-Marriott” and to the Starwood business and brands that we acquired as “Legacy-Starwood.” See Footnote 3. Dispositions and Acquisitions for more information.
Starwood Reservations Database Security Incident
On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). We have completed the planned phase out of the operation of the Starwood reservations database, effective as of the end of 2018. For further information about the Data Security Incident, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Data Security Incident” in Footnote 7. Commitments and Contingencies in Part II, Item 8.
Company-Operated Properties
At year-end 2018,2020, we had 2,0202,149 company-operated properties (566,759(585,132 rooms), which included properties under long-term management or lease agreements with property owners (management and lease agreements together, the “Operating Agreements”), properties that we own, and home and condominium communities for which we manage the related owners’ associations.
Terms of our management agreements vary, but we earn a management fee that is typically composed of a base management fee, which is a percentage of the revenues of the hotel, and an incentive management fee, which is based on the profits of the hotel. Our management agreements also typically include reimbursement of costs of operations (both direct and indirect). Such agreements are generally for initial periods of 2015 to 30 years, with options for us to renew for up to 5010 or more additional years. Our lease agreements also vary, but may include fixed annual rentals plus additional rentals based on a specified percentage of annual revenues that exceed a fixed amount. Many of our Operating Agreements are subordinated to mortgages or other liens securing indebtedness of the owners. Many of our Operating Agreements also permit the owners to terminate the agreement if we do not meet certain performance metrics, and financial returns fail to meet defined levels for a period of time, and we have not cured those deficiencies. In certain circumstances, some of our management agreements allow owners to convert company-operated properties to franchised properties under our brands.
For the lodging facilities we operate, we generally are responsible for hiring, training, and supervising the managers and employees needed to operate the facilities and for purchasing supplies, and owners are required to reimburse us for those costs. We provide centralized reservation services and advertising, marketing, and promotional services, as well as various accounting and data processing services, and owners are also required to reimburse us for those costs.
Franchised Licensed, and Unconsolidated Joint VentureLicensed Properties
We have franchising and licensing and joint venture programsarrangements that permit hotel owners and operators and Marriott Vacations Worldwide Corporation (“MVW”), our former timeshare subsidiary that we spun off in 2011, to use many of our lodging brand names and systems. Under our hotel franchising programs,arrangements, we generally receive an initial application fee and continuing royalty fees, which typically range from four to sixseven percent of room revenues for all brands, plus two to three percent of food and beverage revenues for certain full-service hotels. We are a partner in unconsolidated joint ventures that manage and, in some cases, own hotels. Some of these joint ventures also provide services to franchised hotels. We recognize our share of these joint ventures’ net income or loss in the “Equity in earnings” caption of our Income Statements.brands. Franchisees and certain joint ventures contribute to our marketing and advertising programs and pay fees for use of our centralized reservation systems.
We also receive royalty fees under license agreements with MVWMarriott Vacations Worldwide Corporation (“MVW”), our former timeshare subsidiary that we spun off in 2011, and its affiliates for certain brands, including Marriott Vacation Club, Grand Residences by Marriott, The Ritz-Carlton Destination Club, Westin, Sheraton, and for certain existing properties, St. Regis and The Luxury Collection. We receive license fees from MVW consisting of a fixed annual fee, adjusted for inflation, plus certain variable fees based on sales volumes.
At year-end 2018,2020, we had 4,7355,493 franchised and licensed properties (729,413 rooms) and 151 unconsolidated joint venture properties (21,196(837,912 rooms).
Residential
We use or license our trademarks for the sale of residential real estate, often in conjunction with hotel development, and receive branding fees for sales of such branded residential real estate by others. Third-party owners typically construct and sell residences with limited amounts, if any, of our capital at risk. We have used or licensed ourthe JW Marriott, The Ritz-Carlton, Ritz-Carlton Reserve, W, The Luxury Collection, St. Regis, EDITION, Bulgari, Renaissance, Le Méridien, Marriott, Sheraton, Westin, Four Points, Delta and Autograph Collection brand names and trademarks for residential real estate sales. While the worldwide residential market is very large, we believe the luxurious nature
Seasonality
In general, business at company-operated and franchised properties fluctuates only moderately with the seasons and is relatively stable. Business at some resort properties may be seasonal depending on location.
Relationship with Major Customer
We operate or franchise properties that are owned or leased by Host Hotels & Resorts, Inc. (“Host”). In addition, Host is a partner in several partnerships that own properties that we operate under long-term management agreements. See Footnote 19. Relationship with Major Customer for more information.
Intellectual Property
We operate in a highly competitive industry and our brand names, trademarks, service marks, trade names, and logos are very important to the sales and marketing of our properties and services. We believe that our brand names and other intellectual property have come to represent the highest standards of quality, care, service, and value to our customers, guests, and the traveling public. Accordingly, we register and protect our intellectual property where we deem appropriate and otherwise protect against its unauthorized use.
Brand Portfolio
We believe that our brand portfolio offers the largest and most compelling range of brands and propertieshotels in hospitality, with two overall styleshospitality. Our brands are categorized by style of hotels --offering - Classic offeringand Distinctive. Our Classic brands offer time-honored hospitality for the modern traveler, and our Distinctive offeringbrands offer memorable experiences with a unique perspective --- each of which we group into three quality tiers: Luxury, Premium, and Select.
Luxury offers bespoke and superb amenities and services. Our Classic Luxury hotel brands include JW Marriott, The Ritz-Carlton, and St. Regis. Our Distinctive Luxury hotel brands include W Hotels, The Luxury Collection, EDITION, and Bulgari.
Premium offers sophisticated and thoughtful amenities and services. Our Classic Premium hotel brands include Marriott Hotels, Sheraton, Delta Hotels, Marriott Executive Apartments, and Marriott Vacation Club. Our Distinctive Premium hotel brands include Westin, Renaissance, Le Méridien, Autograph Collection, Gaylord Hotels, Tribute Portfolio, and Design Hotels.
Select offers smart and easy amenities and services, with our longer stay brands offering amenities that mirror the comforts of home. Our Classic Select hotel brands include Courtyard, Residence Inn, Fairfield by Marriott, SpringHill Suites, Four Points, TownePlace Suites, and Protea Hotels. Our Distinctive Select hotel brands include Aloft, AC Hotels by Marriott, Element, and Moxy.
The following table shows the geographic distribution of our brands at year-end 2018:2020:
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| | U.S. & Canada | Europe | Middle East & Africa | Asia Pacific | Caribbean & Latin America | Total |
| Luxury |
JW Marriott® | Properties | 34 | 7 | 6 | 42 | 13 | 102 |
| Rooms | 18,658 | 2,205 | 3,325 | 15,574 | 3,597 | 43,359 |
The Ritz-Carlton® | Properties | 39 | 13 | 13 | 36 | 8 | 109 |
| Rooms | 11,833 | 3,080 | 3,523 | 8,754 | 2,081 | 29,271 |
W® Hotels | Properties | 24 | 7 | 5 | 16 | 7 | 59 |
| Rooms | 7,182 | 1,423 | 1,850 | 4,245 | 1,752 | 16,452 |
The Luxury Collection® (1) | Properties | 17 | 48 | 10 | 30 | 14 | 119 |
| Rooms | 5,090 | 7,092 | 2,369 | 7,715 | 1,188 | 23,454 |
St. Regis® | Properties | 10 | 7 | 6 | 20 | 3 | 46 |
| Rooms | 1,968 | 1,002 | 1,788 | 4,811 | 448 | 10,017 |
EDITION® | Properties | 4 | 3 | 1 | 3 | — | 11 |
| Rooms | 1,209 | 381 | 255 | 852 | — | 2,697 |
Bulgari® | Properties | — | 2 | 1 | 3 | — | 6 |
| Rooms | — | 143 | 120 | 260 | — | 523 |
| Premium |
Marriott Hotels® | Properties | 340 | 100 | 26 | 90 | 29 | 585 |
| Rooms | 133,972 | 25,946 | 8,110 | 30,008 | 7,789 | 205,825 |
Sheraton® | Properties | 183 | 62 | 30 | 136 | 31 | 442 |
| Rooms | 70,245 | 16,900 | 9,299 | 49,399 | 8,613 | 154,456 |
Westin® | Properties | 130 | 17 | 7 | 58 | 13 | 225 |
| Rooms | 52,705 | 5,686 | 1,839 | 17,751 | 3,819 | 81,800 |
Renaissance® Hotels | Properties | 87 | 33 | 4 | 43 | 9 | 176 |
| Rooms | 28,880 | 7,846 | 1,035 | 14,972 | 2,745 | 55,478 |
Le Méridien® | Properties | 22 | 16 | 22 | 47 | 2 | 109 |
| Rooms | 4,748 | 4,997 | 6,588 | 12,683 | 271 | 29,287 |
Autograph Collection® Hotels (2) | Properties | 123 | 54 | 7 | 12 | 13 | 209 |
| Rooms | 25,449 | 6,468 | 1,640 | 3,245 | 3,751 | 40,553 |
Delta Hotels by Marriott® (Delta Hotels®) | Properties | 77 | 5 | 1 | 2 | — | 85 |
| Rooms | 18,226 | 728 | 360 | 978 | — | 20,292 |
Gaylord Hotels® | Properties | 6 | — | — | — | — | 6 |
| Rooms | 9,918 | — | — | — | — | 9,918 |
Marriott Executive Apartments® | Properties | — | 4 | 10 | 18 | 2 | 34 |
| Rooms | — | 361 | 1,116 | 3,161 | 240 | 4,878 |
Tribute Portfolio® | Properties | 26 | 11 | — | 8 | 3 | 48 |
| Rooms | 4,571 | 1,139 | — | 1,106 | 155 | 6,971 |
Design HotelsTM | Properties | 5 | 7 | — | — | — | 12 |
| Rooms | 853 | 799 | — | — | — | 1,652 |
| Select |
Courtyard by Marriott® (Courtyard®) | Properties | 1,058 | 72 | 8 | 79 | 41 | 1,258 |
| Rooms | 146,913 | 13,551 | 1,684 | 18,454 | 6,717 | 187,319 |
Residence Inn by Marriott® (Residence Inn®) | Properties | 854 | 13 | 3 | — | 4 | 874 |
| Rooms | 105,273 | 1,569 | 294 | — | 544 | 107,680 |
Fairfield by Marriott® | Properties | 1,061 | — | — | 58 | 13 | 1,132 |
| Rooms | 99,901 | — | — | 9,300 | 1,863 | 111,064 |
SpringHill Suites by Marriott® (SpringHill Suites®) | Properties | 488 | — | — | — | — | 488 |
| Rooms | 57,590 | — | — | — | — | 57,590 |
Four Points® by Sheraton (Four Points®) | Properties | 158 | 19 | 16 | 83 | 19 | 295 |
| Rooms | 23,836 | 2,913 | 4,058 | 21,636 | 2,500 | 54,943 |
TownePlace Suites by Marriott® (TownePlace Suites®) | Properties | 446 | — | — | — | — | 446 |
| Rooms | 45,320 | — | — | — | — | 45,320 |
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| | | North America | Europe | Middle East & Africa | Asia Pacific | Caribbean & Latin America | Total |
| Luxury |
JW Marriott® | Properties | 28 | 6 | 4 | 33 | 13 | 84 |
| Rooms | 15,681 | 2,075 | 2,708 | 13,122 | 3,597 | 37,183 |
The Ritz-Carlton® | Properties | 39 | 13 | 13 | 30 | 6 | 101 |
| Rooms | 11,398 | 3,079 | 3,867 | 7,520 | 1,786 | 27,650 |
W® Hotels | Properties | 25 | 6 | 3 | 15 | 6 | 55 |
| Rooms | 7,474 | 1,253 | 1,221 | 4,021 | 1,074 | 15,043 |
The Luxury Collection® | Properties | 17 | 44 | 7 | 30 | 12 | 110 |
| Rooms | 5,084 | 6,566 | 1,962 | 7,286 | 1,058 | 21,956 |
St. Regis® | Properties | 10 | 6 | 4 | 18 | 3 | 41 |
| Rooms | 1,977 | 834 | 1,168 | 4,612 | 448 | 9,039 |
EDITION® | Properties | 2 | 3 | 1 | 2 | — | 8 |
| Rooms | 567 | 375 | 255 | 671 | — | 1,868 |
Bulgari® | Properties | — | 2 | 1 | 3 | — | 6 |
| Rooms | — | 143 | 120 | 260 | — | 523 |
| Premium |
Marriott Hotels® | Properties | 341 | 94 | 24 | 80 | 28 | 567 |
| Rooms | 134,834 | 23,969 | 8,061 | 26,962 | 7,540 | 201,366 |
Sheraton® | Properties | 190 | 61 | 31 | 123 | 36 | 441 |
| Rooms | 72,674 | 16,580 | 10,408 | 46,073 | 9,882 | 155,617 |
Westin® | Properties | 129 | 19 | 7 | 56 | 12 | 223 |
| Rooms | 52,955 | 6,125 | 1,839 | 17,595 | 3,639 | 82,153 |
Renaissance® Hotels | Properties | 88 | 36 | 4 | 39 | 8 | 175 |
| Rooms | 29,104 | 8,564 | 1,233 | 13,633 | 2,565 | 55,099 |
Le Méridien® | Properties | 19 | 15 | 24 | 47 | 2 | 107 |
| Rooms | 3,987 | 5,010 | 6,612 | 12,154 | 271 | 28,034 |
Autograph Collection® Hotels | Properties | 95 | 46 | 8 | 8 | 9 | 166 |
| Rooms | 20,218 | 6,466 | 1,738 | 2,167 | 4,313 | 34,902 |
Delta Hotels by MarriottTM (Delta Hotels®) | Properties | 61 | 1 | — | 1 | — | 63 |
| Rooms | 14,905 | 223 | — | 339 | — | 15,467 |
Gaylord Hotels® | Properties | 6 | — | — | — | — | 6 |
| Rooms | 9,918 | — | — | — | — | 9,918 |
Marriott Executive Apartments® | Properties | — | 4 | 7 | 17 | 2 | 30 |
| Rooms | — | 361 | 823 | 3,016 | 240 | 4,440 |
Tribute Portfolio® | Properties | 18 | 6 | — | 5 | 2 | 31 |
| Rooms | 4,285 | 697 | — | 882 | 57 | 5,921 |
| Select |
Courtyard by Marriott® (Courtyard®) | Properties | 1,027 | 63 | 7 | 63 | 39 | 1,199 |
| Rooms | 143,389 | 11,828 | 1,487 | 15,306 | 6,428 | 178,438 |
Residence Inn by Marriott® (Residence Inn®) | Properties | 789 | 9 | 3 | — | 2 | 803 |
| Rooms | 97,335 | 1,196 | 301 | — | 249 | 99,081 |
Fairfield by Marriott® | Properties | 940 | — | — | 26 | 13 | 979 |
| Rooms | 88,052 | — | — | 4,403 | 1,833 | 94,288 |
SpringHill Suites by Marriott® (SpringHill Suites®) | Properties | 414 | — | — | — | — | 414 |
| Rooms | 48,959 | — | — | — | — | 48,959 |
Four Points® by Sheraton (Four Points®) | Properties | 152 | 20 | 12 | 67 | 20 | 271 |
| Rooms | 23,015 | 3,042 | 3,451 | 16,951 | 2,685 | 49,144 |
TownePlace Suites by Marriott® (TownePlace Suites®) | Properties | 388 | — | — | — | — | 388 |
| Rooms | 39,231 | — | — | — | — | 39,231 |
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| | U.S. & Canada | Europe | Middle East & Africa | Asia Pacific | Caribbean & Latin America | Total |
Aloft® Hotels | Properties | 134 | 10 | 8 | 30 | 10 | 192 |
| Rooms | 19,619 | 1,614 | 2,006 | 6,732 | 1,679 | 31,650 |
AC Hotels by Marriott® | Properties | 73 | 84 | 1 | 4 | 14 | 176 |
| Rooms | 12,337 | 10,854 | 188 | 1,296 | 2,254 | 26,929 |
Protea Hotels by Marriott® (Protea Hotels®) | Properties | — | — | 74 | — | — | 74 |
| Rooms | — | — | 7,851 | — | — | 7,851 |
Element® Hotels | Properties | 55 | 2 | 2 | 6 | — | 65 |
| Rooms | 7,387 | 293 | 437 | 1,253 | — | 9,370 |
Moxy® Hotels | Properties | 21 | 47 | — | 6 | — | 74 |
| Rooms | 4,149 | 9,227 | — | 1,159 | — | 14,535 |
| Residences and Timeshare |
| Residences | Properties | 59 | 9 | 3 | 13 | 10 | 94 |
| Rooms | 6,258 | 313 | 308 | 1,700 | 576 | 9,155 |
| Timeshare | Properties | 72 | 5 | — | 5 | 9 | 91 |
| Rooms | 18,905 | 919 | — | 455 | 2,476 | 22,755 |
| Total Properties | 5,606 | 657 | 264 | 848 | 267 | 7,642 |
| Total Rooms | 942,995 | 127,449 | 60,043 | 237,499 | 55,058 | 1,423,044 |
(1)Includes two properties acquired when we purchased Elegant Hotels Group plc in December 2019 which we currently intend to re-brand under The Luxury Collection brand following the completion of planned renovations.
(2)Includes five properties acquired when we purchased Elegant Hotels Group plc in December 2019 which we currently intend to re-brand under the Autograph Collection brand following the completion of planned renovations. |
| | | | | | | |
| | | North America | Europe | Middle East & Africa | Asia Pacific | Caribbean & Latin America | Total |
Aloft® Hotels | Properties | 108 | 7 | 8 | 27 | 9 | 159 |
| Rooms | 16,296 | 1,310 | 2,012 | 6,240 | 1,494 | 27,352 |
AC Hotels by Marriott® | Properties | 49 | 85 | 1 | — | 10 | 145 |
| Rooms | 8,447 | 10,589 | 188 | — | 1,553 | 20,777 |
Protea Hotels by Marriott® (Protea Hotels®) | Properties | — | — | 80 | — | — | 80 |
| Rooms | — | — | 8,265 | — | — | 8,265 |
Element® Hotels | Properties | 31 | 2 | 1 | 5 | — | 39 |
| Rooms | 4,388 | 293 | 168 | 1,085 | — | 5,934 |
Moxy® Hotels | Properties | 11 | 23 | — | 3 | — | 37 |
| Rooms | 2,235 | 4,873 | — | 469 | — | 7,577 |
| Residences and Timeshare |
| Residences | Properties | 59 | 6 | 2 | 14 | 8 | 89 |
| Rooms | 6,959 | 256 | 197 | 2,144 | 401 | 9,957 |
| Timeshare | Properties | 70 | 5 | — | 5 | 9 | 89 |
| Rooms | 18,313 | 919 | — | 471 | 2,483 | 22,186 |
| | Total Properties 1 | 5,106 | 582 | 252 | 717 | 249 | 6,906 |
Total Rooms 1 | 881,680 | 116,626 | 58,084 | 207,382 | 53,596 | 1,317,368 |
| |
(1)
| Excludes Design HotelsTM properties, which participate as partner hotels in our Loyalty Program and are available for booking through our reservation channels.
|
Other Activities
Loyalty Program, Sales and Marketing, and Reservation Systems. On August 18, 2018, Credit Card Programs
Marriott launched oneBonvoyTM is our customer loyalty program with unified benefits under its three legacy loyalty brands — Marriott Rewards, The Ritz-Carlton Rewards, and Starwood Preferred Guest (“SPG”). On February 13, 2019, the combined program completed its integration under one name, Marriott BonvoyTM. Membersthrough which members have access to Marriott Bonvoy’sour diverse brand portfolio, rich benefits, and travel experiences. We refer to Marriott Bonvoy throughout this report as our “Loyalty Program.”
Our Loyalty Program is a low cost and high impact vehicle for our revenue generation efforts. It rewards members with points toward free hotel stays, access to travel experiences and other benefits, orthrough our Marriott Bonvoy Tours & Activities program, miles with participating airline programs.programs, and other benefits. We believe that our Loyalty Program generates substantial repeat business that might otherwise go to competing hotels. In 2018, Loyalty Program members purchasedeach of 2019 and 2020, approximately 50 percent of our room nights. We continually enhance ournights were booked by Loyalty Program offerings andmembers. We strategically market to this large and growing guest base to generate revenue. See the “Loyalty Program” caption in Footnote 2. Summary of Significant Accounting PoliciesNote 2 for more information.
We have multi-year agreements with JPMorgan Chase and American Express for our U.S.-issued, co-brand credit cards associated with our Loyalty Program. We also license credit card programs internationally, including in Canada, the United Kingdom, United Arab Emirates, and Japan. We earn fixed amounts that are generally payable at contract inception and variable amounts that are paid to us monthly over the term of the agreements primarily based on card usage, and we believe that our co-brand credit cards contribute to the success of our Loyalty Program and reflect the quality and value of our portfolio of brands. In 2020, we signed amendments to the existing agreements for our U.S.-issued co-brand credit cards associated with our Loyalty Program. These amendments provided the Company with $920 million of cash from the prepayment of certain future revenues, the early payment of a previously committed signing bonus, and the pre-purchase of Marriott Bonvoy points and other consideration.
Sales and Marketing and Reservation Systems
Marriott.com, our international website,websites, and our mobile apps continued to grow significantly in 2018. Our web and mobile platformsapplication allow for a seamless booking experience and easy enrollment in our Loyalty Program to book our exclusive Member Rates.Rates and participate in program benefits. The Company responded quickly and flexibly during the COVID-19 crisis to meet the needs of our guests by launching new programs, such as Work Anywhere with Marriott Bonvoy, as well as new Marriott web content, focused on providing current hotel and travel information regarding COVID-19. Our Look No Further® Best Rate Guarantee ensures best rate integrity, strengthening consumer confidence in our brand and givesgiving guests greater access to the samebest rates when they book hotel rooms through our various direct channels. We also continue to growremain focused on growing engagement levels with millions of guests by interacting with them through a
variety of channels, including our mobile application and digital guest services -– contactless check-in and check-out, chat, service requests, mobile key, and more - across our hotel portfolio. In 2018, we significantly expanded the number of hotels across our portfolio that offer mobile key, enabling guests to use their mobile devices as a keycard for room entry and amenity access. We also expanded our mobile food ordering at selected properties, enabling guests to order food and beverages on-demand from hotel outlets. Our digital strategy continues to focus on creatingdriving bookings to our direct channels, which generally deliver more profitable business to hotels in our system compared to bookings made through intermediary channels. Through our direct channels, we aim to create a simple and efficient digital shopping and booking experience, while elevating theour service experience through mobiledigitally-enabled guest services and generatingto generate superior guest satisfaction and enable more frictionless and memorable stays at our properties.
At year-end 2018,2020, we operated 2220 hotel reservation centers, eightseven in the U.S. and 1413 in other countries and territories, which handle reservation requests for our lodging brands worldwide, including franchised properties. We own two of the U.S. facilities and either lease the others or share space with a company-operated property. While pricing is set by our hotels, ourOur reservation system manages inventory and allows us to utilize third partythird-party agents where cost effective. Economies of scale enable us to minimize costs per occupied room, drive profits for our owners and franchisees, and enhance our fee revenue.
room.
We believe our global sales and revenue management organizations are a key competitive advantage due to our unrelenting focus on optimizing our investment in people, processes, and systems. Our above-property sales deployment strategy aligns our sales efforts around how the customer wants to buy, reducing duplication of efforts by individual hotels and allowing us to cover a larger number of accounts. We also utilize innovative and sophisticated revenue management systems, many of which are proprietary, which we believe provide a competitive advantage in pricing decisions, increasing efficiency and producing higheroptimizing property-level revenue for hotels in our portfolio. Most of the hotels in our portfolio utilize web-based programs to effectively manage the rate set-up and modification processes which provides for greater pricing flexibility, reduces time spent on rate program creation and maintenance, and increases the speed to market of new products and services.
As we further discuss in Part I, Item 1A “Risk Factors” later in this report, we utilize sophisticated technology and systems in our reservation, revenue management, and property management systems, in our Loyalty Program, and in other aspects of our business. We also make certain technologies available to our guests. Keeping pace with developments in technology is important for our operations and our competitive position. Furthermore, the integrity and protection of customer, guest, employee, and company data is critical to us as we use such data for business decisions and to maintain operational efficiency.
Credit Card Programs.We have multi-year agreements with JP Morgan Chase and American Express for our U.S.-issued, co-brand credit cards associated with our Loyalty Program. We also license credit card programs in Canada, the United Kingdom, United Arab Emirates, and Japan. We earn license fees based on card usage, and we believe that our co-brand credit cards contribute to the success of our Loyalty Program and reflect the quality and value of our portfolio of brands.
Sustainability and Social Impact. Guided by our 2025 Sustainability and Social Impact Goals, as well as the United Nations Sustainable Development Goals, we believe we have an opportunity to create a positive and sustainable impact wherever we do business. Our Sustainability and Social Impact Platform, Serve 360: Doing Good In Every Direction, is built around four focus areas: Nurture Our World; Sustain Responsible Operations; Empower Through Opportunity; and Welcome All and Advance Human Rights. Within each of these areas, we have identified a series of 2025 goals that we believe will help us to address the expectations of our stakeholders, increase our operational efficiency and excellence, and enhance our reputation while supporting the continued growth and resiliency of our business. Examples of these goals include commitments to volunteerism, building sustainably and striving to source responsibly while reducing carbon, water, and waste footprints, investing in our communities, and advancing human rights.
Global Design Division. Our Global Design division provides design, development, refurbishment, and procurement services to owners and franchisees of lodging properties on a voluntary basis outside the scope of and separate from our management or franchise contracts. Like third-party contractors, Global Design provides these services on a fee basis to owners and franchisees of our branded properties.
Competition
We encounter strong competition both as a lodging operator and as a franchisor. According to lodging industry data, there are over 1,400Other lodging management companies in the U.S., including approximately 21 that operate more than 100 properties. These operators are primarily private management firms, but also include several large national and international chains that own and operate their own hotels, operate hotels on behalf of third-party owners, and also franchise their brands. Management contracts are typically long-term in nature, but most allow the hotel owner to replace the management firm if it does not meet certain financial or performance criteria.
WeOur direct digital channels also compete for guests with large companies that offer online travel services as part of their business model such as Expedia.com, Priceline.com, Booking.com, Travelocity.com, and Orbitz.com and search engines such as Google, Bing, Yahoo, and Bing,Baidu. Our hotels compete for guests with other hotels and online servicesplatforms, including Airbnb and HomeAwayVrbo, that allow travelers to book short-term rentals of homes and apartments as an alternative to hotel rooms. We compete against lodging operators and other competitors for guests in many areas, including brand recognition and reputation, location, guest satisfaction, room rates, quality of service, amenities, quality of accommodations, safety and security, and the ability to earn and redeem Loyalty Programloyalty program points.
During the last recession, demand for hotel rooms declined significantly, particularly in 2009, and we took steps to reduce operating costs and improve efficiency. Due to the competitive nature of our industry, we focused these efforts on areas that had limited or no impact on the guest experience. While demand trends globally have improved since 2009, cost reductions could again become necessary if demand trends reverse. We would expect to implement any such efforts in a manner designed to maintain guest loyalty, owner preference, and associate satisfaction, to help maintain or increase our market share.
Affiliation with a national or regional brand is common in the U.S. lodging industry, and we believe that our brand recognition assists us in attracting and retaining guests, owners, and franchisees. In 2018,2020, approximately 7172 percent of U.S. hotel rooms were brand-affiliated. Most of the branded properties are franchises, under which the owner pays the franchisor a fee for use of its hotel name and reservation system. In the franchising business, we face many competitors that have strong
brands and guest appeal, including Hilton, Intercontinental Hotels Group, Hyatt, Wyndham, Accor, Choice, Radisson, Best Western, and others.
Outside the U.S., branding is much less prevalent and most markets are served primarily by independent operators, although branding is more common for new hotel development. We believe that chain affiliation will increasebecome more attractive in many overseas markets as local economies grow, trade barriers decline, international travel accelerates, and hotel owners seek the economiesbenefits of centralized reservation systems, marketing programs, and marketing programs.our Loyalty Program.
Based on lodging industry data, we have an approximately15 16 percent share of the U.S. hotel market (based on number of rooms) and we estimate less than a four percent share of the hotel market outside the U.S. We believe that our hotel brands are attractive to hotel owners seeking a management company or franchise affiliation because our hotels typically generate higher Revenue per Available Room (“RevPAR”)RevPAR than our direct competitors in most market areas. We attribute this performance premium to our success in achieving and maintaining strong guest preference. We believe that the location and quality of our lodging facilities, our marketing programs, our reservation systems, our Loyalty Program, and our emphasis on guest service and guest and associate satisfaction contribute to guest preference across all our brands.
Properties that we operate, franchise, or license are regularly upgraded to maintain their competitiveness. Most of our management agreements provide for the allocation of funds to be set aside, generally a fixed percentage of revenue, for periodic refurbishmentSeasonality
In general, business at company-operated and replacement of furnishings, fixtures, and equipment. These ongoing refurbishment programs, along with periodic brand initiatives, are generally adequate to preserve or enhance the competitive position and earning power of the properties. Properties converting to one of our brands typically complete renovations as needed in conjunctionfranchised properties fluctuates moderately with the conversion.seasons. Business at some resort properties may be more seasonal depending on location.
Human Capital Management
Marriott’s long history of service, innovation and growth was built on a commitment to take care of people. Today, that commitment is known as TakeCare. Through our TakeCare commitment, we are dedicated to providing opportunity, community, and purpose for all associates.
At year-end 2018, we had2020, Marriott employed approximately 176,000 employees,121,000 associates at properties, customer care centers, and above-property operations. Approximately 98,000 of these associates are located in the U.S., of which approximately 22,00020,000 belong to labor unions. Outside the U.S., some of whom wereour associates are represented by labor unions.trade unions, works councils, or employee associations. These numbers do not include associates employed by our hotel owners (which is common outside the U.S.) or hotel personnel employed by our owners, franchisees andor other management companies hired by our franchisees. AlthoughMarriott manages over 200,000 associates who are employed by hotel owners.
As a result of COVID-19’s impact on our industry and the significant decline in demand for hotel rooms, we experienced labor disruptions in certain U.S. markets in 2018 in connection withhad to take substantial measures to mitigate the negative financial and operational impacts for our contract negotiations with unions representing certainhotel owners and our business. These measures included furloughing a substantial number of our organizedassociates and implementing reduced work weeks for other associates. These furlough and reduced work week arrangements have ended at our above-property locations, but continue for a significant number of our on-property associates. In addition, to reduce operating costs and improve efficiency, we implemented restructuring plans impacting both on-property and above-property associates, which included a voluntary transition program for certain associates and the elimination of a significant number of positions. Our property-level restructuring plans are ongoing. As a result of COVID-19 and the uncertainty regarding when lodging demand and RevPAR levels will recover, the size of our global workforce remains in transition.
During this period of disruption for our industry, we continue to be focused on the needs of our associates. We made a temporary policy change to offer Company-subsidized health care coverage for eligible U.S. associates on furlough and to reduce the required hours worked to allow eligible U.S. associates to continue to qualify for Company-subsidized health care coverage. Additionally, we implemented new policies and protocols designed to help minimize the spread of COVID-19 at our hotels and protect our on-property associates, such as requiring all associates to wear face coverings in indoor public areas, enhancing our already rigorous cleaning procedures, and maintaining social distancing protocols.
We have a comprehensive compensation and benefits program designed to reward our associates and enrich their well-being. Our policies and practices are designed to avoid pay inequities throughout an associate’s career. In the U.S., salary history inquiries are prohibited during our hiring process and pay equity audits are conducted periodically. In addition, Marriott is focused on the health and well-being of not only our associates, but their families as well. In the U.S., we provide our associates with access to health care coverage, work/life support benefits, and other benefits that support families, including paid parental leave and financial assistance to help with adoption fees. We also offer comprehensive benefits programs for associates outside the U.S., the terms of which vary based on the geographic market. Beginning in 2020, we offered associates free access to a digital tool designed to help with stress management and resiliency.
At Marriott, our associates’ career well-being is a top priority and we offer programs and resources to support our associates’ career goals, from entry level to management positions. Through skills training programs, professional development opportunities and other learning experiences, we provide associates with a multitude of choices for career and personal growth. We recently launched the Digital Learning Zone, focused on providing associates personalized unique learning paths.
Our company-wide diversity, equity, and inclusion program includes a range of initiatives and programs to support our efforts to make all stakeholders – associates, guests, owners, and suppliers – feel welcome. We have oversight and accountability measures in place to support our focus on equal employment, diversity and inclusion. The Inclusion and Social Impact Committee of our Board of Directors (the “ISI Committee”) helps drive accountability across the Company. Established in 2003, the ISI Committee is chaired by a member of our Board of Directors and comprised of certain other members of the Board and the Company’s senior management team. The ISI Committee assists the Board in carrying out its commitment and responsibilities relating to Marriott’s people-first culture and the Company’s efforts to foster associate well-being and inclusion.
Sustainability and Social Impact
Guided by our 2025 sustainability and social impact goals, as well as the United Nations Sustainable Development Goals, we believe we have an opportunity to create a positive and sustainable impact wherever we do business. Our sustainability and social impact platform, Serve 360: Doing Good In Every Direction, is built around four focus areas: Nurture Our World; Sustain Responsible Operations; Empower Through Opportunity; and Welcome All and Advance Human Rights - each with targets to drive our efforts through 2025. These targets reflect our goals to protect and invest in the vitality of the communities and natural environments in which we operate, build and operate sustainable hotels, source responsibly, advance human rights, and mitigate climate-related risk. In 2020, many of our programs and initiatives, including the switch from single-use toiletry bottles to larger, pump-topped bottles, were slowed due to the impact of COVID-19 on our business. Nevertheless, hotels across the globe supported their local communities in need by donating food, cleaning supplies and other essential items and opening their doors to non-profits that needed large event spaces in order to adhere to social distancing protocols and still meet an increase in demand for their community-supporting services. Additionally, together with American Express and JPMorgan Chase, we provided $10 million worth of free hotel stays for frontline healthcare workers. We deployed our Marriott Disaster Relief Fund to provide essential items, such as food vouchers, to Marriott associates in those markets, those contract negotiationsneed. Notwithstanding the pandemic, we made progress toward our goal to train 100 percent of on-property personnel in human trafficking awareness by 2025, and labor disruptions have been resolvedin collaboration with a leading anti-trafficking organization, we made our training open-sourced for free access to our industry and beyond. In 2021, we believe relationsexpect to revise and implement sustainability and social impact programming that is most pertinent to the current operating environment, while helping us to address the growing expectations of our stakeholders, increase our operational efficiency and excellence, and enhance our reputation while mitigating risk and supporting the resiliency of our business.
Government Regulations
As a company with our employees are positive.
Environmental Compliance
The propertiesglobal operations, we operate or develop are subject to national, regional, state or provincial,a wide variety of laws, regulations, and local lawsgovernment policies in the U.S. and in jurisdictions around the world. Some of the regulations that govern the discharge of materials into the environment or otherwise relatemost affect us include those related to protecting the environment. Those environmental provisions include requirements that addressemployment practices; health and safety; trade and economic sanctions; competition; anti-bribery and anti-corruption; cybersecurity; data privacy, data localization and the use, management,handling of personally identifiable information; the offer and disposalsale of hazardous substancesfranchises; and wastes; and emission or discharge of wastes or other materials. We believe that our operation and development of properties complies, in all material respects, with environmental laws and regulations. Compliance with such provisions has not materially impacted our capital expenditures, earnings, or competitive position, and we do not anticipate that it will have a material impact in the future.liquor sales.
Internet Address and Company SEC Filings
Our primary Internet address is Marriott.com. On the investor relations portion of our website, Marriott.com/investor, we provide a link to our electronic filings with the U.S. Securities and Exchange Commission (the “SEC”),SEC, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to these reports. We make all such filings available free of charge as soon as reasonably practicable after filing. The information found on our website is not part of this or any other report we file with or furnish to the SEC.
Item 1A. Risk Factors.
Forward-Looking Statements
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 currently available to us. Forward-looking statements include information about our possible or assumed future results of operations, which follow under the headings “Business and Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by, or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions.
Any number of risks and uncertainties could cause actual results to differ materially from those we express in our forward-looking statements, including the risks and uncertainties we describe below and other factors we describe from time to
time in our periodic filings with the SEC. We therefore caution you not to rely unduly on any forward-looking statement. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether due to new information, future developments, or otherwise.
Risks and Uncertainties
We are subject to various risks that make an investment in our securities risky. The events and consequences discussed in these risk factors could, in circumstances we may or may not be able to accurately predict, recognize, or control, have a negativematerial adverse effect on us or on our business, liquidity, financial condition. You should understand thatcondition, and results of operations. In addition, these risks could cause results to differ materially from those we express in forward-looking statements contained in this reportAnnual Report or in other Company communications. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations.
Risks Relating to COVID-19
COVID-19 has had a material detrimental impact on our business and financial results, and such impact could continue and may worsen for an unknown period of time.
COVID-19 has been and continues to be a complex and evolving situation, with governments, public institutions and other organizations imposing or recommending, and businesses and individuals implementing, at various times and to varying degrees, restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation; limitations on the size of in-person gatherings; closures of, or occupancy or other operating limitations on, work facilities, lodging facilities, food and beverage establishments, schools, public buildings and businesses; cancellation of events, including sporting events, conferences and meetings; and quarantines and lock-downs. COVID-19 and its consequences have dramatically reduced travel and demand for hotel rooms, which has and will continue to impact our business, operations, and financial results. The extent to which COVID-19 impacts our business, operations, and financial results will depend on the
factors described above and numerous other evolving factors that we may not be able to accurately predict or assess, including the duration and scope of COVID-19; the availability and distribution of effective vaccines or treatments; COVID-19’s impact on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; its short and longer-term impact on the demand for travel, transient and group business, and levels of consumer confidence; the ability of our owners and franchisees to successfully navigate the impacts of COVID-19; and how quickly economies, travel activity, and demand for lodging recovers after the pandemic subsides.
COVID-19 has subjected our business, operations and financial condition to a number of risks, including, but not limited to, those discussed below:
•Risks Related to Revenue:COVID-19 has negatively impacted, and will in the future negatively impact to an extent we are unable to predict, our revenues from managed and franchised hotels, which are primarily based on hotels’ revenues or profits. In addition, COVID-19 and its impact on global and regional economies, and the hospitality industry in particular, has made it difficult for hotel owners and franchisees to obtain financing on attractive terms, or at all, and increased the probability that hotel owners and franchisees will be unable or unwilling to service, repay or refinance existing indebtedness. This has caused, and may in the future continue to cause, some lenders to declare a default, accelerate the related debt, foreclose on the property or exercise other remedies, and some hotel owners or franchisees to declare bankruptcy. If a significant number of our management or franchise agreements are terminated as a result of bankruptcies, sales or foreclosures, our results of operations could be materially adversely affected. Hotel owners or franchisees in bankruptcy may not have sufficient assets to pay us termination fees or other unpaid fees or reimbursements we are owed under their agreements with us. Even if hotel owners or franchisees do not declare bankruptcy, the significant decline in revenues for most hotels has impacted the timely payment of amounts owed to us by some hotel owners and franchisees, and could in the future materially impact the ability or willingness of hotel owners and franchisees to fund working capital or pay us other amounts that we are entitled to on a timely basis or at all, which would adversely affect our liquidity. If a significant number of hotels exit our system as a result of COVID-19, whether as a result of a hotel owner or franchisee bankruptcy, failure to pay amounts owed to us, a negotiated termination, the exercise of contractual termination rights, or otherwise, our revenues and liquidity could be materially adversely affected. COVID-19 has also materially impacted, and could in the future materially impact, other non-hotel related sources of revenues for us, including for example our fees from our co-brand credit card arrangements, which have been and may continue to be affected by COVID-19’s impact on spending patterns of co-brand cardholders and acquisition of new co-brand cardholders. Also, testing our intangible assets or goodwill for impairments due to reduced revenues or cash flows could result in additional charges, which could be material.
•Risks Related to Owned and Leased Hotels and Other Real Estate Investments:COVID-19 and its impact on travel has reduced demand at nearly all hotels, including our owned and leased hotels and properties owned by entities in which we have an equity investment. As a result, most of our owned and leased hotels and properties in which we have an investment are not generating revenue sufficient to meet expenses, which is adversely affecting our income and could in the future more significantly adversely affect the value of our owned and leased properties or investments. In addition, we have seen and could continue to see entities in which we have an investment experience challenges securing additional or replacement financing to satisfy maturing indebtedness. As a result of the foregoing, we have recognized, and may in the future be required to recognize, significant non-cash impairment charges to our results of operations.
•Risks Related to Operations:Because of the significant decline in the demand for hotel rooms, we have taken steps to reduce operating costs and improve efficiency, including furloughing a substantial number of our associates and implementing reduced work weeks for other associates, implementing a voluntary transition program for certain associates, eliminating a significant number of above-property and on-property positions, and modifying food and beverage offerings and other services and amenities. Such steps, and further changes we could make in the future to reduce costs for us or our hotel owners or franchisees (including ongoing property-level restructuring plans), may negatively impact guest loyalty, owner preference, or our ability to attract and retain associates, and our reputation and market share may suffer as a result. For example, loss of our personnel may cause us to experience operational challenges that impact guest loyalty, owner preference, and our market share, which could limit our ability to maintain or expand our business and could reduce our profits. Further, reputational damage from, and the financial impact of, position eliminations, furloughs or reduced work weeks could lead associates to depart the Company and could make it harder for us or the managers of our franchised properties to recruit new associates in the future. In addition, if we or our hotel owners or franchisees are unable to access capital to make physical improvements to our hotels, the quality of our hotels may suffer, which may negatively impact our reputation and guest loyalty, and our revenue and market share may suffer as a result.We have received demands or requests from labor unions that represent our associates and
may face additional demands, whether in the course of our periodic renegotiation of our collective bargaining agreements or otherwise, for additional compensation, healthcare benefits or other terms as a result of COVID-19 that could increase costs, and we could experience labor disputes or disruptions as we continue to operate under our COVID-19 mitigation and recovery plans. COVID-19 could also negatively affect our internal control over financial and other reporting, as many of our personnel have departed the Company as a result of our voluntary transition program and position eliminations, and our remaining personnel are often working from home. In addition, new processes, procedures and controls could be required to respond to changes in our business environment.
•Risks Related to Expenses:COVID-19 has caused us to incur additional expenses and will continue to cause us to incur additional expenses in the future which are not fully reimbursed or offset by revenues. For example, we have already incurred certain expenses related to furloughs, our voluntary transition program and position eliminations, and we expect additional charges related to our property-level restructuring activities discussed in Note 3 in future periods.Also, if a hotel closes and has employees covered by an underfunded multi-employer pension plan, we may need to pay withdrawal liability to the plan as result of such closure if it is determined that there has been a complete or partial withdrawal from the plan, and we may be unable to collect reimbursement from the hotel owner. In addition, COVID-19 could make it more likely that we have to fund shortfalls in operating profit under our agreements with some hotel owners or fund financial guarantees we have made to third-party lenders for the timely repayment of all or a portion of certain hotel owners’ or franchisees’ debt related to hotels that we manage or franchise, beyond the amounts funded or the additional guarantee reserves recorded in 2020. COVID-19 also makes it more likely our hotel owners or franchisees will default on loans we have made to them or will fail to reimburse us for guarantee advances. Our ability to recover loans and guarantee advances from hotel operations or from hotel owners or franchisees through the proceeds of hotel sales, refinancing of debt or otherwise may also affect our ability to recycle and raise new capital. Even in situations where we are not obligated to provide funding to hotel owners, franchisees or entities in which we have a noncontrolling interest, we may choose to provide financial or other types of support to certain of these parties, which could materially increase our expenses. While governments have and may continue to implement various stimulus and relief programs, it is no wayuncertain whether existing programs will be effective in mitigating the impacts of COVID-19 and, with respect to determine in advance whether, orfuture programs, to what extent any present uncertaintywe or our hotel owners or franchisees will ultimatelybe eligible to participate and whether conditions or restrictions imposed under such programs will be acceptable. As a result of COVID-19, we and our hotel owners and franchisees have experienced and could continue to experience other short or longer-term impacts on costs, for example, related to enhanced health and hygiene requirements. These effects have and could continue to impact our business, you should give equal weightability to eachgenerate profits even after revenues improve.
•Risks Related to Growth: Our growth has been, and may continue to be, harmed by COVID-19 and its various impacts as discussed above. Many current and prospective hotel owners and franchisees are finding it difficult or impossible to obtain hotel financing on commercially viable terms. COVID-19 has caused and may continue to cause some projects that are in construction or development to be unable to draw on existing financing commitments or secure additional or replacement financing to complete construction, and additional or replacement financing that is available may be on less favorable terms. COVID-19 has caused and may continue to cause construction delays due to government restrictions and shortages of workers or supplies. As a result, some of the following:properties in our development pipeline will not enter our system when we anticipated, or at all. We have seen, and may continue to see, opening delays and a decrease in the rate at which new projects enter our pipeline, and we may see an increase in the number of projects that fall out of our pipeline as a result of project cancellations or other factors. These effects on our pipeline have reduced and will continue to reduce our ability to realize fees or realize returns on equity investments from such projects. We expect we could potentially see more existing hotels exit our system as a result of COVID-19, and a significant number of such exits could negatively impact the overall growth of our system and our business prospects.
•Risks Related to Liquidity: In 2020, we made significant borrowings under our $4.5 billion Credit Facility and completed offerings of $3.6 billion aggregate principal amount of senior notes to preserve financial flexibility in light of the impact on global markets resulting from COVID-19. We may be required to raise additional capital again in the future to fund our operating expenses and repay maturing debt. In 2020, we raised $920 million of cash through amendments to agreements with the U.S. issuers of our co-brand credit cards associated with our Loyalty Program, and this option to raise capital will likely not be available again to us in the near future and will reduce the amount of cash we will receive in the future from these card issuers, which may increase the need for us to raise additional capital from other sources. In addition, we have seen increases in our cost of borrowing as a result of COVID-19 and such costs may increase even further for a time we are unable to determine. If we are required to raise additional capital, our access to and cost of financing will depend on, among other things, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects, our credit ratings, and the outlook for the hotel industry as a whole. As a result of COVID-19, credit agencies have downgraded our credit ratings. If our credit ratings were to
be further downgraded, or general market conditions were to ascribe higher risk to our credit rating levels, our industry, or our Company, our access to capital and the cost of debt financing will be further negatively impacted. The interest rate we pay on many of our existing debt instruments, including the Credit Facility and some of our senior notes, is affected by our credit ratings. Accordingly, a downgrade may cause our cost of borrowing to further increase. Additionally, certain of our existing commercial agreements may require us to post or increase collateral in the event of further downgrades. In addition, our latest amendments to our Credit Facility increase the minimum liquidity we are required to maintain for the duration of the waiver period as discussed in Note 10, and the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or cause future financing to be unavailable due to our covenant restrictions then in effect. Also, if we are unable to comply with the covenants under our Credit Facility, the lenders under our Credit Facility will have the right to terminate their commitments thereunder and declare the outstanding loans thereunder to be immediately due and payable. A default under our Credit Facility could trigger a cross-default, acceleration or other consequences under other indebtedness, financial instruments or agreements to which we are a party. There is no guarantee that debt financings will be available in the future to fund our obligations, or will be available on terms consistent with our expectations. Additionally, the impact of COVID-19 on the financial markets is expected to adversely impact our ability to raise funds through equity financings.
COVID-19, and the volatile regional and global economic conditions stemming from COVID-19, as well as reactions to future pandemics or resurgences of COVID-19, could also give rise to, aggravate and impact our ability to allocate resources to mitigate the other risks that we identify below, which in turn could materially adversely affect our business, liquidity, financial condition, and results of operations. Further, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.
Risks Relating to Our Industry
Our industry is highly competitive, which may impact our ability to compete successfully for guests with other hotel properties and home and apartment sharing services for guests.or rental services. We operate in markets that contain many competitors. Each of our hotel brands and our home rental offering competes with major hotel chains, regional hotel chains, independent hotels, and home sharing and apartment sharingrental services inacross national and international venues, and with independent companies in regional markets.venues. Our ability to remain competitive and attract and retain business and leisure travelers depends on our success in distinguishing the quality, value, and efficiency of our lodging products and services, including our Loyalty Program, direct booking channels, and consumer-facing technology platforms and services, from those offered by others. If we cannot compete successfully in these areas, our operating margins could contract, our market share could decrease, and our earnings could decline. Further, new lodging supply in individual markets could have a negative impact on the hotel industry and hamper our ability to increase room rates or occupancy in those markets.
Economic downturns and other global, national, and regional conditions could further impact our financial results and growth. Weak economic conditions in one or more parts of the world,Because we conduct our business on a global platform, changes in oil prices and currency values, disruptions inglobal, national, or regional or global economies, generally and the travel business in particular that might result from changing governmental policies (including in areas such as trade, travel, immigration, healthcare, and related issues,issues), and geopolitical and social conditions impact our activities. Our business is impacted by decreases in travel resulting from weak economic conditions, changes in energy prices and currency values, political instability, heightened travel security measures, travel advisories, disruptions in some areas,air travel, and the uncertaintyconcerns over how long anydisease, violence, war, or terrorism.
As discussed in “Risks Relating to COVID-19,” our performance has been materially affected by some of these conditions could continue, could have a negative impact on the lodging industry. Because of such uncertainty, we continue to experience weakened demand for our hotel rooms in some markets. Our future financial results and growth could be further harmed or constrainedmaterially affected if economic or these other conditions worsen. U.S. government travel and travel associated with U.S. government operations are also a significant part of our business, and this aspect of our business has suffered and couldworsen, arise in the future, suffer dueor extend longer than anticipated, or in other circumstances that we are not able to U.S. federal spending cuts,predict or government hiring restrictionsmitigate. Even after COVID-19 subsides or effective vaccines or treatments become widely available, our business, markets, growth prospects and any further limitations that may result from presidential or congressional action or inaction, including for example, a U.S. federal government shutdown, such as the partial shutdown that occurred in December 2018 and January 2019.
Risks Relating to Our Integration of Starwood
The continued diversion of resources and management’s attention to the integration of Starwoodbusiness model could still adversely affect our day-to-day business. While the integration of Starwood is largely complete, integration related matters still place a significant burden on our management and internal resources and may continue to do so for some time, which could have adverse effects on our businessbe materially impacted or financial results.
Some of the anticipated benefits of combining Starwood and Marriott may still not be realized. We decided to acquire Starwood with the expectation that the Starwood Combination would result in various benefits. Although we have already achieved substantial benefits, others remain subject to several uncertainties, including whether we can achieve certain revenue synergies.
Integration could also involve unexpected costs. Disruptions of each legacy company’s ongoing businesses, processes, and systems could adversely affect the combined company. We have encountered challenges in harmonizing our different reservations and other systems, our Loyalty Program, and other business practices, and we may encounter additional or increased challenges related to integration. Because of these or other factors, we cannot assure you when or that we will be able to fully realize additional benefits from the Starwood Combination in the form of enhancing revenues or achieving other operating efficiencies, cost savings, or benefits, or that challenges encountered with our harmonization efforts will not have adverse effects on our business or reputation.
Program changes associated with our integration efforts could have a negative effect on guest preference or behavior. Our integration efforts involved significant changes to certain of our guest programs and services, including our Loyalty Program, co-branded credit card arrangements, and consumer-facing technology platforms and services. While we believe such changes enhance these programs and services for our guests and will drive guest preference and satisfaction, these changes remain subject to various uncertainties, including whether the changes could be negatively perceived by certain guests and consumers, could affect guest preference or could alter reservation, spending or other guest or consumer behavior, all of which could adversely affect our market share, reputation, business, financial condition, or results of operations.
altered.
Risks Relating to Our Business
Operational Risks
Premature termination of our management or franchise agreements could hurt our financial performance.Our hotel management and franchise agreements may be subject to premature termination in certain circumstances, such as the bankruptcy of a hotel owner or franchisee, the failure of the hotel owner or franchisee to comply with its payment or other obligations under the agreement, a failure under some agreements to meet specified financial or performance criteria that are subject to the risks described in this section, which we fail or elect not to cure.cure, or in certain limited cases, other negotiated contractual termination rights. Some courts have also applied agency law principles and related fiduciary standards to managers of third-party hotel properties, including us (or have interpreted hotel management agreements to be “personal services contracts”). Property owners may assert the right to terminate management agreements even where the agreements provide
otherwise, and some courts have upheld such assertions about our management agreements and may do so in the future. IfWhen terminations occur for these or other reasons, we may need to enforce our right to damages for breach of contract and related claims, which may cause us to incur significant legal fees and expenses. AnyWe may have difficulty collecting damages from the hotel owner or franchisee, and any damages we ultimately collect could be less than the projected future value of the fees and other amounts we would have otherwise collected under the management or franchise agreement. A significant loss of these agreements due to premature terminations could hurt our financial performance or our ability to grow our business.
Our lodging operations are subject to global, national, and regional conditions. Because we conduct our business on a global platform, changes in global and regional economies and governmental policies impact our activities. In recent years, decreases in travel resulting from weak economic conditions and the heightened travel security measures resulting from the threat of further terrorism have hurt our business. Our future performance could be similarly affected by the economic and political environment in each of our operating regions, the resulting unknown pace of both business and leisure travel, and any future incidents or changes in those regions.
The growing significance of our operations outside of the U.S. makes us increasingly susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits, disrupt our business, or damage our reputation.More than a third of the rooms in our system are located outside of the U.S. and its territories. We expect that our international operations, and resulting revenues, will continue to grow. This increasingly exposes us to the challenges and risks of doing business outside the U.S., many of which are outside of our control, and which could reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, disrupt our business, or damage our reputation. These challenges include: (1) compliance with complex and changing laws, regulations and government policies that may impact our operations, such as foreign ownership restrictions, import and export controls, and trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as competition laws, cybersecurity and privacy laws, currency regulations, and other laws affecting dealings with certain nations; (3) the difficulties involved in managing an organization doing business in many different countries; (4) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (5) rapid changes in government policy, political or civil unrest, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott legislation; and (6) currency exchange rate fluctuations, which may impact the results and cash flows of our international operations.
Any failure by our international operations to comply with anti-corruption laws or trade sanctions could increase our costs, reduce our profits, limit our growth, harm our reputation, or subject us to broader liability. We are subject to restrictions imposed by the U.S. Foreign Corrupt Practices Act (the “FCPA”) and anti-corruption laws and regulations of other countries applicable to our operations, such as the UK Bribery Act. Anti-corruption laws and regulations generally prohibit companies and their intermediaries from making improper payments to government officials or other persons to receive or retain business. These laws also require us to maintain adequate internal controls and accurate books and records. We have properties in many parts of the world where corruption is common, and our compliance with anti-corruption laws may potentially conflict with local customs and practices. The compliance programs, internal controls and policies we maintain and enforce to promote compliance with applicable anti-bribery and anti-corruption laws may not prevent our associates, contractors or agents from acting in ways prohibited by these laws and regulations. We are also subject to trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce. Our compliance programs and internal controls also may not prevent conduct that is prohibited under these rules. The U.S. may impose additional sanctions at any time against any country in which or with whom we do business. Depending on the nature of the sanctions imposed, our operations in the relevant country could be restricted or otherwise adversely affected. Any violations of anti-corruption laws and regulations or trade sanctions could result in significant civil and criminal penalties, reduce our profits, disrupt or have a material adverse effect on our business, damage our reputation, or result in lawsuits being brought against the Company or its officers or directors. In addition, the operation of these laws or an imposition of further restrictions in these areas could increase our cost of operations, reduce our profits or cause us to forgo development opportunities, or cease operations in certain countries, that would otherwise support growth.
Exchange rate fluctuations and foreign exchange hedging arrangements could result in significant foreign currency gains and losses and affect our business results. We earn revenues and incur expenses in foreign currencies as part of our operations outside of the U.S. Accordingly, fluctuations in currency exchange rates may significantly increase the amount of U.S. dollars required for foreign currency expenses or significantly decrease the U.S. dollars we receive from foreign currency revenues. We are also exposed to currency translation risk because the results of our non-U.S. business are generally reported in local currency, which we then translate to U.S. dollars for inclusion in our Financial Statements. As a result, changes between the foreign exchange rates and the U.S. dollar affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results. We expect that our exposure to foreign currency exchange rate fluctuations will grow as the relative contribution of our non-U.S. operations increases. We enter into foreign exchange hedging agreements with financial institutions to reduce exposures to some of the principal currencies in which we receive management and franchise fees, but these efforts may not be successful. These hedging agreements also do not cover all currencies in which we do business, do not eliminate foreign currency risk entirely for the currencies that they do cover, and involve costs and risks of their own in the form of transaction costs, credit requirements and counterparty risk.
Some of our management agreements and related contracts require us to make payments to owners if the hotels do not achieve specified levels of operating profit. Some of our contracts with hotel owners require that we fund shortfalls if the hotels do not attain specified levels of operating profit. We may not be able to recover any fundings of such performance guarantees, which could lower our profits and reduce our cash flows.
Our new programs and new branded products may not be successful. We cannot assure you that new or newly acquired brands, such as those we acquired as a result of the Starwood Combination, our investments in PlacePass and the joint venture with Alibaba, our pilot of a homesharing offering in certain European cities, or any other new programs or products we may launch in the future, will be accepted by hotel owners, potential franchisees, or the traveling public or other guests. We also cannot be certain that we will recover the costs we incurred in developing or acquiring the brands or any new programs or products, or that those brands, programs, or products will be successful. In addition, some of our new or newly acquired brands involve or may involve cooperation and/or consultation with one or more third parties, including some shared control over product design and development, sales and marketing, and brand standards. Disagreements with these third parties could slow the development of these brands and/or impair our ability to take actions we believe to be advisable for the success and profitability of such brands.
Risks relating to natural or man-made disasters, contagious disease, terrorist activity, and war could reduce the demand for lodging, which may adversely affect our revenues. So called “Acts of God,” such as hurricanes, earthquakes, tsunamis, floods, volcanic activity, wildfires, and other natural disasters, as well as man-made disasters and the potential spread of contagious diseases in locations where we own, manage, or franchise significant properties and areas of the world from which we draw a large number of guests, have in the past caused and could in the future cause a decline in business or leisure travel and reduce demand for lodging to an extent and for durations that we are not able to predict. Actual or threatened war, terrorist activity, political unrest, or civil strife, and other geopolitical uncertainty could have a similar effect. Any one or more of these events may reduce the overall demand for hotel rooms and corporate apartments or limit the prices that we can obtain for them, both of which could adversely affect our profits. If a terrorist event were to involve one or more of our branded properties, demand for our hotels in particular could suffer, which could further hurt our revenues and profits.
Disagreements with owners of hotels that we manage or franchise may result in litigation or delay implementation of product or service initiatives. Consistent with our focus on management and franchising, we own very few of our lodging properties. The nature of our responsibilities under our management agreements to manage each hotel and enforce the standards required for our brands under both management and franchise agreements may be subject to interpretation and will from time to time give rise to disagreements, which may include disagreements over the need for or payment for new product, service or systems initiatives, the timing and amount of capital investments, and reimbursement for certainoperating costs, system initiatives and costs.costs, or other amounts. Such disagreements may bebecome more likely in the current environment and during other periods when hotel returns are weaker. We seek to resolve any disagreements to develop and maintain positive relations with current and potential hotel owners, franchisees, and joint venturereal estate investment partners, but we cannot always do so. Failure to resolve such disagreements has resulted inlitigation, and could do so in the future. If any such litigation results in an adverse judgment, settlement, or court order, we could suffer significant losses, our profits could be reduced, or our future ability to operate our business could be constrained.
Our business depends on the quality and reputation of our company and our brands, and any deterioration could adversely impact our market share, reputation, business, financial condition, or results of operations. Certain events, including those that may be beyond our control, could affect the reputation of one or more of our properties or more generally impact the reputation of our brands. Many other factors also can influence our reputation and the value of our brands, including service, food quality and safety, availability and management of scarce natural resources, supply chain management, diversity, human rights, and support for local communities. Reputational value is also based on perceptions, and broad access to social media makes it easy for anyone to provide public feedback that can influence perceptions of us, our brands and our hotels, and it may
be difficult to control or effectively manage negative publicity, regardless of whether it is accurate. While reputations may take decades to build, negative incidents can quickly erode trust and confidence, particularly if they result in adverse mainstream and social media publicity, governmental investigations or penalties, or litigation. Negative incidents could lead to tangible adverse effects on our business, including lost sales, boycotts, reduced enrollment and/or participation in our Loyalty Program, disruption of access to our websites and reservation systems, loss of development opportunities, or associate retention and recruiting difficulties. Any decline in the reputation or perceived quality of our brands or corporate image could affect our market share, reputation, business, financial condition, or results of operations. The Data Security Incident could have a negative impact on our reputation, our corporate image and our relationship with our guests.
If our brands, goodwill or other intangible assets become impaired, we may be required to record significant non-cash charges to earnings. As of December 31, 2018, we had $17.4 billion of goodwill and other intangible assets. We review goodwill and indefinite-lived intangible assets for impairment annually or whenever events or circumstances indicate impairment may have occurred. Estimated fair values of our brands or reporting units could change if, for example, there are changes in the business climate, unanticipated changes in the competitive environment, adverse legal or regulatory actions or developments, changes in guests’ perception and the reputation of our brands, or changes in interest rates, operating cash flows, or market capitalization. Because of the significance of our goodwill and other intangible assets, any future impairment of these assets could require material non-cash charges to our results of operations, which could have a material adverse effect on our financial condition and results of operations.
Actions by our franchisees and licensees could adversely affect our image and reputation. We franchise and license many of our brand names and trademarks to third parties for lodging, timeshare, residential, and our credit card programs. Under the terms of their agreements with us, our franchisees and licensees interact directly with guests and other third parties under our brand and trade names. If these franchisees or licensees fail to maintain or act in accordance with applicable brand standards; experience operational problems, including any data breach involving guest information; or project a brand image inconsistent with ours, our image and reputation could suffer. Although our franchise and license agreements provide us with recourse and remedies in the event of a breach by the franchisee or licensee, including termination of the agreements under certain circumstances, it could be expensive or time consuming for us to pursue such remedies. We also cannot assure you that in every instance a court would ultimately enforce our contractual termination rights or that we could collect any awarded damages from the defaulting franchisee or licensee.
Collective bargaining activity and strikes could disrupt our operations, increase our labor costs, and interfere with the ability of our management to focus on executing our business strategies. A significant number of associates at our managed, leased, and owned hotels are covered by collective bargaining agreements. If relationships with our organized associates or the unions that represent them become adverse, the properties we operate could experience labor disruptions such as strikes, lockouts, boycotts, and public demonstrations, as we saw in the fourth quarter of 2018. Although we recently completed contract negotiations for 43 unionized hotels following multi-week strikes by our associates at 29 of those hotels, a number of collective bargaining agreements are expected to be negotiated in 2019. Labor disputes and disruptions have in the past, and could in the future, result in adverse publicity and adversely affect operations and revenues at affected hotels. In addition, labor disputes and disruptions could harm our relationship with our associates, result in increased regulatory inquiries and enforcement by governmental authorities, harm our relationships with our guests and customers, divert management attention, and reduce customer demand for our services, all of which could have an adverse effect on our reputation, business, financial condition, or results of operations.
Labor regulation and the negotiation of new or existing collective bargaining agreements could lead to higher wage and benefit costs, changes in work rules that raise operating expenses, legal costs, and limitations on our ability or the ability of our third-party property owners to take cost saving measures during economic downturns. We do not have the ability to control the negotiations of collective bargaining agreements covering unionized labor employed by our third-party property owners and franchisees. Increased unionization of our workforce, new labor legislation or changes in regulations could disrupt our operations, reduce our profitability or interfere with the ability of our management to focus on executing our business strategies.
If we cannot attract and retain talented associates, our business could suffer. We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit, train, develop, and retain sufficient numbers of talented associates, we could experience increased associate turnover, decreased guest satisfaction, low morale, inefficiency, or internal control failures. Insufficient numbers of talented associates could also limit our ability to grow and expand our businesses. A shortage of skilled labor could also result in higher wages that would increase our labor costs, which could reduce our profits.
Damage to, or losses involving, properties that we own, manage, or franchise may not be covered by insurance, or the cost of such insurance could increase. Marriott requires comprehensive property and liability insurance policies for our
managed, leased, and owned properties with coverage features and insured limits that we believe are customary. We require managed hotel owners to procure such coverage or we procure such coverage on their behalf. We also require our franchisees to maintain similar levels of insurance. Market forces beyond our control may nonetheless limit the scope of the insurance coverage we or our franchisees can obtain, or our or their ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, terrorist acts, or liabilities that result from breaches in the security of our information systems, may result in high deductibles, low limits, or may be uninsurable or the cost of obtaining insurance may be unacceptably high. As a result, we and our franchisees may not be successful in obtaining insurance without increases in cost or decreases in coverage levels, or may not be successful in obtaining insurance at all. For example, in 2018 substantial increases in property insurance costs occurred due to the severe and widespread damage caused by the 2017 Atlantic hurricane season and other natural disasters. In addition, in the event of a substantial loss, the insurance coverage we or our franchisees carry may not be sufficient to pay the full market value or replacement cost of any lost investment or in some cases could result in certain losses being totally uninsured. As a result, we could lose some or all of any capital that we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated for guarantees, debt, or other financial obligations for the property.
Development and Financing Risks
While we are predominantly a manager and franchisor of hotel properties, our hotel owners depend on capital to buy, develop, and improve hotels, and our hotel owners may be unable to access capital when necessary. Both we and current and potential hotel owners must periodically spend money to fund new hotel investments, as well as to refurbish and improve existing hotels. The availability of funds for new investments and improvement of existing hotels by our current and potential hotel owners depends in large measure on capital markets and liquidity factors, over which we exert little control. Obtaining financing on attractive terms may be constrained by the capital markets for hotel and real estate investments. In addition, owners of existing hotels that we franchise or manage may have difficulty meeting required debt service payments or refinancing loans at maturity.
Our growth strategy depends upon third-party owners/operators, and future arrangements with these third parties may be less favorable. Our growth strategy for adding lodging facilities entails entering into and maintaining various arrangements with property owners. The terms of our management agreements and franchise agreements for each of our lodging facilities are influenced by contract terms offered by our competitors, among other things. We cannot assure you that any of our current arrangements will continue or that we will be able to enter into future collaborations, renew agreements, or enter into new agreements in the future on terms that are as favorable to us as those that exist today.
Our ability to grow our management and franchise systems is subject to the range of risks associated with real estate investments. Our ability to sustain continued growth through management or franchise agreements for new hotels and the conversion of existing facilities to managed or franchised Marriott brands is affected, and may potentially be limited, by a variety of factors influencing real estate development generally. These include site availability, financing, planning, zoning and other local approvals, and other limitations that may be imposed by market and submarket factors, such as projected room occupancy and rate, changes in growth in demand compared to projected supply, territorial restrictions in our management and franchise agreements, costs of construction, and demand for construction resources.
Our development and renovation activities expose us to project cost, completion, and resale risks. We occasionally develop, or acquire and renovate, hotel and residential properties, both directly and through partnerships, joint ventures, and other business structures with third parties. As demonstrated by the impairment charges that we recorded in 2014 and 2015 in connection with our development and construction of three EDITION hotels and residences, our ongoing involvement in the development of properties presents a number of risks, including that: (1) any future weakness in the capital markets may limit our ability, or that of third parties with whom we do business, to raise capital for completion of projects that have commenced or for development of future properties; (2) properties that we develop or renovate could become less attractive due to decreases in demand for hotel and residential properties, market absorption or oversupply, with the result that we may not be able to sell such properties for a profit or at the prices or selling pace we anticipate, potentially requiring additional changes in our pricing strategy that could result in further charges; (3) construction delays or cost overruns, including those due to a shortage of skilled labor, lender financial defaults, or so called “Acts of God” such as earthquakes, hurricanes, floods, or fires may increase overall project costs or result in project cancellations; and (4) we may be unable to recover development costs we incur for any projects that we do not pursue to completion.
Our owned properties and other real estate investments subject us to numerous risks. Although we had relatively few owned and leased properties at the end of 2018, such properties are subject to the risks that generally relate to investments in real property. Although we have sold many properties in recent years and we are actively pursuing additional sales, equity real estate investments can be difficult to sell quickly, and we may not be able to do so at prices we find acceptable or at all. Moreover, the investment returns available from equity investments in real estate depend in large part on the amount of income
earned and capital appreciation generated by the related properties, and the expenses incurred. A variety of other factors also affect income from properties and real estate values, including governmental regulations, insurance, zoning, tax and eminent domain laws, interest rate levels, and the availability of financing. For example, new or existing real estate zoning or tax laws can make it more expensive and/or time-consuming to develop real property or expand, modify, or renovate hotels. When interest rates increase, the cost of acquiring, developing, expanding, or renovating real property increases and real property values may decrease as the number of potential buyers decreases. Similarly, as financing becomes less available, it becomes more difficult both to acquire and to sell real property. Finally, under eminent domain laws, governments can take real property, sometimes for less compensation than the owner believes the property is worth. Despite our asset-light strategy, our real estate properties could be impacted by any of these factors, resulting in a material adverse impact on our results of operations or financial condition. If our properties do not generate revenue sufficient to meet operating expenses, including needed capital expenditures, our income could be adversely affected.
Development and other investing activities that involve our co-investment with third parties may result in disputes and may decrease our ability to manage risk. We have from time to time invested, and may continue to invest, in partnerships, joint ventures, and other business structures involving our co-investment with third parties. These investments generally include some form of shared control over the development of the asset or operations of the business and create added risks, including the possibility that other investors in such ventures could become bankrupt or otherwise lack the financial resources to meet their obligations, could have or develop business interests, policies, or objectives that are inconsistent with ours, could take action without our approval (or, conversely, prevent us from taking action without our partner’s approval), or could make requests contrary to our policies or objectives. Should a venture partner become bankrupt we could become liable for our partner’s share of the venture’s liabilities. Actions by a co-venturer might subject the assets owned by the venture or partnership to additional risk, such as increased project costs, project delays, or operational difficulties following project completion. These risks may be more likely to occur in difficult business environments. We cannot assure you that our investments through partnerships or joint ventures will be successful despite these risks.
Risks associated with development and sale of residential properties associated with our lodging properties or brands may reduce our profits. We participate, through licensing agreements or directly or through noncontrolling interests, in the development and sale of residential properties associated with our brands, including residences and condominiums under many of our luxury and premium brand names and trademarks. Such projects pose further risks beyond those generally associated with our lodging business, which may reduce our profits or compromise our brand equity, including risks that (1) weakness in residential real estate and demand generally may reduce our profits and could make it more difficult to convince future development partners of the value added by our brands; (2) increases in interest rates, reductions in mortgage availability or the tax benefits of mortgage financing or residential ownership generally, or increases in the costs of residential ownership could prevent potential customers from buying residential products or reduce the prices they are willing to pay; and (3) residential construction may be subject to warranty and liability claims or claims related to purchaser deposits, and the costs of resolving such claims may be significant.
Some hotel openings in our development pipeline and approved projects may be delayed or not result in new hotels, which could adversely affect our growth prospects. We report a significant number of hotels in our development pipeline, including hotels under construction and under signed contracts, as well as hotels approved for development but not yet under contract. The eventual opening of such pipeline hotels and, in particular the approved hotels that are not yet under contract, is subject to numerous risks, including in some cases the owner’s or developer’s ability to obtain adequate financing or governmental or regulatory approvals. Competition for skilled construction labor and disruption in the supply chain for materials could cause construction timelines for pipeline hotels to lengthen. Accordingly, we cannot assure you that all of our development pipeline will result in new hotels entering our system, or that those hotels will open when we anticipate.
If we incur losses on loans or loan guarantees that we have made to third parties, our profits could decline. At times, we make loans for hotel development or renovation expenditures when we enter into or amend management or franchise agreements. From time to time we also provide third-party lenders with financial guarantees for the timely repayment of all or a portion of debt related to hotels that we manage or franchise, generally subject to an obligation that the owner reimburse us for any fundings. We could suffer losses if hotel owners or franchisees default on loans that we provide or fail to reimburse us for loan guarantees that we have funded.
If owners of hotels that we manage or franchise cannot repay or refinance mortgage loans secured by their properties, our revenues and profits could decrease and our business could be harmed. The owners of many of our managed or franchised properties have pledged their hotels as collateral for mortgage loans that they entered into when those properties were purchased or refinanced. If those owners cannot repay or refinance maturing indebtedness on favorable terms or at all, the lenders could declare a default, accelerate the related debt, and repossess the property. Such sales or repossessions could, in some cases, result in the termination of our management or franchise agreements and eliminate our anticipated income and cash flows, which could negatively affect our results of operations.
Technology, Information Protection, and Privacy Risks
A failure to keep pace with developments in technology could impair our operations or competitive position. The lodging industry continues to demand the use of sophisticated technology and systems, including those used for our reservation, revenue management, property management, human resources and payroll systems, our Loyalty Program, and technologies we make available to our guests and for our associates. These technologies and systems must be refined, updated, and/or replaced with more advanced systems on a regular basis, and our business could suffer if we cannot do that as quickly or effectively as our competitors or within budgeted costs and time frames. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could impair our operating results.
An increase in the use of third-party Internet services to book online hotel reservations could adversely impact our business. Some of our hotel rooms are booked through Internet travel intermediaries such as Expedia.com,®, Priceline.com,®, Booking.com™, Booking.com, Travelocity.com,®, and Orbitz.com,®, as well as lesser-known online travel service providers. These intermediaries initially focused on leisure travel, but now also provide offerings for corporate travel and group meetings. Although our Best Rate Guarantee and Member Rate programs have helped limit guest preference shift to intermediaries and greatly reduced the ability of intermediaries to undercut the published rates at our hotels, intermediaries continue to use a variety of aggressive online marketing methods to attract guests, including the purchase by certain companies of trademarked online keywords such as “Marriott” from Internet search engines such as Google,®, Bing,®, Yahoo,®, and Baidu® to steer guests toward their websites (a practice that has been challenged by various trademark owners in federal court). Although we have successfully limited these practices through contracts with key online intermediaries, the number of intermediaries and related companies that drive traffic to intermediaries’ websites is too large to permit us to eliminate this risk entirely. Our business and profitability could be harmed ifto the extent that online intermediaries succeed in significantly shifting loyalties from our lodging brands to their travel services, diverting bookings away from our direct online channels, or through their fees, increaseincreasing the overall cost of Internet bookings for our hotels. In addition, if we are not able to negotiate new agreements on satisfactory terms when our existing contracts with intermediaries (which generally have 2- to 3- year terms) come up for renewal, our business and prospects could be negatively impacted in a number of ways. For example, if newly negotiated agreements are on terms less favorable to our hotels than the expiring agreements, or if we are not able to negotiate new agreements and our hotels no longer appear on intermediary websites, our bookings could decline, our profits (and the operating profits of hotels in our system) could decline, and customers and owners may be less attracted to our brands. We may not be able to recapture or offset any such loss of business through actions we take to enhance our direct marketing and reservation channels or to rely on other channels or other intermediary websites.
Our growth strategy depends upon attracting third-party owners and franchisees to our platform, and future arrangements with these third parties may be less favorable to us, depending on the terms offered by our competitors. Our growth strategy for adding lodging facilities entails entering into and maintaining various arrangements with property owners. The terms of our management agreements and franchise agreements for each of our lodging facilities are influenced by contract terms offered by our competitors, among other things. We cannot assure you that any of our current arrangements will continue or that we will be able to enter into future arrangements, renew agreements, or enter into new agreements in the future on terms that are as favorable to us as those that exist today.
The growing significance of our operations outside of the U.S. makes us increasingly susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits, disrupt our business, or damage our reputation.A significant number of rooms in our system are located outside of the U.S. and its territories. To the extent that our international operations continue to grow, this increasingly exposes us to the challenges and risks of doing business outside the U.S., many of which are outside of our control, and which could materially reduce our revenues or profits, materially increase our costs, result in significant liabilities or sanctions, significantly disrupt our business, or significantly damage our reputation. These challenges and risks include: (1) compliance with complex and changing laws, regulations and government policies that may impact our operations, such as foreign ownership restrictions, import and export controls, trade restrictions, and health and safety requirements; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as competition laws, cybersecurity and privacy laws, data localization requirements, currency regulations, national security laws, trade and economic sanctions, and other laws affecting dealings with certain nations; (3) the difficulties involved in managing an organization doing business in many different countries; (4) uncertainties as to the
enforceability of contract and intellectual property rights under local laws; and (5) rapid changes in government policy, political or civil unrest, acts of terrorism, war, pandemics or other health emergencies, border control measures or other travel restrictions, or the threat of international boycotts or U.S. anti-boycott legislation.
Any failure by our international operations to comply with anti-corruption laws or trade sanctions could increase our costs, reduce our profits, limit our growth, harm our reputation, or subject us to broader liability. We are subject to restrictions imposed by the U.S. Foreign Corrupt Practices Act and anti-corruption laws and regulations of other countries applicable to our operations, such as the U.K. Bribery Act. Anti-corruption laws and regulations generally prohibit companies and their intermediaries from making certain payments to government officials or other persons in order to influence official acts or decisions or to obtain or retain business. These laws also require us to maintain adequate internal controls and accurate books and records. We have properties in many parts of the world where corruption is common, and our compliance with anti-corruption laws may potentially conflict with local customs and practices. The compliance programs, internal controls and policies we maintain and enforce to promote compliance with applicable anti-bribery and anti-corruption laws may not prevent our associates, contractors, or agents from acting in ways prohibited by these laws and regulations. We are also subject to trade sanctions and regulations administered by the U.S. Office of Foreign Assets Control, the U.S. Department of Commerce, and other U.S. government agencies, and authorities in other countries where we do business. Our compliance programs and internal controls also may not prevent conduct that is prohibited under these rules. The U.S. or other countries may impose additional sanctions at any time against any country in or with which, or persons or entities with whom, we do business. Depending on the nature of the sanctions imposed, our operations in the relevant country or with the relevant individual or entity could be restricted or otherwise adversely affected. Any violations of anti-corruption laws and regulations or trade sanctions could result in significant civil and criminal penalties, reduce our profits, disrupt or have a material adverse effect on our business, damage our reputation, or result in lawsuits or regulatory actions being brought against the Company or its officers or directors. In addition, the operation of these laws and regulations or an imposition of further restrictions in these areas could increase our cost of operations, reduce our profits, or cause us to forgo development opportunities, cease operations in certain countries, or limit certain business operations that would otherwise support growth.
Exchange rate fluctuations and foreign exchange hedging arrangements could result in significant foreign currency gains and losses and affect our business results.We earn revenues and incur expenses in foreign currencies as part of our operations outside of the U.S. Accordingly, fluctuations in currency exchange rates may significantly increase the amount of U.S. dollars required for foreign currency expenses or significantly decrease the U.S. dollars we receive from foreign currency revenues. We are also exposed to currency translation risk because the results of our non-U.S. business are generally reported in local currency, which we then translate to U.S. dollars for inclusion in our Financial Statements. As a result, exchange rate changes between foreign currencies and the U.S. dollar affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results. We expect that our exposure to foreign currency exchange rate fluctuations will grow as the relative contribution of our non-U.S. operations increases. We enter into foreign exchange hedging agreements with financial institutions to mitigate exposure to some of the foreign currency fluctuations, but these efforts may not be successful. These hedging agreements also do not cover all currencies in which we do business, do not eliminate foreign currency risk entirely for the currencies that they do cover, and involve costs and risks of their own in the form of transaction costs, credit requirements and counterparty risk.
Our business depends on the quality and reputation of our Company and our brands, and any deterioration could adversely impact our market share, reputation, business, financial condition, or results of operations. Many factors can affect the reputation of one or more of our properties or brands and the value of our brands, including service, food quality and safety, safety of our guests and associates, our approach to health and cleanliness, our approach to managing and reducing our carbon footprint, availability and management of scarce natural resources, supply chain management, ability to protect and use our brands and trademarks, diversity, human rights, and support for local communities. Reputational value is also based on perceptions, and broad access to social media makes it easy for anyone to provide public feedback that can influence perceptions of us, our brands and our hotels, and it may be difficult to control or effectively manage negative publicity, regardless of whether it is accurate. While reputations may take decades to build, negative incidents can quickly erode trust and confidence, particularly if they result in adverse mainstream and social media publicity, governmental investigations or penalties, or litigation. Negative incidents could lead to tangible adverse effects on our business, including lost sales, boycotts, reduced enrollment and/or participation in our Loyalty Program, loss of development opportunities, adverse government attention, or associate retention and recruiting difficulties. Any material decline in the reputation or perceived quality of our brands or corporate image could affect our market share, reputation, business, financial condition, or results of operations.
Actions by our franchisees and licensees or others could adversely affect our image and reputation. We franchise and license many of our brand names and trademarks to third parties for lodging, timeshare, and residential properties, and with respect to our credit card programs. Under the terms of their agreements with us, these third parties interact directly with guests and others under our brand and trade names. If these third parties fail to maintain or act in accordance with applicable brand standards; experience operational problems, including any data or privacy incident involving guest information or a
circumstance involving guest or associate health or safety; or project a brand image inconsistent with ours, then our image and reputation could suffer. Although our agreements with these parties provide us with recourse and remedies in the event of a breach, including termination of the agreements under certain circumstances, it could be expensive or time consuming for us to pursue such remedies. We also cannot assure you that in every instance a court would ultimately enforce our contractual termination rights or that we could collect any awarded damages from the defaulting party.
Collective bargaining activity and strikes could disrupt our operations, increase our labor costs, and interfere with the ability of our management to focus on executing our business strategies. A significant number of associates at our managed, leased, and owned hotels are covered by collective bargaining agreements. If relationships with our organized associates or the unions that represent them become adverse, then the properties we operate could experience labor disruptions such as strikes, lockouts, boycotts, and public demonstrations. Numerous collective bargaining agreements are typically subject to negotiation each year, and our ability in the past to resolve such negotiations does not mean that we will be able to resolve future negotiations without strikes, disruptions, or on terms that we consider reasonable. Labor disputes and disruptions have in the past, and could in the future, result in adverse publicity and adversely affect operations and revenues at affected hotels. In addition, labor disputes and disruptions could harm our relationship with our associates, result in increased regulatory inquiries and enforcement by governmental authorities, harm our relationships with our guests and customers, divert management attention, and reduce customer demand for our services, all of which could have an adverse effect on our reputation, business, financial condition, or results of operations.
In addition, labor regulation and the negotiation of new or existing collective bargaining agreements could lead to higher wage and benefit costs, changes in work rules that raise operating expenses and legal costs, and could impose limitations on our ability or the ability of our third-party property owners to take cost saving measures during economic downturns. We do not have the ability to control the negotiations of collective bargaining agreements covering unionized labor employed by the operators of our franchised properties. Increased unionization of our workforce, new labor legislation or changes in regulations could disrupt our operations, reduce our profitability or interfere with the ability of our management to focus on executing our business strategies.
Our business could suffer as the result of the loss of the services of our senior executives or if we cannot attract and retain talented associates.We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit, train, develop, and retain sufficient numbers of talented associates, we could experience increased associate turnover, decreased guest satisfaction, low morale, inefficiency, or internal control failures. Insufficient numbers of talented associates could also limit our ability to grow and expand our businesses. A shortage of skilled labor could also result in higher wages that would increase our labor costs, which could reduce our profits. In addition, the efforts and abilities of our senior executives are important elements of maintaining our competitive position and driving future growth, and the loss of the services of one or more of our senior executives could result in challenges executing our business strategies or other adverse effects on our business. The impact of COVID-19 on the hospitality industry, and actions that we and others in the hospitality industry have taken and may take in the future with respect to our associates and executives in response to COVID-19, may adversely affect our ability to attract and retain associates and executives in the future.
Risks relating to natural or man-made disasters, contagious disease, violence, or war have reduced the demand for lodging, which has adversely affected our revenues. We have seen a decline in travel and reduced demand for lodging due to so called “Acts of God,” such as hurricanes, earthquakes, tsunamis, floods, volcanic activity, wildfires, and other natural disasters, as well as man-made disasters and the spread of contagious diseases in locations where we own, manage, or franchise properties and areas of the world from which we draw a large number of guests, and these circumstances could continue or worsen in the future to an extent and for durations that we are not able to predict. Actual or threatened war, terrorist activity, political unrest, civil or geopolitical strife, and other acts of violence could have a similar effect. As with the effects we have already experienced from the COVID-19 pandemic, any one or more of these events may reduce the overall demand for lodging, limit the room rates that can be charged, and/or increase our operating costs, all of which could adversely affect our profits. If a terrorist event or other incident of violence were to involve one or more of our branded properties, demand for our properties in particular could suffer disproportionately, which could further hurt our revenues and profits.
Insurance may not cover damage to, or losses involving, properties that we own, manage, or franchise, or other aspects of our business, and the cost of such insurance could increase. We require comprehensive property and liability insurance policies for our managed, leased, and owned properties with coverage features and insured limits that we believe are customary. We also require our franchisees to maintain similar levels of insurance. Market forces beyond our control may nonetheless limit the scope of the insurance coverage we, our hotel owners, or our franchisees can obtain, or our or their ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, terrorist acts, pandemics, or liabilities that result from incidents involving the security of information systems, may result in high deductibles, low limits, or may be uninsurable, or the cost of obtaining insurance may be unacceptably high. As a result, we, our hotel owners, and our franchisees may not be successful in obtaining insurance without increases in cost or
decreases in coverage levels, or may not be successful in obtaining insurance at all. For example, over the past several years following the severe and widespread damage caused by the 2017 Atlantic hurricane season and other natural disasters coupled with continued large global losses, the property, liability and other insurance markets have seen significant cost increases. Also, due to the data security incident involving unauthorized access to the Starwood reservations database, which we initially reported in November 2018 (the “Data Security Incident”), and the state of the cyber insurance market generally, the costs for our cyber insurance increased with both our 2019 and 2020 renewals, and the cost of such insurance could continue to increase for future policy periods. Further, in the event of a substantial loss, the insurance coverage we, our hotel owners, or our franchisees carry may not be sufficient to pay the full market value or replacement cost of any lost investment or in some cases could result in certain losses being totally uninsured. As a result, our revenues and profits could be adversely affected, and for properties we own or lease, we could lose some or all of the capital that we have invested in the property and we could remain obligated for guarantees, debt, or other financial obligations.
If our brands, goodwill or other intangible assets become impaired, we may be required to record significant non-cash charges to earnings. As of December 31, 2020, we had $18.2 billion of goodwill and other intangible assets. We review goodwill and indefinite-lived intangible assets for impairment annually or whenever events or circumstances indicate impairment may have occurred. Estimated fair values of our brands or reporting units could change if, for example, there are changes in the business climate, unanticipated changes in the competitive environment, adverse legal or regulatory actions or developments, changes in guests’ perception and the reputation of our brands, or changes in interest rates, operating cash flows, or market capitalization. Because of the significance of our goodwill and other intangible assets, any future impairment of these assets could require material non-cash charges to our results of operations, which could have a material adverse effect on our reported financial condition and results of operations.
Development and Financing Risks
While we are predominantly a manager and franchisor of hotel properties, our hotel owners and franchisees depend on capital to buy, develop, and improve hotels, and they may be unable to access capital when necessary. Both we and current and potential hotel owners and franchisees must periodically spend money to fund new hotel investments, as well as to refurbish and improve existing hotels. The availability of funds for new investments and improvement of existing hotels by our current and potential hotel owners and franchisees depends in large measure on their ability to access the capital markets, over which we have little control. Obtaining financing on attractive terms has been, and may in the future be further, constrained by the capital markets for hotel and real estate investments. In addition, owners of existing hotels that we franchise or manage may have difficulty meeting required debt service payments or refinancing loans at maturity.
Our ability to grow our management and franchise systems is subject to the range of risks associated with real estate investments. Our ability to sustain continued growth through management or franchise agreements for new hotels and the conversion of existing facilities to managed or franchised Marriott brands is affected, and may potentially be limited, by a variety of factors influencing real estate development generally. These include site availability, financing availability, planning, zoning and other local approvals, and other limitations that may be imposed by market and submarket factors, such as projected room occupancy and rate, changes in growth in demand compared to projected supply, territorial restrictions in our management and franchise agreements, costs of construction, demand for construction resources, and other disruptive conditions in global, regional, or local markets.
Our renovation activities expose us to project cost, completion, and resale risks. We occasionally acquire and renovate hotel properties, both directly and through partnerships and other business structures with third parties. This presents a number of risks, including that: (1) weakness in the capital markets maylimit our ability, or that of third parties with whom we partner, to raise capital for completion of projects; (2) properties that we renovate could become less attractive due to decreases in demand for hotel properties, market absorption or oversupply, with the result that we may not be able to sell such properties for a profit or at the prices or time we anticipate, or we may be required to record additional impairment charges; and (3) construction delays or cost overruns, including those due to shortages or increased costs of skilled labor and/or materials, lender financial defaults, or so called “Acts of God” such as earthquakes, hurricanes, floods, or fires may increase project costs. We could face similar risks to the extent we undertake development activities again in the future.
Our owned properties and other real estate investments subject us to numerous risks. We have a number of owned and leased properties, which are subject to the risks that generally relate to investments in real property. We may seek to sell some of these properties over time; however, equity real estate investments can be difficult to sell quickly and COVID-19 has disrupted the transaction markets for hospitality assets. We may not be able to complete asset sales at prices we find acceptable, or at all. Moreover, the investment returns available from equity investments in real estate depend in large part on the amount of income earned and capital appreciation generated, if any, by the related properties, and the expenses incurred. A variety of other factors also affect income from properties and real estate values, including local market conditions and new supply of hotels, availability and costs of staffing, governmental regulations, insurance, zoning, tax and eminent domain laws, interest rate levels,
and the availability of financing. Our real estate properties have been, and could in the future be, impacted by any of these factors, resulting in a material adverse impact on our results of operations or financial condition. If our properties continue to not generate revenue sufficient to meet operating expenses, including needed capital expenditures, our income could be further adversely affected and we could be required to record additionalsignificant non-cash impairment charges to our results of operations.
Risks associated with development and sale of residential properties associated with our lodging properties or brands may reduce our profits. We participate, through licensing agreements, in the development and sale of residential properties associated with our brands, including residences and condominiums under many of our luxury and premium brand names and trademarks. Such projects pose further risks beyond those generally associated with our lodging business, which may reduce our profits or compromise our brand equity, including risks that: (1) weakness in residential real estate and demand generally may reduce our profits and could make it more difficult to convince future project developers of the value added by our brands; (2) increases in interest rates, reductions in mortgage availability or the tax benefits of mortgage financing or residential ownership generally, or increases in the costs of residential ownership could prevent potential customers from buying residential products or reduce the prices they are willing to pay; and (3) residential construction may be subject to warranty and liability claims or claims related to purchaser deposits, and the costs of resolving such claims may be significant.
More hotel projects in our development pipeline may be cancelled or delayed in opening, which could adversely affect our growth prospects. We report a significant number of hotels in our development pipeline, including hotels under construction, hotels subject to signed contracts, and hotels approved for development but not yet under contract. The eventual opening of such pipeline hotels and, in particular, the approved hotels that are not yet under contract, is subject to numerous risks, including the risks described above in the risk factors entitled “Our ability to grow our management and franchise systems is subject to the range of risks associated with real estate investments” and “COVID-19has had a material detrimental impact on our business and financial results, and such impact could continue and may worsen for an unknown period of time; Risks Related to Growth.” We have seen construction timelines for pipeline hotels lengthen due to competition for skilled construction labor, disruption in the supply chain for materials, and the impact of COVID-19 generally, and these circumstances could continue or worsen in the future. Accordingly, we cannot assure you that all of our development pipeline will result in new hotels entering our system, or that those hotels will open when we anticipate.
Losses on loans or loan guarantees that we have made to third parties impact our profits.At times, we make loans for hotel development, acquisition or renovation expenditures when we enter into or amend management or franchise agreements. From time to time we also provide third-party lenders with financial guarantees for the timely repayment of all or a portion of debt related to hotels that we manage or franchise, generally subject to an obligation that the owner reimburse us for any fundings. We have suffered losses, and could suffer losses in the future, when hotel owners or franchisees default on loans that we provide or fail to reimburse us for loan guarantees that we have funded.
If owners of hotels that we manage or franchise cannot repay or refinance mortgage loans secured by their properties, our revenues and profits could decrease and our business could be harmed. The owners of many of our managed or franchised properties have pledged their hotels as collateral for mortgage loans that they entered into when those properties were purchased or refinanced. If those owners cannot repay or refinance maturing indebtedness on favorable terms or at all, the lenders could declare a default, accelerate the related debt, and foreclose on the property, or the owners could declare bankruptcy, as we have seen in the past and could see in the future. Such foreclosures or bankruptcies have in the past and could in the future, in some cases, result in the termination of our management or franchise agreements and eliminate our anticipated income and cash flows, which could have a significant negative effect our results of operations.
Changes affecting the availability of the London Interbank Offered Rate (“LIBOR”) may have consequences that we cannot yet reasonably predict.We are a party to various agreements and other instruments where obligations by or to us are calculated based on or otherwise dependent on LIBOR. In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit rates for calculation of LIBOR as early as the end of 2021. As a result, LIBOR may perform differently than in the past and may ultimately cease to be utilized or to exist, either during or after 2021. Alternative benchmark rate(s) may replace LIBOR and could affect our agreements that reference LIBOR, not all of which contain alternative rate provisions. Certain of our agreements reference LIBOR, including for example, our Credit Facility and certain other financial agreements like loans, guaranties, and derivatives. At this time, it is difficult for us to predict the effect of any changes to LIBOR, any phase out of LIBOR, or any establishment of alternative benchmark rates to replace LIBOR. There is uncertainty about how we, the financial markets, applicable law and the courts will address the replacement of LIBOR with alternative benchmark rates for contracts that do not include fallback provisions to provide for such alternative benchmark rates. In addition, any changes from LIBOR to an alternative benchmark rate may have an uncertain impact on our cost of funds, our receipts or payments under agreements that reference LIBOR, and the valuation of derivative or other contracts to which we are a party, any of which could impact our results of operations and cash flows.
Technology, Information Protection, and Privacy Risks
Any disruption in the functioning of our reservation systems could adversely affect our performance and results.We manage global reservation systems that communicate reservations to our hotels from individuals who book reservations directly with us online, through our mobile apps, through our telephone call centers, or through intermediaries like travel agents, Internet travel websites, and other distribution channels. The cost, speed, accuracy and efficiency of our reservation systems are critical aspects of our business and are important considerations for hotel owners when choosing our brands. Our business may suffer if we fail to maintain, upgrade, or prevent disruption to our reservation systems. Disruptions in or changes to our reservation systems could result in a disruption to our business and the loss of important data.
A failure to keep pace with developments in technology could impair our operations or competitive position. The lodging industry continues to demand the use of sophisticated technology and systems, including those used for our reservation, revenue management, property management, human resources and payroll systems, our Loyalty Program, and technologies we make available to our guests and for our associates. These technologies and systems must be refined, updated, and/or replaced with more advanced systems on a regular basis, and our business could suffer if we cannot do that as quickly or effectively as our competitors or within budgeted costs and time frames. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could impair our operating results.
We are exposed to risks and costs associated with protecting the integrity and security of company,Company, associate, and guest data.In the operation of our business, we collect, store, use, and transmit large volumes of data regarding associates, guests, customers, owners, licensees, franchisees, and our own business operations, including credit card numbers, reservation and loyalty data, and other personal information, in various information systems that we maintain and in systems maintained by third parties, including our owners, franchisees, licensees, and service providers. The integrity and protection of this data is critical to our business. If this data is inaccurate or incomplete, we could make faulty decisions.
Our guests and associates also have a high expectation that we, as well as our owners, franchisees, licensees, and service providers, will adequately protect and appropriately use their personal information. The information, security, and privacy requirements imposed by laws and governmental regulation, our contractual obligations, and the requirements of the payment card industry are also increasingly demandingbecoming more stringent in the U.S., the European Union, Asia, and othermany jurisdictions wherein which we operate. Our systems and the systems maintained or used by our owners, franchisees, licensees, and service providers may not be able to satisfy these changing legal and regulatory requirements and associate and guest expectations, or may require significant additional investments or time to do so. We may incur significant additional costs to meet these requirements, obligations, and expectations, and in the event of alleged or actual noncompliance, we may experience increased operating costs, increased exposure to fines and litigation, and increased risk of damage to our reputation and brand.
The Data Security Incident, and other information security incidents, could have numerous adverse effects on our business.As a result of the Data Security Incident, we are a party to or have been named as a defendant in numerous lawsuits, primarily putative class action lawsuitsactions, brought by consumers and others in the U.S. and Canada, one securities class action lawsuit in the U.S., and onethree shareholder derivative lawsuitlawsuits in the U.S., and one purported representative action brought by a purported consumer class in the U.K. We may be named as a party in additional lawsuits and other claims may be asserted by or on behalf of guests, customers, hotel owners, shareholdersstockholders or others seeking monetary damages or other relief.relief related to the Data Security Incident. A number of federal, state and foreign governmental authoritieshave also made inquiries, or opened investigations, or requested information and/or documents related to the Data Security Incident, including under various data protection and privacy regulations, such as the European Union’s General Data Protection Regulation. In addition, the major payment card networks require the completion of a forensic investigation by a certified investigative firm, which is underway.regulations. Responding to and resolving these lawsuits, claims and/or investigations has resulted in fines, such as the fine imposed by the Information Commissioner’s Office in the United Kingdom (the “ICO”) as discussed in Note 8, and investigations maycould result in material additional fines or remedial or other expenses. These fines and other expenses which may not be covered by insurance, including fines.insurance. Governmental authorities investigating or seeking information about the Data Security Incident also may seek to
impose undertakings, injunctive relief, consent decrees, or other civil or criminal penalties, which could, among other things, materially increase our data security costs or otherwise require us to alter how we operate our business. Card issuers or payment card networks may seek to attribute losses or other expenses to the Data Security Incident, and we cannot currently determine to what extent those losses and expenses may be our legal responsibility. Significant management time and Company resources have been, and maywill continue to be, devoted to the Data Security Incident. TheFuture publicity or developments related to the Data Security Incident, and publicity related to itincluding as a result of subsequent reports or regulatory actions or developments, could have a range of other adverse effects on our business or prospects, including causing or contributing to loss of consumer confidence, reduced consumer demand, reduced enrollment and/or participation in our Loyalty Program, loss of development opportunities, and associate retention and recruiting difficulties. These expenses and other adverse effects could have a material effect on our market share, reputation, business, financial condition, or results of operations. Although we maintain insuranceInsurance 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 fines)the final fine imposed by the ICO and any other fines or penalties) related to the Data Security Incident. Further, asIn addition, following our March 31, 2020 announcement of an incident involving information for approximately 5.5 million guests that we believe may have been improperly accessed through an application using the login credentials of two franchise employees at a resultfranchise property (the “Unauthorized Application Access Incident”), various governmental authorities opened investigations or requested information about the incident, and two lawsuits were filed against
Our remediation effortsus related to the Data Securityincident. The Unauthorized Application Access Incident will be costly and may not be effective. Following the Data Security Incident, we implemented additional technical measures onor publicity related to it could negatively affect our network designed to contain and remove the threats identified during our investigation, secure the Starwood reservations database, and monitor for any further unauthorized activity. We also accelerated ongoing security enhancements to our network. We have incurred costs in connection with these remediation efforts to date, and we could incur additional significant costs as we take further steps designed to prevent unauthorized access to our network. The technical measures we have taken are based on our investigation of the causes of the Data Security Incident, but additional measures may be needed to prevent a similar incident in the future and such measures may not be sufficient to prevent other types of incidents. We cannot assure you that all potential causes of the incident have been identified and remediated and will not occur again.business or reputation.
Additional cyber-securitycybersecurity incidents could have adverse effects on our business. The Data Security Incident was significant, went undetected for a long period of time and could have numerous adverse effects on our business, as discussed above. If we experience additional cyber security incidents or fail to detect and appropriately respond to additional cyber security incidents, the severity of the adverse effects on our business could be magnified. We have implemented security measures to safeguard our systems and data, and we intend to continue implementing additional measures in the future, but, as withwe have seen in the Data Security Incident,past, our measures may not be sufficient to maintain the confidentiality, security, or availability of the data we collect, store, and use to operate our business. Measures taken by our service providers or our owners, franchisees, licensees, andother business partners or their service providers also may not be sufficient. Efforts to hack or circumvent security measures, efforts to gain unauthorized access to, exploit or disrupt the operation or integrity of our data or systems, failures of systems or software to operate as designed or intended, viruses, “ransomware” or other malware, “supply chain” attacks, “phishing” or other types of business emailcommunications compromises, operator error, or inadvertent releases of data have impacted, and may in the future impact, our information systems and records or those of our owners, franchisees, licensees, other business partners, or service providers. Our reliance on computer, Internet-based, and mobile systems and communications, and the frequency and sophistication of efforts by third parties to gain unauthorized access or prevent authorized access to such systems, have greatly increased in recent years. Our increased reliance on cloud-based services and on remote access to information systems in response to COVID-19 increases the Company’s exposure to potential cybersecurity incidents. We have experienced cyber-attacks,cyberattacks, attempts to disrupt access to our systems and data, and attempts to affect the operation or integrity of our data or systems, and the frequency and sophistication of such efforts could continue to increase. In addition to the consequences of the Data Security Incident discussed above, anyAny additional significant theft of, unauthorized access to, compromise or loss of, loss of access to, or fraudulent use of guest, associate, owner, franchisee, licensee, or companyCompany data could adversely impact our reputation and could result in legal, regulatory and other consequences, including remedial and other expenses, fines, or litigation. Depending on the nature and scope of the event, future compromises in the security of our information systems or those of our owners, franchisees, licensees, other business partners, or service providers or other future disruptions inor compromises of data servicesor systems could lead to an interruption in or other adverse effects on the operation of our systems or those of our owners, franchisees, licensees, other business partners, or service providers, resulting in operational inefficiencies and a loss of profits, and could result in negative publicity and other adverse effects on our business, including lost sales, loss of consumer confidence, boycotts, reduced enrollment and/or participation in our Loyalty Program, litigation, loss of development opportunities, or associate satisfaction, retention and recruiting difficulties, all of which could materially affect our market share, reputation, business, financial condition, or results of operations.
Because we have experienced cybersecurity incidents in the past, additional incidents or the failure to detect and appropriately respond to additional incidents could magnify the severity of the adverse effects on our business. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage information systems change frequently, can be difficult to detect for long periods of time, and can involve difficult or prolonged assessment or remediation periods even once detected, which could also magnify the severity of these adverse effects. In addition, althoughWe cannot assure you that all potential causes of past significant incidents have been identified and remediated; additional measures may be needed to prevent significant incidents in the future. The steps we take may not be sufficient to prevent future significant incidents and as a result, such incidents may occur again. Although we carry cyber/privacy liabilitycyber insurance that is designed to protect us against certain losses related to cyber risks, that insurance coverage may not be sufficient or available to cover all expenses or other losses (including fines) or all types of claims that may arise in connection with cyber-attacks,cyberattacks, security compromises, and other related incidents, and until we renew our current policy and a new policy period begins, our policy coverage limits will be reduced by the amount of claims paid related to the Data Security Incident.incidents. Furthermore, in the future such insurance may not be available on commercially reasonable terms, or at all.
Changes in privacy and data security laws could increase our operating costs and increase our exposure to fines and litigation, and adversely affect our ability to market our products effectively.litigation. We are subject to numerous, complex, and
frequently changing laws, regulations, and contractual obligations designed to protect personal information, including in the U.S., the European Union, Asia, and other jurisdictions.information. Non-U.S. data privacy and data security laws, various U.S. federal and state laws, payment card industry security standards, and other information privacy and security standards are all applicable to us. Significant legislative, judicial, or regulatory changes could be adoptedissued in the future, including in reaction to the Data Security Incident or data breaches experienced by other companies.future. Compliance with changes in applicable data privacy laws and regulations and contractual obligations, including responding to investigations into our compliance, may restrict our business operations, increase our operating costs, increase our exposure to fines and litigation in the event of alleged non-compliance, and adversely affect our reputation. Following the Data Security Incident, the Information Commissioner’s Office in the United Kingdom (“ICO”) notified us that it hadcertain regulators also opened an investigationinvestigations into our online privacy policy and relatedsecurity policies and practices. This investigation is separate from the ICO’s investigation specifically related to the Data Security Incident. As a result of this investigation,these investigations, we could be exposed to significant fines and remediation costs in addition to anythose imposed as a result of the Data Security Incident, and adverse publicity related to the investigationinvestigations could adversely affect our reputation.
Additionally, weChanges in laws could adversely affect our ability to market our products effectively. We rely on a variety of direct marketing techniques, including email marketing, online advertising, and postal mailings. Any further restrictions in laws such as the CANSPAM Act, and various U.S. state laws, or new federal or state laws on marketing and solicitation or international privacy, e-privacy, and anti-spam laws that govern these activities could adversely affect the continuing effectiveness of email, online advertising, and postal mailing techniques and could force further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of certain products. We also obtain access to potential guests and customers from travel service providers or other companies with
whom we have substantial relationships, and we market to some individuals on these lists directly or by including our marketing message in the other company’scompanies’ marketing materials. If access to these lists were to be prohibited or otherwise restricted, our ability to develop new guests and customers and introduce them to our products could be impaired.
Any disruption in the functioning of our reservation systems could adversely affect our performance and results. We manage global reservation systems that communicate reservations to our branded hotels that individuals make directly with us online, through our mobile apps, through our telephone call centers, or through intermediaries like travel agents, Internet travel websites, and other distribution channels. The cost, speed, accuracy and efficiency of our reservation systems are critical aspects of our business and are important considerations for hotel owners when choosing our brands. Our business may suffer if we fail to maintain, upgrade, or prevent disruption to our reservation systems. In addition, the risk of disruption in the functioning of our global reservation systems could increase with the ongoing systems integration that is part of our integration of Starwood. Disruptions in or changes to our reservation systems could result in a disruption to our business and the loss of important data.Governance Risk
Other Risks
Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely impact our stock price. As discussed in Part II, Item 8 “Management’s Report on Internal Control Over Financial Reporting” later in this report, in the 2018 fourth quarter, we identified a material weakness in internal control related to our accounting for our Loyalty Program, which resulted in errors in our previously issued financial statements for the 2018 first, second, and third quarters. Internal controls related to the implementation of ASU 2014-09 and the accounting for our Loyalty Program are important to accurately reflect our financial position and results of operations in our financial reports. We are in the process of remediating the material weakness, but our efforts may not be successful. If we are unable to remediate the material weakness in an appropriate and timely manner, or if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and consequently, our ability to prepare financial statements within required time periods, could be adversely affected. Failure to maintain effective internal control over financial reporting could result in violations of applicable securities laws, stock exchange listing requirements, and the covenants under our debt agreements, subject us to litigation and investigations, negatively affect investor confidence in our financial statements, and adversely impact our stock price and ability to access capital markets.
Changes in laws and regulations could reduce our profits or increase our costs. We are subject to a wide variety of laws, regulations, and policies in jurisdictions around the world, including those for financial reporting, taxes, healthcare, cybersecurity, privacy, climate change, and the environment. Changes to such laws, regulations, or policies could reduce our profits. We also anticipate that many of the jurisdictions where we do business will continue to review taxes and other revenue raising measures, and any resulting changes could impose new restrictions, costs, or prohibitions on our current practices or reduce our profits. In particular, governments may revise tax laws, regulations, or official interpretations in ways that could significantly impact us, and other modifications could reduce the profits that we can effectively realize from our operations or could require costly changes to those operations or the way in which they are structured.
We could be subject to additional tax liabilities. We are subject to a variety of taxes in the U.S. (federal and state) and numerous foreign jurisdictions. We may recognize additional tax expense and be subject to additional tax liabilities due to changes in laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions. Such changes could come about as a result of economic, political, and other conditions.
Our tax expense and liabilities may also be affected by other factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes in our stock price, and changes in our deferred tax assets and liabilities and their valuation. Significant judgment is required in evaluating and estimating our tax expense and liabilities. In the ordinary course of our business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, the legislation known as the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) requires complex computations to be performed that were not previously required by U.S. tax law, significant judgments to be made in interpretation of the provisions of the 2017 Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the U.S. Internal Revenue Service, and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered. As future guidance is issued, we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made.
We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional tax liabilities against us. Developments in an audit, investigation, or other tax controversy could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. We regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals. Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical tax accruals.
Delaware law and our governing corporate documents contain, and our Board of Directors could implement, anti-takeover provisions that could deter takeover attempts. Under the Delaware business combination statute, a shareholderstockholder holding 15 percent or more of our outstanding voting stock could not acquire us without Board of DirectorDirectors consent for at least three years after the date the shareholderstockholder first held 15 percent or more of the voting stock. Our governing corporate documents also, among other things, require supermajority votes for mergers and similar transactions. In addition, our Board of Directors could, without shareholderstockholder approval, implement other anti-takeover defenses, such as a shareholderstockholder rights plan.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We describe our company-operated properties in Part I, Item 1. “Business” earlier in this report, and under the “Properties and Rooms” caption in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We believe our owned and leased properties are in generally good physical condition with the need for only routine repairs and maintenance and periodic capital improvements. Most of our regional offices, reservation centers, and sales offices, as well as our corporate headquarters, are in leased facilities, both domestically and internationally.
As of December 31, 2018,2020, we owned or leased the following hotel properties: | | | | | | | | | | | | | | | | |
| Properties | | | | Location | | Rooms |
| U.S. & Canada Owned Hotels | | | | | | |
| | | | | |
Properties | | Location | | Rooms |
North American Full-Service | | | | |
Owned Hotels | |
| |
|
|
The St. Regis New York | | New York, NY | | 238 |
|
The Westin Peachtree Plaza, Atlanta | | Atlanta, GA | | 1,073 |
|
Sheraton Grand Phoenix | | Phoenix, AZ | | 1,000 |
|
Sheraton Gateway Hotel in Toronto International Airport | | Mississauga, Canada | | 474 |
|
Las Vegas Marriott | | Las Vegas, NV | | 278 |
|
Leased Hotels | | | | |
W New York – Times Square | | New York, NY | | 509 |
|
Renaissance New York Times Square Hotel | | New York, NY | | 317 |
|
Anaheim Marriott | | Anaheim, CA | | 1,030 |
|
Kaua’i Marriott Resort | | Lihue, HI | | 356 |
|
| | | | |
North American Limited-Service | | | | |
Owned Hotels | | | | |
| Courtyard Las Vegas Convention Center | | | | Las Vegas, NV | | 149 |
|
| Las Vegas Marriott | | | | Las Vegas, NV | | 278 | |
| Residence Inn Las Vegas Convention Center | | | | Las Vegas, NV | | 192 |
|
| The Westin Peachtree Plaza, Atlanta | | | | Atlanta, GA | | 1,073 | |
| W New York - Union Square | | | | New York, NY | | 270 | |
| U.S. & Canada Leased Hotels | | | | | | |
| Albuquerque Airport Courtyard | | | | Albuquerque, NM | | 150 |
|
| Anaheim Marriott | | | | Anaheim, CA | | 1,030 | |
| Baltimore BWI Airport Courtyard | | | | Linthicum, MD | | 149 |
|
| Baton Rouge Acadian Centre/LSU Area Courtyard | | | | Baton Rouge, LA | | 149 |
|
| Chicago O'Hare Courtyard | | | | Des Plaines, IL | | 180 |
|
| Des Moines West/Clive Courtyard | | | | Clive, IA | | 108 |
|
| Fort Worth University Drive Courtyard | | | | Fort Worth, TX | | 130 |
|
| Greensboro Courtyard | | | | Greensboro, NC | | 149 |
|
| Indianapolis Airport Courtyard | | | | Indianapolis, IN | | 151 |
|
| Irvine John Wayne Airport/Orange County Courtyard | | | | Irvine, CA | | 153 |
|
Louisville East Courtyard | | Louisville, KY | | 151 |
|
Mt. Laurel Courtyard | | Mt Laurel, NJ | | 151 |
|
Newark Liberty International Airport Courtyard | | Newark, NJ | | 146 |
|
Orlando Airport Courtyard | | Orlando, FL | | 149 |
|
Orlando International Drive/Convention Center Courtyard | | Orlando, FL | | 151 |
|
Sacramento Airport Natomas Courtyard | | Sacramento, CA | | 149 |
|
San Diego Sorrento Valley Courtyard | | San Diego, CA | | 149 |
|
Spokane Downtown at the Convention Center Courtyard | | Spokane, WA | | 149 |
|
St. Louis Downtown West Courtyard | | St. Louis, MO | | 151 |
|
| | | | |
Asia Pacific | | | | |
Leased Hotels | | | | |
The Ritz-Carlton, Tokyo | | Tokyo, Japan | | 250 |
|
The St. Regis Osaka | | Osaka, Japan | | 160 |
|
|
| | | | | |
Properties | | Location | | Rooms |
Other InternationalLouisville East Courtyard | | | | Louisville, KY | | 151 | |
Owned HotelsMt. Laurel Courtyard | | | | Mt Laurel, NJ | | 151 | |
Sheraton Grand Rio Hotel & ResortNewark Liberty International Airport Courtyard | | Rio de Janeiro, Brazil | | 538Newark, NJ |
| 146 | |
Sheraton Lima Hotel & Convention CenterOrlando Airport Courtyard | | Lima, Peru | | 431Orlando, FL |
| 149 | |
Sheraton Mexico City Maria Isabel HotelOrlando International Drive/Convention Center Courtyard | | Mexico City, Mexico | | 755Orlando, FL |
| 151 | |
Courtyard by Marriott Toulouse AirportRenaissance New York Times Square Hotel | | Toulouse, France | | 187New York, NY |
| 317 | |
| Sacramento Airport Natomas Courtyard | | | | Sacramento, CA | | 149 | |
| San Diego Sorrento Valley Courtyard | | | | San Diego, CA | | 149 | |
| Spokane Downtown at the Convention Center Courtyard | | | | Spokane, WA | | 149 | |
| St. Louis Downtown West Courtyard | | | | St. Louis, MO | | 151 | |
| W New York – Times Square | | | | New York, NY | | 509 | |
| | | | | | |
| International Owned Hotels | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | |
| Properties | | | | Location | | Rooms |
| Courtyard by Marriott Aberdeen Airport | | | | Aberdeen, UK | | 194 |
|
| Courtyard by Marriott Rio de Janeiro Barra da Tijuca | | | | Barra da Tijuca, Brazil | | 264 |
|
| Courtyard by Marriott Toulouse Airport | | | | Toulouse, France | | 187 | |
| Colony Club, Barbados | | | | Barbados | | 96 | |
| Crystal Cove, Barbados | | | | Barbados | | 88 | |
| Marriott Puerto Vallarta Resort & Spa | | | | Mexico | | 433 | |
| Residence Inn Rio de Janeiro Barra da Tijuca | | | | Barra da Tijuca, Brazil | | 140 |
|
Leased HotelsSheraton Grand Rio Hotel & Resort | | | | Rio de Janeiro, Brazil | | 538 | |
| Sheraton Lima Hotel & Convention Center | | | | Lima, Peru | | 431 | |
| Sheraton Mexico City Maria Isabel Hotel | | | | Mexico City, Mexico | | 755 | |
| Tamarind, Barbados | | | | Barbados | | 104 | |
| The House, Barbados | | | | Barbados | | 34 | |
| Treasure Beach, Barbados | | | | Barbados | | 35 | |
| Turtle Beach, Barbados | | | | Barbados | | 161 | |
| Waves, Barbados | | | | Barbados | | 70 | |
| International Leased Hotels | | | | | | |
| 15 on Orange Hotel, Autograph Collection | | | | Cape Town, South Africa | | 129 | |
| African Pride Melrose Arch, Autograph Collection | | | | Johannesburg, South Africa | | 118 | |
| Berlin Marriott Hotel | | | | Berlin, Germany | | 379 | |
| Cape Town Marriott Hotel Crystal Towers | | | | Cape Town, South Africa | | 180 | |
| Courtyard by Marriott Paris Gare de Lyon | | | | Paris, France | | 249 | |
| Frankfurt Marriott Hotel | | | | Frankfurt, Germany | | 593 | |
| Grosvenor House, A JW Marriott Hotel | | | | London, UK | | 496 |
|
The Ritz-Carlton, BerlinHeidelberg Marriott Hotel | | Berlin, | | Heidelberg, Germany | | 303248 |
|
W Barcelona | | Barcelona, Spain | | 473 |
|
W London – Leicester Square | | London, UK | | 192 |
|
| Hotel Alfonso XIII, a Luxury Collection Hotel, Seville | | | | Seville, Spain | | 148 |
|
| Hotel Maria Cristina, San Sebastian | | | | San Sebastian, Spain | | 139 |
|
Cape Town Marriott Hotel Crystal Towers | | Cape Town, South Africa | | 180 |
|
Frankfurt Marriott Hotel | | Frankfurt, Germany | | 587 |
|
Berlin Marriott Hotel | | Berlin, Germany | | 379 |
|
| Leipzig Marriott Hotel | | | | Leipzig, Germany | | 231 |
|
Heidelberg Marriott Hotel | | Heidelberg, Germany | | 248 |
|
Sheraton Diana Majestic, Milan | | Milan, Italy | | 106 |
|
Renaissance Düsseldorf Hotel | | Düsseldorf, Germany | | 244 |
|
Renaissance Hamburg Hotel | | Hamburg, Germany | | 205 |
|
Renaissance Santo Domingo Jaragua Hotel & Casino | | Santo Domingo, Dominican Republic | | 300 |
|
15 on Orange Hotel, Autograph Collection | | Cape Town, South Africa | | 129 |
|
African Pride Melrose Arch, Autograph Collection | | Johannesburg, South Africa | | 118 |
|
Courtyard by Marriott Paris Gare de Lyon | | Paris, France | | 249 |
|
| Protea Hotel by Marriott Cape Town Sea Point | | | | Cape Town, South Africa | | 124 |
|
| Protea Hotel by Marriott Midrand | | | | Midrand, South Africa | | 177 |
|
Protea Hotel by Marriott Pretoria Centurion | | Pretoria, South Africa | | 177 |
|
Protea Hotel by Marriott O RO.R. Tambo Airport | | | | Johannesburg, South Africa | | 213 |
|
| | | | | | |
| Protea Hotel by Marriott Roodepoort | | | | Roodepoort, South Africa | | 79 |
|
| Protea Hotel Fire & Ice! by Marriott Cape Town | | | | Cape Town, South Africa | | 201 |
|
| Protea Hotel Fire & Ice! by Marriott Johannesburg Melrose Arch | | | | Johannesburg, South Africa | | 197 |
|
| | | | | | |
| Renaissance Hamburg Hotel | | | | Hamburg, Germany | | 205 | |
| Renaissance Santo Domingo Jaragua Hotel & Casino | | | | Santo Domingo, Dominican Republic | | 300 | |
| Sheraton Diana Majestic, Milan | | | | Milan, Italy | | 106 | |
| The Ritz-Carlton, Berlin | | | | Berlin, Germany | | 303 | |
| The Ritz-Carlton, Tokyo | | | | Tokyo, Japan | | 247 | |
| The St. Regis Osaka | | | | Osaka, Japan | | 160 | |
| W Barcelona | | | | Barcelona, Spain | | 473 | |
| W London – Leicester Square | | | | London, UK | | 192 | |
| | | | | | |
| |
Item 3. | Legal Proceedings. |
Item 3. Legal Proceedings.
See the information under the “Litigation, Claims, and Government Investigations” captionin Footnote 7. Commitments and Contingencies,Note 8, which we incorporate here by reference. Within this section, we use a threshold of $1 million in disclosing material environmental proceedings involving a governmental authority.
In May 2020, we received a notice from the District Attorneys of the Counties of Placer, Riverside, San Francisco and San Mateo in California asserting that nine properties in California have failed to comply with certain state statutes regulating hazardous and other waste handling and disposal. We are cooperating with the District Attorneys’ requests for information and have entered into a tolling agreement with the District Attorneys. We cannot predict the ultimate outcome of this matter; however, management does not believe that the outcome will have a material adverse effect on the Company.
From time to time, we are also subject to other legal proceedings and claims in the ordinary course of business, including adjustments proposed during governmental examinations of the various tax returns we file. While management presently believes that the ultimate outcome of these other proceedings, individually and in aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect on our business, financial condition, or operating results.
| |
Item 4. | Mine Safety Disclosures. |
Item 4. Mine Safety Disclosures.
Not applicable.
Information about our Executive Officers of the Registrant
See the information under “Executive Officers of the Registrant”“Information about our Executive Officers” in Part III, Item 10 of this report for information about our executive officers, which we incorporate here by reference.
PART II
| |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. |
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. Market Information
At February 20, 2019,339,668,83910, 2021,324,414,150 shares of our Class A Common Stock (our “common stock”) were outstanding and were held by36,417 shareholders 34,253 stockholdersof record. Our common stock trades on the NASDAQNasdaq Global Select Market (“NASDAQ”Nasdaq”) and the Chicago Stock Exchange under the trading symbol MAR.
Fourth Quarter 20182020 Issuer Purchases of Equity Securities |
| | | | | | | | | | | | |
| (in millions, except per share amounts) | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1) |
| October 1, 2018-October 31, 2018 | 1.9 |
| | $ | 111.79 |
| | 1.9 |
| | 11.8 |
|
| November 1, 2018-November 30, 2018 | 1.1 |
| | $ | 117.64 |
| | 1.1 |
| | 10.7 |
|
| December 1, 2018-December 31, 2018 | — |
| | $ | — |
| | — |
| | 10.7 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | | | | | | | |
| Period | Total Number
of Shares
Purchased | | Average Price
per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | On November 9, 2017, we announced that our BoardMaximum Number of Directors increased our common stock repurchase authorization by 30 million shares. At year-end 2018, 10.7 million shares remained available for repurchase under Board approved authorizations. In addition, on February 15, 2019, our Board of Directors further increased our common stock repurchase authorization by 25 million shares. We repurchase shares inShares That May Yet Be Purchased Under the open market and in privately negotiated transactions.Plans or Programs (1)
|
| October 1, 2020-October 31, 2020 | — | | | $ | — | | | — | | | 17.4 | |
| November 1, 2020-November 30, 2020 | — | | | $ | — | | | — | | | 17.4 | |
| December 1, 2020-December 31, 2020 | — | | | $ | — | | | — | | | 17.4 | |
(1)On February 15, 2019, we announced that our Board of Directors increased our common stock repurchase authorization by 25 million shares. At year-end 2020, 17.4 million shares remained available for repurchase under Board approved authorizations.We repurchase shares in the open market and in privately negotiated transactions. We do not anticipate repurchasing additional shares until business conditions improve, and are prohibited from doing so for the duration of the Covenant Waiver Period, as discussed in Note 10, under our Credit Facility, with certain exceptions.
Item 6. Selected Financial Data.
The following table presents a summary of our selected historical financial data derived from our last 10five years of Financial Statements. Because this information is only a summary and does not provide all of the information contained in our Financial Statements, including the related notes, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements for each year for more detailed information including, among other items, our adoption of ASU 2014-09 “Revenue from Contracts with Customers” in 2018, restructuring charges we incurred in 2016 and 2009, timeshare strategy-impairment charges we incurred in 2011 and 2009, and our 2011 spin-off of our former timeshare operations and timeshare development business.information. For 2016, we include Legacy-Starwood results from the Merger Date to year-end 2016.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | | | | | | | | | |
| ($ in millions, except per share data) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | | | | | | | | |
| Income Statement Data: | | | | | | | | | | | | | | | | | | | |
Revenues (2) | $ | 10,571 | | | $ | 20,972 | | | $ | 20,758 | | | $ | 20,452 | | | $ | 15,407 | | | | | | | | | | | |
Operating income (loss) (2) (4) | $ | 84 | | | $ | 1,800 | | | $ | 2,366 | | | $ | 2,504 | | | $ | 1,424 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net (loss) income (2) (4) | $ | (267) | | | $ | 1,273 | | | $ | 1,907 | | | $ | 1,459 | | | $ | 808 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Per Share Data: | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Diluted (losses) earnings per share (2) (4) | $ | (0.82) | | | $ | 3.80 | | | $ | 5.38 | | | $ | 3.84 | | | $ | 2.73 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Cash dividends declared per share | $ | 0.48 | | | $ | 1.85 | | | $ | 1.56 | | | $ | 1.29 | | | $ | 1.15 | | | | | | | | | | | |
| Balance Sheet Data (at year-end): | | | | | | | | | | | | | | | | | | | |
Total assets (2) (3) (4) | $ | 24,701 | | | $ | 25,051 | | | $ | 23,696 | | | $ | 23,846 | | | $ | 24,078 | | | | | | | | | | | |
| Long-term debt | $ | 9,203 | | | $ | 9,963 | | | $ | 8,514 | | | $ | 7,840 | | | $ | 8,197 | | | | | | | | | | | |
Stockholders’ equity (2) (4) | $ | 430 | | | $ | 703 | | | $ | 2,225 | | | $ | 3,582 | | | $ | 6,265 | | | | | | | | | | | |
| Other Data: | | | | | | | | | | | | | | | | | | | |
| Base management fees | $ | 443 | | | $ | 1,180 | | | $ | 1,140 | | | $ | 1,102 | | | $ | 806 | | | | | | | | | | | |
Franchise fees (1) (2) | 1,153 | | | 2,006 | | | 1,849 | | | 1,586 | | | 1,157 | | | | | | | | | | | |
| Incentive management fees | 87 | | | 637 | | | 649 | | | 607 | | | 425 | | | | | | | | | | | |
Total fees (1) (2) | $ | 1,683 | | | $ | 3,823 | | | $ | 3,638 | | | $ | 3,295 | | | $ | 2,388 | | | | | | | | | | | |
| Gross Fee Revenue-Source: | | | | | | | | | | | | | | | | | | | |
U.S. & Canada (1) (2) | $ | 1,345 | | | $ | 2,791 | | | $ | 2,641 | | | $ | 2,388 | | | $ | 1,845 | | | | | | | | | | | |
Total Outside U.S. & Canada (1) (2) | 338 | | | 1,032 | | | 997 | | | 907 | | | 543 | | | | | | | | | | | |
Total fees (1) (2) | $ | 1,683 | | | $ | 3,823 | | | $ | 3,638 | | | $ | 3,295 | | | $ | 2,388 | | | | | | | | | | | |
(1)In 2017, we reclassified branding fees for third-party residential sales and credit card licensing to the “Franchise fees” caption from the “Owned, leased, and other revenue” caption on our Income Statements. We reclassified 2016 amounts to conform to our current presentation.
(2)In 2018, we adopted ASU No. 2014-09, which impacted our recognition of revenues and certain expenses.
(3)In 2019, we adopted ASU No. 2016-02, which brought substantially all leases onto the balance sheet. Years before 2019 have not been adjusted for this new accounting standard.
(4)In 2020, we adopted ASU No. 2016-13, which impacted our provision for credit losses. Years before 2020 have not been adjusted for this new accounting standard.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year (1) |
| ($ in millions, except per share data) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| Income Statement Data: | | |
| | | | | | | | | | | | | | | | |
Revenues (6) | $ | 20,758 |
| | $ | 20,452 |
| | $ | 15,407 |
| | $ | 14,486 |
| | $ | 13,796 |
| | $ | 12,784 |
| | $ | 11,814 |
| | $ | 12,317 |
| | $ | 11,691 |
| | $ | 10,908 |
|
Operating income (loss) (6) | $ | 2,366 |
| | $ | 2,504 |
| | $ | 1,424 |
| | $ | 1,350 |
| | $ | 1,159 |
| | $ | 988 |
| | $ | 940 |
| | $ | 526 |
| | $ | 695 |
| | $ | (152 | ) |
Net income (loss) (6) | $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
| | $ | 859 |
| | $ | 753 |
| | $ | 626 |
| | $ | 571 |
| | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) |
| Per Share Data: |
| | | | | | | | | | | | | | | | | | |
Diluted earnings (losses) per share (6) | $ | 5.38 |
| | $ | 3.84 |
| | $ | 2.73 |
| | $ | 3.15 |
| | $ | 2.54 |
| | $ | 2.00 |
| | $ | 1.72 |
| | $ | 0.55 |
| | $ | 1.21 |
| | $ | (0.97 | ) |
| Cash dividends declared per share | $ | 1.5600 |
| | $ | 1.2900 |
| | $ | 1.1500 |
| | $ | 0.9500 |
| | $ | 0.7700 |
| | $ | 0.6400 |
| | $ | 0.4900 |
| | $ | 0.3875 |
| | $ | 0.2075 |
| | $ | 0.0866 |
|
| Balance Sheet Data (at year-end): |
| | | | | | | | | | | | | | | | | | |
Total assets (4) (6) | $ | 23,696 |
| | $ | 23,846 |
| | $ | 24,078 |
| | $ | 6,082 |
| | $ | 6,833 |
| | $ | 6,794 |
| | $ | 6,342 |
| | $ | 5,910 |
| | $ | 8,983 |
| | $ | 7,933 |
|
Long-term debt (4) | 8,514 |
| | 7,840 |
| | 8,197 |
| | 3,807 |
| | 3,447 |
| | 3,147 |
| | 2,528 |
| | 1,816 |
| | 2,691 |
| | 2,234 |
|
Shareholders’ equity (deficit) (6) | 2,225 |
| | 3,582 |
| | 6,265 |
| | (3,590 | ) | | (2,200 | ) | | (1,415 | ) | | (1,285 | ) | | (781 | ) | | 1,585 |
| | 1,142 |
|
| Other Data: |
| | | | | | | | | | | | | | | | | | |
| Base management fees | $ | 1,140 |
| | $ | 1,102 |
| | $ | 806 |
| | $ | 698 |
| | $ | 672 |
| | $ | 621 |
| | $ | 581 |
| | $ | 602 |
| | $ | 562 |
| | $ | 530 |
|
Franchise fees (5) (6) | 1,849 |
| | 1,586 |
| | 1,157 |
| | 984 |
| | 872 |
| | 697 |
| | 607 |
| | 506 |
| | 441 |
| | 400 |
|
| Incentive management fees | 649 |
| | 607 |
| | 425 |
| | 319 |
| | 302 |
| | 256 |
| | 232 |
| | 195 |
| | 182 |
| | 154 |
|
Total gross fees (5) (6) | $ | 3,638 |
| | $ | 3,295 |
| | $ | 2,388 |
| | $ | 2,001 |
| | $ | 1,846 |
| | $ | 1,574 |
| | $ | 1,420 |
| | $ | 1,303 |
| | $ | 1,185 |
| | $ | 1,084 |
|
| Fee Revenue-Source: |
| | | | | | | | | | | | | | | | | | |
North America (2) (5) (6) | $ | 2,641 |
| | $ | 2,388 |
| | $ | 1,845 |
| | $ | 1,586 |
| | $ | 1,439 |
| | $ | 1,200 |
| | $ | 1,074 |
| | $ | 970 |
| | $ | 878 |
| | $ | 806 |
|
Total Outside North America (3) (5) | 997 |
| | 907 |
| | 543 |
| | 415 |
| | 407 |
| | 374 |
| | 346 |
| | 333 |
| | 307 |
| | 278 |
|
Total gross fees (5) (6) | $ | 3,638 |
| | $ | 3,295 |
| | $ | 2,388 |
| | $ | 2,001 |
| | $ | 1,846 |
| | $ | 1,574 |
| | $ | 1,420 |
| | $ | 1,303 |
| | $ | 1,185 |
| | $ | 1,084 |
|
| |
(1)
| In 2013, we changed to a calendar year-end reporting cycle. All fiscal years presented before 2013 included 52 weeks. |
| |
(2)
| Represents fee revenue from the U.S. (but not Hawaii before 2011) and Canada. |
| |
(3)
| Represents fee revenue outside of North America, as defined in footnote (2) above. |
| |
(4)
| In 2015, we adopted ASU No. 2015-03, which changes the presentation of debt issuance costs, and ASU No. 2015-17, which changes the classification of deferred taxes. Years before 2014 have not been adjusted for these new accounting standards. |
| |
(5)
| In 2017, we reclassified branding fees for third-party residential sales and credit card licensing to the “Franchise fees” caption from the “Owned, leased, and other revenue” caption on our Income Statements. We reclassified prior period amounts through 2013 to conform to our current presentation. We did not reclassify amounts for years before 2013. |
| |
(6)
| In 2018, we adopted ASU 2014-09, which impacted our annual recognition of revenues and certain expenses. Years before 2016 have not been adjusted for this new accounting standard. |
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. A discussion regarding our financial condition and results of operations for year-end 2019 compared to year-end 2018 can be found in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 27, 2020.
BUSINESS AND OVERVIEW
Overview
We are a worldwide operator, franchisor, and licensor of hotel, residential, and timeshare properties in 130133 countries and territories under 30 brand names. Under our asset-light business model, we typically manage or franchise hotels, rather than own them. We discuss our operations in the following three reportable business segments: North American Full-Service, North American Limited-Service,U.S. & Canada; Asia Pacific; and Asia Pacific. Our Europe, Middle East and Africa and(“EMEA”). Our Caribbean and Latin America (“CALA”) operating segments dosegment does not individually meet the applicable accounting criteria for separate disclosure as a reportable segments.business segment, and we include its results in “Unallocated corporate and other.” In January 2021, we modified our reportable segment structure as a result of a change in the way management intends to evaluate results and allocate resources within the Company. Beginning with the 2021 first quarter, we will report the following two operating segments: U.S. & Canada and International.
We earn base management fees and, inunder many casesagreements, 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. InFor our hotels in the Middle East and Africa and in the Asia Pacific regions,region, 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,” which we discuss under the “Performance Measures” section below)profit”) less non-controllable expenses such as property insurance, real estate taxes, and capital spending reserves.
Our emphasis on long-term management contracts and franchising tends to provide more stable earnings in periods of economic softness, while adding new hotels to our system generates growth, typically with little or no investment by the Company. This strategy has driven substantial growth while minimizing financial leverage and risk in a cyclical industry. In addition, Additionally, we believe minimizing our capital investments and adopting a strategy of recycling our investments maximizes and maintains our financial flexibility.
We remain focused on doing the things that we do well; that is, selling rooms, taking careearn franchise fees for use of our guests, and making sure we control costs both at company-operated properties and at the corporate level (“above-property”). We provide our guests new and memorable experiences through our portfolio of brands, innovative technology, personalized guest recognition, and access to travel experiences through our Marriott Bonvoy Moments program. Our brands remain strong due to our skilled management teams, dedicated associates, superior guest service with an emphasis on guest and associate satisfaction, significant distribution, our Loyalty Program, multichannel reservation systems, and desirableintellectual property, amenities. We strive to effectively leverage our size and broad distribution.
We, along with owners and franchisees, continue to invest in our brands by means of new, refreshed, and reinvented properties, new room and public space designs, and enhanced amenities, technology offerings, and guest experiences. We address, through various means, hotels in our system that do not meet our standards. We continue to enhance the appeal of our proprietary, information-rich, and easy-to-use websites, and of our associated mobile smartphone applications, through functionality and service improvements.
Our profitability, as well as that of owners and franchisees, has benefitedincluding fees from our approach to property-levelco-brand credit card, timeshare, and above-property productivity. Managed properties in our system continue to maintain tight cost controls. We also control above-property costs, some of which we allocate to hotels, by remaining focused on systems, processing, and support areas.residential programs.
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”). 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 theThe Starwood reservations database and taken steps towards removing it. The information copied fromis no longer used for business operations.
In July 2019, the Starwood reservations database over time included information about guests who madeICO issued a reservation atformal notice of intent under the U.K. Data Protection Act 2018 (the “U.K. DPA”) proposing a Starwood property, including names, mailing addresses, phone numbers, email addresses, passport numbers, payment card numbers and expiration dates, Starwood Preferred Guest account information, dates of birth, gender, arrival and departure information, reservation dates, and communication preferences. The combination of information varied by guest. Based on our analysis as of the date of this filing, we believe that the upper limit for the total number of guest records involved in this incident is approximately 383 million records. In many instances, there appear to be multiple records for the same guest, so we have concluded with a fair degree of certainty that information for fewer than 383 million unique guests was involved, although we are currently unable to quantify that lower number because of the nature of the datafine in the database. Based onamount of £99 million against the Company in relation to the Data Security Incident. In October 2020, the ICO issued a final decision under the U.K. DPA, which includes a fine of £18.4 million. The Company did not appeal the ICO’s decision, but has made no admission of liability in relation to the decision or the underlying allegations. In 2019, we expensed $65 million for this loss contingency, in the “Restructuring and merger-related charges” caption of our analysis as of the date of this filing, we believe that the information accessed by an unauthorized third party included approximately 5.25 million unencrypted passport numbers, approximately 18.5 million encrypted passport numbers and approximately 9.1 million encrypted payment card numbers (approximately 385,000 of which cards were unexpired as of September 2018). Certain data analytics work continues, including by the investigative firm engaged on behalf of the payment card networks, andIncome Statements, based on the preliminary informationfine initially proposed by the ICO in July 2019 and the ongoing proceeding. In 2020, we have asrecorded a $39 million reversal of expense, based on the ICO’s issuance of the date of this filing, we believe that the information accessed by an unauthorized third party could include several thousand unencrypted payment card numbers.
Upon receiving information that an alert from an internal security tool was related to an attempt to access the Starwood reservations database, we quickly engaged leading security experts to conductfinal decision. We paid a comprehensive forensic review to determine the scopeportion of the intrusion, including the specific data impacted, and assist with containment measures. While that forensic review of the incident is now complete, certain data analytics work continues. We reported this incident to law enforcement and continue to support their investigation. We have completed the planned phase out of the operation of the Starwood reservations database, effective as of the end of 2018.
Following the Data Security Incident, we began a guest outreach effort and offered certain services to help guests monitor and protect their information. Promptly following our announcement of the incident, we began sending emails on a rolling basis directly to various Starwood guests whose email addresses wereICO fine in the Starwood reservations database,2020 fourth quarter, and the remainder is payable over the next two years. Our accrual for this loss contingency, which we completed sending these emails on December 21, 2018. We also established a multi-language dedicated websitepresent in the “Accrued expenses and multi-language call center to answer guests’ questions about the incident. The dedicated website provides guests detailsother” and “Other noncurrent liabilities” captions of the incident, the information affected, the steps being taken to investigate, FAQsour Balance Sheets, was $65 million at year-end 2019 and information about how guests can monitor and protect their$17 million at year-end 2020. See Note 8 for additional information. We are offering free web monitoring solutions for affected guests in certain jurisdictions where the monitoring services are available.
To date, we have not seen a meaningful impact on demand as a result of the Data Security Incident.
We are currently unable to estimate the range of total possible financial impact to the Company from the Data Security Incident.Incident in excess of the expenses already incurred. However, we do not believe this incident will impact our long-term financial health. We maintainAlthough 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 fines and penalties) related to the Data Security Incident. We expect thatAs we expected, the cost of such insurance willagain increased for our current policy period, and the cost of such insurance could continue to increase significantly in 2019 andfor future years.policy periods. 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 fines and penalties), increased expenses and capital investments for ITinformation technology and information security incident response and customer care,data privacy, and increased expenses for insurance, compliance activities and to meet increased legal and regulatory requirements. See Footnote 7. Commitments and ContingenciesNote 8 for additional information related to expenses incurred in 2018,2020 and 2019, insurance recoveries, and legal proceedings and governmental investigations related to the Data Security Incident.
Performance Measures
We believe RevPAR,Revenue per Available Room (“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.revenues, and should not be viewed as necessarily correlating with our fee revenue. We also believe occupancy and average daily rate (“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.
Our RevPAR statistics for 2018, 2017, and 2016, include Legacy-Starwood comparable properties for each of the full years even though Marriott did not own the Legacy-Starwood brands before the Merger Date. Therefore, our RevPAR statistics
include Legacy-Starwood properties for periods during which fees from the Legacy-Starwood properties are not included in our Income Statements. We provide these RevPAR statistics as an indicator of the performance of our brands and to allow for comparison to industry metrics, and they should not be viewed as necessarily correlating with our fee revenue. Comparisons to the prior year period are on a constant U.S. dollar basis. We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period.
We define our comparable properties as our properties including those that we acquired through the Starwood Combination, that were open and operating under one of our Legacy-Marriott or Legacy-Starwood brands since the beginning of the last full calendar year (since January 1, 20172019 for the current period) and have not, in either the current or previous year: (i)(1) undergone significant room or public space renovations or expansions, (ii)(2) been converted between company-operated and franchised, or (iii)(3) sustained substantial property damage or business interruption.interruption, with the exception of properties closed or otherwise experiencing interruptions related to COVID-19, which we continue to classify as comparable. For 2018 2020compared to 2017,2019, we had 4,1094,641 comparable North AmericanU.S. & Canada properties and 1,1731,340 comparable International properties. For 2017 compared
Impact of COVID-19
COVID-19 continues to 2016, we had 3,883 comparable North American propertieshave a material impact on our business, our Company, and 1,030 comparable International properties.
We also believe company-operated house profit margin, which isour industry. COVID-19 first impacted our business in Greater China beginning in January 2020, moved quickly into the ratiorest of property-level gross operating profit to total property-level revenue, is a meaningful indicator of our performance because this ratio measures our overall ability as the operator to produce property-level profits by generating sales and controlling the operating expenses over which we have the most direct control. House profit includes room, food and beverage, and other revenueAsia Pacific and the related expenses including payrollEuropean markets, and benefits expenses, as well as repairs and maintenance, utility, general and administrative, and sales and marketing expenses. House profit does not includespread globally by March 2020. As the impact of management fees, furniture, fixtures and equipment replacement reserves, insurance, taxes, or other fixed expenses.
Business Trends
Our 2018 full-year results reflected a year-over-year increase in the number of properties in our system, favorable demand for our brands in many marketspandemic accelerated around the world, and generally favorable economic conditions. Comparable worldwidecomparable systemwide RevPAR for 2018 increased 2.6 percent to $117.37, ADR increased 2.0 percent on a constant dollar basis to $160.37,RevPAR fell sharply. Global occupancy levels and occupancy increased 0.4 percentage points to 73.2 percent,RevPAR have since improved compared to 2017.the extremely low levels reached in April 2020, but the pace of recovery generally slowed in most regions in the 2020 fourth quarter and into January 2021 due to the sharp rise in COVID-19 cases. As a result, our fee revenue and revenue from owned and leased properties declined significantly during 2020, and we expect that there will not be a significant rebound in travel and lodging demand until there is widespread distribution of effective vaccines.
In North America,Worldwide comparable systemwide constant dollar RevPAR increaseddeclined 23 percent in 2018,the 2020 first quarter, 84 percent in the 2020 second quarter, 66 percent in the 2020 third quarter, and 64 percent in the 2020 fourth quarter, compared to the same periods in 2019. Worldwide, approximately six percent of our hotels were closed as of February 15, 2021, compared to the peak of more than 25 percent closed on April 26, 2020. However, the progress of recovery is uneven. The spread of COVID-19 has constrained and continues to constrain the speed of recovery and will continue to have a dampening impact on demand. Demand is still being primarily driven by both higherleisure travelers, and we have not seen meaningful demand return from business and group travelers.
Of our geographic regions, Greater China experienced the greatest improvement in demand compared to the 2020 second quarter, driven initially by domestic leisure travel with business transient and group demand. RevPAR growth was partially constrained by new lodging supplybusiness improving through the year, while demand in certain markets and comparisons to 2017 natural disasters.the rest of Asia Pacific has generally improved at a much slower pace. In our Asia Pacific segment in 2018, RevPAR grew in most markets, led by China, Indonesia and India. Our Europe, region experienced higher demand in 2018, led by strong transient business in most countries and demand from the World Cup, partially constrained by lower RevPAR in Spain. In our Middle East, and Africa region, leisure demand drove RevPAR decreased due to geopolitical instability and supply growthimprovements in the Middle East, partially offset by strong growth2020 third quarter compared to the 2020 second quarter, though increases in Africa. RevPAR grew across our CaribbeanCOVID-19 cases in Europe and Latin America region,resulting increases in government restrictions began anew in September 2020, which negatively impacted the recovery in the 2020 fourth quarter. In U.S. & Canada, demand improved during the remainder of 2020 from the lows seen in April 2020, primarily driven by higher ADR, partially dueleisure travel and by travelers within driving range of their destinations.
We continue to lower supply following 2017 hurricane activity intake substantial measures to mitigate the Caribbean.
Fornegative financial and operational impacts for our company-operated properties,hotel owners and our own business. Business contingency plans have been implemented around the world, and we continue to focus on enhancing property-level house profit marginsadjust these in response to the global situation. At the corporate level, our actions to date have substantially reduced the monthly run rate of corporate general and making productivity improvements. In 2018administrative costs compared to 2017 at comparable properties, worldwide company-operated house profit margins increasedthe monthly costs initially budgeted for 2020, excluding our provision for credit losses. We reduced spending on capital expenditures and other investments, and as previously announced, we suspended share repurchases and cash dividends.
We have taken a number of steps to reorganize the Company in response to the decline in lodging demand caused by 40 basis points, primarily reflecting RevPAR growth, improved productivity, procurementCOVID-19. We implemented temporary furloughs and reduced work week schedules for both above-property and on-property associates, most of which ended in September 2020 for above-property associates. As part of the realignment of our organization, we implemented a voluntary transition program for certain associates, and we eliminated a significant number of positions. While we have substantially completed the programs related to our above-property organization, we are continuing to develop restructuring plans, which could result in additional on-property position eliminations, to achieve cost savings specific to each of our company-operated properties. See Note 3 for more information about our restructuring activities.
At the property level, we continue to work with owners and synergy savingsfranchisees to lower their cash outlays. The steps we have taken to date include deferring renovations, certain hotel initiatives and brand standard audits for hotel owners and franchisees; reducing the amount of certain charges for systemwide programs and services; offering a delay in payment terms for certain charges in the 2020 second quarter; supporting owners and franchisees who are working with their lenders to utilize furniture, fixtures, and equipment (FF&E) reserves to meet working capital needs; and waiving required FF&E funding through 2021. We have significantly lowered the reimbursed expenses we incur on behalf of our owners and franchisees to provide centralized programs and services such as the Loyalty Program, reservations, marketing and sales, which we generally collect through cost reimbursement revenue on the basis of hotel revenue or program usage. In 2020, we applied for Employee Retention Tax Credit refunds from the Starwood Combination. International company-operated house profit margins increasedU.S. Treasury under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) totaling $164 million. In the 2020 fourth quarter, we received $119 million, $94 million of which we passed through to the related hotels that we manage on behalf of owners. We expect to receive the remaining refund in 2021, the majority of which we expect will inure to the benefit of our hotel owners. We continue to evaluate the availability of credits and benefits under the CARES Act and other legislation.
The impact of COVID-19 on the Company remains fluid, as does our corporate and property-level response, and we expect to continue to assess and may implement additional measures to adapt our operations and plans as we continue to evaluate the implications of COVID-19 on our business. The overall operational and financial impact is highly dependent on
the breadth and duration of COVID-19, including the availability and distribution of effective vaccines or treatments, and could be affected by 70 basis points, and North American company-operated house profit margins increased by 10 basis points.other factors we are not currently able to predict.
System Growth and Pipeline
In 2018, we added 4942020, our system grew from 7,349 properties with 80,255 rooms around(1,380,921 rooms) at year-end 2019 to 7,642 properties (1,423,044 rooms) at year-end 2020, reflecting the world across our portfolioaddition of brands.399 properties (62,776 rooms) and the exit of 106 properties (20,416 rooms). Approximately 45 percent of the added rooms are located outside North America,U.S. & Canada, and 1213 percent are conversions from competitor brands. In 2018, 107 properties (21,176 rooms) exited our system.
At year-end 2018,2020, we had more than 498,000 rooms in our development pipeline, grew to a record 478,000 rooms, with more than half located outside of North America. The pipelinewhich includes hotel rooms under construction, andhotel rooms under signed contracts, and nearly 23,000roughly 20,000 hotel rooms approved for development but not yet under signed contracts. Over 229,000 rooms in our development pipeline were under construction at year-end 2020. Over half of the rooms in our development pipeline are outside U.S. & Canada. In 2018,2020, we signed management and franchise agreements for 8161,575 properties (125,000(248,660 rooms), setting company records for rooms signings in Europe and Middle East and Africa and hotel signings in Asia Pacific. Contracts signed in 2018 also reflected the Company’s strength in the industry’s highest tier, with 29 properties (6,200 rooms) signed across six luxury brands..
In 2019,2021, we expect the numbergross rooms growth of our open hotel rooms will increase approximately 5.56.0 percent (3.0 to 3.5 percent, net reflecting room exits of 1.0 to 1.5 percent.deletions).
Properties and Rooms
At year-end 2018,2020, we operated, franchised, and licensed the following properties and rooms:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Managed | | Franchised/Licensed | | Owned/Leased | | | | Total |
| Properties | | Rooms | | Properties | | Rooms | | Properties | | Rooms | | | | | | Properties | | Rooms |
| U.S. & Canada | 788 | | | 240,487 | | | 4,720 | | | 677,120 | | | 26 | | | 6,483 | | | | | | | 5,534 | | | 924,090 | |
| Asia Pacific | 698 | | | 199,040 | | | 143 | | | 37,597 | | | 2 | | | 407 | | | | | | | 843 | | | 237,044 | |
| EMEA | 485 | | | 108,185 | | | 407 | | | 72,827 | | | 24 | | | 5,561 | | | | | | | 916 | | | 186,573 | |
| CALA | 112 | | | 21,520 | | | 132 | | | 27,613 | | | 14 | | | 3,449 | | | | | | | 258 | | | 52,582 | |
| Timeshare | — | | | — | | | 91 | | | 22,755 | | | — | | | — | | | | | | | 91 | | | 22,755 | |
| Total | 2,083 | | | 569,232 | | | 5,493 | | | 837,912 | | | 66 | | | 15,900 | | | | | | | 7,642 | | | 1,423,044 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Managed | | Franchised/Licensed | | Owned/Leased | | Other (1) | | Total |
| | Properties | | Rooms | | Properties | | Rooms | | Properties | | Rooms | | Properties | | Rooms | | Properties | | Rooms |
| North American Full-Service | 413 |
| | 184,541 |
| | 705 |
| | 202,204 |
| | 9 |
| | 5,275 |
| | — |
| | — |
| | 1,127 |
| | 392,020 |
|
| North American Limited-Service | 408 |
| | 64,372 |
| | 3,432 |
| | 395,522 |
| | 20 |
| | 3,006 |
| | 49 |
| | 8,447 |
| | 3,909 |
| | 471,347 |
|
| Asia Pacific | 612 |
| | 179,243 |
| | 98 |
| | 27,258 |
| | 2 |
| | 410 |
| | — |
| | — |
| | 712 |
| | 206,911 |
|
| Other International | 524 |
| | 121,508 |
| | 411 |
| | 82,243 |
| | 32 |
| | 8,404 |
| | 102 |
| | 12,749 |
| | 1,069 |
| | 224,904 |
|
| Timeshare | — |
| | — |
| | 89 |
| | 22,186 |
| | — |
| | — |
| | — |
| | — |
| | 89 |
| | 22,186 |
|
| Total | 1,957 |
| | 549,664 |
| | 4,735 |
| | 729,413 |
| | 63 |
| | 17,095 |
| | 151 |
| | 21,196 |
| | 6,906 |
| | 1,317,368 |
|
| |
| Other represents unconsolidated equity method investments, which we present in the “Equity in earnings” caption of our Income Statements. |
Lodging Statistics
The following lodging statisticstables present RevPAR, occupancy, and ADR statistics for comparable properties 2018, 2018for 2020 and 2020 compared to 2017, 2017, and 2017 compared to 2016, including Legacy-Starwood comparable properties for the full years even though Marriott did not own the Legacy-Starwood brands before the Merger Date.2019. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties.
2018 Compared to 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| RevPAR | | Occupancy | | Average Daily Rate |
| 2020 | | vs. 2019 | | 2020 | | vs. 2019 | | | 2020 | | vs. 2019 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Comparable Company-Operated Properties | | | | | | | | | | | | |
| U.S. & Canada | $ | 50.73 | | | (67.3) | % | | 28.6 | % | | (47.2) | % | pts. | | $ | 177.48 | | | (13.4) | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Asia Pacific | $ | 46.32 | | | (53.7) | % | | 39.6 | % | | (31.7) | % | pts. | | $ | 116.90 | | | (16.7) | % |
| CALA | $ | 52.55 | | | (60.0) | % | | 26.7 | % | | (37.8) | % | pts. | | $ | 196.51 | | | (3.6) | % |
| Europe | $ | 34.88 | | | (76.8) | % | | 20.8 | % | | (53.3) | % | pts. | | $ | 167.70 | | | (17.3) | % |
| Middle East & Africa | $ | 48.97 | | | (52.1) | % | | 34.9 | % | | (32.9) | % | pts. | | $ | 140.34 | | | (6.8) | % |
EMEA (1) | $ | 41.11 | | | (68.1) | % | | 27.0 | % | | (44.3) | % | pts. | | $ | 152.08 | | | (15.9) | % |
International - All (2) | $ | 44.77 | | | (60.6) | % | | 33.8 | % | | (37.0) | % | pts. | | $ | 132.56 | | | (17.4) | % |
Worldwide (3) | $ | 47.53 | | | (64.3) | % | | 31.4 | % | | (41.7) | % | pts. | | $ | 151.51 | | | (16.7) | % |
| Comparable Systemwide Properties | | | | | | | | | | | | |
| U.S. & Canada | $ | 48.28 | | | (59.4) | % | | 37.2 | % | | (36.5) | % | pts. | | $ | 129.96 | | | (19.4) | % |
| Asia Pacific | $ | 46.51 | | | (54.2) | % | | 38.8 | % | | (32.4) | % | pts. | | $ | 119.89 | | | (16.0) | % |
| CALA | $ | 38.81 | | | (63.4) | % | | 24.4 | % | | (37.4) | % | pts. | | $ | 159.12 | | | (7.1) | % |
| Europe | $ | 32.53 | | | (75.1) | % | | 21.7 | % | | (51.2) | % | pts. | | $ | 149.58 | | | (16.5) | % |
| Middle East & Africa | $ | 46.27 | | | (52.5) | % | | 34.3 | % | | (33.2) | % | pts. | | $ | 134.87 | | | (6.5) | % |
EMEA (1) | $ | 36.91 | | | (69.2) | % | | 25.8 | % | | (45.4) | % | pts. | | $ | 143.33 | | | (14.9) | % |
International - All (2) | $ | 41.51 | | | (62.2) | % | | 31.5 | % | | (38.5) | % | pts. | | $ | 131.63 | | | (16.1) | % |
Worldwide (3) | $ | 46.28 | | | (60.2) | % | | 35.5 | % | | (37.1) | % | pts. | | $ | 130.40 | | | (18.5) | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Comparable Company-Operated Properties |
| | RevPAR | | Occupancy | | Average Daily Rate |
| | 2018 | | vs. 2017 | | 2018 | | vs. 2017 | | | 2018 | | vs. 2017 |
North American Luxury (1) | $ | 258.71 |
| | 3.3 | % | | 76.9 | % | | (0.5 | )% | pts. | | $ | 336.58 |
| | 3.9 | % |
North American Upper Upscale (2) | $ | 151.44 |
| | 1.9 | % | | 76.0 | % | | — | % | pts. | | $ | 199.35 |
| | 1.9 | % |
North American Full-Service (3) | $ | 169.44 |
| | 2.2 | % | | 76.1 | % | | (0.1 | )% | pts. | | $ | 222.60 |
| | 2.3 | % |
North American Limited-Service (4) | $ | 109.72 |
| | 0.3 | % | | 74.9 | % | | (0.4 | )% | pts. | | $ | 146.55 |
| | 0.8 | % |
North American - All (5) | $ | 150.42 |
| | 1.8 | % | | 75.7 | % | | (0.2 | )% | pts. | | $ | 198.66 |
| | 2.0 | % |
| Greater China | $ | 94.54 |
| | 7.6 | % | | 72.3 | % | | 2.6 | % | pts. | | $ | 130.77 |
| | 3.7 | % |
| Rest of Asia Pacific | $ | 129.25 |
| | 7.3 | % | | 75.6 | % | | 1.6 | % | pts. | | $ | 170.99 |
| | 5.0 | % |
| Asia Pacific | $ | 107.43 |
| | 7.5 | % | | 73.5 | % | | 2.2 | % | pts. | | $ | 146.14 |
| | 4.2 | % |
| Caribbean & Latin America | $ | 131.52 |
| | 8.6 | % | | 64.8 | % | | 0.1 | % | pts. | | $ | 202.84 |
| | 8.5 | % |
| Europe | $ | 151.86 |
| | 4.8 | % | | 74.0 | % | | 0.7 | % | pts. | | $ | 205.15 |
| | 3.8 | % |
| Middle East & Africa | $ | 102.39 |
| | (1.8 | )% | | 66.4 | % | | 2.4 | % | pts. | | $ | 154.17 |
| | (5.3 | )% |
International - All (6) | $ | 118.86 |
| | 5.2 | % | | 71.6 | % | | 1.7 | % | pts. | | $ | 165.91 |
| | 2.7 | % |
Worldwide (7) | $ | 134.58 |
| | 3.3 | % | | 73.7 | % | | 0.8 | % | pts. | | $ | 182.67 |
| | 2.2 | % |
(2)Includes Asia Pacific, CALA, and EMEA. |
| | | | | | | | | | | | | | | | | | | | |
| Comparable Systemwide Properties |
| | RevPAR | | Occupancy | | Average Daily Rate |
| | 2018 | | vs. 2017 | | 2018 | | vs. 2017 | | | 2018 | | vs. 2017 |
North American Luxury (1) | $ | 245.35 |
| | 3.5 | % | | 77.0 | % | | (0.3 | )% | pts. | | $ | 318.54 |
| | 3.8 | % |
North American Upper Upscale (2) | $ | 132.64 |
| | 1.8 | % | | 73.5 | % | | (0.1 | )% | pts. | | $ | 180.54 |
| | 1.9 | % |
North American Full-Service (3) | $ | 143.64 |
| | 2.1 | % | | 73.8 | % | | (0.1 | )% | pts. | | $ | 194.59 |
| | 2.2 | % |
North American Limited-Service (4) | $ | 99.29 |
| | 0.9 | % | | 74.3 | % | | — | % | pts. | | $ | 133.61 |
| | 1.0 | % |
North American - All (5) | $ | 118.51 |
| | 1.5 | % | | 74.1 | % | | (0.1 | )% | pts. | | $ | 159.94 |
| | 1.6 | % |
| Greater China | $ | 93.96 |
| | 7.5 | % | | 71.7 | % | | 2.7 | % | pts. | | $ | 131.07 |
| | 3.5 | % |
| Rest of Asia Pacific | $ | 128.40 |
| | 7.0 | % | | 75.3 | % | | 1.6 | % | pts. | | $ | 170.43 |
| | 4.7 | % |
| Asia Pacific | $ | 109.14 |
| | 7.2 | % | | 73.3 | % | | 2.2 | % | pts. | | $ | 148.90 |
| | 4.0 | % |
| Caribbean & Latin America | $ | 104.77 |
| | 7.4 | % | | 63.2 | % | | 0.1 | % | pts. | | $ | 165.71 |
| | 7.3 | % |
| Europe | $ | 134.10 |
| | 5.8 | % | | 73.0 | % | | 1.4 | % | pts. | | $ | 183.74 |
| | 3.7 | % |
| Middle East & Africa | $ | 98.38 |
| | (1.6 | )% | | 66.1 | % | | 2.0 | % | pts. | | $ | 148.87 |
| | (4.6 | )% |
International - All (6) | $ | 114.56 |
| | 5.5 | % | | 70.9 | % | | 1.7 | % | pts. | | $ | 161.48 |
| | 3.0 | % |
Worldwide (7) | $ | 117.37 |
| | 2.6 | % | | 73.2 | % | | 0.4 | % | pts. | | $ | 160.37 |
| | 2.0 | % |
| |
(1)
| Includes JW Marriott, The Ritz-Carlton, W Hotels, The Luxury Collection, St. Regis, and EDITION. |
| |
(2)
| Includes Marriott Hotels, Sheraton, Westin, Renaissance, Autograph Collection, Delta Hotels, Gaylord Hotels, and Le Méridien. Systemwide also includes Tribute Portfolio. |
| |
(3)
| Includes North American Luxury and North American Upper Upscale. |
| |
(4)
| Includes Courtyard, Residence Inn, Fairfield by Marriott, SpringHill Suites, TownePlace Suites, Four Points, Aloft, Element, |
(3)Includes U.S. & Canada and AC Hotels by Marriott. Systemwide also includes Moxy.
| |
(5)
| Includes North American Full-Service and North American Limited-Service. |
| |
(6)
| Includes Asia Pacific, Caribbean & Latin America, Europe, and Middle East & Africa. |
| |
(7)
| Includes North American - All and International - All. |
International - All.
2017 Compared to 2016
|
| | | | | | | | | | | | | | | | | | | | |
| Comparable Company-Operated Properties |
| | RevPAR | | Occupancy | | Average Daily Rate |
| | 2017 | | vs. 2016 | | 2017 | | vs. 2016 | | | 2017 | | vs. 2016 |
North American Luxury (1) | $ | 244.19 |
| | 2.5 | % | | 77.5 | % | | 1.1 | % | pts. | | $ | 314.90 |
| | 1.0 | % |
North American Upper Upscale (2) | $ | 149.68 |
| | 2.3 | % | | 76.2 | % | | 0.6 | % | pts. | | $ | 196.46 |
| | 1.5 | % |
North American Full-Service (3) | $ | 166.28 |
| | 2.4 | % | | 76.4 | % | | 0.7 | % | pts. | | $ | 217.56 |
| | 1.4 | % |
North American Limited-Service (4) | $ | 107.99 |
| | 1.4 | % | | 75.2 | % | | 0.2 | % | pts. | | $ | 143.65 |
| | 1.1 | % |
North American - All (5) | $ | 148.40 |
| | 2.2 | % | | 76.0 | % | | 0.5 | % | pts. | | $ | 195.15 |
| | 1.4 | % |
| Greater China | $ | 90.26 |
| | 8.4 | % | | 71.5 | % | | 6.0 | % | pts. | | $ | 126.33 |
| | (0.7 | )% |
| Rest of Asia Pacific | $ | 119.10 |
| | 6.1 | % | | 75.4 | % | | 3.1 | % | pts. | | $ | 158.02 |
| | 1.6 | % |
| Asia Pacific | $ | 100.39 |
| | 7.4 | % | | 72.8 | % | | 5.0 | % | pts. | | $ | 137.85 |
| | 0.1 | % |
| Caribbean & Latin America | $ | 130.48 |
| | 3.9 | % | | 66.5 | % | | 2.6 | % | pts. | | $ | 196.31 |
| | (0.2 | )% |
| Europe | $ | 138.70 |
| | 6.9 | % | | 73.5 | % | | 2.0 | % | pts. | | $ | 188.69 |
| | 3.9 | % |
| Middle East & Africa | $ | 106.33 |
| | 1.9 | % | | 65.7 | % | | 1.5 | % | pts. | | $ | 161.95 |
| | (0.5 | )% |
International - All (6) | $ | 113.32 |
| | 6.0 | % | | 71.2 | % | | 3.5 | % | pts. | | $ | 159.14 |
| | 0.8 | % |
Worldwide (7) | $ | 131.14 |
| | 3.8 | % | | 73.7 | % | | 2.0 | % | pts. | | $ | 178.02 |
| | 1.0 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Comparable Systemwide Properties |
| | RevPAR | | Occupancy | | Average Daily Rate |
| | 2017 | | vs. 2016 | | 2017 | | vs. 2016 | | | 2017 | | vs. 2016 |
North American Luxury (1) | $ | 232.19 |
| | 2.8 | % | | 77.3 | % | | 1.2 | % | pts. | | $ | 300.34 |
| | 1.2 | % |
North American Upper Upscale (2) | $ | 131.11 |
| | 2.0 | % | | 73.7 | % | | 0.3 | % | pts. | | $ | 177.87 |
| | 1.5 | % |
North American Full-Service (3) | $ | 141.70 |
| | 2.1 | % | | 74.1 | % | | 0.4 | % | pts. | | $ | 191.25 |
| | 1.6 | % |
North American Limited-Service (4) | $ | 98.29 |
| | 2.0 | % | | 74.6 | % | | 0.7 | % | pts. | | $ | 131.74 |
| | 1.0 | % |
North American - All (5) | $ | 117.56 |
| | 2.1 | % | | 74.4 | % | | 0.6 | % | pts. | | $ | 158.05 |
| | 1.3 | % |
| Greater China | $ | 90.37 |
| | 8.5 | % | | 70.9 | % | | 6.0 | % | pts. | | $ | 127.47 |
| | (0.7 | )% |
| Rest of Asia Pacific | $ | 118.36 |
| | 5.1 | % | | 74.8 | % | | 2.5 | % | pts. | | $ | 158.21 |
| | 1.6 | % |
| Asia Pacific | $ | 102.27 |
| | 6.8 | % | | 72.6 | % | | 4.5 | % | pts. | | $ | 140.94 |
| | 0.2 | % |
| Caribbean & Latin America | $ | 104.10 |
| | 4.0 | % | | 64.3 | % | | 2.1 | % | pts. | | $ | 161.91 |
| | 0.6 | % |
| Europe | $ | 123.44 |
| | 7.2 | % | | 71.9 | % | | 2.7 | % | pts. | | $ | 171.72 |
| | 3.2 | % |
| Middle East & Africa | $ | 101.98 |
| | 2.0 | % | | 65.4 | % | | 1.5 | % | pts. | | $ | 155.90 |
| | (0.4 | )% |
International - All (6) | $ | 108.78 |
| | 5.9 | % | | 70.3 | % | | 3.2 | % | pts. | | $ | 154.71 |
| | 1.1 | % |
Worldwide (7) | $ | 115.02 |
| | 3.1 | % | | 73.2 | % | | 1.4 | % | pts. | | $ | 157.12 |
| | 1.2 | % |
| |
(1)
| Includes JW Marriott, The Ritz-Carlton, W Hotels, The Luxury Collection, St. Regis, and EDITION. |
| |
(2)
| Includes Marriott Hotels, Sheraton, Westin, Renaissance, Autograph Collection, Delta Hotels, Gaylord Hotels, Le Méridien, and Tribute Portfolio. |
| |
(3)
| Includes North American Luxury and North American Upper Upscale. |
| |
(4)
| Includes Courtyard, Residence Inn, Fairfield by Marriott, SpringHill Suites, Four Points, TownePlace Suites, and AC Hotels by Marriott. Systemwide also includes Aloft and Element. |
| |
(5)
| Includes North American Full-Service and North American Limited-Service. |
| |
(6)
| Includes Asia Pacific, Caribbean & Latin America, Europe, and Middle East & Africa. |
| |
(7)
| Includes North American - All and International - All. |
CONSOLIDATED RESULTS
The followingOur results declined in 2020 compared to 2019, primarily due to the impact of COVID-19. See the “Impact of COVID-19” section above for more information about the impact to our business during 2020, and the discussion presents anbelow for additional analysis of our consolidated results of operations for 2018, 2017,2020 and 2016. In accordance with U.S. generally accepted accounting principles (“GAAP”), our Income Statements include Legacy-Starwood’s results of operations from the Merger Date. All references to the effect of Legacy-Starwood operations on our 2017 results refer to the incremental amounts contributed by Legacy-Starwood operations in 2017 over the effect of Legacy-Starwood operations on our results for the period from the Merger Date through December 31, 2016.2019.
The following discussion also reflects our adoption of several new accounting standards. See the “New Accounting Standards Adopted” caption in Footnote 2. Summary of Significant Accounting Policies for additional information.
Our 2017 results were favorably impacted by the non-recurring gain on the disposition of our ownership interest in Avendra, discussed in Footnote 3. Dispositions and Acquisitions. We committed to the owners of the hotels in our system that the benefits derived from Avendra, including any dividends or sale proceeds above our original investment, would be used for the benefit of the hotels in our system. Accordingly, in 2018 we used $115 million ($85 million after-tax) of the net proceeds, and we intend to use the remainder of the net proceeds, for the benefit of our system of hotels. Spending under those plans is, and will be, expensed in the “Reimbursed expenses” caption of our Income Statements, causing a reduction in our profitability in the periods it is expensed.
Fee Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | | | Change 2020 vs. 2019 | | |
| Base management fees | $ | 443 | | | $ | 1,180 | | | | | $ | (737) | | | (62) | % | | | | |
| Franchise fees | 1,153 | | | 2,006 | | | | | (853) | | | (43) | % | | | | |
| Incentive management fees | 87 | | | 637 | | | | | (550) | | | (86) | % | | | | |
| Gross fee revenues | 1,683 | | | 3,823 | | | | | (2,140) | | | (56) | % | | | | |
| Contract investment amortization | (132) | | | (62) | | | | | 70 | | | 113 | % | | | | |
| Net fee revenues | $ | 1,551 | | | $ | 3,761 | | | | | $ | (2,210) | | | (59) | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Base management fees | $ | 1,140 |
| | $ | 1,102 |
| | $ | 806 |
| | $ | 38 |
| | 3 | % | | $ | 296 |
| | 37 | % |
| Franchise fees | 1,849 |
| | 1,586 |
| | 1,157 |
| | 263 |
| | 17 | % | | 429 |
| | 37 | % |
| Incentive management fees | 649 |
| | 607 |
| | 425 |
| | 42 |
| | 7 | % | | 182 |
| | 43 | % |
| Gross fee revenues | 3,638 |
| | 3,295 |
| | 2,388 |
| | 343 |
| | 10 | % | | 907 |
| | 38 | % |
| Contract investment amortization | (58 | ) | | (50 | ) | | (40 | ) | | 8 |
| | 16 | % | | 10 |
| | 25 | % |
| Net fee revenues | $ | 3,580 |
| | $ | 3,245 |
| | $ | 2,348 |
| | $ | 335 |
| | 10 | % | | $ | 897 |
| | 38 | % |
2018 Compared to 2017
The $38 million increasedecrease in base management fees primarily reflected $29 million from unit growth, $28 million from RevPAR growth, and $8 million from net favorable foreign exchange rates, partially offset by lower fees of $17 million from properties that converted from managed to franchised and $14 million from properties that were terminated.
The $263 million increase in franchise fees primarily reflected $143 million of higher branding fees, driven by $138 million of higher fees from ourlower RevPAR and lower co-brand credit card agreements, $82fees of $84 million from unit growth, $21 million from RevPAR growth, $15 millionprimarily due to COVID-19, as well as lower fees from properties that converted from managed to franchised, and $6 millionleft the system of higher relicensing and application$32 million. The decrease in franchise fees was partially offset by lower fees of $9 million from properties that were terminated.unit growth ($37 million).
The $42 million increasedecrease in incentive management fees was primarily reflected net higher profits at managed hotels and $14 million from unit growth.
due to COVID-19. In 2018,2020, we earned incentive management fees from 7237 percent of our managed properties worldwide, versus 71compared to 72 percent in 2017.2019. We earned incentive management fees from 593 percent of managed properties in North AmericaU.S. & Canada and 8256 percent of managed properties outside North AmericaU.S. & Canada in 2018,2020, compared to 6057 percent in North AmericaU.S. & Canada and 8081 percent outside North AmericaU.S. & Canada in 2017.2019. In addition, 6392 percent of our total incentive management fees in 20182020 came from our managed properties outside North AmericaU.S. & Canada, primarily in Asia Pacific, versus 6265 percent in 2017.2019.
The $296 million increase in base management fees primarily reflected $273 million of higher Legacy-Starwood fees, $18 million from stronger sales at Legacy-Marriott comparable properties primarily driven by RevPAR growth, and $14 million from Legacy-Marriott unit growth, partially offset by $6 million of lower fees from Legacy-Marriott properties that converted from managed to franchised and $4 million from Legacy-Marriott net unfavorable exchange rates.
The $429 million increase in franchise fees primarily reflected $341 million of higher Legacy-Starwood fees, $54 million from Legacy-Marriott unit growth, $18 million from Legacy-Marriott RevPAR growth, $14 million of higher Legacy-Marriott branding fees, and $7 million of higher fees from Legacy-Marriott properties that converted from managed to franchised.
The $182 million increase in incentive management fees primarily reflected $159 million of higher Legacy-Starwood fees and $22 million from higher net house profits at Legacy-Marriott managed hotels.
The $10 million increase in contractContract investment amortization increased primarily reflected $5 milliondue to higher impairments of higher contract write-offs relatedinvestments in management and franchise contracts, primarily due to terminated contracts at Legacy-Marriott hotels.COVID-19.
Owned, Leased, and Other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | | | Change 2020 vs. 2019 | | |
| Owned, leased, and other revenue | $ | 568 | | | $ | 1,612 | | | | | $ | (1,044) | | | (65) | % | | | | |
| Owned, leased, and other - direct expenses | 677 | | | 1,316 | | | | | (639) | | | (49) | % | | | | |
| Owned, leased, and other, net | $ | (109) | | | $ | 296 | | | | | $ | (405) | | | (137) | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Owned, leased, and other revenue | $ | 1,635 |
| | $ | 1,752 |
| | $ | 1,125 |
| | $ | (117 | ) | | (7 | )% | | $ | 627 |
| | 56 | % |
| Owned, leased, and other - direct expenses | 1,306 |
| | 1,411 |
| | 901 |
| | (105 | ) | | (7 | )% | | 510 |
| | 57 | % |
| | $ | 329 |
| | $ | 341 |
| | $ | 224 |
| | $ | (12 | ) | | (4 | )% | | $ | 117 |
| | 52 | % |
2018 Compared to 2017
Owned, leased, and other revenue, net of direct expenses decreased by $12 million, primarily due to $81 millionlower demand at and the temporary closure of certain of our owned and leased hotels due to COVID-19, as well as net lower owned and leased profits attributable to propertieshotels sold partially offset by $51 million of higher termination feesin the 2019 fourth and $17 million of2020 first quarters ($19 million).
Cost Reimbursements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | | | Change 2020 vs. 2019 | | |
| Cost reimbursement revenue | $ | 8,452 | | | $ | 15,599 | | | | | $ | (7,147) | | | (46) | % | | | | |
| Reimbursed expenses | 8,435 | | | 16,439 | | | | | (8,004) | | | (49) | % | | | | |
| Cost reimbursements, net | $ | 17 | | | $ | (840) | | | | | $ | 857 | | | 102 | % | | | | |
Cost reimbursements, net stronger results at our remaining owned and leased properties.
2017 Compared to 2016
Owned, leased, and other revenue, net of direct expenses increased by $117 million, primarily due to $140 million of higher Legacy-Starwood owned and leased profits, partially offset by $15 million of lower Global Design profits and $7 million of net lower Legacy-Marriott owned and leased profits, primarily driven by lower RevPAR in Brazil and properties under renovation.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Cost reimbursement revenue | $ | 15,543 |
| | $ | 15,455 |
| | $ | 11,934 |
| | $ | 88 |
| | 1 | % | | $ | 3,521 |
| | 30 | % |
| Reimbursed expenses | 15,778 |
| | 15,228 |
| | 11,834 |
| | 550 |
| | 4 | % | | 3,394 |
| | 29 | % |
| | $ | (235 | ) | | $ | 227 |
| | $ | 100 |
| | $ | (462 | ) | | (204 | )% | | $ | 127 |
| | 127 | % |
Cost(cost reimbursement revenue, net of reimbursed expenses,expenses) varies due to timing differences between the costs we incur for centralized programs and services and the related reimbursements we receive from hotel owners and franchisees.franchisees, primarily driven by our Loyalty Program. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively. See Note 2 for more information about the accounting for our Loyalty Program.
2018 Compared to 2017
Cost reimbursement revenue,The increase in cost reimbursements, net in 2020 primarily reflects the performance of reimbursed expenses, decreased $462 million, primarily due to lowerthe Loyalty Program, revenues net ofwhich had lower program expenses spending funded by the proceeds from the 2017 sale of our interest in Avendra, and higher expenses for reservations and marketing.redemptions.
2017 Compared to 2016
Cost reimbursement revenue, net of reimbursed expenses, increased $127 million, primarily due to $285 million of higher Legacy-Starwood activity, partially offset by $158 million of lower Legacy-Marriott cost reimbursement revenue, net of reimbursed expenses primarily driven by higher expenses for reservations and IT systems initiatives and lower Marriott Rewards revenue net of expenses.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Depreciation, amortization, and other | $ | 226 |
| | $ | 229 |
| | $ | 119 |
| | $ | (3 | ) | | (1 | )% | | $ | 110 |
| | 92 | % |
| General, administrative, and other | 927 |
| | 921 |
| | 743 |
| | 6 |
| | 1 | % | | 178 |
| | 24 | % |
| Merger-related costs and charges | 155 |
| | 159 |
| | 386 |
| | (4 | ) | | (3 | )% | | (227 | ) | | (59 | )% |
2018 Compared to 2017
General, administrative, and other expenses increased by $6 million, primarily due to $51 million of company-funded supplemental retirement savings plan contributions in 2018 and $20 million of higher professional fees, partially offset by
administrative cost savings largely due to synergies associated with the Starwood Combination. Company-funded supplemental retirement savings plan contributions represent an additional one-time contribution of up to $1,000 per eligible associate.
Merger-related costs and charges decreased by $4 million, primarily due to $17 million of 2017 transaction costs that did not occur in 2018 and $6 million of lower employee termination costs, partially offset by $19 million of higher integration costs.
2017 Compared to 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | | | Change 2020 vs. 2019 | | |
| Depreciation, amortization, and other | $ | 346 | | | $ | 341 | | | | | $ | 5 | | | 1 | % | | | | |
| General, administrative, and other | 762 | | | 938 | | | | | (176) | | | (19) | % | | | | |
| Restructuring and merger-related charges | 267 | | | 138 | | | | | 129 | | | 93 | % | | | | |
Depreciation, amortization, and other expenses increased, by $110 million, primarily reflectingdue to higher depreciation and amortization on Legacy-Starwood assets.operating lease impairment charges ($16 million). See Note 9 for more information about the operating lease impairment charges.
General, administrative, and other expenses increaseddecreased primarily due to lower administrative costs due to our cost reduction measures and $20 million of lower legal expenses. The decrease was partially offset by $178 million,a higher provision for credit losses and higher guarantee reserves primarily due to the Starwood Combination, $14 millionnegative current and expected economic impact of higher litigation expenses, $10 million of higher compensation expenses,COVID-19 ($105 million).
Restructuring and $10 million from net unfavorable foreign exchange rates.
Merger-related costs andmerger-related charges decreased by $227 million,increased primarily due to lower employee terminationthe increased put option liability discussed in Note 8 ($243 million) and transaction costs,2020 restructuring charges ($56 million), partially offset by $39the ICO Fine discussed in Note 8 ($104 million, representing the 2019 accrual and the 2020 reversal), the 2019 impairment charge of highera Legacy-Starwood office building ($34 million), and lower integration costs.costs ($19 million).
Non-Operating Income (Expense)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | | | Change 2020 vs. 2019 | | |
| Gains and other income, net | $ | 9 | | | $ | 154 | | | | | $ | (145) | | | (94) | % | | | | |
| Interest expense | (445) | | | (394) | | | | | 51 | | | 13 | % | | | | |
| Interest income | 27 | | | 26 | | | | | 1 | | | 4 | % | | | | |
| Equity in (losses) earnings | (141) | | | 13 | | | | | (154) | | | (1,185) | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Gains and other income, net | $ | 194 |
| | $ | 688 |
| | $ | 5 |
| | $ | (494 | ) | | (72 | )% | | $ | 683 |
| | 13,660 | % |
| Interest expense | (340 | ) | | (288 | ) | | (234 | ) | | 52 |
| | 18 | % | | 54 |
| | 23 | % |
| Interest income | 22 |
| | 38 |
| | 35 |
| | (16 | ) | | (42 | )% | | 3 |
| | 9 | % |
| Equity in earnings | 103 |
| | 40 |
| | 9 |
| | 63 |
| | 158 | % | | 31 |
| | 344 | % |
2018 Compared to 2017
Gains and other income, net decreased by $494 million, primarily due to the 2017 gain on the disposition of our ownership interest in Avendra, net of a 2018 true-up ($653 million) and the 2017 gain on the sale of the Charlotte Marriott City Center ($24 million), partially offset by 20182019 gains on our property sales ($132 million), sales of our interest in four equity method investments ($46 million), and modification of a ground lease at one of our offices ($6134 million).
Interest expense increased by $52 million, primarily due to higher commercial paper interest rates and average borrowings and higher interest on Senior Note issuances, net of maturities ($6 million).
Interest income decreased by $16 million, primarily due to lower outstanding loan balances.
Equity in earnings increased by $63 million, primarily due to our share of the gains on the sales of two properties held by equity method investees ($6593 million), partially offset by our $6 million share of the 2017 gainlower commercial paper and Credit Facility interest rates and aggregate average borrowings ($24 million) and net lower interest rates on an equity method investee’s sale of a property.floating rate debt ($22 million).
2017 Compared to 2016
Gains and other income, net increased by $683 million, primarilyEquity in (losses) earnings decreased due to losses recorded by the gain on the disposition of our ownership interest in Avendrainvestees and the gain on the sale of the Charlotte Marriott City Center. See the “Dispositions” caption of Footnote 3. Dispositions and Acquisitions for more information.
Interest expense increased by $54 million, impairment charges ($77 million), primarily due to an increase in debt as a result of the Starwood Combination and higher commercial paper borrowings, partially offset by $18 million of lower interest due to Senior Note maturities and a $13 million favorable variance to the bridge term loan facility commitment costs that we incurred in 2016.COVID-19.
Interest income increased by $3 million, primarily due to issuances of new loans, partially offset by $7 million of lower interest income on a repaid loan.
Equity in earnings increased by $31 million, primarily due to higher earnings by Legacy-Starwood investees.
Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | | | Change 2020 vs. 2019 | | |
| Benefit (provision) for income taxes | $ | 199 | | | $ | (326) | | | | | $ | (525) | | | (161) | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Provision for income taxes | $ | (438 | ) | | $ | (1,523 | ) | | $ | (431 | ) | | $ | (1,085 | ) | | (71 | )% | | $ | 1,092 |
| | 253 | % |
2018 ComparedOur tax benefit in 2020, compared to 2017
Provision forour tax provision in 2019, primarily reflected the decrease in operating income taxes decreased by $1,085 million, primarily due to the nonrecurring net tax expense in 2017 related to the 2017 Tax Act and the reduction of the U.S. federal tax rate in 2018 ($744336 million), the prior year gain on the sale of our interest in Avendra ($257 million), increased earnings in jurisdictions with lower tax rates ($57 million), lower operating income ($46 million), reduction of our one-time net tax charge related to the 2017 Tax Act transition tax and the remeasurement of deferred income taxes ($41 million),benefit from the release of tax reserves due to audit closures during 2020 ($100 million), the completion of certain examinationstax benefit from the Sheraton Grand Chicago put option reserve ($3461 million), the year-over-year tax benefit from impairment charges ($39 million), and the incomeprior year tax consequences of an intercompany transactionexpense incurred for U.S. tax on Global Intangible Low-Taxed Income ($1835 million). The decrease was partially offset by the current period’s provisional estimate ofa shift in earnings to jurisdictions with higher tax for global intangible low-taxed income (“GILTI”) under the 2017 Tax Actrates ($34 million), tax expense incurred for uncertain tax positions relating to Legacy-Starwood operations ($30 million), an unfavorable comparison to a 2017 benefit due to tax law changes adopted in non-U.S. jurisdictions in 2017 ($18 million), the 2017 reversal of tax reserves related to interest accrued for previous periods ($15 million), net tax expense on dispositions ($13 million), and the 2017 release of a tax reserve due to the favorable settlement of a tax position ($1236 million).
See Footnote 6. Income Taxes for further information on the 2017 Tax Act.
2017 ComparedBUSINESS SEGMENTS
Our segment results declined in 2020 compared to 2016
Provision for income taxes increased by $1,092 million,2019 primarily due to the 2017 Tax Act ($586 million), higher earnings dueimpact of COVID-19. See the “Impact of COVID-19” section above for more information about the impact to our business during 2020 and the inclusion of Legacy-Starwood operationsdiscussion below for the full year 2017 ($275 million), the gain on the sale of our interest in Avendra ($259 million), lower merger-related costs ($86 million), an unfavorable comparison to the 2016 release of a valuation allowance ($15 million), the gain on the disposition of a North American Full-Service property ($9 million), and a change in judgment regarding the realizability of certain deferred tax assets in certain states and foreign jurisdictions ($7 million). The increase was partially offset by tax benefits from the adoption of ASU 2016-09 ($72 million), change in the jurisdictional mix of earnings ($25 million), tax law changes in non-U.S. jurisdictions ($22 million), the reversal of tax reserves related to interest accrued for previous periods ($15 million), and adjustments resulting from finalizing prior years’ returns ($10 million).
BUSINESS SEGMENTS
The following discussion presents anadditional analysis of the operating results of operations of our reportable business segments: North American Full-Service, North American Limited-Service, and Asia Pacific. Our Europe, Middle East and Africa, and Caribbean and Latin America operating segments do not individually meet the criteria for separate disclosure as reportable segments, and accordingly we have not included those operations in this discussion of our Business Segments. See Footnote 17. Business Segments to our Financial Statements for other information about each segment, includingsegments. Segment revenues and profits for EMEA, a reconciliation ofnew reportable segment in 2020, did not change significantly in 2019 compared to 2018.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | | | Change 2020 vs. 2019 | | |
| U.S. & Canada | | | | | | | | | | | | | |
| Segment revenues | $ | 7,905 | | | $ | 16,833 | | | | | $ | (8,928) | | | (53) | % | | | | |
| Segment profits | 198 | | | 2,000 | | | | | (1,802) | | | (90) | % | | | | |
| Asia Pacific | | | | | | | | | | | | | |
| Segment revenues | 612 | | | 1,189 | | | | | (577) | | | (49) | % | | | | |
| Segment profits | 1 | | | 369 | | | | | (368) | | | (100) | % | | | | |
| EMEA | | | | | | | | | | | | | |
| Segment revenues | 758 | | | 1,932 | | | | | (1,174) | | | (61) | % | | | | |
| Segment (loss) profits | (200) | | | 318 | | | | | (518) | | | (163) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Properties | | Rooms |
| December 31, 2020 | | December 31, 2019 | | vs. December 31, 2019 | | December 31, 2020 | | December 31, 2019 | | vs. December 31, 2019 |
| U.S. & Canada | 5,534 | | | 5,324 | | | 210 | | | 4 | % | | 924,090 | | | 899,805 | | | 24,285 | | | 3 | % |
| Asia Pacific | 843 | | | 782 | | | 61 | | | 8 | % | | 237,044 | | | 221,772 | | | 15,272 | | | 7 | % |
| EMEA | 916 | | | 893 | | | 23 | | | 3 | % | | 186,573 | | | 184,091 | | | 2,482 | | | 1 | % |
U.S. & Canada
U.S. & Canada segment profits to net income.
Our 2016 results in this section do not include any Legacy-Starwood results for the period between the Merger Date and the end of the 2016 third quarter, as we did not allocate any Legacy-Starwood results to our segments for the eight days ended September 30, 2016.
North American Full-Service
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Segment revenues | $ | 13,072 |
| | $ | 12,909 |
| | $ | 9,424 |
| | $ | 163 |
| | 1 | % | | $ | 3,485 |
| | 37 | % |
| Segment profits | $ | 1,153 |
| | $ | 1,238 |
| | $ | 801 |
| | $ | (85 | ) | | (7 | )% | | $ | 437 |
| | 55 | % |
2018 Compared to 2017
In 2018, across our North American Full-Service segment, we added 44 properties (10,454 rooms) and 20 properties (6,923 rooms) left our system.
North American Full-Service segment profits decreased by $85 million, primarily due to the following:
•$1191,351 million of lower cost reimbursement revenue,gross fee revenues (primarily reflecting lower comparable systemwide RevPAR and net house profits driven by decreases in both occupancy and ADR due to lower demand resulting from COVID-19, partially offset by unit growth of reimbursed expenses;$32 million);
•$4560 million of higher base management and franchise fees, primarilycontract investment amortization costs (primarily reflecting $23 million from unit growth, $18 million from RevPAR growth, and $5 million of higher residential branding fees, partially offset by $10 million of lower fees from properties that were terminated;contract impairment charges);
•$8 million of higher incentive management fees, primarily driven by net higher profits at managed hotels;
$24158 million of lower owned, leased, and other revenue, net of direct expenses primarily reflecting $60(including $19 million from hotels sold in the 2019 fourth and 2020 first quarters);
•$22 million of lower owned and leased profits attributable to properties sold, partially offset by $24 million of higher termination fees and $15 million of net stronger results at our remaining owned and leased properties;
$13 million of lower general, administrative, and other expenses primarily(primarily reflecting $75 million of higher provision for credit losses and reserves for guarantee funding, partially offset by $48 million of lower administrative costs due to administrativeour cost savings largely due to synergies associated with the Starwood Combination;reduction measures);
•$1141 million of lower gains and other income, net primarily due to the 2017 gain on the sale of the Charlotte Marriott City Center of $24(primarily reflecting a $134 million partially offset by the 2018 gain on the sale of two properties in 2019);
•$101 million of $22 million;lower equity in (losses) earnings due to impairment charges ($60 million) and losses recorded by investees, primarily as a result of COVID-19; and
•$127 million of higher equity in earnings, primarily due to our $10 million share of the 2018 gain on an equity method investee’s sale of a property, restructuring and merger-related charges;
partially offset by our $6 million share of the 2017 gain on an equity method investee’s sale of a property.by:
2017 Compared to 2016
In 2017, across our North American Full-Service segment we added 55 properties (13,056 rooms) and 12 properties (2,912 rooms) left our system.
North American Full-Service segment profits increased by $437 million, primarily due to the following:
•$3849 million of higher cost reimbursement revenue, net of reimbursed expenses;expenses.
$301 million of higher base management and franchise fees,Asia Pacific
Asia Pacific segment profits decreased primarily reflecting $292 million of higher Legacy-Starwood fees, $14 million from Legacy-Marriott unit growth, and $8 million of stronger RevPAR at Legacy-Marriott hotels, partially offset by $17due to the following:
•$294 million of lower Legacy-Marriott residential branding fees;
$45 million of higher incentive management fees, primarily driven by $31 million of higher Legacy-Starwood feesgross fee revenues (primarily reflecting lower comparable systemwide RevPAR and higher net house profits at Legacy-Marriott managed hotels;driven by decreases in both occupancy and ADR due to lower demand resulting from COVID-19);
•$6039 million of higherlower owned, leased, and other revenue, net of direct expenses, primarily reflecting $67 million of higher Legacy-Starwood owned and leased profits;expenses;
•$39 million of higher depreciation, amortization, and other expenses, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets;
$22 million of higher gains and other income, net, primarily due to the gain on the sale of a North American Full-Service hotel in the 2017 second quarter; and
$16 million of higher equity in earnings, primarily due to higher earnings by Legacy-Starwood investees.
North American Limited-Service
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Segment revenues | $ | 3,217 |
| | $ | 3,219 |
| | $ | 2,894 |
| | $ | (2 | ) | | — | % | | $ | 325 |
| | 11 | % |
| Segment profits | $ | 786 |
| | $ | 827 |
| | $ | 702 |
| | $ | (41 | ) | | (5 | )% | | $ | 125 |
| | 18 | % |
2018 Compared to 2017
In 2018, across our North American Limited-Service segment we added 281 properties (33,418 rooms) and 38 properties (3,415 rooms) left our system.
North American Limited-Service segment profits decreased by $41 million, primarily due to the following:
$1009 million of lower cost reimbursement revenue, net of directreimbursed expenses; and
•$63 million of higher base management and franchise fees, primarily reflecting $56 million from unit growth, $7 million from RevPAR growth, and $5 million of higher relicensing and application fees, partially offset by $625 million of lower fees from properties that were terminated.equity in (losses) earnings;
2017 Compared to 2016partially offset by:
In 2017, across our North American Limited-Service segment we added 270 properties (33,128 rooms) and 26 properties (2,875 rooms) left our system.
North American Limited-Service segment profits increased by $125 million, primarily due to the following:
•$22 million of higher cost reimbursement revenue, net of reimbursed expenses;
$102 million of higher base management and franchise fees, primarily reflecting $50 million of higher Legacy-Starwood fees, $42 million from Legacy-Marriott unit growth, and $11 million of stronger RevPAR at Legacy-Marriott hotels; and
$613 million of lower incentive management fees,general, administrative, and other expenses (primarily reflecting lower expenses due to COVID-19).
EMEA
EMEA segment loss, compared to prior year profits, primarily reflects the following:
•$308 million of lower gross fee revenues (primarily reflecting lower comparable systemwide RevPAR and net house profits driven by softer performancedecreases in both occupancy and a change in the specified owner return at a Legacy-Marriott portfolio of managed hotels.
Asia Pacific
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 | | Change 2018 vs. 2017 | | Change 2017 vs. 2016 |
| Segment revenues | $ | 1,118 |
| | $ | 1,054 |
| | $ | 631 |
| | $ | 64 |
| | 6 | % | | $ | 423 |
| | 67 | % |
| Segment profits | $ | 456 |
| | $ | 361 |
| | $ | 160 |
| | $ | 95 |
| | 26 | % | | $ | 201 |
| | 126 | % |
2018 Compared to 2017
In 2018, across our Asia Pacific segment we added 82 properties (19,661 rooms) and 11 properties (3,399 rooms) left our system.
Asia Pacific segment profits increased by $95 million, primarilyADR due to the following changes:lower demand resulting from COVID-19);
•$26171 million of higher base management and franchise fees, primarily reflecting $16 million from unit growth and $10 million from RevPAR growth;
$22 million of higher incentive management fees, primarily driven by net higher profits at managed hotels and $10 million from unit growth;
$1 million of higherlower owned, leased, and other revenue, net of direct expenses, primarily due to $14 million of higher termination fees, partially offset by $13 million lower owned and leased profits attributable to properties sold;expenses;
•$1 million of higher general, administrative, and other expenses, primarily due to $6 million of higher bad debt reserves partially offset by administrative cost savings largely due to synergies associated with the Starwood Combination;
$71 million of higher gains and other income, net, primarily reflecting a $57 million gain on the sale of two properties and $13 million from gains on sales of our interest in two equity method investments; and
$2925 million of lower cost reimbursement revenue, net of reimbursement expenses.reimbursed expenses; and
2017 Compared to 2016
In 2017, across our Asia Pacific segment we added 77 properties (18,035 rooms) and 10 properties (3,961 rooms) left our system.
Asia Pacific segment profits increased by $201 million, primarily due to the following:
•$45 million of higher cost reimbursement revenue, net of reimbursement expenses;
$108 million of higher base management and franchise fees, primarily due to $88 million of higher Legacy-Starwood fees, $9 million of higher Legacy-Marriott branding fees, $6 million from Legacy-Marriott unit growth, and $5 million from stronger RevPAR at Legacy-Marriott hotels;
$92 million of higher incentive management fees, primarily due to $80 million of higher Legacy-Starwood fees, $8 million from higher net house profits at Legacy-Marriott managed hotels, and $4 million from Legacy-Marriott unit growth;
$4 million of higher owned, leased, and other revenue, net of direct expenses, primarily due to $11 million of higher Legacy-Starwood owned and leased profits, partially offset by $511 million of lower Legacy-Marriott Global Design profits;equity in (losses) earnings;
partially offset by:
•$2413 million of higher depreciation, amortization, and other expenses, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets;
$31 million of higherlower general, administrative, and other expenses primarily(primarily reflecting lower expenses due to the Starwood Combination; andCOVID-19, partially offset by a $24 million higher provision for credit losses).
$8 million of higher equity in earnings, primarily due to higher earnings by Legacy-Starwood investees.
SHARE-BASEDSTOCK-BASED COMPENSATION
See Footnote 5. Share-Based CompensationNote 6 for more information.
NEW ACCOUNTING STANDARDS
See Footnote 2. Summary of Significant Accounting PoliciesNote 2 for information on our anticipated adoption of recently issuednew accounting standards.
LIQUIDITY AND CAPITAL RESOURCES
Cash RequirementsOur long-term financial objectives include diversifying our financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At year-end 2020, our long-term debt had a weighted average interest rate of 3.7 percent and a weighted average maturity of approximately 6.0 years. Including the effect of interest rate swaps, the ratio of our fixed-rate long-term debt to our total long-term debt was 0.8 to 1.0 at year-end 2020.
In response to the negative impact COVID-19 had on our cash from operations in 2020, which we expect to continue to be negatively impacted as discussed above, we have taken numerous actions to preserve our financial flexibility and manage our debt maturities, which include:
•Substantially reducing our corporate general and administrative costs, reimbursed expenses we incur on behalf of our owners and franchisees, and our capital expenditures and other investment spending, and implementing restructuring plans, as we discuss under the “Impact of COVID-19” section above;
•Suspending share repurchases and dividends until conditions improve and until permitted under our Credit Facility;
•Drawing under the Credit Facility, as we discuss under the “Sources of Liquidity-Our Credit Facility” section below;
•Amending the Credit Facility to, among other things, waive the quarterly-tested leverage covenant in the Credit Facility through and including the fourth quarter of 2021, as we discuss under the “Sources of Liquidity-Our Credit Facility” section below;
•Issuing $3.6 billion aggregate principal amount of senior notes, and repurchasing and retiring approximately $853 million aggregate principal amount of the Company’s outstanding senior notes maturing in 2022, which we discuss under the “Sources of Liquidity - Senior Notes Issuances and Repurchases” section below; and
•Raising $920 million of cash by entering into amendments to the existing agreements for our U.S.-issued co-brand credit cards, which we discuss under the “Co-brand Credit Card Agreements” section below.
We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to fund our liquidity needs. We currently believe the Credit Facility, our cash on hand, and our access to capital markets remain adequate to meet our liquidity requirements.
Sources of Liquidity
Our Credit Facility
We are party to a multicurrency revolving credit agreement (the “Credit Facility”) thatOur Credit Facility provides for up to $4$4.5 billion of aggregate effective borrowings for general corporate needs, including to support our commercial paper program if and general corporate needs, including working capital, capital expenditures, share repurchases, letters of credit, and acquisitions.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. While anyWe classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings and/or borrowings under our Credit Facility generally have short-term maturities, we classify the outstanding borrowings 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 10, 2021.28, 2024. In 2020, we made borrowings of $4.5 billion and repayments of $3.6 billion, resulting in total outstanding borrowings under the Credit Facility of $0.9 billion as of December 31, 2020.
The Credit Facility contains certain covenants, including a single financial covenant that limits our maximum leverage (theLeverage Ratio (as defined in the Credit Facility, and generally consisting of the ratio of Adjusted Total Debt to EBITDA, each as defined in the Credit Facility)Facility, and subject to not more than 4additional adjustments as described therein). On April 13, 2020, we entered into an amendment to 1. Thethe Credit Facility defines EBITDA(the “First Credit Facility Amendment”) under which the covenant governing the permitted Leverage Ratio is waived through and including the first quarter of 2021 (the “Covenant Waiver Period”), which waiver period may end sooner at our election, and the required leverage levels for such covenant are adjusted once re-imposed at the end of the Covenant Waiver Period (starting at 5.50 to 1.00 when the leverage test is first re-imposed and gradually stepping down to 4.00 to 1.00 over the succeeding seven fiscal quarters, as net income less cost reimbursement revenue, plus reimbursed expenses, plusfurther described in the sumCredit Facility). The First Credit Facility Amendment also imposes a monthly-tested minimum liquidity covenant for the duration of the Covenant Waiver Period and makes certain other amendments to the terms of the Credit Facility, including increasing the interest expense, income taxes, depreciation, amortization, and non-recurring non-cash charges.fees payable on the Credit Facility for the duration of the Covenant Waiver Period, tightening certain existing covenants and imposing additional covenants for the duration of the Covenant Waiver Period, including restricting dividends and share repurchases.
On January 26, 2021, we entered into two more amendments to the Credit Facility (the “New Credit Facility Amendments,” and together with the First Credit Facility Amendment, the “Credit Facility Amendments”), which extend the
Covenant Waiver Period through and including the fourth quarter of 2021 (which waiver period may end sooner at our election), revise the required leverage levels for such covenant when it is re-imposed at the end of the Covenant Waiver Period (starting at 5.50 to 1.00 when the leverage test is first re-imposed and gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal quarters, as further described in the Credit Facility), and increase the minimum liquidity amount under the liquidity covenant that is tested monthly for the duration of the Covenant Waiver Period. The New Credit Facility Amendments also make certain other amendments to the terms of the Credit Facility, including reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency Rate.
Our outstanding public debt does not contain a corresponding financial covenant or a requirement that we maintain certain financial ratios. We currently satisfy the covenants in our Credit Facility, and public debt instruments, including the leverageliquidity covenant under the Credit Facility,Facility.
Senior Notes Issuances and do not expect Repurchases
On April 16, 2020, we issued $1.6 billion aggregate principal amount of 5.750 percent Series EE Notes due May 1, 2025 (the covenants will restrict“Series EE Notes”). We pay interest on the Series EE Notes in May and November of each year, commencing in November 2020. We received net proceeds of approximately $1.581 billion from the offering of the Series EE Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes.
On June 1, 2020, we issued $1.0 billion aggregate principal amount of 4.625 percent Series FF Notes due June 15, 2030 (the “Series FF Notes”). We pay interest on the Series FF Notes in June and December of each year, commencing in December 2020. We received net proceeds of approximately $985 million from the offering of the Series FF Notes, after deducting the underwriting discount and estimated expenses. We used the majority of these proceeds to repurchase Senior Notes with near term maturities, as discussed below and in Note 10.
In June 2020, we completed a tender offer (the “Tender Offer”) and retired $853 million aggregate principal amount of our ability to meetSenior Notes consisting of:
•$351 million of our anticipated borrowing2.3% Series Q Notes maturing January 15, 2022;
•$176 million of our 3.3% Series L Notes maturing September 15, 2022; and guarantee levels or increase those levels should we decide to do so in the future.
•$326 million of our 2.1% Series DD Notes maturing October 3, 2022.
We believeused proceeds from our Series FF Notes offering to complete the Credit Facilityrepurchase of such notes, including the payment of accrued interest and our access to capital markets, together with cashother costs incurred.
On August 14, 2020, we expect to generateissued $1.0 billion aggregate principal amount of 3.500 percent Series GG Notes due October 15, 2032 (the “Series GG Notes”). We will pay interest on the Series GG Notes in April and October of each year, commencing in April 2021. We received net proceeds of approximately $984 million from operations, remain adequate to meetthe offering of the Series GG Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes, including the repayment of a portion of our short-term and long-term liquidity requirements, finance our long-term growth plans, meet debt service, and fulfill other cash requirements.
We issue commercial paper in the U.S. We do not have purchase commitments from buyers for our commercial paper; therefore, our ability to issue commercial paper is subject to market demand. We reserve unused capacity under our Credit Facility to repay outstanding commercial paper borrowings if the commercial paper market is not available to us for any reason when outstanding borrowings mature. We do not expect that fluctuations in the demand for commercial paper will affect our liquidity, given our borrowing capacity under the Credit Facility.
At year-end 2018,Commercial Paper
Due to changes to our available borrowing capacity amounted to $2,067 million and reflected borrowing capacity of $1,751 million under our Credit Facility and our cash balance of $316 million. We calculated that borrowing capacity by taking $4 billion of effective aggregate bank commitments under our Credit Facility and subtracting $2,249 million of outstanding commercial paper (there being no outstanding letters of credit under our Credit Facility).
We monitor the statusratings as a result of the capital markets and regularly evaluate the effect that changes in capital market conditions may haveimpact of COVID-19 on our ability to execute our announced growth plans and fund our liquidity needs. We expect to continue meeting part of our financing and liquidity needs primarily throughbusiness, we currently are not issuing commercial paper borrowings, issuances of Senior Notes, and access to long-term committed credit facilities. If conditions in the lodging industry deteriorate, or if disruptions in the capital markets take place as they did in the immediate aftermath of both the 2008 worldwide financial crisis and the events of September 11, 2001,paper. As a result, we may be unable to place some or all of our commercial paper on a temporary or extended basis and may have had to rely more on borrowings under the Credit Facility and issuance of senior notes, which we believe will be adequate to fundcarry higher interest costs than our liquidity needs, including repayment of debt obligations, but which may carry a higher cost than commercial paper. Since
Co-brand Credit Card Agreements
In May 2020, we continuesigned amendments to have ample flexibility under the Credit Facility’s covenants, we expect that undrawn bank commitments underexisting agreements for our U.S.-issued co-brand credit cards associated with our Loyalty Program. These amendments provided the Company with $920 million of cash from the prepayment of certain future revenues, the early payment of a previously committed signing bonus, and the pre-purchase of Marriott Bonvoy points and other consideration. We recorded the amount of cash received primarily in the deferred revenue caption, and the remainder in the liability for guest loyalty program captions, on our Balance Sheet.
Uses of Cash
Cash, cash equivalents, and restricted cash totaled $894 million at December 31, 2020, an increase of $641 million from year-end 2019, primarily reflecting Senior Notes issuances, net of repayments ($1,797 million), Credit Facility will remain available to us even if business conditions were to deteriorate markedly.borrowings, net of repayments ($900 million), net cash provided by operating activities ($1,639 million), and dispositions ($260 million). The following cash outflows partially offset these cash inflows: commercial paper repayments, net of borrowings ($3,190 million),
dividend payments ($156 million), purchase of treasury stock ($150 million), capital and technology expenditures ($135 million), other debt repayments, net of borrowings ($123 million), and financing outflows for employee stock-based compensation withholding taxes ($103 million).
Cash from Operations
CashNet cash provided by operating activities decreased by $46 million in 2020 compared to 2019, primarily due to the net loss that we recorded in 2020 (adjusted for non-cash items) due to COVID-19, partially offset by net cash inflows from operationsour Loyalty Program, including the one-time cash payments as a result of the amendments to our co-brand credit card agreements discussed in Note 2, a cash benefit from working capital changes, and non-cash itemslower cash paid for the last three fiscal years are as follows: income taxes. Working capital changes primarily reflect lower accounts receivable due to lower fee and cost reimbursement revenues and a higher allowance for credit losses, lower accounts payable due to lower purchasing activity, and lower bonus accruals.
|
| | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 |
| Cash from operations | $ | 2,357 |
| | $ | 2,227 |
| | $ | 1,619 |
|
Non-cash items (1) | 287 |
| | 1,397 |
| | 514 |
|
| |
(1)
| Includes depreciation, amortization, share-based compensation, deferred income taxes, and contract investment amortization. |
Our ratio of current assets to current liabilities was 0.4 to 1.0 at year-end 2018 and 0.5 to 1.0 at both year-end 2017.2020 and year-end 2019. We minimize working capital through cash management, strict credit-granting policies, and aggressive collection efforts. We also have significant borrowing capacity under our Credit Facility should we need additional working capital.
Investing Activities Cash Flows
Acquisition of a Business, Net of Cash Acquired. Cash outflows of $2,392 million in 2016 were due to the Starwood Combination. See Footnote 3. Dispositions and Acquisitions for more information.
Capital Expenditures and Other Investments. We made capital expenditures, including expenditures on technology, of $556$135 million in 2018, $2402020 and $653 million in 2017, and $199 million in 2016.2019. Capital expenditures in 2018 increased2020 decreased by $316$518 million compared to 2017,2019, primarily reflecting the acquisition of the Sheraton Grand Phoenix, improvements tonet lower spending on owned and leased properties and our worldwide systems and net higher spending on several owned properties. Capital expenditures in 2017 increased by $41 million compared to 2016, primarily due to improvements to our worldwide systemsthe 2019 acquisitions of a U.S. & Canada property and improvements to hotels acquired in the Starwood Combination.Elegant Hotels Group plc (“Elegant”).
We expect spending on capital expenditures and other investments will total approximately $500$575 million to $700$650 million for 2019,2021, including acquisitions, loan advances,contract acquisition costs, equity and other investments, contract acquisition costs,loan advances, and various capital expenditures (including approximately $225$220 million for maintenance capital spending)spending and our new headquarters).
Over time, we have sold lodging properties, both completed and under development, subject to long-term management agreements. The ability of third-party purchasers to raise the debt and equity capital necessary to acquire such properties depends in part on the perceived risks in the lodging industry and other constraints inherent in the capital markets. We monitor the status of the capital markets and regularly evaluate the potential impact of changes in capital market conditions on our business operations. In the Starwood Combination, we acquired various hotels and joint ventureequity interests in various hotels, mostmany of which we have sold or are seeking to sell,sell. We have made, and in 2018, we acquired the Sheraton Grand Phoenix, which we expect to renovate and sell subject to a long-term management agreement. We also expect to continue making, selective and opportunistic investments to add units to our lodging business, which may include property acquisitions and renovations (such as our 2019 acquisitions of the W New York - Union Square and Elegant), new construction, loans, guarantees, and noncontrolling equity investments. Over time, we seek to minimize capital invested in our business through asset sales subject to long term operatinglong-term management or franchise agreements.
Fluctuations in the values of hotel real estate generally have little impact on our overall business results because: (1) we own less than one percent of hotels that we operate or franchise; (2) management and franchise fees are generally based upon hotel revenues and profits rather than current hotel property values; and (3) our management agreements generally do not terminate upon hotel sale or foreclosure.
Dispositions. Property and asset sales generated $479$260 million cash proceeds in 20182020 and $1,418$395 million in 2017.2019. See Footnote 3. Dispositions and AcquisitionsNote 4 for more information on dispositions.
Loan Activity. From time to time, we make loans to owners of hotels that we operate or franchise. Loan collections,advances, net of loan advances,collections, amounted to $35$33 million in 2018,2020, compared to net collections of $94$21 million in 2017.2019. At year-end 2018,2020, we had $131$163 million of senior, mezzanine, and other loans outstanding, compared to $149$126 million outstanding at year-end 2017.
Equity Method Investments. Cash outflows of $72 million in 2018, $62 million in 2017, and $13 million in 2016 for equity method investments primarily reflect our investments in several joint ventures.2019.
Financing Activities Cash Flows
Debt. Debt increaseddecreased by $1,109$564 million in 2018,2020, to $9,347$10,376 million at year-end 20182020 from $8,238$10,940 million at year-end 2017, primarily due to the issuance2019. See “Sources of our Series X, Y, Z, and AA Notes, partially offset by the maturity of our Series S Notes ($330 million) and lower outstanding commercial paper ($126 million). See Footnote 10. Long-Term Debt for additional information on the debt issuances.
Our financial objectives include diversifying our financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At year-end 2018, our long-term debt had a weighted average interest rate of 3.3 percent and a weighted average maturity of approximately 4.8 years. The ratio of our fixed-rate long-term debt to our total long-term debt was 0.7 to 1.0 at year-end 2018.
See the “Cash Requirements and Our Credit FacilityLiquidity,” caption in this “Liquidity and Capital Resources” section and Note 10 for moreadditional information on ourthe Senior Note and Credit Facility.Facility transactions in 2020.
Share Repurchases. We purchased 21.51.0 million shares of our common stock in 20182020 (in the 2020 first quarter) at an average price of $130.67$145.42 per share 29.2and 17.3 million shares in 20172019 at an average price of $103.66 per share, and 8.0 million shares in 2016 at an average price of $71.55$130.79 per share. At year-end 2018, 10.72020, 17.4 million shares remained available for repurchase under Board approved authorizations,authorizations. We do not anticipate repurchasing additional shares until business conditions improve, and on February 15, 2019,are prohibited from doing so for the duration of the Covenant Waiver Period under our Board of Directors further increased our common stock repurchase authorization by 25 million shares.Credit Facility, with certain exceptions. For additional information, see “Fourth Quarter 20182020 Issuer Purchases of Equity Securities” in Part II, Item 5.
Dividends. Our Board of Directors declared the following quarterly cash dividends in 2018: (1) $0.33 per share declared on On February 9, 2018 and paid March 30, 2018 to shareholders of record on February 23, 2018, (2) $0.41 per share declared on May 4, 2018 and paid June 29, 2018 to shareholders of record on May 18, 2018, (3) $0.41 per share declared on August 9, 2018 and paid September 28, 2018 to shareholders of record on August 23, 2018, and (4) $0.41 per share declared on November 8, 2018 and paid December 31, 2018 to shareholders of record on November 21, 2018. Our14, 2020, our Board of Directors declared a cash dividend of $0.41$0.48 per share on February 15, 2019, payable on March 29, 2019 to shareholdersstockholders of record on February 28, 2020, which we paid on March 1, 2019.31, 2020. We do not anticipate declaring further cash dividends until business conditions improve and are prohibited from doing so for the duration of the Covenant Waiver Period under our Credit Facility.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table summarizes our contractual obligations at year-end 2018:2020:
| | | | | | Payments Due by Period | | | | Payments Due by Period |
| ($ in millions) | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | ($ in millions) | Total | | Less Than
1 Year | | 1-3 Years | | 3-5 Years | | After
5 Years |
Debt (1) | $ | 10,483 |
| | $ | 1,074 |
| | $ | 4,392 |
| | $ | 2,054 |
| | $ | 2,963 |
| Debt (1) | $ | 12,453 | | | $ | 1,542 | | | $ | 2,143 | | | $ | 4,281 | | | $ | 4,487 | |
Capital lease obligations (1) | 230 |
| | 13 |
| | 26 |
| | 26 |
| | 165 |
| |
Finance lease obligations (1) | | Finance lease obligations (1) | 206 | | | 13 | | | 27 | | | 28 | | | 138 | |
| Operating leases where we are the primary obligor | 2,073 |
| | 171 |
| | 315 |
| | 292 |
| | 1,295 |
| Operating leases where we are the primary obligor | 1,890 | | | 184 | | | 349 | | | 284 | | | 1,073 | |
| Purchase obligations | 286 |
| | 153 |
| | 116 |
| | 17 |
| | — |
| Purchase obligations | 437 | | | 186 | | | 185 | | | 66 | | | — | |
| Other noncurrent liabilities | 136 |
| | 3 |
| | 28 |
| | 20 |
| | 85 |
| Other noncurrent liabilities | 178 | | | — | | | 97 | | | 28 | | | 53 | |
| Total contractual obligations | $ | 13,208 |
| | $ | 1,414 |
| | $ | 4,877 |
| | $ | 2,409 |
| | $ | 4,508 |
| Total contractual obligations | $ | 15,164 | | | $ | 1,925 | | | $ | 2,801 | | | $ | 4,687 | | | $ | 5,751 | |
(1)Includes principal as well as interest.
| |
(1)
| Includes principal as well as interest payments. |
The preceding table does not reflect projected Deemed Repatriation Transition Tax payments totaling $507$395 million at year-end 2020 as a result of the U.S. tax legislation enacted on December 22, 2017, commonly referred to as the 2017 Tax Cuts and Jobs Act.In addition, the table does not reflect unrecognized tax benefits, including interest and penalties, at year-end 20182020 of $559$508 million.
In addition to the purchase obligations noted in the preceding table, in the normal course of business we enter into purchase commitments to manage the daily operating needs of the hotels that we manage. Since we are reimbursed from the cash flows of the hotels or by working capital calls to the hotel owners, these obligations have minimal impact on our net income and cash flow.
Other Commitments
The following table summarizes our guarantee, investment, and loan commitments at year-end 2018:2020: | | | ($ in millions) | Total Amounts Committed | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | ($ in millions) | Total
Amounts
Committed | | Less Than
1 Year | | 1-3 Years | | 3-5 Years | | After
5 Years |
| Guarantee commitments (expiration by period) | $ | 346 |
| | $ | 53 |
| | $ | 78 |
| | $ | 123 |
| | $ | 92 |
| Guarantee commitments (expiration by period) | $ | 279 | | | $ | 35 | | | $ | 81 | | | $ | 40 | | | $ | 123 | |
| Investment and loan commitments (expected funding by period) | 19 |
| | 8 |
| | 9 |
| | 2 |
| | — |
| Investment and loan commitments (expected funding by period) | 22 | | | 12 | | | 7 | | | 3 | | | — | |
| Total other commitments | $ | 365 |
| | $ | 61 |
| | $ | 87 |
| | $ | 125 |
| | $ | 92 |
| Total other commitments | $ | 301 | | | $ | 47 | | | $ | 88 | | | $ | 43 | | | $ | 123 | |
In conjunction with financing obtained for specific projects or properties owned by joint venturesentities in which we are a party,have an equity investment, we may provide industry standard indemnifications to the lender for loss, liability, or damage occurring as a result of our actions or the actions of the other joint venture owner.entity.
In addition,Additionally, in 2017, we granted a hotel owner a one-time right, exercisable in 2022, to require us to purchase the leasehold interest in the land and hotel for $300 million in cash exercisable(the “put option”). If the owner exercises the put option, we have the option to purchase, at the same time the put transaction closes, the fee simple interest in 2022. See Footnote 7. Commitmentsthe underlying land for an additional $200 million in cash (the “call option”). We also have the right to defer the closing on the put and Contingenciescall options, if exercised, to December 2024. We account for more information.the put option as a guarantee and as of December 31, 2020, believe it is probable the hotel owner will exercise the put option and we will exercise the call option.
For further information, including the nature of the commitments and their expirations, see the “Commitments” caption in Footnote 7. Commitments and Contingencies.Note 8.
Letters of Credit
At year-end 2018,2020, we had $136$156 million of letters of credit outstanding (all outside the Credit Facility, as defined in Footnote 10. Long-Term Debt)Note 10), most of which were for our self-insurance programs.Surety bonds issued as of year-end 20182020 totaled $152$163 million, most of which state governments requested in connection with our self-insurance programs.
RELATED PARTY TRANSACTIONS
Equity Method Investments
We have equity method investments in entities that own properties for which we provide management services and receive fees. In addition, in some cases we provide loans, preferred equity, or guarantees to these entities.
Other Related Parties
We provide management services for and receive fees from properties owned by JWM Family Enterprises, L.P., which is beneficially owned and controlled by J.W. Marriott, Jr., Deborah Marriott Harrison, and other membersTable of the Marriott family.ContentsFor more information, including the impact to our financial statements of transactions with these related parties, see Footnote 18. Related Party Transactions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting policy and estimate to be critical if: (1) we must make assumptions that were uncertain when the estimate was made; and (2) changes in the estimate, or selection of a different estimate methodology could have a material effect on our consolidated results of operations or financial condition. Management has discussed the development and selection of its critical accounting policies and estimates with the Audit Committee of our Board of Directors.
While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate or assumption was made. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments due to unforeseen events or otherwise could have a material impact on our financial position or results of operations.
See Footnote 2. Summary of Significant Accounting PoliciesNote 2 for further information related to our critical accounting policies and estimates, which are as follows:
Loyalty Program, including how we estimate the breakage of hotel points, credit card points, and free night certificates, the volume of points and free night certificates that will be issued under our co-brand credit card agreements, the amount of consideration to which we will be entitled under our co-brand credit card agreements, and the stand-alone selling prices of goods and services provided under our co-brand credit card agreements;
Goodwill, including how we evaluate the fair value of reporting units and when we record an impairment loss on goodwill;
Intangibles and Long-Lived Assets, including how we evaluate the fair value of intangibles and long-lived assets and when we record impairment losses on intangibles and long-lived assets;
Investments, including information on how we evaluate the fair value of investments and when we record impairment losses on investments; and
Loan Loss Reserves, including information on how we measure impairment on senior, mezzanine, and other loans of these types;
Income Taxes, including information on how we determine our current year amounts payable or refundable, our estimate of deferred tax assets and liabilities, and the impacts of the 2017 Tax Act; and
Business Combinations, including the assumptions that we make to estimate the fair values of assets acquired and liabilities assumed related to discount rates, royalty rates, and the amount and timing of future cash flows.
| |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in interest rates, stock prices, currency exchange rates, and debt prices. We manage our exposure to these risks by monitoring available financing alternatives, through development and application of credit granting policies and by entering into derivative arrangements. We do not foresee any significant changes in either our exposure to fluctuations in interest rates or currency rates or how we manage such exposure in the future.
We are exposed to interest rate risk on our floating-rate notes receivable and floating-rate debt. Changes in interest rates also impact the fair value of our fixed-rate notes receivable and the fair value of our fixed-rate long-term debt.
We are also subject to risk from changes in debt prices from our investments in debt securities and fluctuations in stock price from our investmentinvestments in a publicly traded company.companies. Changes in the price of the underlying stock can impact the fair value of our investment.
We use derivative instruments, including cash flow hedges, fair value hedges, net investment in non-U.S. operations hedges, and other derivative instruments, as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and currency exchange rates. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes. See Footnote 2. Summary of Significant Accounting PoliciesNote 2 for more information on derivative instruments.
The following table sets forth the scheduled maturities and the total fair value as of year-end 20182020 for our financial instruments that are impacted by market risks:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturities by Period | | | | |
| ($ in millions) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | There-
after | | Total
Carrying
Amount | | Total
Fair
Value |
Assets - Maturities represent expected principal receipts, fair values represent assets. |
| Fixed-rate notes receivable | $ | 2 | | | $ | 2 | | | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 35 | | | $ | 42 | | | $ | 33 | |
| Average interest rate | | | | | | | | | | | | | 0.83 | % | | |
| Floating-rate notes receivable | $ | 2 | | | $ | 83 | | | $ | 1 | | | $ | 13 | | | $ | 1 | | | $ | 21 | | | $ | 121 | | | $ | 112 | |
| Average interest rate | | | | | | | | | | | | | 3.77 | % | | |
Liabilities - Maturities represent expected principal payments, fair values represent liabilities. |
| Fixed-rate debt | $ | (849) | | | $ | (572) | | | $ | (674) | | | $ | — | | | $ | (2,293) | | | $ | (3,804) | | | $ | (8,192) | | | $ | (9,100) | |
| Average interest rate | | | | | | | | | | | | | 4.06 | % | | |
| Floating-rate debt | $ | (317) | | | $ | (228) | | | $ | — | | | $ | (1,486) | | | $ | — | | | $ | — | | | $ | (2,031) | | | $ | (2,035) | |
| Average interest rate | | | | | | | | | | | | | 1.63 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturities by Period | | | | |
| ($ in millions) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | There- after | | Total Carrying Amount | | Total Fair Value |
Assets - Maturities represent expected principal receipts, fair values represent assets. |
| Fixed-rate notes receivable | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | 38 |
| | $ | 46 |
| | $ | 46 |
|
| Average interest rate | | | | | | | | | | | | | 1.27 | % | | |
| Floating-rate notes receivable | $ | 4 |
| | $ | 60 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 21 |
| | $ | 85 |
| | $ | 76 |
|
| Average interest rate | | | | | | | | | | | | | 4.65 | % | | |
Liabilities - Maturities represent expected principal payments, fair values represent liabilities. |
| Fixed-rate debt | $ | (827 | ) | | $ | (359 | ) | | $ | (857 | ) | | $ | (1,107 | ) | | $ | (687 | ) | | $ | (2,555 | ) | | $ | (6,392 | ) | | $ | (6,254 | ) |
| Average interest rate | | | | | | | | | | | | | 3.45 | % | | |
| Floating-rate debt | $ | — |
| | $ | (547 | ) | | $ | (2,245 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (2,792 | ) | | $ | (2,793 | ) |
| Average interest rate | | | | | | | | | | | | | 2.88 | % | | |
| |
Item 8. | Financial Statements and Supplementary Data. |
Item 8. Financial Statements and Supplementary Data.
The following financial information is included on the pages indicated:
MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Marriott International, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting. The Company has designed its internal control over financial reporting to provide reasonable assurance on the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of inherent limitations in internal control over financial reporting, such controls may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Company’s annual consolidated financial statements, management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the “COSO criteria”).
Based on this assessment, and the existence of a material weakness related to the accounting for our Loyalty Program further described in Part II, Item 9A, management has concluded that, applying the COSO criteria, as of December 31, 2018,2020, the Company’s internal control over financial reporting was not effective to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, a copy of which appears on the following page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the ShareholdersStockholders and Board of Directors of Marriott International, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Marriott International, Inc.’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Marriott International, Inc. (the Company) has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on the COSO criteria.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in controls whereby the Company did not have a sufficient complement of resources, including IT systems and accounting personnel, to fully evaluate, value and perform the analysis and ongoing accounting associated with the guest loyalty program.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Marriott International, Inc.the Company as of December 31, 20182020 and 2017,2019, and the related consolidated statements of (loss) income, comprehensive (loss) income, shareholders’stockholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2018,2020, and the related notes. This material weakness was considered in determining the nature, timingnotes, and extent of audit tests applied in our audit of the 2018 consolidated financial statements, and this report does not affect our report dated March 1, 2019, whichFebruary 18, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Tysons, Virginia
March 1, 2019February 18, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the ShareholdersStockholders and Board of Directors of Marriott International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Marriott International, Inc. (the Company) as of December 31, 20182020 and 2017,2019, and the related consolidated statements of (loss) income, comprehensive (loss) income, shareholders’stockholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2018,2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20182020 and 2017,2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated March 1, 2019February 18, 2021 expressed an adverseunqualified opinion thereon.
Adoption of New Accounting Standards
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for: (1) revenue from contracts with customers and (2) intercompany sales of assets other than inventory in fiscal year 2018 due to the adoption of the new revenue standard and the new income tax accounting standard. The Company adopted the new revenue standard using the full retrospective approach and adopted the income tax accounting standard using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
|
| | | | | | | |
| | Accounting for the Loyalty Program |
| Description of the Matter | | During 2020 the Company recognized $1,118 millionof revenues previously deferred as of December 31, 2019 and had deferred revenue of $6,271 million as of December 31, 2020 associated with the Marriott Bonvoy guest loyalty program (the “Loyalty Program”). As discussed in Note 2 to the financial statements, the Company recognizes revenue for performance obligations relating to Loyalty Program points and free night certificates as they are redeemed and the related performance obligations are satisfied. The Company recognizes a portion of revenue for the Licensed IP performance obligation under the sales-based royalty criteria, with the remaining portion recognized on a straight-line basis over the contract term. Revenue is recognized utilizing complex models based upon the estimated standalone selling price per point and per free night certificate, which includes judgment in making the estimates of variable consideration and breakage of points. |
| | |
| | Auditing Loyalty Program results is complex due to: (1) the complexity of models and high volume of data used to monitor and account for Loyalty Program results, (2) the complexity in accounting for the amendments to the Company’s co-brand credit card agreements during May 2020, as well as the judgment in estimating the relative standalone selling price of the related performance obligations, (3) the complexity and judgment of estimating the standalone selling price per Loyalty Program point, including both the estimate of variable consideration under the Company’s co-brand credit card agreements which has significant estimation uncertainty associated with projecting future cardholder spending and redemption activity, and the estimated breakage of Loyalty Program points which requires the use of specialists and (4) the material weakness in the Company’s internal control over financial reporting that existed for a portion of the year relating to the insufficient complement of resources, including IT and accounting processes and personnel, to perform the ongoing accounting associated with the Loyalty Program. |
| | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of certain controls over the Company’s process of accounting for the Loyalty Program. For example, we tested controls over the accounting methods and model used in reporting results of the Loyalty Program, management’s review of the assumptions and data inputs utilized in estimating the standalone selling price per Loyalty Program point, as well as the development of the estimated breakage. |
| | |
| | To test the recognition of revenues and costs associated with the Loyalty Program, we performed audit procedures that included, among others, testing the clerical accuracy and consistency with US GAAP of the accounting model developed by the Company to recognize revenue and costs associated with the Loyalty Program, and testing significant inputs into the accounting model, including the estimated standalone selling price and recognition of points earned and redeemed during the period. Because of the material weakness that was present for a portion of the year, we expanded our sample sizes selected for substantive testing and performed additional testing over the completeness and accuracy of Loyalty Program data during the portion of the year in which the material weakness was present. We involved our valuation specialists to assist in our testing procedures with respect to the estimate of relative standalone selling price of the performance obligations associated with the amendment to the co-brand credit card agreements in May 2020. We involved our actuarial professionals to assist in our testing procedures with respect to the estimate of the breakage of Loyalty Program points. We evaluated management’s methodology for estimating the breakage of Loyalty Program points, and we tested underlying data and actuarial assumptions used in estimating the breakage. We evaluated the reasonableness of management’s assumptions, including projections of cash flows, used to estimate variable consideration under the Company’s co-brand credit cards. |
| | |
| | | | | | | | |
| | Accounting for General & Administrative Expenses and Reimbursed Expenses |
| Description of the Matter | | During 2020 the Company recognized $762 million of general and administrative expenses and $8,435 million of reimbursed expenses. As discussed in Note 2 to the financial statements, the Company incurs certain expenses that are for the benefit of, and reimbursable from, hotel owners and franchisees. Such amounts are recorded in the period in which the expense is incurred and include judgment with respect to the allocation of certain costs between general & administrative expenses, which are non-reimbursable, and reimbursed expenses. |
| | |
| | Auditing the classification of general and administrative expenses and reimbursed expenses is complex due to: (1) judgment associated with testing management’s conclusions regarding the allocation of costs between reimbursable and non-reimbursable expenses, (2) the complexity associated with allocating above-property expenses to hotel owners and franchisees due to the high volume of data used to monitor and account for reimbursed expenses and (3) incentives within management’s compensation structure designed to limit the growth in general and administrative expenses. |
| | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for reimbursed expenses, general and administrative expenses, and the process for allocating expenses. For example, we tested management’s controls over the review of the allocation of certain costs to determine if they were reasonably classified. |
| | |
| | To test the recognition of reimbursed expenses for appropriate classification, we performed audit procedures that included, among others, (1) testing a sample of transactions that were classified within reimbursed expenses in order to evaluate the appropriate accounting treatment and financial statement classification pursuant to the terms of the management and franchise agreements, (2) performed analytical procedures over total reimbursed expenses and general and administrative expenses in order to identify any trends or indicators of material errors in the classification of expenses, (3) tested manual journal entries made to reimbursed expenses and general and administrative expenses and (4) evaluated the methodology of cost allocations, including any material changes to allocations during the period. |
| | |
| | Accounting for Indefinite-lived Brand Intangible Assets |
| Description of the Matter | | At December 31, 2020 the Company had $5,995 million of indefinite-lived intangible brand assets. As discussed in Note 1 to the financial statements, the novel coronavirus (“COVID-19”) pandemic created uncertainty and increased subjectivity with respect to the development of estimates of future business performance. Further, as discussed in Note 2 to the financial statements, the Company evaluates the carrying value of its indefinite-lived brand intangible assets for impairment annually, or more frequently when factors indicate that the Company may not be able to recover the carrying value. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived brand intangible assets are less than the carrying amount. However, when potential indicators of impairment exist, such as in consideration of the impact of COVID-19 on operations, the Company performs an analysis to determine the recoverability of the asset by comparing the estimated fair value to the carrying value of the asset. |
| | |
| | Auditing the accounting for indefinite-lived brand intangible assets is complex and judgmental as a result of the subjectivity in estimating the fair value of the indefinite-lived brand intangible assets. In particular, the fair value estimates are developed using the income approach and are subject to significant assumptions such as revenue growth, royalty rates and discount rates. These assumptions may be affected by the impact of the COVID-19 pandemic on future market conditions, including the duration of the recovery period. |
| | |
| | | | | | | | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for indefinite-lived brand intangible assets. For example, we tested management’s controls over the review of the significant assumptions used in estimating the fair value of indefinite-lived intangible assets. |
| | |
| | To test the fair value of the indefinite-lived brand intangible assets our procedures included, among others, assessing the methodologies used in evaluating brand assets for impairment, involving our valuation specialists to assist in evaluating significant assumptions used by management in estimating the fair value of the brand assets, and testing the completeness and accuracy of underlying data used by management in their analyses. We compared the significant assumptions used by management to historical operating results and relevant observable market information including current industry, market and economic trends. Our procedures included evaluating the historical accuracy of management’s forecasts and performing sensitivity analyses to evaluate the impact of changes to significant assumptions. |
We have served as the Company’s auditor since 2002.
Tysons, Virginia
March 1, 2019February 18, 2021
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
Fiscal Years 2018, 2017,2020, 2019, and 20162018
($ in millions, except per share amounts)
|
| | | | | | | | | | | |
| | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| REVENUES | | | | | |
Base management fees (1) | $ | 1,140 |
| | $ | 1,102 |
| | $ | 806 |
|
| Franchise fees | 1,849 |
| | 1,586 |
| | 1,157 |
|
Incentive management fees (1) | 649 |
| | 607 |
| | 425 |
|
| Gross fee revenues | 3,638 |
| | 3,295 |
| | 2,388 |
|
Contract investment amortization (1) | (58 | ) | | (50 | ) | | (40 | ) |
| Net fee revenues | 3,580 |
| | 3,245 |
| | 2,348 |
|
Owned, leased, and other revenue (1) | 1,635 |
| | 1,752 |
| | 1,125 |
|
Cost reimbursement revenue (1) | 15,543 |
| | 15,455 |
| | 11,934 |
|
| | 20,758 |
| | 20,452 |
| | 15,407 |
|
| OPERATING COSTS AND EXPENSES | | | | | |
| Owned, leased, and other-direct | 1,306 |
| | 1,411 |
| | 901 |
|
Depreciation, amortization, and other (1) | 226 |
| | 229 |
| | 119 |
|
General, administrative, and other (1) | 927 |
| | 921 |
| | 743 |
|
| Merger-related costs and charges | 155 |
| | 159 |
| | 386 |
|
Reimbursed expenses (1) | 15,778 |
| | 15,228 |
| | 11,834 |
|
| | 18,392 |
| | 17,948 |
| | 13,983 |
|
| OPERATING INCOME | 2,366 |
| | 2,504 |
| | 1,424 |
|
Gains and other income, net (1) | 194 |
| | 688 |
| | 5 |
|
| Interest expense | (340 | ) | | (288 | ) | | (234 | ) |
Interest income (1) | 22 |
| | 38 |
| | 35 |
|
Equity in earnings (1) | 103 |
| | 40 |
| | 9 |
|
| INCOME BEFORE INCOME TAXES | 2,345 |
| | 2,982 |
| | 1,239 |
|
| Provision for income taxes | (438 | ) | | (1,523 | ) | | (431 | ) |
| NET INCOME | $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| EARNINGS PER SHARE | | | | | |
| Earnings per share - basic | $ | 5.45 |
| | $ | 3.89 |
| | $ | 2.78 |
|
| Earnings per share - diluted | $ | 5.38 |
| | $ | 3.84 |
| | $ | 2.73 |
|
| | | | | | | | | | | | | | | | | |
| | December 31,
2020 | | December 31,
2019 | | December 31,
2018 |
| REVENUES | | | | | |
| Base management fees | $ | 443 | | | $ | 1,180 | | | $ | 1,140 | |
| Franchise fees | 1,153 | | | 2,006 | | | 1,849 | |
| Incentive management fees | 87 | | | 637 | | | 649 | |
| Gross fee revenues | 1,683 | | | 3,823 | | | 3,638 | |
| Contract investment amortization | (132) | | | (62) | | | (58) | |
| Net fee revenues | 1,551 | | | 3,761 | | | 3,580 | |
| Owned, leased, and other revenue | 568 | | | 1,612 | | | 1,635 | |
Cost reimbursement revenue (1) | 8,452 | | | 15,599 | | | 15,543 | |
| 10,571 | | | 20,972 | | | 20,758 | |
| OPERATING COSTS AND EXPENSES | | | | | |
| Owned, leased, and other-direct | 677 | | | 1,316 | | | 1,306 | |
| Depreciation, amortization, and other | 346 | | | 341 | | | 226 | |
| General, administrative, and other | 762 | | | 938 | | | 927 | |
| Restructuring and merger-related charges | 267 | | | 138 | | | 155 | |
Reimbursed expenses (1) | 8,435 | | | 16,439 | | | 15,778 | |
| 10,487 | | | 19,172 | | | 18,392 | |
| OPERATING INCOME | 84 | | | 1,800 | | | 2,366 | |
| Gains and other income, net | 9 | | | 154 | | | 194 | |
| Interest expense | (445) | | | (394) | | | (340) | |
| Interest income | 27 | | | 26 | | | 22 | |
Equity in (losses) earnings (1) | (141) | | | 13 | | | 103 | |
| (LOSS) INCOME BEFORE INCOME TAXES | (466) | | | 1,599 | | | 2,345 | |
| Benefit (provision) for income taxes | 199 | | | (326) | | | (438) | |
| NET (LOSS) INCOME | $ | (267) | | | $ | 1,273 | | | $ | 1,907 | |
| (LOSS) EARNINGS PER SHARE | | | | | |
| (Loss) earnings per share - basic | $ | (0.82) | | | $ | 3.83 | | | $ | 5.45 | |
| (Loss) earnings per share - diluted | $ | (0.82) | | | $ | 3.80 | | | $ | 5.38 | |
| |
(1)(1)See Note 16 for disclosure of related party amounts. | See Footnote 18. Related Party Transactions for disclosure of related party amounts. |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Fiscal Years 2018, 2017,2020, 2019, and 20162018
($ in millions)
|
| | | | | | | | | | | |
| | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Net income | $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| Other comprehensive (loss) income: | | | | | |
| Foreign currency translation adjustments | (391 | ) | | 478 |
| | (311 | ) |
| Derivative instrument adjustments, net of tax | 12 |
| | (14 | ) | | 1 |
|
| Unrealized (loss) gain on available-for-sale securities, net of tax | — |
| | (2 | ) | | 2 |
|
| Pension and postretirement adjustments, net of tax | (8 | ) | | 7 |
| | 5 |
|
| Reclassification of losses, net of tax | 17 |
| | 11 |
| | 2 |
|
| Total other comprehensive (loss) income, net of tax | (370 | ) | | 480 |
| | (301 | ) |
| Comprehensive income | $ | 1,537 |
| | $ | 1,939 |
| | $ | 507 |
|
| | | | | | | | | | | | | | | | | |
| | December 31,
2020 | | December 31,
2019 | | December 31,
2018 |
| Net (loss) income | $ | (267) | | | $ | 1,273 | | | $ | 1,907 | |
| Other comprehensive (loss) income: | | | | | |
| Foreign currency translation adjustments | 229 | | | 35 | | | (391) | |
| Derivative instrument adjustments and other, net of tax | (3) | | | (5) | | | 21 | |
| | | | | |
| | | | | |
| | | | | |
| Total other comprehensive income (loss), net of tax | 226 | | | 30 | | | (370) | |
| Comprehensive (loss) income | $ | (41) | | | $ | 1,303 | | | $ | 1,537 | |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
Fiscal Years-Ended 20182020 and 20172019
($ in millions)
| | | | | | | | | | | |
| December 31,
2020 | | December 31,
2019 |
| ASSETS | | | |
| Current assets | | | |
| Cash and equivalents | $ | 877 | | | $ | 225 | |
| Accounts and notes receivable, net | 1,768 | | | 2,395 | |
| Prepaid expenses and other | 172 | | | 252 | |
| Assets held for sale | 8 | | | 255 | |
| 2,825 | | | 3,127 | |
| Property and equipment, net | 1,514 | | | 1,904 | |
| Intangible assets | | | |
| Brands | 6,059 | | | 5,954 | |
| Contract acquisition costs and other | 2,930 | | | 2,687 | |
| Goodwill | 9,175 | | | 9,048 | |
| 18,164 | | | 17,689 | |
| Equity method investments | 422 | | | 577 | |
| Notes receivable, net | 159 | | | 117 | |
| Deferred tax assets | 249 | | | 154 | |
| Operating lease assets | 752 | | | 888 | |
| Other noncurrent assets | 616 | | | 595 | |
| $ | 24,701 | | | $ | 25,051 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities | | | |
| Current portion of long-term debt | $ | 1,173 | | | $ | 977 | |
| Accounts payable | 527 | | | 720 | |
| Accrued payroll and benefits | 831 | | | 1,339 | |
| Liability for guest loyalty program | 1,769 | | | 2,258 | |
| Accrued expenses and other | 1,452 | | | 1,383 | |
| 5,752 | | | 6,677 | |
| Long-term debt | 9,203 | | | 9,963 | |
| Liability for guest loyalty program | 4,502 | | | 3,460 | |
| Deferred tax liabilities | 83 | | | 290 | |
| Deferred revenue | 1,542 | | | 840 | |
| Operating lease liabilities | 823 | | | 882 | |
| Other noncurrent liabilities | 2,366 | | | 2,236 | |
| Stockholders’ equity | | | |
| Class A Common Stock | 5 | | | 5 | |
| Additional paid-in-capital | 5,851 | | | 5,800 | |
| Retained earnings | 9,206 | | | 9,644 | |
| Treasury stock, at cost | (14,497) | | | (14,385) | |
| Accumulated other comprehensive loss | (135) | | | (361) | |
| 430 | | | 703 | |
| $ | 24,701 | | | $ | 25,051 | |
|
| | | | | | | |
| | December 31,
2018 | | December 31,
2017 |
| ASSETS | | | |
| Current assets | | | |
| Cash and equivalents | $ | 316 |
| | $ | 383 |
|
Accounts and notes receivable, net (1) | 2,133 |
| | 1,973 |
|
Prepaid expenses and other (1) | 249 |
| | 235 |
|
| Assets held for sale | 8 |
| | 149 |
|
| | 2,706 |
| | 2,740 |
|
| Property and equipment, net | 1,956 |
| | 1,793 |
|
| Intangible assets | | | |
| Brands | 5,790 |
| | 5,922 |
|
Contract acquisition costs and other (1) | 2,590 |
| | 2,622 |
|
| Goodwill | 9,039 |
| | 9,207 |
|
| | 17,419 |
| | 17,751 |
|
Equity method investments (1) | 732 |
| | 734 |
|
| Notes receivable, net | 125 |
| | 142 |
|
| Deferred tax assets | 171 |
| | 93 |
|
Other noncurrent assets (1) | 587 |
| | 593 |
|
| | $ | 23,696 |
| | $ | 23,846 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Current liabilities | | | |
| Current portion of long-term debt | $ | 833 |
| | $ | 398 |
|
Accounts payable (1) | 767 |
| | 783 |
|
| Accrued payroll and benefits | 1,345 |
| | 1,214 |
|
| Liability for guest loyalty program | 2,529 |
| | 2,121 |
|
Accrued expenses and other (1) | 963 |
| | 1,291 |
|
| | 6,437 |
| | 5,807 |
|
| Long-term debt | 8,514 |
| | 7,840 |
|
| Liability for guest loyalty program | 2,932 |
| | 2,819 |
|
Deferred tax liabilities (1) | 485 |
| | 605 |
|
| Deferred revenue | 731 |
| | 583 |
|
Other noncurrent liabilities (1) | 2,372 |
| | 2,610 |
|
| Shareholders’ equity | | | |
| Class A Common Stock | 5 |
| | 5 |
|
| Additional paid-in-capital | 5,814 |
| | 5,770 |
|
| Retained earnings | 8,982 |
| | 7,242 |
|
| Treasury stock, at cost | (12,185 | ) | | (9,418 | ) |
| Accumulated other comprehensive loss | (391 | ) | | (17 | ) |
| | 2,225 |
| | 3,582 |
|
| | $ | 23,696 |
| | $ | 23,846 |
|
| |
(1)
| See Footnote 18. Related Party Transactions for disclosure of related party amounts. |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years 2018, 2017,2020, 2019, and 20162018
| | | | December 31,
2018 | | December 31,
2017 | | December 31,
2016 | | December 31,
2020 | | December 31,
2019 | | December 31,
2018 |
| OPERATING ACTIVITIES | | | | | | OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
| |
| Net (loss) income | | Net (loss) income | $ | (267) | | | $ | 1,273 | | | $ | 1,907 | |
| Adjustments to reconcile to cash provided by operating activities: | | | | | | Adjustments to reconcile to cash provided by operating activities: | |
| Depreciation, amortization, and other | 284 |
| | 279 |
| | 159 |
| Depreciation, amortization, and other | 478 | | | 403 | | | 284 | |
| Share-based compensation | 184 |
| | 181 |
| | 212 |
| |
| Stock-based compensation | | Stock-based compensation | 201 | | | 187 | | | 184 | |
| Income taxes | (239 | ) | | 887 |
| | 103 |
| Income taxes | (478) | | | (200) | | | (239) | |
| Liability for guest loyalty program | 520 |
| | 298 |
| | 221 |
| Liability for guest loyalty program | 535 | | | 257 | | | 520 | |
| Contract acquisition costs | (152 | ) | | (185 | ) | | (76 | ) | Contract acquisition costs | (142) | | | (195) | | | (152) | |
| Merger-related charges | 16 |
| | (124 | ) | | 209 |
| |
| Restructuring and merger-related charges | | Restructuring and merger-related charges | 200 | | | 86 | | | 16 | |
| Working capital changes | (76 | ) | | (30 | ) | | (106 | ) | Working capital changes | (28) | | | (273) | | | (76) | |
| (Gain) loss on asset dispositions | (194 | ) | | (687 | ) | | 1 |
| |
| Other | 107 |
| | 149 |
| | 88 |
| |
| Loss (gain) on asset dispositions | | Loss (gain) on asset dispositions | 3 | | | (147) | | | (194) | |
| Deferred revenue changes and other | | Deferred revenue changes and other | 1,137 | | | 294 | | | 107 | |
| Net cash provided by operating activities | 2,357 |
| | 2,227 |
| | 1,619 |
| Net cash provided by operating activities | 1,639 | | | 1,685 | | | 2,357 | |
| INVESTING ACTIVITIES | | | | | | INVESTING ACTIVITIES | | | | | |
| Acquisition of a business, net of cash acquired | — |
| | — |
| | (2,392 | ) | |
| Capital expenditures | (556 | ) | | (240 | ) | | (199 | ) | |
| Capital and technology expenditures | | Capital and technology expenditures | (135) | | | (653) | | | (556) | |
| Dispositions | 479 |
| | 1,418 |
| | 211 |
| Dispositions | 260 | | | 395 | | | 479 | |
| Loan advances | (13 | ) | | (93 | ) | | (32 | ) | Loan advances | (41) | | | (30) | | | (13) | |
| Loan collections | 48 |
| | 187 |
| | 67 |
| Loan collections | 8 | | | 51 | | | 48 | |
| Other | (10 | ) | | (61 | ) | | (1 | ) | Other | (57) | | | (47) | | | (10) | |
| Net cash (used in) provided by investing activities | (52 | ) | | 1,211 |
| | (2,346 | ) | |
| Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 35 | | | (284) | | | (52) | |
| FINANCING ACTIVITIES | | | | | | FINANCING ACTIVITIES | | | | | |
| Commercial paper/Credit Facility, net | (129 | ) | | 60 |
| | 1,373 |
| Commercial paper/Credit Facility, net | (2,290) | | | 951 | | | (129) | |
| Issuance of long-term debt | 1,646 |
| | — |
| | 1,482 |
| Issuance of long-term debt | 3,561 | | | 1,397 | | | 1,646 | |
| Repayment of long-term debt | (397 | ) | | (310 | ) | | (326 | ) | Repayment of long-term debt | (1,887) | | | (835) | | | (397) | |
| Issuance of Class A Common Stock | 4 |
| | 6 |
| | 34 |
| Issuance of Class A Common Stock | — | | | 7 | | | 4 | |
| Dividends paid | (543 | ) | | (482 | ) | | (374 | ) | Dividends paid | (156) | | | (612) | | | (543) | |
| Purchase of treasury stock | (2,850 | ) | | (3,013 | ) | | (568 | ) | Purchase of treasury stock | (150) | | | (2,260) | | | (2,850) | |
| Share-based compensation withholding taxes | (105 | ) | | (157 | ) | | (100 | ) | |
| Stock-based compensation withholding taxes | | Stock-based compensation withholding taxes | (103) | | | (148) | | | (105) | |
| Other | — |
| | — |
| | (24 | ) | Other | (8) | | | (8) | | | — | |
| Net cash (used in) provided by financing activities | (2,374 | ) | | (3,896 | ) | | 1,497 |
| |
| DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (69 | ) | | (458 | ) | | 770 |
| |
| Net cash used in financing activities | | Net cash used in financing activities | (1,033) | | | (1,508) | | | (2,374) | |
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | | INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 641 | | | (107) | | | (69) | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period (1) | 429 |
| | 887 |
| | 117 |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period (1) | 253 | | | 360 | | | 429 | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1) | $ | 360 |
| | $ | 429 |
| | $ | 887 |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1) | $ | 894 | | | $ | 253 | | | $ | 360 | |
|
| |
(1)(1)The 2020 amounts include beginning restricted cash of $28 million at December 31, 2019, and ending restricted cash of $17 million at December 31, 2020, which we present in the “Prepaid expenses and other” and “Other noncurrent assets” captions of our Balance Sheets. | The 2018 amounts include beginning restricted cash of $46 million at December 31, 2017, and ending restricted cash of $44 million at December 31, 2018, which we present in the “Prepaid expenses and other” and “Other noncurrent assets” captions of our Balance Sheets. |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’STOCKHOLDERS’ EQUITY
Fiscal Years 2018, 2017,2020, 2019, and 20162018
(in millions)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 |
| 359.1 | | | Balance at December 31, 2017 | $ | 3,582 | | | $ | 5 | | | $ | 5,770 | | | $ | 7,242 | | | $ | (9,418) | | | $ | (17) | |
| — | | | Adoption of ASU 2016-01 | — | | | — | | | — | | | 4 | | | — | | | (4) | |
| — | | | Adoption of ASU 2016-16 | 372 | | | — | | | — | | | 372 | | | — | | | — | |
| — | | | Net income | 1,907 | | | — | | | — | | | 1,907 | | | — | | | — | |
| — | | | Other comprehensive loss | (370) | | | — | | | — | | | — | | | — | | | (370) | |
| — | | | Dividends ($1.56 per share) | (543) | | | — | | | — | | | (543) | | | — | | | — | |
| 1.5 | | | Stock-based compensation plans | 86 | | | — | | | 44 | | | — | | | 42 | | | — | |
| (21.5) | | | Purchase of treasury stock | (2,809) | | | — | | | — | | | — | | | (2,809) | | | — | |
| 339.1 | | | Balance at December 31, 2018 | 2,225 | | | 5 | | | 5,814 | | | 8,982 | | | (12,185) | | | (391) | |
| — | | | Adoption of ASU 2016-02 | 1 | | | — | | | — | | | 1 | | | — | | | — | |
| — | | | Net income | 1,273 | | | — | | | — | | | 1,273 | | | — | | | — | |
| — | | | Other comprehensive income | 30 | | | — | | | — | | | — | | | — | | | 30 | |
| — | | | Dividends ($1.85 per share) | (612) | | | — | | | — | | | (612) | | | — | | | — | |
| 2.2 | | | Stock-based compensation plans | 46 | | | — | | | (14) | | | — | | | 60 | | | — | |
| (17.3) | | | Purchase of treasury stock | (2,260) | | | — | | | — | | | — | | | (2,260) | | | — | |
| 324.0 | | | Balance at December 31, 2019 | 703 | | | 5 | | | 5,800 | | | 9,644 | | | (14,385) | | | (361) | |
| — | | | Adoption of ASU 2016-13 | (15) | | | — | | | — | | | (15) | | | — | | | — | |
| — | | | Net loss | (267) | | | — | | | — | | | (267) | | | — | | | — | |
| — | | | Other comprehensive income | 226 | | | — | | | — | | | — | | | — | | | 226 | |
| — | | | Dividends ($0.48 per share) | (156) | | | — | | | — | | | (156) | | | — | | | — | |
| 1.4 | | | Stock-based compensation plans | 89 | | | — | | | 51 | | | — | | | 38 | | | — | |
| (1.0) | | | Purchase of treasury stock | (150) | | | — | | | — | | | — | | | (150) | | | — | |
| 324.4 | | (1) | Balance at December 31, 2020 | $ | 430 | | | $ | 5 | | | $ | 5,851 | | | $ | 9,206 | | | $ | (14,497) | | | $ | (135) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Common Shares Outstanding | | | Total | | Class A Common Stock | | Additional Paid-in- Capital | | Retained Earnings | | Treasury Stock, at Cost | | Accumulated Other Comprehensive Loss |
| 256.3 |
| | Balance at December 31, 2015 | $ | (3,590 | ) | | $ | 5 |
| | $ | 2,821 |
| | $ | 4,878 |
| | $ | (11,098 | ) | | $ | (196 | ) |
| — |
| | Adoption of ASU 2014-09 | (264 | ) | | — |
| | — |
| | (264 | ) | | — |
| | — |
|
| — |
| | Net income | 808 |
| | — |
| | — |
| | 808 |
| | — |
| | — |
|
| — |
| | Other comprehensive loss | (301 | ) | | — |
| | — |
| | — |
| | — |
| | (301 | ) |
| — |
| | Dividends | (374 | ) | | — |
| | — |
| | (374 | ) | | — |
| | — |
|
| 1.8 |
| | Share-based compensation plans | 146 |
| | — |
| | 110 |
| | (21 | ) | | 57 |
| | — |
|
| (8.0 | ) | | Purchase of treasury stock | (573 | ) | | — |
| | — |
| | — |
| | (573 | ) | | — |
|
| 136.0 |
| | Starwood Combination (1) | 9,269 |
| | — |
| | 2,877 |
| | 1,238 |
| | 5,154 |
| | — |
|
| 386.1 |
| | Balance at December 31, 2016 | 5,121 |
| | 5 |
| | 5,808 |
| | 6,265 |
| | (6,460 | ) | | (497 | ) |
| — |
| | Net income | 1,459 |
| | — |
| | — |
| | 1,459 |
| | — |
| | — |
|
| — |
| | Other comprehensive loss | 480 |
| | — |
| | — |
| | — |
| | — |
| | 480 |
|
| — |
| | Dividends | (482 | ) | | — |
| | — |
| | (482 | ) | | — |
| | — |
|
| 2.2 |
| | Share-based compensation plans | 29 |
| | — |
| | (38 | ) | | — |
| | 67 |
| | — |
|
| (29.2 | ) | | Purchase of treasury stock | (3,025 | ) | | — |
| | — |
| | — |
| | (3,025 | ) | | — |
|
| 359.1 |
| | Balance at December 31, 2017 | 3,582 |
| | 5 |
| | 5,770 |
| | 7,242 |
| | (9,418 | ) | | (17 | ) |
| — |
| | Adoption of ASU 2016-01 | — |
| | — |
| | — |
| | 4 |
| | — |
| | (4 | ) |
| — |
| | Adoption of ASU 2016-16 | 372 |
| | — |
| | — |
| | 372 |
| | — |
| | — |
|
| — |
| | Net income | 1,907 |
| | — |
| | — |
| | 1,907 |
| | — |
| | — |
|
| — |
| | Other comprehensive income | (370 | ) | | — |
| | — |
| | — |
| | — |
| | (370 | ) |
| — |
| | Dividends | (543 | ) | | — |
| | — |
| | (543 | ) | | — |
| | — |
|
| 1.5 |
| | Share-based compensation plans | 86 |
| | — |
| | 44 |
| | — |
| | 42 |
| | — |
|
| (21.5 | ) | | Purchase of treasury stock | (2,809 | ) | | — |
| | — |
| | — |
| | (2,809 | ) | | — |
|
| 339.1 |
| (2) | Balance at December 31, 2018 | $ | 2,225 |
| | $ | 5 |
| | $ | 5,814 |
| | $ | 8,982 |
| | $ | (12,185 | ) | | $ | (391 | ) |
| |
(1)
| Represents Marriott common stock and equity-based awards issued in the Starwood Combination, which also resulted in the depletion of our accumulated historical losses on reissuances of treasury stock in Retained Earnings. |
| |
(2)
| Our restated certificate of incorporation authorizes 800 million shares of our common stock, with a par value of $.01 per share and 10 million shares of preferred stock, without par value. At year-end 2018, we had 339.1 million of these authorized shares of our common stock and no preferred stock outstanding. |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The 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.”the “Company”). In order to make this report easier to read, we also refer throughout to (i)(1) our Consolidated Financial Statements as our “Financial Statements,” (ii)(2) our Consolidated Statements of (Loss) Income as our “Income Statements,” (iii)(3) our Consolidated Balance Sheets as our “Balance Sheets,” (iv)(4) our Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (v)(5) our properties, brands, or markets in the United States (“U.S.”) and Canada as “North America” or “North American,“U.S. & Canada,” and (vi)(6) our properties, brands, or markets in our Caribbean and Latin America region, Europe, and Middle East and Africa regions as “Other International,”segment, and together with those in our Asia Pacific segment as “International.” In addition, references throughout to numbered “Footnotes”“Notes” refer to the numbered Notes in these Notes to Consolidated Financial Statements, unless otherwise noted.stated.
Preparation of financial statements that conform with U.S. generally accepted accounting principles (“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 and efforts to contain it (“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 at fiscal year-end 20182020 and fiscal year-end 20172019 and the results of our operations and cash flows for fiscal years 2018, 2017,2020, 2019, and 2016.2018. We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements.
The accompanying Financial Statements also reflect our adoption of several new accounting standards, including ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606).Accounting Standards Update (“ASU”) 2016-13. See the “New Accounting Standards Adopted” caption in Footnote 2. Summary of Significant Accounting PoliciesNote 2 for additional information.
In the 2018 fourth quarter, we identified errors related to our Loyalty Program, which resulted in the understatement of cost reimbursement revenue, net of reimbursed expenses in our previously issued financial statements for the 2018 first, second, and third quarters. Correction of the errors resulted in a $99 million increase to net income for the 2018 first three quarters combined. We concluded that the errors were and continue to be immaterial to those financial statements. We adjusted our 2018 first, second, and third quarter information presented in Part II, Item 8 “Supplementary Data” to reflect the correction of the immaterial errors because recording the out of period adjustments would have been material to the 2018 fourth quarter. See Part II, Item 8 “Supplementary Data” for more information.
Acquisition of Starwood Hotels & Resorts Worldwide
On September 23, 2016 (the “Merger Date”), we completed the acquisition of Starwood Hotels & Resorts Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), through a series of transactions (the “Starwood Combination”), after which Starwood became an indirect wholly-owned subsidiary of Marriott. Accordingly, our Income Statements include Starwood’s results of operations from the Merger Date. See Footnote 3. Dispositions and Acquisitions for more information on the Starwood Combination.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Base Management and Incentive Management Fees: For our managed hotels, we have performance obligations to provide hotel management services and a license to our hotel system intellectual property for the use of our brand names. As compensation for such services, we are generally entitled to receive base fees, which are a percentage of the revenues of hotels, and incentives fees, which are generally based on a measure of hotel profitability. Both the base and incentive management fees are variable consideration, as the transaction price is based on a percentage of revenue or profit, as defined in each contract. We recognize base management fees on a monthly basis over the term of the agreement as those amounts become payable. We recognize incentive management fees on a monthly basis over the term of the agreement based on each property'sproperty’s financial results, as long as we do not expect a significant reversal due to projected future hotel performance or cash flows in future periods.
Franchise Fee and Royalty Fee Revenue: For our franchised hotels, we have a performance obligation to provide franchisees and operators a license to our hotel system intellectual property for use of certain of our brand names. As compensation for such services, we are typically entitled to initial application fees and ongoing royalty fees. Our ongoing royalty fees represent variable consideration, as the transaction price is based on a percentage of certain revenues of the hotels, as defined in each contract. We recognize royalty fees on a monthly basis over the term of the agreement as those amounts become payable. Initial application and relicensing fees are fixed consideration payable upon submission of a franchise application or renewal and are recognized on a straight-line basis over the initial or renewal term of the franchise agreements.
Owned and Leased Hotel Revenue: At our owned and leased hotels, we have performance obligations to provide accommodations and other ancillary services to hotel guests. As compensation for such goods and services, we are typically entitled to a fixed nightly fee for an agreed upon period and additional fixed fees for any ancillary services purchased. These fees are generally payable at the time the hotel guest checks out of the hotel. We generally satisfy the performance obligations over time, and we recognize the revenue from room sales and from other ancillary guest services on a daily basis, as the rooms are occupied and we have rendered the services.
Cost Reimbursements: Under our management and franchise agreements, we are entitled to be reimbursed for certain costs we incur on behalf of the managed, franchised, and licensed properties, with no added mark-up. These costs primarily consist of payroll and related expenses at managed properties where we are the employer of the employees at the properties and
include certain operational and administrative costs as provided for in our contracts with the owners. We are entitled to reimbursement in the period we incur the related reimbursable costs, which we recognize within the “Cost reimbursement revenue” caption of our Income Statements.
Underour management and franchise agreements, hotel owners and franchisees participate in certain centralized programs and services, such as marketing, sales, reservations, and insurance programs. We operate these programs and services for the benefit of our hotel owners. We do not operate these programs and services to generate a profit over the contractlong term, and accordingly, when we recover the costs that we incur for these programs and services from our hotel owners, we do not seek a mark-up. The amounts we charge for these programs and services are generally a combination of fixed fees and variable fees based on sales or other metrics and are payable on a monthly basis. We generally recognize revenue within the “Cost reimbursement revenue” caption of our Income Statements when the amounts may be billed to hotel owners, and we recognize expenses within the “Reimbursed expenses” caption as they are incurred. This pattern of recognition results in temporary timing differences between the costs incurred for centralized programs and services and the related reimbursement from hotel owners in our operating and net income. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively. In addition, we present in the “Reimbursed expenses” caption of our Income Statements spending funded by the proceeds ($664 million, $425 million after-tax) from the 2017 sale of our interest in Avendra thatLLC, which we expendcommitted would be used for the benefit of hotels in our hotel owners are includedsystem. Such spending totaled $62 million ($46 million after-tax) in “Reimbursed expenses.”2020, $118 million ($87 million after-tax) in 2019, and $115 million ($85 million after-tax) in 2018.
Other Revenue: Includes Global Design fees, which we describe below, termination fees, and other property and brand revenues. We generally recognize termination fees when collection is probable and other revenue as services are rendered. Amounts received in advance are deferred as liabilities.
We provide hotel design and construction review quality assurance (“Global Design”) services to our managed and franchised hotel owners, generally during the period prior to a hotel’s opening or during the period a hotel is converting to a Marriott brand (the “pre-opening period”). As compensation for such services, we may be entitled to receive a one-time fixed fee that is payable during the pre-opening period of the hotel. As these services are not a distinct performance obligation, we recognize the fees on a straight-line basis over the initial term of the management or franchise agreement within the “Owned, leased, and other revenue” caption of our Income Statements.
Practical Expedients and Exemptions: We do not disclose the amount of variable consideration that we expect to recognize in future periods in the following circumstances:
(1) if we recognize the revenue based on the amount invoiced or services performed;
(2) for sales-based or usage-based royalty promised in exchange for a license of intellectual property; or
(3) if the consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of the consideration relate specifically to our efforts to transfer, or to a specific outcome from transferring the service.
We are required to collect certain taxes and fees from customers on behalf of governmental agencies and remit these to the applicable governmental agencies on a periodic basis. We do not include these taxes in determining the transaction price.
Loyalty Program.
: Loyalty Program members earn points based on the money they spend at our hotels; purchases of timeshare interval, fractional ownership, and residential products; and through participation in travel experiences and affiliated partners’ programs, such as those offered by credit card, car rental, airline, and airlineother companies. Members can redeem points, which we track on their behalf, for stays at most of our hotels, airline tickets, airline frequent flyer program miles, rental cars, and a variety of other awards. Points cannot be redeemed for cash.
Under our Loyalty Program, we have a performance obligation to provide or arrange for the provision of goods or services for free or at a discount to Loyalty Program members in exchange for the redemption of points earned from past activities. We operate our Loyalty Program as a cross-brand marketing program to participating properties. Our management and franchise agreements require that properties reimburse us for a portion of the costs of operating the Loyalty Program, including costs for marketing, promotion, communication with, and performing member services for Loyalty Program members, with no added mark-up. We generally receive cash contributions on a monthly basis from managed, franchised, owned, and leased hotels based on a portion of qualified spend by Loyalty Program members.members (when the points are issued). We recognize these contributions into revenue as the points are redeemed and we provide the related service.service (when the points are redeemed). The amount of revenue we recognize upon point redemption is based on a blend of historical funding rates and is impacted by our estimate of the “breakage” for points that members will never redeem. We estimate breakage based on our historical experience and expectations of future member behavior. We recognize revenue net of the redemption cost within our “Cost reimbursement
revenue” caption on our Income Statements, as our performance obligation is to facilitate the transaction between the Loyalty Program member and the managed or franchised property or program partner. Our redemption cost, which is generally based on redemption rates that can increase in periods in which occupancy at the property exceeds a certain threshold, could be higher or lower than our revenue recognized in any given period. We recognize all other Loyalty Program costs as incurred in our “Reimbursed expenses” caption.
We have multi-year agreements for our co-brand credit cards associated with our Loyalty Program. Under these agreements, we have performance obligations to provide a license to the intellectual property associated with our brands and marketing lists (“Licensed IP”) to the financial institutioninstitutions that issuesissue the credit cards, to arrange for the redemption of Loyalty Program points as discussed in the preceding paragraph, and to providearrange for the redemption of free night certificates provided to cardholders. We receive fees from these agreements, including fixed amounts that are primarily payable at contract inception, and variable amounts that are paid to us monthly over the term of the agreements, based on: (1) the number of free night certificates issued and redeemed; (2) the number of Loyalty Program points purchased; and (3) the volume of cardholder spend. We allocate those fees among the performance obligations, including the Licensed IP, our Loyalty Program points, and free night certificates provided to cardholders based on their estimated standalone selling prices. The estimation of the standalone selling prices requires significant judgments based upon generally accepted valuation methodologies regarding the value of our Licensed IP, the amount of funding we will receive, and the number of Loyalty Program points and free night certificates we will issue over the term of the agreements. We base our estimates of these amounts on our historical experience and expectation of future cardholder behavior. We recognize the portion of the Licensed IP revenue that meets the sales-based royalty criteria as the credit cards are used and the remaining portion of the Licensed IP revenue on a straight-line basis over the contract term. In our Income Statements, we primarily recognize Licensed IP revenue in the “Franchise fees” caption, and we recognize a portion in the “Cost reimbursement revenue” caption. We recognize the revenue related to the Loyalty Program points as discussed in the preceding paragraph. We recognize the revenue related to the free night certificates when the related service is provided. If the free night certificate redemption involves a managed or franchised property, weWe recognize revenue net of the redemption cost, as our performance obligation is to facilitate the transaction between the Loyalty Program member and the managed or franchised property.
Contract Balances.Balances: We generally receive payments from customers as we satisfy our performance obligations. We record a receivable when we have an unconditional right to receive payment and only the passage of time is required before payment is due. We record deferred revenue when we receive payment, or have the unconditional right to receive payment, in advance of the satisfaction of our performance obligations related to franchise application and relicensing fees, Global Design fees, credit card branding license fees, and our Loyalty Program.
Current and noncurrent deferred revenue increased by $146$907 million, to $831$1,867 million at December 31, 20182020 from $685$960 million at December 31, 2017,2019, primarily as a result of amendments to the existing agreements for our Global Design,U.S.-issued co-brand credit card,cards associated with our Loyalty Program, which we signed in May 2020. These amendments provided the Company with $920 million of cash from the prepayment of certain future revenues, the early payment of a previously committed signing bonus, and applicationthe pre-purchase of Marriott Bonvoy points and relicensing activities describedother consideration. We recorded the amount of cash received primarily in the “Revenue Recognition”deferred revenue caption, above.and the remainder in the liability for guest loyalty program captions, on our Balance Sheet.
Our current and noncurrent Loyalty Program liability increased by $521$553 million, to $5,461$6,271 million at December 31, 20182020, from $4,940$5,718 million at December 31, 2017,2019, primarily reflecting an increase in points earned by members, partiallyoffset by $1,118 million of revenue recognized in 2020, that was deferred as of December 31, 2019. The current portion of our Loyalty Program liability decreased compared to December 31, 2019, due to lower estimated redemptions in the short-term as a result of COVID-19. At each reporting period, we evaluate the estimates used in the recognition of Loyalty Program revenues, including estimates of the breakage of points that members will never redeem and the amount of funding we expect to receive over the life of the agreements with various third parties. In 2020, the updated estimates resulted in a net decrease in deferred revenue, and a corresponding net increase in revenue of $1,897 million that we recognized in 2018.approximately $47 million.
Costs Incurred to Obtain and Fulfill Contracts with Customers
We incur certain costs to obtain and fulfill contracts with customers, which we capitalize and amortize on a straight-line basis over the initial, non-cancellable term of the contract. We classify incremental costs of obtaining a contract with a customer in the “Contract acquisition costs and other” caption of our Balance Sheets, the related amortization in the “Contract investment amortization” caption of our Income Statements, and the cash flow impact in the “Contract acquisition costs” caption of our Statements of Cash Flows. We assess the assets for impairment when events or changes in circumstances indicate that we may not be able to recover the carrying value. We recognize an impairment loss for the amount by which the carrying value exceeds the expected net future cash flows. We classify certain direct costs to fulfill a contract with a customer in the “Other noncurrent assets” captionand “Prepaid expenses and other” captions of our Balance Sheets, and the related amortization in the “Owned, leased, and other - direct expenses” caption of our Income Statements. We had capitalized costs to fulfill contracts with customers of $324$366 million at December 31, 20182020 and $295$351 million at December 31, 2017.2019. See Footnote 12. Intangible Assets and GoodwillNote 11 for information on capitalized costs incurred to obtain contracts with customers.
Real Estate Sales
We recognize a gain or loss on real estate transactions when control of the asset transfers to the buyer, generally at the time the sale closes. In sales transactions where we retain a management contract, the terms and conditions of the management contract are generally comparable to the terms and conditions of the management contracts obtained directly with third-party owners in competitive processes.
Profit SharingRetirement Savings Plan
We contribute to tax-qualified retirement plans for the benefit of U.S. employees who meet certain eligibility requirements and choose to participate in the plans. Participating employees specify the percentage or amount of salary they wish to contribute from their compensation, and the Company typically makes discretionary and certain other matching or supplemental contributions. We recognized compensation costs from Company contributions of $75 million in 2020, $128 million in 2019, and $224 million in 2018, $119 million in 2017, and $91 million in 2016. 2018.
Non-U.S. Operations
The U.S. dollar is the functional currency of our consolidated and unconsolidated entities operating in the U.S. The functional currency of our consolidated and unconsolidated entities operating outside of the U.S. is generally the principal currency of the economic environment in which the entity primarily generates and expends cash. We translate the financial statements of consolidated entities whose functional currency is not the U.S. dollar into U.S. dollars, and we do the same, as needed, for unconsolidated entities whose functional currency is not the U.S. dollar. We translate assets and liabilities at the exchange rate in effect as of the financial statement date and translate income statement accounts using the weighted average exchange rate for the period. We include translation adjustments from currency exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of shareholders’stockholders’ equity. We report gains and losses from currency exchange rate changes for intercompany receivables and payables that are not of a long-term investment nature, as well as for third-party transactions, currently in operating costs and expenses.
Share-BasedStock-Based Compensation
Our share-basedstock-based compensation awards primarily consist of restricted stock units (“RSUs”). We measure compensation costs for our share-basedstock-based payment transactions at fair value based on the closing stock price on the grant date, and we recognize those costs in our Financial Statements over the vesting period during which the employee provides service in exchange for the award.
Advertising Costs
We expense costs to produce advertising as they are incurred and to communicate advertising as the communication occurs and record such amounts in reimbursed expenses to the extent undertaken on behalf of our owners and franchisees. We recognized advertising costs of $276 million in 2020, $851 million in 2019, and $660 million in 2018, $562 million in 2017, and $409 million in 2016.2018.
Income Taxes
We record the amounts of taxes payable or refundable for the current year, as well as deferred tax liabilities and assets for the future tax consequences of events we have recognized in our Financial Statements or tax returns, using judgment in assessing future profitability and the likely future tax consequences of those events. We base our estimates of deferred tax assets and liabilities on current tax laws, rates and interpretations, and, in certain cases, business plans and other expectations about future outcomes. We develop our estimates of future profitability based on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations.
We account for U.S. tax on Global Intangible Low-Taxed Income in the period incurred.
We generally recognize the effect of the tax law changes in the period of enactment. Changes in existing tax laws and rates, their related interpretations, and the uncertainty generated by the current economic environment may affect the amounts of our deferred tax liabilities or the valuations of our deferred tax assets over time. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates.
For tax positions we have taken or expect to take in a tax return, we apply a more likely than not threshold (that is, a likelihood of more than 50 percent), under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, to continue to recognize the benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold. We recognize accrued interest and penalties for our unrecognized tax benefits as a component of tax expense. See Footnote 6. Income TaxesNote 7 for further information.
Cash and Equivalents
We consider all highly liquid investments with an initial maturity of three months or less at date of purchase to be cash equivalents.
Accounts Receivable
Our accounts receivable primarily consist of amounts due from hotel owners with whom we have management and franchise agreements and include reimbursements of costs we incurred on behalf of managed and franchised properties. We generally collect these receivables within 30 days. We record an accounts receivable reserve whenallowance for credit losses are probable,measured over the contractual life of the instrument based on an assessment of historical collection activity and current business conditions. Our accounts receivable reserve was $66 million at year-end 2018 and $46 million at year-end 2017.forecasted future economic conditions by region.
Assets Held for Sale
We consider properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we expect the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and we cease depreciation.
Goodwill
We test goodwill for potential impairment at least annually in the fourth quarter, or more frequently if an event or other circumstance indicates that we may not be able to recover the carrying amount of the net assets of the reporting unit. In evaluating goodwill for impairment, we may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value ofa reporting unit is less than its carrying amount. If we bypass the qualitative assessment, or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.
We calculate the estimated fair value of a reporting unit using a weightingcombination of the income and market approaches. For the income approach, we use internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, we use internal analyses based primarily on market comparables. We base these assumptions on our historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our expectations.
We have had no goodwill impairment charges for the last three fiscal years.
Intangibles and Long-Lived Assets
We assess indefinite-lived intangible assets for potential impairment and continued indefinite use and for potential impairment annually, or more frequently if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. Like goodwill, we may first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible is less than its carrying amount. If the carrying value of the asset exceeds the fair value, we recognize an impairment loss in the amount of that excess.
We test definite-lived intangibles and long-lived asset groups for recoverability when changes in circumstances indicate that we may not be able to recover the carrying value; for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, or significant negative industry or economic trends. We also test recoverability when management has committed to a plan to sell or otherwise dispose of an asset group and we expect to complete the plan within a year. We evaluate recoverability of an asset group by comparing its carrying value, including right-of-use assets, to the future net undiscounted cash flows that we expect the asset group will generate. If the comparison indicates that we will not be able to recover the carrying value of an asset group, we recognize an impairment loss for the amount by which the carrying value exceeds the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life.
We calculate the estimated fair value of an intangible asset or asset group using the income approach or the market approach. We utilize the same assumptions and methodology for the income approach that we describe in the “Goodwill” caption. For the market approach, we use internal analyses based primarily on market comparables and assumptions about market capitalization rates, growth rates, and inflation. See Note 9 and Note 12 for additional information.
Investments
We hold equity interests in ventures established to develop or acquire and own hotel properties or that otherwise support our hospitality operations. We account for these investments as either an equity method investment, a financial asset, or a controlled subsidiary. We apply the equity method of accounting if we have significant influence over the entity, typically when we hold 20 percent or more of the voting common stock (or equivalent) of an investee but do not have a controlling financial interest. In certain circumstances, such as with investments in limited liability companies or limited partnerships, we apply the equity method of accounting when we own as little as three to five percent. We account for financial assets at fair value if it is readily determinable, or using the fair value alternative method, whereby investments are measured at cost less impairment, adjusted for observable price changes. We consolidate entities that we control.
When we acquire an investment that qualifies for the equity method of accounting, we determine the acquisition date fair value of the identifiable assets and liabilities. If our carrying amount exceeds our proportional share in the equity of the investee, we amortize the difference on a straight-line basis over the underlying assets’ estimated useful lives when calculating equity method earnings attributable to us, excluding the difference attributable to land, which we do not amortize.
We evaluate an investment for impairment when circumstances indicate that we may not be able to recover the carrying value. When evaluating our ventures, we consider loan defaults, significant underperformance relative to historical or projected operating performance, or significant negative industry or economic trends. Additionally, a venture’s commitment to a plan to sell some or all of its assets could cause us to evaluate the recoverability of the venture’s individual long-lived assets and possibly the venture itself. We impair investments we account for using the equity method of accounting when we determine that there has been an “other-than-temporary” decline in the venture’s estimated fair value compared to its carrying value. We perform qualitative assessments for investments we account for using the fair value alternative method and we record any associated impairment when the fair value is less than the carrying value.
Under the accounting guidance for the consolidation of variable interest entities, we analyze our variable interests, including equity investments, loans, and guarantees, to determine if an entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability, and relevant financial agreements. We also use our qualitative analysis to determine if we must consolidate a variable interest entity as its primary beneficiary.
Fair Value Measurements
We have various financial instruments we must measure at fair value on a recurring basis, including certain marketable securities and derivatives. See Footnote 15. Fair Value of Financial InstrumentsNote 13 for further information. We also apply the provisions of fair value measurement to various nonrecurring measurements for our financial and nonfinancial assets and liabilities.
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure our assets and liabilities using inputs from the following three levels of the fair value hierarchy:
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 includes unobservable inputs that reflect our assumptions about what factors market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Derivative Instruments
We record derivatives at fair value. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument in our Financial Statements. A derivative qualifies for hedge accounting if, at inception, we expect the derivative will be highly effective in offsetting the underlying hedged cash flows or fair value and we fulfill the hedge documentation standards at the time we enter into the derivative contract. We designate a hedge as a cash flow hedge, fair value hedge, or a hedge of the net investment in non-U.S. operations hedge based on the exposure we are hedging. For the effective portion of qualifying cash flow hedges, we record changes in fair value in accumulated other comprehensive income (“OCI”AOCI”). We release the derivative’s gain or loss from OCIAOCI to match the timing of the underlying hedged items’ effect on earnings. The change in fair value of qualifying fair value hedges as well as changes in fair value of the underlying hedged items to the hedged risks are recorded concurrently in earnings.
We review the effectiveness of our hedging instruments quarterly recognize current period hedge ineffectiveness immediately in earnings, and discontinue hedge accounting for any hedge that we no longer consider to be highly effective. We recognize changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting in current period earnings. Upon termination of cash flow hedges, we release gains and losses from OCIAOCI based on the timing of the underlying cash flows or revenue recognized, unless the termination results from the failure of the intended transaction to occur in the expected time frame. Such untimely transactions require us to immediately recognize in earnings the gains and/or losses that we previously recorded in OCI.AOCI.
Changes in interest rates, currency exchange rates, and equity securities expose us to market risk. We manage our exposure to these risks by monitoring available financing alternatives, as well as through development and application of credit granting policies. We also use derivative instruments, including cash flow hedges, net investment in non-U.S. operations hedges, fair value hedges, and other derivative instruments as part of our overall strategy to manage our exposure to market risks. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes.
Loan Loss Reserves
We may make senior, mezzanine, and other loans to owners of hotels that we operate or franchise, generally to facilitate the development of a hotel and sometimes to facilitate brand programs or initiatives. We expect the owners to repay the loans in accordance with the loan agreements, or earlier as the hotels mature and capital markets permit. We use metrics such as loan-to-value ratios and debt service coverage, and other information about collateral and from third partythird-party rating agencies to assess the credit quality of the loan receivable, both upon entering into the loan agreement and on an ongoing basis as applicable.
On a regular basis,At inception and throughout the term of the loan agreement, we individually assess loans for impairment. We consider current and forecasted future economic conditions in addition to our historical experience. We use internally generated cash flow projections to determine if we expectthe likelihood that the loans will be repaid under the terms of the loan agreements. If we conclude that it is probable a borrower will not repay a loan in accordance with its terms, we consider the loan impaired and begin recognizing interest income on a cash basis. To measure impairment, we calculate the present value of expected future cash flows discounted at the loan’s original effective interest rate or the estimated fair value of the collateral. If the present value or the estimated collateral is less than the carrying value of the loan receivable, we establish a specific impairment reserve for the difference.
If itLeases
We determine if an arrangement is likely that a loan will not be collectedlease or contains a lease at the inception of the contract. Our leases generally contain fixed and variable components. The variable components of our leases are primarily based on financial or other business indicators, includingoperating performance of the leased property. Our lease agreements may also include non-lease components, such as common area maintenance, which we combine with the lease component to account for both as a single lease component.
Lease liabilities, which represent our historical experience,obligation to make lease payments arising from the lease, and corresponding right-of-use assets, which represent our policy isright to charge offuse an underlying asset for the loanlease term, are recognized at the commencement date of the lease based on the present value of fixed future payments over the lease term. We calculate the present value of future payments using the discount rate implicit in the quarter in which we deem it uncollectible.lease, if available, or our incremental borrowing rate.
For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term and lease expense relating to variable payments is expensed as incurred. For finance leases, the amortization of the asset is recognized over the shorter of the lease term or useful life of the underlying asset.
Guarantees
We measure and record our liability for the fair value of a guarantee on a nonrecurring basis, that is when we issue or modify a guarantee, using Level 3 internally developed inputs, as described above in this footnote under the headingcaption “Fair Value Measurements.” We base our calculation of the estimated fair value of a guarantee on the income approach or the market approach, depending on the type of guarantee. For the income approach, we use internally developed discounted cash flow and Monte Carlo simulation models that include the following assumptions, among others: projections of revenues and expenses and related cash flows based on assumed growth rates and demand trends; historical volatility of projected performance; the guaranteed obligations; and applicable discount rates. We base these assumptions on our historical data and experience,
industry projections, micro and macro general economic condition projections, and our expectations. For the market approach, we use internal analyses based primarily on market comparable data and our assumptions about market capitalization rates, credit spreads, growth rates, and inflation.
The offsetting entry for the guarantee liability depends on the circumstances in which the guarantee was issued. Funding under the guarantee reduces the recorded liability. In most cases, when we do not forecast any funding, we amortize the liability into income on a straight-line basis over the remaining term of the guarantee. On a quarterly basis, we evaluate all material estimated liabilities based on the operating results and the terms of the guarantee. If we conclude that it is probable that we will be required to fund a greater amount than previously estimated, we record a loss except to the extent that the applicable contracts provide that the advance can be recovered as a loan.
Self-Insurance Programs
We self-insure for certain levels of liability, workers’ compensation, property insurance and employee medical coverage. We accrue estimated costs of these self-insurance programs at the present value of projected settlements for known and incurred but not reported claims. We use a discount rate of threetwo percent to determine the present value of the projected settlements, which we consider to be reasonable given our history of settled claims, including payment patterns and the fixed nature of the individual settlements. We classify the current portion of our self-insurance reserve in the “Accrued expenses and other” caption and the noncurrent portion in the “Other noncurrent liabilities” caption of our Balance Sheets. The current portion of our self-insurance reserve was $121 million in 2020 and $166 million in 2019. The noncurrent portion of our self-insurance reserve was $341 million in 2020 and $323 million in 2019.
Legal Contingencies
We are subject to various legal proceedings and claims, the outcomes of which are uncertain. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss. In making such determinations we evaluate, among other things, the probability of an unfavorable outcome and, when we believe it probable that a liability has been incurred, our ability to make a reasonable estimate of the loss. We review these accruals each reporting period and make revisions based on changes in facts and circumstances.
Business Combinations
We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. We recognize as goodwill the amount by which the purchase price of an acquired entity exceeds the net of the fair values assigned to the assets acquired and liabilities assumed. In determining the fair values of assets acquired and liabilities assumed, we use various recognized valuation methods including the income and market approaches. Further, we make assumptions within certain valuation techniques, including discount rates, royalty rates, and the amount and timing of future cash flows. We record the net assets and results of operations of an acquired entity in our Financial Statements from the acquisition date. We initially perform these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under our supervision, where appropriate, and make revisions as estimates and assumptions are finalized. We expense acquisition-related costs as we incur them.
Asset Acquisitions
Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. We allocate the cost of the acquisition, including direct and incremental transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition. See Footnote 3. Dispositions and AcquisitionsNote 4 for additional information.
New Accounting Standards Not Yet Adopted
Accounting Standards Update (“ASU”) 2016-02 “Leases”ASU No. 2016-13 - “Financial Instruments-Credit Losses” (Topic 842)326).ASU 2016-02 introduces a lessee model2016-13 requires the use of an impairment methodology that brings substantially all leases ontoreflects an estimate of expected credit losses, measured over the balance sheet. Under the new standard, a lessee will recognizecontractual life of an instrument, based on its balance sheet a lease liabilityinformation about past events, current conditions, and a right-of-use asset for most leases, including operating leases. The new standard will also distinguish leases as either finance leases or operating leases. This distinction will affect how leases are measured and presented in the income statement and statementforecasts of cash flows. We will adopt the standard using the modified retrospective transition method as of January 1, 2019, and we will not apply the standard to the comparative periods presented in the year of adoption.
We are still assessing the potential impact that ASU 2016-02 will have on our financial statements and disclosures, but we expect that we will recognize right-of-use lease assets and related lease liabilities for operating leases in the range of $1.0 billion to $1.1 billion, with no impact to our Income Statements or Statements of Cash Flows. Our estimate represents the net present value of lease payments from operating leases that commenced on or before December 31, 2018. We do not expect any changes related to our current capital lease portfolio, which will be titled “finance leases” under ASU 2016-02.
New Accounting Standards Adopted
ASU 2016-18 “Restricted Cash” (Topic 230). ASU 2016-18 requires companies to include restricted cash with cash and cash equivalents when reconciling beginning and ending amounts shown on the statement of cash flows.future economic conditions. We adopted ASU 2016-182016-13 in the 2018 first quarter using the retrospective transition method, and accordingly, we revised prior period amounts, as shown in the “Statements of Cash Flows” table below.
ASU 2016-16 “Accounting for Income Taxes: Intra-Entity Transfers of Assets Other than Inventory” (Topic 740). ASU 2016-16 requires companies to recognize the income tax effects of intercompany sales of assets other than inventory when the transfer occurs. We adopted ASU 2016-16 in the 20182020 first quarter using the modified retrospective transition methodmethod. Upon adoption, we increased our allowance for credit losses in the “Accounts and notes receivable, net” caption of our Balance Sheets by $19 million, from $82 million at December 31, 2019 to $101 million at January 1, 2020. We also recorded ana $4 million decrease in the “Deferred tax liabilities” caption of our Balance Sheets and a $15 million cumulative-effect adjustment of $372 million for the cumulative effect to retained earnings on our Balance Sheets.
Additionally, we recorded a provision for credit losses of $136 million in 2020, primarily due to the negative economic impact caused by COVID-19 and our estimate of future economic conditions. The allowance for credit losses was $207 million at January 1, 2018.December 31, 2020.
ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments” (Topic 230). ASU 2016-15 specifies how certain cash receipts and payments are to be classified
NOTE 3. RESTRUCTURING CHARGES
Beginning in the statement2020 second quarter, we initiated several regional restructuring plans to achieve cost savings in response to the decline in lodging demand caused by COVID-19. In 2020, we recorded $366 million of cash flowsrestructuring charges for above-property, property-level, and primarily impactsowned and leased properties employee termination benefits, of which we present $56 million in the “Restructuring and merger-related charges” caption and $310 million in the “Reimbursed expenses” caption of our presentation of cash outflows for commercial paper. Under ASU 2016-15, we are required to attribute a portionIncome Statements. Our U.S. & Canada segment recorded $255 million of the payments to accreted interest and classify that portion as cash outflows for operating activities. We adopted ASU 2016-15total restructuring charges in 2020.
In 2020, we recorded $117 million of global above-property restructuring charges, of which we present $44 million in the 2018 first quarter using the retrospective transition method,“Restructuring and accordingly, we revised prior period amounts, as shownmerger-related charges” caption and $73 million in the “Statements“Reimbursed expenses” caption of Cash Flows” table below.our Income Statements. We have substantially completed the programs relating to our above-property organization as of year-end 2020.
ASU 2016-01 “RecognitionIn 2020, we recorded $249 million of property-level and Measurementowned and leased properties restructuring charges, of Financial Assets and Financial Liabilities” (Topic 825). ASU 2016-01 eliminates the available-for-sale classification for equity investments and requires companies to measure equity investments at fair value and recognize any changeswhich we present $12 million in the fair value in net income. We adopted ASU 2016-01“Restructuring and merger-related charges” caption and $237 million in the 2018 first quarter using the modified retrospective transition method“Reimbursed expenses” caption of our Income Statements. We anticipate additional property-level and recorded a cumulative-effect adjustment of $4 million to retained earnings at January 1, 2018.
ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606). ASU 2014-09owned and several related ASUs (collectively referred to as “ASU 2014-09”) supersede the revenue recognition requirementsleased properties restructuring charges in Topic 605, Revenue Recognition, as well as most industry-specific guidance, and provide a principles-based, comprehensive framework in Topic 606, Revenue from Contracts with Customers. ASU 2014-09 also specifies the accounting for certain costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements. We adopted ASU 2014-09 in the 2018 first quarter using the full retrospective transition method.
When we adopted ASU 2014-09, we applied the following expedients and exemptions, which are allowed by the standard, to our prior period Financial Statements and disclosures:
We used the transaction price at the date of contract completion for our contracts that had variable consideration and were completed before January 1, 2018.
We considered the aggregate effect of all contract modifications that occurred before January 1, 2016 when: (1) identifying satisfied and unsatisfied performance obligations; (2) determining the transaction price; and (3) allocating the transaction price to the satisfied and unsatisfied performance obligations.
We did not: (1) disclose the amount of the transaction price that we allocated to remaining performance obligations; or (2) include an explanation of when we expect to recognize the revenue allocated to remaining performance obligations.future quarters.
The following tables presenttable presents our restructuring reserve activity during the effect of the adoption of ASUs 2014-09, 2016-15, and 2016-18 on our 2017 and 2016 Financial Statements. Throughout this report, our 2017 and 2016 financial results reflect the “As Adjusted” amounts shown in the tables below. See the Consolidated Statements of Shareholders’ Equity for the impact of the adoption of new accounting standards on our shareholders’ equity.period:
Income Statements
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| | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended December 31, 2017 | | Twelve Months Ended December 31, 2016 |
| ($ in millions, except per share amounts) | As Previously Reported | | Adoption of ASU 2014-09 | | As Adjusted | | As Previously Reported | | Adoption of ASU 2014-09 | | As Adjusted |
| REVENUES | | | | | | | | | | | |
| Base management fees | $ | 1,102 |
| | $ | — |
| | $ | 1,102 |
| | $ | 806 |
| | $ | — |
| | $ | 806 |
|
| Franchise fees | 1,618 |
| | (32 | ) | | 1,586 |
| | 1,169 |
| | (12 | ) | | 1,157 |
|
| Incentive management fees | 607 |
| | — |
| | 607 |
| | 425 |
| | — |
| | 425 |
|
| Gross fee revenues | 3,327 |
| | (32 | ) | | 3,295 |
| | 2,400 |
| | (12 | ) | | 2,388 |
|
| Contract investment amortization | — |
| | (50 | ) | | (50 | ) | | — |
| | (40 | ) | | (40 | ) |
| Net fee revenues | 3,327 |
| | (82 | ) | | 3,245 |
| | 2,400 |
| | (52 | ) | | 2,348 |
|
| Owned, leased, and other revenue | 1,802 |
| | (50 | ) | | 1,752 |
| | 1,126 |
| | (1 | ) | | 1,125 |
|
| Cost reimbursement revenue | 17,765 |
| | (2,310 | ) | | 15,455 |
| | 13,546 |
| | (1,612 | ) | | 11,934 |
|
| | 22,894 |
| | (2,442 | ) | | 20,452 |
| | 17,072 |
| | (1,665 | ) | | 15,407 |
|
| OPERATING COSTS AND EXPENSES | | | | | | | | | | | |
| Owned, leased, and other-direct | 1,427 |
| | (16 | ) | | 1,411 |
| | 900 |
| | 1 |
| | 901 |
|
| Depreciation, amortization, and other | 290 |
| | (61 | ) | | 229 |
| | 168 |
| | (49 | ) | | 119 |
|
| General, administrative, and other | 894 |
| | 27 |
| | 921 |
| | 704 |
| | 39 |
| | 743 |
|
| Merger-related costs and charges | 159 |
| | — |
| | 159 |
| | 386 |
| | — |
| | 386 |
|
| Reimbursed expenses | 17,765 |
| | (2,537 | ) | | 15,228 |
| | 13,546 |
| | (1,712 | ) | | 11,834 |
|
| | 20,535 |
| | (2,587 | ) | | 17,948 |
| | 15,704 |
| | (1,721 | ) | | 13,983 |
|
| OPERATING INCOME | 2,359 |
| | 145 |
| | 2,504 |
| | 1,368 |
| | 56 |
| | 1,424 |
|
| Gains and other income, net | 688 |
| | — |
| | 688 |
| | 5 |
| | — |
| | 5 |
|
| Interest expense | (288 | ) | | — |
| | (288 | ) | | (234 | ) | | — |
| | (234 | ) |
| Interest income | 38 |
| | — |
| | 38 |
| | 35 |
| | — |
| | 35 |
|
| Equity in earnings | 39 |
| | 1 |
| | 40 |
| | 10 |
| | (1 | ) | | 9 |
|
| INCOME BEFORE INCOME TAXES | 2,836 |
| | 146 |
| | 2,982 |
| | 1,184 |
| | 55 |
| | 1,239 |
|
| Provision for income taxes | (1,464 | ) | | (59 | ) | | (1,523 | ) | | (404 | ) | | (27 | ) | | (431 | ) |
| NET INCOME | $ | 1,372 |
| | $ | 87 |
| | $ | 1,459 |
| | $ | 780 |
| | $ | 28 |
| | $ | 808 |
|
| EARNINGS PER SHARE | | | | | | | | | | | |
| Earnings per share - basic | $ | 3.66 |
| | $ | 0.23 |
| | $ | 3.89 |
| | $ | 2.68 |
| | $ | 0.10 |
| | $ | 2.78 |
|
| Earnings per share - diluted | $ | 3.61 |
| | $ | 0.23 |
| | $ | 3.84 |
| | $ | 2.64 |
| | $ | 0.09 |
| | $ | 2.73 |
|
Statements of Comprehensive Income |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended December 31, 2017 | | Twelve Months Ended December 31, 2016 |
| ($ in millions) | As Previously Reported | | Adoption of ASU 2014-09 | | As Adjusted | | As Previously Reported | | Adoption of ASU 2014-09 | | As Adjusted |
| Net income | $ | 1,372 |
| | $ | 87 |
| | $ | 1,459 |
| | $ | 780 |
| | $ | 28 |
| | $ | 808 |
|
| Other comprehensive income (loss): | | | | | | | | | | | |
| Foreign currency translation adjustments | 478 |
| | — |
| | 478 |
| | (311 | ) | | — |
| | (311 | ) |
| Derivative instrument adjustments, net of tax | (14 | ) | | — |
| | (14 | ) | | 1 |
| | — |
| | 1 |
|
| Unrealized (loss) gain on available-for-sale securities, net of tax | (2 | ) | | — |
| | (2 | ) | | 2 |
| | — |
| | 2 |
|
| Pension and postretirement adjustments, net of tax | 7 |
| | — |
| | 7 |
| | 5 |
| | — |
| | 5 |
|
| Reclassification of losses, net of tax | 11 |
| | — |
| | 11 |
| | 2 |
| | — |
| | 2 |
|
| Total other comprehensive income (loss), net of tax | 480 |
| | — |
| | 480 |
| | (301 | ) | | — |
| | (301 | ) |
| Comprehensive income | $ | 1,852 |
| | $ | 87 |
| | $ | 1,939 |
| | $ | 479 |
| | $ | 28 |
| | $ | 507 |
|
|
| | | | | | | | | | | |
| ($ in millions) | December 31, 2017 (As Previously Reported) (1) | | Adoption of ASU 2014-09 | | December 31, 2017 (As Adjusted) |
| ASSETS | | | | | |
| Current assets | | | | | |
| Cash and equivalents | $ | 383 |
| | $ | — |
| | $ | 383 |
|
| Accounts and notes receivable, net | 1,999 |
| | (26 | ) | | 1,973 |
|
| Prepaid expenses and other | 216 |
| | 19 |
| | 235 |
|
| Assets held for sale | 149 |
| | — |
| | 149 |
|
| | 2,747 |
| | (7 | ) | | 2,740 |
|
| Property and equipment, net | 1,793 |
| | — |
| | 1,793 |
|
| Intangible assets | | | | | |
| Brands | 5,922 |
| | — |
| | 5,922 |
|
| Contract acquisition costs and other | 2,884 |
| | (262 | ) | | 2,622 |
|
| Goodwill | 9,207 |
| | — |
| | 9,207 |
|
| | 18,013 |
| | (262 | ) | | 17,751 |
|
| Equity method investments | 735 |
| | (1 | ) | | 734 |
|
| Notes receivable, net | 142 |
| | — |
| | 142 |
|
| Deferred tax assets | 93 |
| | — |
| | 93 |
|
| Other noncurrent assets | 426 |
| | 167 |
| | 593 |
|
| | $ | 23,949 |
| | $ | (103 | ) | | $ | 23,846 |
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | |
| Current liabilities | | | | | |
| Current portion of long-term debt | $ | 398 |
| | $ | — |
| | $ | 398 |
|
| Accounts payable | 783 |
| | — |
| | 783 |
|
| Accrued payroll and benefits | 1,214 |
| | — |
| | 1,214 |
|
| Liability for guest loyalty program | 2,064 |
| | 57 |
| | 2,121 |
|
| Accrued expenses and other | 1,541 |
| | (250 | ) | | 1,291 |
|
| | 6,000 |
| | (193 | ) | | 5,807 |
|
| Long-term debt | 7,840 |
| | — |
| | 7,840 |
|
| Liability for guest loyalty program | 2,876 |
| | (57 | ) | | 2,819 |
|
| Deferred tax liabilities | 604 |
| | 1 |
| | 605 |
|
| Deferred revenue | 145 |
| | 438 |
| | 583 |
|
| Other noncurrent liabilities | 2,753 |
| | (143 | ) | | 2,610 |
|
| Shareholders' equity | | | | | |
| Class A Common Stock | 5 |
| | — |
| | 5 |
|
| Additional paid-in-capital | 5,770 |
| | — |
| | 5,770 |
|
| Retained earnings | 7,391 |
| | (149 | ) | | 7,242 |
|
| Treasury stock, at cost | (9,418 | ) | | — |
| | (9,418 | ) |
| Accumulated other comprehensive loss | (17 | ) | | — |
| | (17 | ) |
| | 3,731 |
| | (149 | ) | | 3,582 |
|
| | $ | 23,949 |
| | $ | (103 | ) | | $ | 23,846 |
|
| | | | | | | | | |
(1)
($ in millions) | Includes reclassifications among various captions, including Deferred revenueEmployee termination benefits | | | | |
| Balance at December 31, 2019 | $ | — | | | | | |
| Charges | 366 | | | | | |
| Cash payments | (215) | | | | | |
| Other | (8) | | | | | |
Balance at December 31, 2020, classified in “Accrued expenses and Other noncurrent liabilities, to conform to current period presentation.other” | $ | 143 | | | | | |
Statements of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended December 31, 2017 | | Twelve Months Ended December 31, 2016 |
| ($ in millions) | As Previously Reported | ASU 2014-09 | ASUs 2016-18 and 2016-15 | As Adjusted | | As Previously Reported | ASU 2014-09 | ASUs 2016-18 and 2016-15 | As Adjusted |
| OPERATING ACTIVITIES | | | | | | | | | |
| Net income | $ | 1,372 |
| $ | 87 |
| $ | — |
| $ | 1,459 |
| | $ | 780 |
| $ | 28 |
| $ | — |
| $ | 808 |
|
| Adjustments to reconcile to cash provided by operating activities: | | | | | | | | | |
| Depreciation, amortization, and other | 290 |
| (11 | ) | — |
| 279 |
| | 168 |
| (9 | ) | — |
| 159 |
|
| Share-based compensation | 181 |
| — |
| — |
| 181 |
| | 212 |
| — |
| — |
| 212 |
|
| Income taxes | 828 |
| 59 |
| — |
| 887 |
| | 76 |
| 27 |
| — |
| 103 |
|
| Liability for guest loyalty program | 378 |
| (80 | ) | — |
| 298 |
| | 343 |
| (122 | ) | — |
| 221 |
|
| Contract acquisition costs | — |
| (185 | ) | — |
| (185 | ) | | — |
| (76 | ) | — |
| (76 | ) |
| Merger-related charges | (124 | ) | — |
| — |
| (124 | ) | | 113 |
| 96 |
| — |
| 209 |
|
| Working capital changes | 81 |
| (128 | ) | 17 |
| (30 | ) | | (77 | ) | (24 | ) | (5 | ) | (106 | ) |
| Gain on asset dispositions | (687 | ) | — |
| — |
| (687 | ) | | 1 |
| — |
| — |
| 1 |
|
| Other | 117 |
| 67 |
| (35 | ) | 149 |
| | 66 |
| 30 |
| (8 | ) | 88 |
|
| Net cash provided by (used in) operating activities | 2,436 |
| (191 | ) | (18 | ) | 2,227 |
| | 1,682 |
| (50 | ) | (13 | ) | 1,619 |
|
| INVESTING ACTIVITIES | | | | | | | | | |
| Acquisition of a business, net of cash acquired | — |
| — |
| — |
| — |
| | (2,412 | ) | — |
| 20 |
| (2,392 | ) |
| Capital expenditures | (240 | ) | — |
| — |
| (240 | ) | | (199 | ) | — |
| — |
| (199 | ) |
| Dispositions | 1,418 |
| — |
| — |
| 1,418 |
| | 218 |
| — |
| (7 | ) | 211 |
|
| Loan advances | (93 | ) | — |
| — |
| (93 | ) | | (32 | ) | — |
| — |
| (32 | ) |
| Loan collections | 187 |
| — |
| — |
| 187 |
| | 67 |
| — |
| — |
| 67 |
|
| Contract acquisition costs | (189 | ) | 189 |
| — |
| — |
| | (80 | ) | 80 |
| — |
| — |
|
| Other | (63 | ) | 2 |
| — |
| (61 | ) | | 29 |
| (30 | ) | — |
| (1 | ) |
| Net cash provided by (used in) investing activities | 1,020 |
| 191 |
| — |
| 1,211 |
| | (2,409 | ) | 50 |
| 13 |
| (2,346 | ) |
| FINANCING ACTIVITIES | | | | | | | | | |
| Commercial paper/Credit Facility, net | 25 |
| — |
| 35 |
| 60 |
| | 1,365 |
| — |
| 8 |
| 1,373 |
|
| Issuance of long-term debt | — |
| — |
| — |
| — |
| | 1,482 |
| — |
| — |
| 1,482 |
|
| Repayment of long-term debt | (310 | ) | — |
| — |
| (310 | ) | | (326 | ) | — |
| — |
| (326 | ) |
| Issuance of Class A Common Stock | 6 |
| — |
| — |
| 6 |
| | 34 |
| — |
| — |
| 34 |
|
| Dividends paid | (482 | ) | — |
| — |
| (482 | ) | | (374 | ) | — |
| — |
| (374 | ) |
| Purchase of treasury stock | (3,013 | ) | — |
| — |
| (3,013 | ) | | (568 | ) | — |
| — |
| (568 | ) |
| Share-based compensation withholding taxes | (157 | ) | — |
| — |
| (157 | ) | | (100 | ) | — |
| — |
| (100 | ) |
| Other | — |
| — |
| — |
| — |
| | (24 | ) | — |
| — |
| (24 | ) |
| Net cash used in (provided by) financing activities | (3,931 | ) | — |
| 35 |
| (3,896 | ) | | 1,489 |
| — |
| 8 |
| 1,497 |
|
| (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (475 | ) | — |
| 17 |
| (458 | ) | | 762 |
| — |
| 8 |
| 770 |
|
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period | 858 |
| — |
| 29 |
| 887 |
| | 96 |
| — |
| 21 |
| 117 |
|
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | $ | 383 |
| $ | — |
| $ | 46 |
| $ | 429 |
| | $ | 858 |
| $ | — |
| $ | 29 |
| $ | 887 |
|
3.NOTE 4. DISPOSITIONS AND ACQUISITIONS
Dispositions
In 2020, we sold one U.S. & Canada property for $268 million. We continue to operate the hotel under a long-term management agreement.
In 2019, we sold two U.S. & Canada properties and recognized total gains of $134 million in the “Gains and other income, net” caption of our Income Statements. We continue to operate the hotels under long-term management agreements.
In 2018, we sold the followingtwo U.S. & Canada properties, two Asia Pacific properties, and two Caribbean and Latin America properties and recognized total gains of $132 million in the “Gains and other income, net” caption of our Income Statements:Statements. We continue to operate all but one of these hotels under long-term management agreements.
The Tremont Chicago Hotel at Magnificent Mile and Le Centre Sheraton Montreal Hotel, two North American Full-Service properties;
The Westin Denarau Island Resort and The Sheraton Fiji Resort, two Asia Pacific properties; andThe Sheraton Buenos Aires Hotel & Convention Center and Park Tower, A Luxury Collection Hotel, Buenos Aires, two Caribbean and Latin America properties.
In 2018, we sold our interest in three equity method investments, whose assets included a plot of land in Italy, the W Hotel Mexico City,a Caribbean and the Royal Orchid Sheraton Hotel & Towers in Bangkok,Latin America property, and an Asia Pacific property, and we recognized total gains of $42 million in the “Gains and other income, net” caption of our Income Statements. Also, in 2018, third-party investees sold a Caribbean and Latin America investee sold the JW Marriott Mexico City,property and a North American Full-Service investee sold The Ritz-Carlton Toronto,U.S. & Canada property, and we recorded our share of the gains of $55 million and $10 million, respectively, in the “Equity in (losses) earnings” caption of our Income Statements.
In 2017, we sold the following three North American Full-Service properties:
The Sheraton Centre Toronto Hotel that was owned on a long-term ground lease;
The Westin Maui that was owned on a long-term ground lease; and
The Charlotte Marriott City Center and recognized a $24 million gain in the “Gains and other income, net” caption of our Income Statements.
In 2017, Aramark purchased Avendra LLC, in which we had a 55 percent ownership interest. We recorded a non-recurring pre-tax gain of $659 million in 2017 and $5 million in 2018, which we reflected in the “Gains and other income, net” caption of our Income Statements. After cash paid for income taxes, the gain totaled $425 million. We committed to the owners of the hotels in our system that the benefits derived from Avendra, including any dividends or sale proceeds above our original investment, would be used for the benefit of the hotels in our system. Spending funded by the sale proceeds, which we present in the “Reimbursed expenses” caption of our Income Statements, totaled $115 million ($85 million after-tax) in 2018. In conjunction with the sale of Avendra to Aramark, we entered into a new five-year procurement services agreement with Avendra for the benefit of our managed and owned properties in North America.
In 2016, we sold The St. Regis San Francisco, a North American Full-Service property.
Acquisitions
In 2018,2019, we completed the acquisition of Elegant Hotels Group plc (“Elegant”) for $128 million in cash and assumed Elegant’s net debt outstanding of $63 million, which we subsequently repaid in January 2020. As a result of the transaction, we added seven hotels and a beachfront restaurant on the island of Barbados to our Caribbean and Latin America owned and leased portfolio.
In 2019, we purchased the Sheraton Grand Phoenix, a North American Full-ServiceU.S. & Canada property that we manage, for $255$206 million.
2016 Starwood Combination
The following table presents the fair value of each type of consideration thatIn 2019, we transferredaccelerated our option to acquire our partner’s remaining interests in the Starwood Combination:
|
| | | |
| (in millions, except per share amounts) | |
| Equivalent shares of Marriott common stock issued in exchange for Starwood outstanding shares | 134.4 |
|
| Marriott common stock price as of Merger Date | $ | 68.44 |
|
| Fair value of Marriott common stock issued in exchange for Starwood outstanding shares | 9,198 |
|
| Cash consideration to Starwood shareholders, net of cash acquired of $1,116 | 2,412 |
|
| Fair value of Marriott equity-based awards issued in exchange for vested Starwood equity-based awards | 71 |
|
| Total consideration transferred, net of cash acquired | $ | 11,681 |
|
Fair Values of Assets Acquired and Liabilities Assumed. The following table presents our fair value estimatestwo joint ventures. As a result of the assets thattransaction, we acquiredrecognized an indefinite-lived brand asset for AC Hotels by Marriott of $156 million and the liabilities that we assumed on the Merger Date: |
| | | |
| ($ in millions) | September 23, 2016 (as finalized) |
| Working capital | $ | (236 | ) |
| Property and equipment, including assets held for sale | 1,706 |
|
| Identified intangible assets | 7,238 |
|
| Equity and cost method investments | 537 |
|
| Other noncurrent assets | 200 |
|
| Deferred income taxes, net | (1,464 | ) |
| Guest loyalty program | (1,638 | ) |
| Debt | (1,877 | ) |
| Other noncurrent liabilities | (977 | ) |
| Net assets acquired | 3,489 |
|
Goodwill (1) | 8,192 |
|
| | $ | 11,681 |
|
| |
(1)
| Goodwill primarily represents the value that we expect to obtain from synergies and growth opportunities from our combined operations, and it is not deductible for tax purposes. |
We estimated the value of the acquired property and equipment using a combination of the income, cost, and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the hotel properties. Our equity method investments consist primarily of partnership and joint venture interests in entities that own hotel real estate. We estimated the value of the underlying real estate using the same methods as for property and equipment described above. We primarily valued debt using quoted market prices, which are considered Level 1 inputs as they are observable in the market.
The following table presents our estimates of the fair values of Starwood’s identified intangible assets and their related estimated useful lives.
|
| | | | | | |
| | | Estimated Fair Value
(in millions) | | Estimated Useful Life
(in years) |
| Brands | | $ | 5,664 |
| | indefinite |
| Management Agreements and Lease Contract Intangibles | | 751 |
| | 10 - 25 |
| Franchise Agreements | | 746 |
| | 10 - 80 |
| Loyalty Program Marketing Rights | | 77 |
| | 30 |
| | | $ | 7,238 |
| | |
We estimated the value of Starwood’s brands using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. We estimated the value of management and franchise agreements using the multi-period excess earnings method, which iscontract assets, with a variationweighted-average term of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. We valued the lease contract intangibles using an income approach. These valuation approaches utilize Level 3 inputs.24 years totaling $34 million.
Pro Forma Results of Operations. We prepared unaudited pro forma information in accordance with applicable accounting standards, assuming we completed the Starwood Combination on January 1, 2015, and using our estimates of the fair values of assets and liabilities as of the Merger Date. Pro forma revenues totaled $22,492 million in 2016. Pro forma net income totaled $1,180 million in 2016, and reflected $113 million of integration costs. These unaudited pro forma results do not reflect any synergies from operating efficiencies, and they are not necessarily indicative of what the actual results of operations of the combined company would have been if the Starwood Combination had occurred on January 1, 2015, nor are they indicative of future results of operations.
4.NOTE 5. EARNINGS PER SHARE
The table below illustrates the reconciliation of the earnings and number of shares used in our calculations of basic and diluted earnings per share:share, the latter of which uses the treasury stock method in order to calculate the dilutive effect of the Company’s potential common stock:
| | | | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | 2020 | | 2019 | | 2018 |
| Computation of Basic (Loss) Earnings Per Share | | | | | |
| Net (loss) income | $ | (267) | | | $ | 1,273 | | | $ | 1,907 | |
| Shares for basic (loss) earnings per share | 325.8 | | | 332.7 | | | 350.1 | |
| Basic (loss) earnings per share | $ | (0.82) | | | $ | 3.83 | | | $ | 5.45 | |
| Computation of Diluted (Loss) Earnings Per Share | | | | | |
| Net (loss) income | $ | (267) | | | $ | 1,273 | | | $ | 1,907 | |
| Shares for basic earnings per share | 325.8 | | | 332.7 | | | 350.1 | |
| Effect of dilutive securities | | | | | |
Stock-based compensation(1) | — | | | 2.8 | | | 4.1 | |
| Shares for diluted (loss) earnings per share | 325.8 | | | 335.5 | | | 354.2 | |
| Diluted (loss) earnings per share | $ | (0.82) | | | $ | 3.80 | | | $ | 5.38 | |
(1) For the calculation of diluted loss per share for year-end 2020, we excluded share-based compensation securities of 1.4 million because the effect was anti-dilutive.
|
| | | | | | | | | | | |
| (in millions, except per share amounts) | 2018 | | 2017 | | 2016 |
| Computation of Basic Earnings Per Share | | | | | |
| Net income | $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| Shares for basic earnings per share | 350.1 |
| | 375.2 |
| | 290.9 |
|
| Basic earnings per share | $ | 5.45 |
| | $ | 3.89 |
| | $ | 2.78 |
|
| Computation of Diluted Earnings Per Share | | | | | |
| Net income | $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| Shares for basic earnings per share | 350.1 |
| | 375.2 |
| | 290.9 |
|
| Effect of dilutive securities | | | | | |
| Share-based compensation | 4.1 |
| | 4.7 |
| | 4.8 |
|
| Shares for diluted earnings per share | 354.2 |
| | 379.9 |
| | 295.7 |
|
| Diluted earnings per share | $ | 5.38 |
| | $ | 3.84 |
| | $ | 2.73 |
|
5. SHARE-BASEDNOTE 6. STOCK-BASED COMPENSATION
RSUs and PSUs
We granted RSUs in 2018the 2020 first quarter to certain officers and key employees, and those units vest generally over four years in equal annual installments commencing one year after the grant date. Upon vesting, RSUs convert to shares of our common stock which we distribute from treasury shares. We also granted performance-based RSUs (“PSUs”) in 2018the 2020 first quarter to certain executive officers, which are earned, subject to continued employment and the satisfaction of certain performance conditions based on achievement of pre-established targets for RevPAR Index,gross room openings, and/or net administrative expenseactive Marriott Bonvoy loyalty member growth, and adjusted operating income growth over, or at the end of, a three-year performance period. Additionally, in the 2020 third quarter, as part of our effort to encourage associate retention in response to the severe impact of COVID-19 on our industry and Company, we accelerated the issuance of RSU awards to certain officers and key employees that ordinarily would have been made in the 2021 first quarter, and those units generally vest over four years and five months, with one quarter of the units vesting one year and five months after the grant date and the remaining units vesting in equal annual installments thereafter. We did not accelerate the issuance of awards for our most senior executives.
We had deferred compensation costs for RSUs of approximately $167$301 million at year-end 20182020 and $164$176 million at year-end 2017.2019. The weighted average remaining term for RSUs outstanding at year-end 20182020 was two2.5 years.
The following table provides additional information on RSUs, including PSUs, for the last three fiscal years:
| | | | | | | | | | 2020 | | 2019 | | 2018 |
| | 2018 | | 2017 | | 2016 | |
| Share-based compensation expense (in millions) | $ | 170 |
| | $ | 172 |
| | $ | 204 |
| |
| Stock-based compensation expense (in millions) | | Stock-based compensation expense (in millions) | $ | 188 | | | $ | 177 | | | $ | 170 | |
| Weighted average grant-date fair value (per RSU) | $ | 132 |
| | $ | 85 |
| | $ | 66 |
| Weighted average grant-date fair value (per RSU) | $ | 101 | | | $ | 117 | | | $ | 132 | |
| Aggregate intrinsic value of distributed RSUs (in millions) | $ | 294 |
| | $ | 322 |
| | $ | 190 |
| Aggregate intrinsic value of distributed RSUs (in millions) | $ | 234 | | | $ | 276 | | | $ | 294 | |
The following table presents the changes in our outstanding RSUs, including PSUs, during 20182020 and the associated weighted average grant-date fair values:
| | | | | | | Number of RSUs (in millions) | | Weighted Average Grant-Date Fair Value (per unit) |
| | Number of RSUs (in millions) | | Weighted Average Grant-Date Fair Value (per RSU) | |
| Outstanding at year-end 2017 | 5.6 |
| | $ | 71 |
| |
| Outstanding at year-end 2019 | | Outstanding at year-end 2019 | 4.1 | | | $ | 106 | |
| Granted | 1.5 |
| | 132 |
| Granted | 3.6 | | | 101 | |
| Distributed | (2.1 | ) | | 69 |
| Distributed | (1.6) | | | 97 | |
| Forfeited | (0.2 | ) | | 93 |
| Forfeited | (0.3) | | | 114 | |
| Outstanding at year-end 2018 | 4.8 |
| | $ | 90 |
| |
| Outstanding at year-end 2020 | | Outstanding at year-end 2020 | 5.8 | | | $ | 107 | |
Other Information
At year-end 2018,2020, we had 3127 million remaining shares authorized under the Marriott and Starwood Hotels & Resorts Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”) stock plans.
6.
NOTE 7. INCOME TAXES
The components of our (losses) earnings before income taxes for the last three fiscal years consisted of:
| | | ($ in millions) | 2018 | | 2017 | | 2016 | ($ in millions) | 2020 | | 2019 | | 2018 |
| U.S. | $ | 1,311 |
| | $ | 2,153 |
| | $ | 888 |
| U.S. | $ | (320) | | | $ | 549 | | | $ | 1,311 | |
| Non-U.S. | 1,034 |
| | 829 |
| | 351 |
| Non-U.S. | (146) | | | 1,050 | | | 1,034 | |
| | $ | 2,345 |
| | $ | 2,982 |
| | $ | 1,239 |
| | $ | (466) | | | $ | 1,599 | | | $ | 2,345 | |
Our provisionbenefit (provision) for income taxes for the last three fiscal years consistsconsisted of:
|
| | | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 |
| Current | -U.S. Federal | $ | (169 | ) | | $ | (1,253 | ) | | $ | (203 | ) |
| | -U.S. State | (94 | ) | | (152 | ) | | (41 | ) |
| | -Non-U.S. | (284 | ) | | (178 | ) | | (56 | ) |
| | | (547 | ) | | (1,583 | ) | | (300 | ) |
| | | | | | | |
| Deferred | -U.S. Federal | 10 |
| | 61 |
| | (80 | ) |
| | -U.S. State | (6 | ) | | (33 | ) | | (17 | ) |
| | -Non-U.S. | 105 |
| | 32 |
| | (34 | ) |
| | | 109 |
| | 60 |
| | (131 | ) |
| | | $ | (438 | ) | | $ | (1,523 | ) | | $ | (431 | ) |
Our tax provision included an excess tax benefit of $42 million in 2018 and $72 million in 2017 related to the vesting or exercise of share-based awards. Our tax provision did not reflect excess tax benefits of $32 million in 2016, as this period occurred before our adoption of ASU 2016-09. In our Statements of Cash Flows, we presented excess tax benefits as financing cash flows before our adoption of ASU 2016-09. | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | 2018 |
| Current | -U.S. Federal | $ | 9 | | | $ | (272) | | | $ | (169) | |
| -U.S. State | (41) | | | (57) | | | (94) | |
| -Non-U.S. | (78) | | | (161) | | | (284) | |
| | (110) | | | (490) | | | (547) | |
| | | | | | |
| Deferred | -U.S. Federal | 180 | | | 141 | | | 10 | |
| -U.S. State | 81 | | | 39 | | | (6) | |
| -Non-U.S. | 48 | | | (16) | | | 105 | |
| | 309 | | | 164 | | | 109 | |
| | $ | 199 | | | $ | (326) | | | $ | (438) | |
Unrecognized Tax Benefits
The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 20162018 to the end of 2018:2020:
|
| | | |
| ($ in millions) | Amount |
| Unrecognized tax benefit at beginning of 2016 | $ | 24 |
|
| Additions from Starwood Combination | 387 |
|
| Change attributable to tax positions taken in prior years | (3 | ) |
| Change attributable to tax positions taken during the current period | 16 |
|
| Decrease attributable to settlements with taxing authorities | (2 | ) |
| Decrease attributable to lapse of statute of limitations | (1 | ) |
| Unrecognized tax benefit at year-end 2016 | 421 |
|
| Change attributable to tax positions taken in prior years | 12 |
|
| Change attributable to tax positions taken during the current period | 87 |
|
| Decrease attributable to settlements with taxing authorities | (28 | ) |
| Decrease attributable to lapse of statute of limitations | (1 | ) |
| Unrecognized tax benefit at year-end 2017 | 491 |
|
| Change attributable to tax positions taken in prior years | 37 |
|
| Change attributable to tax positions taken during the current period | 148 |
|
| Decrease attributable to settlements with taxing authorities | (53 | ) |
| Unrecognized tax benefit at year-end 2018 | $ | 623 |
|
| | | | | |
| ($ in millions) | Amount |
| Unrecognized tax benefit at beginning of 2018 | $ | 491 | |
| |
| Change attributable to tax positions taken in prior years | 37 | |
| Change attributable to tax positions taken during the current period | 148 | |
| Decrease attributable to settlements with taxing authorities | (53) | |
| |
| Unrecognized tax benefit at year-end 2018 | 623 | |
| Change attributable to tax positions taken in prior years | (13) | |
| Change attributable to tax positions taken during the current period | 13 | |
| Decrease attributable to settlements with taxing authorities | (54) | |
| |
| Unrecognized tax benefit at year-end 2019 | 569 | |
| Change attributable to tax positions taken in prior years | (66) | |
| Change attributable to tax positions taken during the current period | 4 | |
| Decrease attributable to settlements with taxing authorities | (43) | |
| |
| Unrecognized tax benefit at year-end 2020 | $ | 464 | |
Our unrecognized tax benefit balances included $410 million at year-end 2020, $498 million at year-end 2019, and $497 million at year-end 2018 $385 million at year-end 2017, and $288 million at year-end 2016 of tax positions that, if recognized, would impact our effective tax rate. It is reasonably possible that we will settle $243 million of unrecognized tax benefits within the next twelve months. This includes $210 millionmonths we will reach resolution of U.S. federal issues that are currentlyincome tax examinations in appealsone or more jurisdictions. The actual amount of any change to our unrecognized tax benefits could vary depending on the timing and $33 millionnature of state and non-U.S. audits we expect to resolve in 2019.the settlement. Therefore, an estimate of the change cannot be provided. We
recognize accrued interest and penalties for our unrecognized tax benefits as a component of tax expense. Related interest (benefit) expense totaled $(15) million in 2020, $28 million in 2019, and $3 million in 2018, $242018. We accrued interest and penalties related to our unrecognized tax benefits of approximately $85 million in 2017,at year-end 2020 and $8$100 million in 2016.at year-end 2019 on our Balance Sheets.
We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. The U.S. Internal Revenue Service (“IRS”) has examined our federal income tax returns, and as of year-end 2018,2020, we have settled all issues for tax years through 2013 for Marriott and through 20092012 for Starwood. Our Marriott 2014 and 2015 tax year audits are substantially complete, and our Marriott 2016 through 2018 tax year audits are currently ongoing. Starwood is currently under
audit by the IRS for years 20102013 through 2016. Various foreign, state, and local income tax returns are also under examination by the applicable taxing authorities.
Deferred Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we pay or recover the taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.
The following table presents the tax effect of each type of temporary difference and carry-forward that gave rise to significant portions of our deferred tax assets and liabilities as of year-end 20182020 and year-end 2017:2019:
| | | ($ in millions) | At Year-End 2018 | | At Year-End 2017 | ($ in millions) | At Year-End 2020 | | At Year-End 2019 |
| Deferred Tax Assets | | | | Deferred Tax Assets | | | |
| Employee benefits | $ | 261 |
| | $ | 264 |
| Employee benefits | $ | 262 | | | $ | 267 | |
| Net operating loss carry-forwards | 494 |
| | 376 |
| Net operating loss carry-forwards | 818 | | | 680 | |
| Accrued expenses and other reserves | 160 |
| | 161 |
| Accrued expenses and other reserves | 214 | | | 162 | |
| Receivables, net | 12 |
| | 21 |
| Receivables, net | 12 | | | 11 | |
| Tax credits | 24 |
| | 27 |
| Tax credits | 49 | | | 41 | |
| Loyalty Program | 133 |
| | 31 |
| Loyalty Program | 367 | | | 249 | |
| Deferred income | 56 |
| | 17 |
| Deferred income | 69 | | | 70 | |
| Self-insurance | — |
| | 12 |
| |
| Lease liabilities | | Lease liabilities | 252 | | | 261 | |
| Other | 13 |
| | 2 |
| Other | 82 | | | 15 | |
| Deferred tax assets | 1,153 |
| | 911 |
| Deferred tax assets | 2,125 | | | 1,756 | |
| Valuation allowance | (428 | ) | | (309 | ) | Valuation allowance | (1,009) | | | (616) | |
| Deferred tax assets after valuation allowance | 725 |
| | 602 |
| Deferred tax assets after valuation allowance | 1,116 | | | 1,140 | |
| Deferred Tax Liabilities | | | | Deferred Tax Liabilities | |
| Joint venture interests | (59 | ) | | (33 | ) | |
| Equity method investments | | Equity method investments | (29) | | | (55) | |
| Property and equipment | (85 | ) | | (62 | ) | Property and equipment | (42) | | | (82) | |
| Intangibles | (876 | ) | | (1,019 | ) | Intangibles | (663) | | | (895) | |
| Right-of-use assets | | Right-of-use assets | (197) | | | (229) | |
| Self-insurance | (19 | ) | | — |
| Self-insurance | (19) | | | (15) | |
| | Deferred tax liabilities | (1,039 | ) | | (1,114 | ) | Deferred tax liabilities | (950) | | | (1,276) | |
| Net deferred taxes | $ | (314 | ) | | $ | (512 | ) | Net deferred taxes | $ | 166 | | | $ | (136) | |
Our valuation allowance is attributable to non-U.S. and U.S. state net operating loss carry forwards.carry-forwards. During 2018,2020, our valuation allowance increased primarily due to legislative changes in Switzerland and net operating losses in Luxembourg.
At year-end 2018,2020, we had approximately $11$31 million of tax credits that will expire through 20252030 and $13$17 million of tax credits that do not expire. We recorded $10$44 million of net operating loss benefits in 20182020 and $6$10 million in 2017.2019. At year-end 2018,2020, we had approximately $2,595$3,938 million of primarily state and foreign net operating losses, of which $1,712$2,315 million will expire through 2038.2040.
We made no provision for U.S. income taxes or additional non-U.S. taxes on certain undistributed earnings of non-U.S. subsidiaries. These earnings could become subject to additional taxes if the non-U.S. subsidiaries dividend or loan those earnings to an affiliate or if we sell our interests in the non-U.S. subsidiaries. We cannot practically estimate the amount of additional taxes that might be payable on the undistributed earnings.
Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate
The following table reconciles the U.S. statutory tax rate to our effective income tax rate for the last three fiscal years:
| | | | 2018 | | 2017 | | 2016 | | 2020 | | 2019 | | 2018 |
| U.S. statutory tax rate | 21.0 | % | | 35.0 | % | | 35.0 | % | U.S. statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| U.S. state income taxes, net of U.S. federal tax benefit | 2.5 |
| | 3.1 |
| | 3.0 |
| U.S. state income taxes, net of U.S. federal tax benefit | 3.8 | | | 1.6 | | | 2.5 | |
| Non-U.S. income | (1.0 | ) | | (7.3 | ) | | (6.1 | ) | Non-U.S. income | 12.5 | | | (3.3) | | | (1.0) | |
| Change in valuation allowance | 2.6 |
| | 2.0 |
| | 0.3 |
| Change in valuation allowance | (20.0) | | | 3.4 | | | 2.6 | |
| Change in uncertain tax positions | 1.0 |
| | 2.2 |
| | 1.4 |
| Change in uncertain tax positions | 12.2 | | | 1.9 | | | 1.0 | |
| Change in U.S. tax rate | (1.7 | ) | | (5.5 | ) | | 0.0 |
| Change in U.S. tax rate | 0.0 | | | 0.0 | | | (1.7) | |
| Transition Tax on foreign earnings | 0.1 |
| | 22.8 |
| | 0.0 |
| |
| Permanent items | | Permanent items | 9.4 | | | 1.3 | | | 0.0 | |
| Tax on asset dispositions | (2.9 | ) | | (0.2 | ) | | 0.0 |
| Tax on asset dispositions | 0.0 | | | (0.7) | | | (2.9) | |
| | Excess tax benefits related to equity awards | (1.8 | ) | | (2.4 | ) | | 0.0 |
| Excess tax benefits related to equity awards | 6.4 | | | (3.2) | | | (1.8) | |
| U.S. tax on foreign earnings | | U.S. tax on foreign earnings | (3.0) | | | 0.1 | | | 0.0 | |
| Other, net | (1.1 | ) | | 1.4 |
| | 1.2 |
| Other, net | 0.6 | | | (1.7) | | | (1.0) | |
| Effective rate | 18.7 | % | | 51.1 | % | | 34.8 | % | Effective rate | 42.9 | % | | 20.4 | % | | 18.7 | % |
The non-U.S. income tax benefit presented in the table above includes tax-exempt income in Hong Kong a tax rate incentive inand Singapore, and a deemed interest deduction in Switzerland, and tax-exempt income earned from certain operations in Luxembourg, which collectively represented 3.4%12.9% in 2018, 6.2%2020, 8.8% in 2017,2019, and 7.4%4.0% in 2016.2018. We included the impact of these items in the foreign tax rate differentialnon-U.S. income line above because we consider them to be equivalent to a reduction of the statutory tax rates in these jurisdictions. Pre-tax income in Switzerland, Singapore, and Hong Kong and Luxembourg totaled $432$314 million in 2018, $5762020, $709 million in 2017,2019, and $271$513 million in 2016. 2018.
The non-U.S. income tax benefit also includes 1.4% of U.S. income tax expense on non-U.S. operations.operations, which represents 0.8% in 2020, 2.0% in 2019, and 1.4% in 2018. We included the impact of this tax in the non-U.S. income line above because we consider this tax to be an integral part of the foreign taxes.
Other Information
We paid cash for income taxes, net of refunds, of $279 million in 2020, $526 million in 2019, and $678 million in 2018, $636 million in 2017, and $293 million in 2016.2018.
Tax Cuts and Jobs Act of 2017
The U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was enacted on December 22, 2017. The SEC had provided accounting and reporting guidance that allowed us to report provisional amounts within a measurement period up to one year from the enactment date. Complexities inherent in adopting the changes included additional guidance, interpretations of the law, and further analysis of data and tax positions. In 2018, we completed the accounting associated with the 2017 Tax Act as further described below.
Reduction of U.S. federal corporate tax rate. The 2017 Tax Act reduced the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. In 2017, we recorded a provisional estimated net tax benefit of $153 million for our year-end deferred tax assets and liabilities. In 2018, we completed our analyses of all impacts of the 2017 Tax Act, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences, and recognized a tax benefit of $44 million.
Deemed Repatriation Transition Tax. The Deemed Repatriation Tax (“Transition Tax”) is a new one-time tax on previously untaxed earnings and profits (“E&P”) of certain of our foreign subsidiaries accumulated post-1986 through year-end 2017. In addition to U.S. federal income taxes, the deemed repatriation of such E&P also resulted in additional state income taxes in some of the U.S. states in which we operate. In 2017, we recorded a provisional estimated federal and state Transition Tax expense of $745 million. In 2018, we finalized our preliminary calculation and recorded a charge of $3 million, which includes a benefit of $5 million resulting from changes to E&P as a result of completing an IRS audit. Substantially all of our unremitted foreign earnings that have not been previously taxed have now been subjected to U.S. taxation under the Transition Tax. In 2018, we recorded a charge of $29 million for state tax liability on unremitted accumulated earnings. We have made no additional provision for U.S. income taxes or additional non-U.S. taxes on the remaining unremitted accumulated earnings of our non-U.S. subsidiaries. It is not practical at this time to determine the income tax liability related to any remaining undistributed earnings or additional basis difference not subject to the Transition Tax.
Other provisions. The 2017 Tax Act also included a new provision designed to tax GILTI. We adopted the period cost method and recorded a current provision for GILTI tax related to current-year operations in our annual effective tax rate.
7.NOTE 8. COMMITMENTS AND CONTINGENCIES
Guarantees
We issue guarantees to certain lenders and hotel owners, chiefly to obtain long-term management and franchise contracts. The guarantees generally have a stated maximum funding amount and a term of three to ten years. The terms of guarantees to lenders generally require us to fund if cash flows from hotel operations are inadequate to cover annual debt service or to repay the loan at maturity. The terms of the guarantees to hotel owners generally require us to fund if the hotels do not attain specified levels of operating profit. Guarantee fundings to lenders and hotel owners are generally recoverable out of future hotel cash flows and/or proceeds from the sale or refinancing of hotels. We also enter into project completion guarantees with certain lenders in conjunction with hotels that we or our joint venture partners are building.
We present the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for our debt service, operating profit, and other guarantees (excluding contingent purchase obligations) for which we are the primary obligor at year-end 20182020 in the following table:
| | ($ in millions) Guarantee Type | Maximum Potential Amount of Future Fundings | | Recorded Liability for Guarantees | ($ in millions) Guarantee Type | Maximum Potential
Amount
of Future Fundings | | Recorded Liability for
Guarantees |
| Debt service | $ | 125 |
| | $ | 17 |
| Debt service | $ | 53 | | | $ | 6 | |
| Operating profit | 212 |
| | 100 |
| Operating profit | 207 | | | 128 | |
| Other | 9 |
| | 2 |
| Other | 19 | | | 4 | |
| | $ | 346 |
| | $ | 119 |
| | $ | 279 | | | $ | 138 | |
Our liability at year-end 20182020 for guarantees for which we are the primary obligor is reflected in our Balance Sheets as $23$16 million of “Accrued expenses and other” and $96$122 million of “Other noncurrent liabilities.”
Our maximum potential guarantees listed in the preceding table include $3 million of debt service guarantees, $32$90 million of operating profit guarantees and $2$7 million of other guarantees that will not be in effect until the underlying properties open and we begin to operate the properties or certain other events occur.
In conjunction with financing obtained for specific projects or properties owned by us or joint venturesentities in which we are a party,have an investment, we may provide industry standard indemnifications to the lender for loss, liability, or damage occurring as a result of the actions of the other joint venture ownerentity or our own actions.
Contingent Purchase Obligation
Sheraton Grand Chicago. WeIn 2017, we granted the owner a one-time right, exercisable in 2022, to require us to purchase the leasehold interest in the land and the hotel for $300 million in cash (the “put option”). If the owner exercises the put option, we have the option to purchase, at the same time the put transaction closes, the underlying fee simple interest in the underlying land for an additional $200 million in cash. We accountedaccount for the put option as a guarantee,guarantee. In the 2020 fourth quarter, we estimated that the put option is probable of being exercised under the terms of the agreement, and accordingly, we increased our recorded liability from $57 million at year-end 2018 was $57 million.2019 to $300 million at year-end 2020. We recorded the related expense in the “Restructuring and merger-related charges” caption of our Income Statements.
We concluded that the entity that owns the Sheraton Grand Chicago hotel is a variable interest entity. We did not consolidate the entity because we do not have the power to direct the activities that most significantly impact the entity’s economic performance. Our maximum exposure to loss related to the entity is equal to the difference between the purchase price and the fair value of the hotel at the time that the put option is exercised, plus the maximum funding amount of an operating profit guarantee that we provided for the hotel.
Commitments
At year-end 2018,2020, we had the followingvarious purchase commitments outstanding, which are not recorded on our Balance Sheets:
We had a rightfor goods and under certain circumstances, an obligation to acquire our joint venture partner’s remaining interests in two joint ventures at a price based on the performance of the ventures. In the 2019 first quarter, we accelerated our option to acquire our partner’s interests. We expect to account for the transaction primarily as an acquisition of brand and contract assets.
Investment commitments totaling up to $11 million of equity for non-controlling interests in real estate and travel technology-related entities. We expect to invest up to $3 million in 2019 and $6 million thereafter. We do not expect to fund the remaining commitments.
Various loan commitments totaling $14 million, of which we expect to fund $5 million in 2019 and $5 million thereafter. We do not expect to fund the remaining commitments.
Various commitments to purchase information technology hardware, software, accounting, finance, and maintenance services in the normal course of business, primarily for programs and services for which we are reimbursed by third-party owners, totaling $286$437 million. We expect to purchase goods and services subject to these commitments as follows: $153 million in 2019, $78 million in 2020, $38$186 million in 2021, $137 million in 2022, $48 million in 2023, and $17$66 million thereafter.
Several commitments aggregating $33 million, which we do not expect to fund.
Letters of Credit
At year-end 2018,2020, we had $136$156 million of letters of credit outstanding (all outside the Credit Facility, as defined in Footnote 10. Long-Term Debt)Note 10), most of which were for our self-insurance programs.Surety bonds issued as of year-end 20182020 totaled $152$163 million, most of which state governments requested in connection with our self-insurance programs.
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. While our forensic review of the incident is now complete, certain data analytics work continues. We have completed the planned phase out of the operation of the The Starwood reservations database effective as of the end of 2018is no longer used for business operations.
Expenses and Insurance Recoveries
In 2020, we recorded an $11 million net reversal of expenses and $29 million of accrued insurance recoveries related to the Data Security Incident; in 2019, we recorded $148 million of expenses and $84 million of accrued insurance recoveries related to the Data Security Incident; and in 2018, we recorded $28 million of expenses related to the Data Security Incident, partially offset byand $25 million of accrued insurance recoveries which we recorded in either the “Reimbursed expenses” or “Merger-related costs and charges” captions of our Income Statements. Expenses primarily included costsrelated to investigate the Data Security IncidentIncident. We received insurance recoveries of $47 million in 2020 and customer care costs.$58 million in 2019. The net reversal of expenses for 2020 is primarily due to the reduction of the accrual for the ICO fine to reflect the amount of the final ICO fine, as further described below. We recognize insurance recoveries when they are probable of receipt and present them in our Income Statements in the same caption as the related loss,expense, up to the amount of loss.total expense incurred in prior and current periods. We present expenses and insurance recoveries related to the Data Security Incident in either the “Reimbursed expenses” or “Restructuring and merger-related charges” captions of our Income Statements.
Litigation, Claims, and Government Investigations
To date,Following our announcement of the Data Security Incident, approximately 100 putative class action lawsuits have beenwere filed by consumers and others against us in U.S. federal, U.S. state and Canadian courts related to the Data Security Incident.incident. All but one of the U.S. cases were consolidated and transferred to the U.S. District Court for the District of Maryland, pursuant to orders of the U.S. Judicial Panel on Multidistrict Litigation (the “MDL”). The plaintiffs in thesethe U.S. and Canadian cases, 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. On February 6, 2019, the U.S. Judicial Panel on Multidistrict Litigation (MDL) issued an order consolidatingAmong the U.S. cases filed to that date and transferring them all toconsolidated in the U.S. District Court for the District of Maryland. AMDL proceeding is a putative class action lawsuit that was filed against us and certain of our current officers and directors on December 1, 2018, in the U.S. District Court for the Eastern District of New York alleging violations of the federal securities laws in connection with statements regarding our cybersecurity systems and controls. The complaint seekscontrols, and seeking certification of a class of affected persons, and unspecified monetary damages, costs and attorneys’ fees. This case isfees, and other related relief. The MDL proceeding also covered by the MDL order. Aincludes two shareholder derivative complaint was alsocomplaints that were filed on February 26, 2019 and March 15, 2019, respectively, against the Company, certain of its officers and each of thecertain current and former members of our Board of Directors, on February 26, 2019 in the U.S. District Court for the Southern District of New York alleging, among other claims, breach of fiduciary duty, corporate waste, unjust enrichment, mismanagement and violations of the federal securities laws.laws, and seeking unspecified monetary damages and restitution, changes to the Company’s corporate governance and internal procedures, costs and attorneys’ fees, and other related relief. A separate shareholder derivative complaint was filed in the Delaware Court of Chancery on December 3, 2019 against the Company and certain of its officers and certain current and former members of our Board of Directors, alleging claims and seeking relief generally similar to the claims made and relief sought in the other two derivative cases. This case haswill not yet beenbe consolidated as part ofwith the MDL proceeding. We dispute the allegations in the complaintslawsuits described above and intend to defendare vigorously defending against such claims. We have filed motions to dismiss in each of these cases, some of which have been denied, but the cases generally remain at an early stage. The Canadian cases have effectively been consolidated into a single case in the province of Ontario. In April 2019, we received a letter purportedly on behalf of a stockholder of the Company (also one of the named plaintiffs in the putative securities class action described above) demanding that our Board of Directors take action against the Company’s current and certain former officers and directors to recover damages for alleged breaches of fiduciary duties and related claims arising from the Data Security Incident. The Board of Directors has constituted a demand review committee to investigate the claims made in the demand letter, and the committee has retained independent counsel to assist with the investigation. The committee’s investigation is ongoing. In addition, 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 (the “U.K. DPA”) in connection with the Data Security Incident. We dispute all of the allegations in this purported action and will vigorously defend against any such claims. On November 5, 2020, the court issued an order with the consent of all parties staying this action pending resolution of another case raising similar issues, but not involving the Company, that is pending before the U.K. Supreme Court.
In addition, numerous U.S. federal, U.S. state and foreign governmental authorities are investigating,made inquiries, opened investigations, or otherwise seekingrequested information and/or documents related to the Data Security Incident and related matters, including Attorneys General offices from all 50 states and the District of Columbia, the Federal Trade Commission, the Securities and Exchange Commission, certain committees of the U.S. Senate and House of Representatives, the Information Commissioner’s Office in the United Kingdom (“ICO”(the “ICO”) as lead supervisory authority in the European Economic Area, and regulatory authorities in various other jurisdictions, including Germany. Followingjurisdictions. With the Data Security Incident,exception of the ICO notified us that it had opened an investigation intoproceeding, these matters generally remain open. In July 2019, the Company’s online privacy policy and related practices. This investigation is separate fromICO issued a formal notice of intent under the ICO’s investigation relatedU.K. DPA proposing a fine in the amount of £99 million against the Company in relation to the Data Security Incident.
We submitted written responses to the ICO vigorously defending our position and engaged with the ICO regarding the Data Security Incident and proposed fine. In October 2020, the ICO issued a final decision under the U.K. DPA, which includes a fine of £18.4 million. The Company did not appeal the ICO’s decision, but has made no admission of liability in relation to the decision or the underlying allegations. In 2019, we expensed $65 million for this loss contingency, in the “Restructuring and merger-related charges” caption of our Income Statements, based on the fine initially proposed by the ICO in July 2019 and the ongoing proceeding. In 2020, we recorded a $39 million reversal of expense, based on the ICO’s issuance of the final decision. We paid a portion of the ICO fine in the 2020 fourth quarter, and the remainder is payable over the next two years. Our accrual for this loss contingency, which we present in the “Accrued expenses and other” and “Other noncurrent liabilities” captions of our Balance Sheets, was $65 million at year-end 2019 and $17 million at year-end 2020. Our production of information and/or documents to the state Attorneys General and the Federal Trade Commission is now complete, and we are in the early stages of discussions with those authorities to resolve their investigations and requests.
While we believe it is reasonably possible that we may incur additional losses associated with the above described proceedings and investigations related to the Data Security Incident, it is not possible to estimate the amount of loss or range of loss, if any, in excess of the amounts already incurred that might result from adverse judgments, settlements, fines, penalties or other resolution of these proceedings and investigations based on the earlycurrent stage of these proceedings and investigations, the
absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, andand/or the lack of resolution of significant factual and legal issues.
8.NOTE 9. LEASES
The following table presents our future minimum lease obligationsWe enter into operating and finance leases primarily for which we are the primary obligor as of year-end 2018:
|
| | | | | | | |
| ($ in millions) | Operating Leases | | Capital Leases |
| 2019 | $ | 171 |
| | $ | 13 |
|
| 2020 | 170 |
| | 13 |
|
| 2021 | 145 |
| | 13 |
|
| 2022 | 153 |
| | 13 |
|
| 2023 | 139 |
| | 13 |
|
| Thereafter | 1,295 |
| | 165 |
|
| Total minimum lease payments where we are the primary obligor | $ | 2,073 |
| | $ | 230 |
|
| Less: Amount representing interest | | | 67 |
|
| Present value of minimum lease payments | | | $ | 163 |
|
hotels, offices, and equipment. Most leases have initial terms of up to 20 years, and contain one or more renewals at our option, generally for five- or 10-year periods. We have generally not included these renewal periods and generally contain fixed and variable components. The variable components of leases of land or building facilities are primarily based on operating performance ofin the leased property.lease term as it is not reasonably certain that we will exercise the renewal option.
The following table details the composition of rentlease expense for operating2020 and 2019:
| | | | | | | | | | | |
| ($ in millions) | | 2020 | 2019 |
| | | |
| | | |
| | | |
Operating lease cost | | $ | 157 | | $ | 185 | |
| Variable lease cost | | 60 | | 113 | |
We recorded impairment charges of $116 million in 2020 and $99 million in 2019 in the “Depreciation, amortization, and other” caption of our Income Statements to reduce the carrying amount of certain U.S. & Canada hotel leases right-of-use assets and property and equipment, including leasehold improvements. The impairment charges recorded in 2020 were due to the impact of COVID-19. We determined that we may not be able to fully recover the carrying amount of these U.S. & Canada hotel leases after evaluating the assets for recovery due to declines in market performance and future cash flow projections. We estimated the last three years:fair value using an income approach reflecting internally developed Level 3 discounted cash flows that included, among other things, our expectations of future cash flows based on historical experience and projected growth rates, usage estimates and demand trends. Additionally, during the year ended 2019, we recorded expense of $34 million in the “Restructuring and merger-related charges” caption of our Income Statements due to the impairment of a legacy-Starwood office building accounted for as a finance lease. |
| | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 |
| Minimum rentals | $ | 192 |
| | $ | 194 |
| | $ | 150 |
|
| Additional rentals | 83 |
| | 85 |
| | 67 |
|
| | $ | 275 |
| | $ | 279 |
| | $ | 217 |
|
9. SELF-INSURANCE RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table summarizespresents our future minimum lease payments at year-end 2020:
| | | | | | | | | | | |
| ($ in millions) | Operating Leases | | Finance Leases |
| 2021 | $ | 184 | | | $ | 13 | |
| 2022 | 176 | | | 13 | |
| 2023 | 124 | | | 14 | |
| 2024 | 116 | | | 14 | |
| 2025 | 106 | | | 14 | |
| Thereafter | 529 | | | 138 | |
| Total minimum lease payments | $ | 1,235 | | | $ | 206 | |
| Less: Amount representing interest | 265 | | | 53 | |
| Present value of minimum lease payments | $ | 970 | | | $ | 153 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
The following table presents the activitycomposition of our current and noncurrent lease liability at year-end 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | December 31, 2020 | | December 31, 2019 |
| Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
Current (1) | $ | 147 | | | $ | 7 | | | $ | 130 | | | $ | 6 | |
Noncurrent (2) | 823 | | | 146 | | | 882 | | | 151 | |
| $ | 970 | | | $ | 153 | | | $ | 1,012 | | | $ | 157 | |
(1)Operating leases are recorded in the “Accrued expenses and other” and finance leases are recorded in the “Current portion of long-term debt” captions of our Balance Sheets.
(2)Operating leases are recorded in the “Operating lease liabilities” and finance leases are recorded in the “Long-term debt” captions of our Balance Sheets.
At year-end 2020, we had entered into an agreement that we expect to account for as an operating lease with a 20-year term for our new headquarters office, which is not reflected in our self-insurance reserveBalance Sheets or in the table above as the lease has not commenced.
The following table presents additional information about our lease obligations at year-end 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | Operating leases | | Finance leases | | Operating leases | | Finance leases |
| | | | | | | | |
| Weighted Average Remaining Lease Term (in years) | | 10 | | 13 | | 11 | | 14 |
| Weighted Average Discount Rate | | 4.6 | % | | 4.4 | % | | 4.8 | % | | 4.4 | % |
The following table presents supplemental cash flow information for losses2020 and loss adjustment expenses as2019:
| | | | | | | | | |
| ($ in millions) | | 2020 | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash outflows for operating leases | | $ | 162 | | $ | 176 | |
| Operating cash outflows for finance leases | | 7 | | 7 | |
| Financing cash outflows for finance leases | | 6 | | 6 | |
| Lease assets obtained in exchange for lease obligations: | | | |
| Operating leases | | 35 | | 89 | |
| | | |
|
| | | | | | | |
| ($ in millions) | 2018 | | 2017 |
| Balance at beginning of year | $ | 487 |
| | $ | 493 |
|
| Less: Reinsurance recoverable | (3 | ) | | (3 | ) |
| Net balance at beginning of year | 484 |
| | 490 |
|
| Incurred related to: | | | |
| Current year | 151 |
| | 160 |
|
| Prior years | (37 | ) | | (59 | ) |
| Total incurred | 114 |
| | 101 |
|
| Paid related to: | | | |
| Current year | (32 | ) | | (30 | ) |
| Prior years | (96 | ) | | (77 | ) |
| Total paid | (128 | ) | | (107 | ) |
| Net balance at end of year | 470 |
| | 484 |
|
| Add: Reinsurance recoverable | 7 |
| | 3 |
|
| Balance at end of year | $ | 477 |
| | $ | 487 |
|
| | | | |
| Current portion classified in “Accrued expenses and other” | $ | 126 |
| | $ | 112 |
|
| Noncurrent portion classified in “Other noncurrent liabilities” | 351 |
| | 375 |
|
| | $ | 477 |
| | $ | 487 |
|
We decreased our provision for incurred losses for prior years by $37 million in 2018 and by $59 million in 2017 because of changes in estimates from insured events from prior years due to changes in underwriting experience and frequency and severity trends.
We provide detail on our long-term debt balances, net of discounts, premiums, and debt issuance costs, in the following table at year-end 20182020 and 2017:2019:
| | | ($ in millions) | At Year-End 2018 | | At Year-End 2017 | ($ in millions) | At Year-End 2020 | | At Year-End 2019 |
| Senior Notes: | | | | Senior Notes: | | | |
Series K Notes, interest rate of 3.0%, face amount of $600, maturing March 1, 2019
(effective interest rate of 4.4%) | $ | 600 |
| | $ | 598 |
| |
Series L Notes, interest rate of 3.3%, face amount of $350, maturing September 15, 2022
(effective interest rate of 3.4%) | 349 |
| | 348 |
| |
Series M Notes, interest rate of 3.4%, face amount of $350, maturing October 15, 2020
(effective interest rate of 3.6%) | 349 |
| | 348 |
| |
Series L Notes, interest rate of 3.3%, face amount of $173, maturing September 15, 2022 (effective interest rate of 3.4%) | | Series L Notes, interest rate of 3.3%, face amount of $173, maturing September 15, 2022 (effective interest rate of 3.4%) | $ | 173 | | | $ | 349 | |
Series M Notes, interest rate of 3.4%, face amount of $350, matured October 15, 2020 (effective interest rate of 3.6%) | | Series M Notes, interest rate of 3.4%, face amount of $350, matured October 15, 2020 (effective interest rate of 3.6%) | — | | | 349 | |
Series N Notes, interest rate of 3.1%, face amount of $400, maturing October 15, 2021
(effective interest rate of 3.4%) | 397 |
| | 397 |
| Series N Notes, interest rate of 3.1%, face amount of $400, maturing October 15, 2021 (effective interest rate of 3.4%) | 399 | | | 398 | |
Series O Notes, interest rate of 2.9%, face amount of $450, maturing March 1, 2021
(effective interest rate of 3.1%) | 448 |
| | 447 |
| Series O Notes, interest rate of 2.9%, face amount of $450, maturing March 1, 2021 (effective interest rate of 3.1%) | 450 | | | 449 | |
Series P Notes, interest rate of 3.8%, face amount of $350, maturing October 1, 2025
(effective interest rate of 4.0%) | 345 |
| | 345 |
| Series P Notes, interest rate of 3.8%, face amount of $350, maturing October 1, 2025 (effective interest rate of 4.0%) | 346 | | | 346 | |
Series Q Notes, interest rate of 2.3%, face amount of $750, maturing January 15, 2022
(effective interest rate of 2.5%) | 745 |
| | 744 |
| |
Series Q Notes, interest rate of 2.3%, face amount of $399, maturing January 15, 2022 (effective interest rate of 2.5%) | | Series Q Notes, interest rate of 2.3%, face amount of $399, maturing January 15, 2022 (effective interest rate of 2.5%) | 398 | | | 747 | |
Series R Notes, interest rate of 3.1%, face amount of $750, maturing June 15, 2026
(effective interest rate of 3.3%) | 743 |
| | 743 |
| Series R Notes, interest rate of 3.1%, face amount of $750, maturing June 15, 2026 (effective interest rate of 3.3%) | 745 | | | 744 | |
Series S Notes, interest rate of 6.8%, face amount of $324, matured May 15, 2018
(effective interest rate of 1.7%) | — |
| | 330 |
| |
Series T Notes, interest rate of 7.2%, face amount of $181, maturing December 1, 2019
(effective interest rate of 2.3%) | 188 |
| | 197 |
| |
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 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%) | 335 |
| | 337 |
| Series V Notes, interest rate of 3.8%, face amount of $318, maturing March 15, 2025 (effective interest rate of 2.8%) | 330 | | | 332 | |
Series W Notes, interest rate of 4.5%, face amount of $278, maturing October 1, 2034
(effective interest rate of 4.1%) | 292 |
| | 292 |
| Series W Notes, interest rate of 4.5%, face amount of $278, maturing October 1, 2034 (effective interest rate of 4.1%) | 290 | | | 291 | |
Series X Notes, interest rate of 4.0%, face amount of $450, maturing April 15, 2028
(effective interest rate of 4.2%) | 443 |
| | — |
| Series X Notes, interest rate of 4.0%, face amount of $450, maturing April 15, 2028 (effective interest rate of 4.2%) | 445 | | | 444 | |
Series Y Notes, floating rate, face amount of $550, maturing December 1, 2020
(effective interest rate of 3.2% at December 31, 2018) | 547 |
| | — |
| |
| Series Y Notes, floating rate, face amount of $550, matured December 1, 2020 | | Series Y Notes, floating rate, face amount of $550, matured December 1, 2020 | — | | | 549 | |
Series Z Notes, interest rate of 4.2%, face amount of $350, maturing December 1, 2023
(effective interest rate of 4.4%) | 347 |
| | — |
| Series Z Notes, interest rate of 4.2%, face amount of $350, maturing December 1, 2023 (effective interest rate of 4.4%) | 348 | | | 347 | |
Series AA Notes, interest rate of 4.7%, face amount of $300, maturing December 1, 2028
(effective interest rate of 4.8%) | 297 |
| | — |
| Series AA Notes, interest rate of 4.7%, face amount of $300, maturing December 1, 2028 (effective interest rate of 4.8%) | 297 | | | 297 | |
Series BB Notes, floating rate, face amount of $300, maturing March 8, 2021 (effective interest rate of 0.9% at December 31, 2020) | | Series BB Notes, floating rate, face amount of $300, maturing March 8, 2021 (effective interest rate of 0.9% at December 31, 2020) | 300 | | | 299 | |
Series CC Notes, interest rate of 3.6%, face amount of $550, maturing April 15, 2024 (effective interest rate of 3.9%) | | Series CC Notes, interest rate of 3.6%, face amount of $550, maturing April 15, 2024 (effective interest rate of 3.9%) | 586 | | | 564 | |
Series DD Notes, interest rate of 2.1%, face amount of $224, maturing October 3, 2022 (effective interest rate of 1.2%) | | Series DD Notes, interest rate of 2.1%, face amount of $224, maturing October 3, 2022 (effective interest rate of 1.2%) | 228 | | | 543 | |
Series EE Notes, interest rate of 5.8%, face amount of $1,600, maturing May 1, 2025 (effective interest rate of 6.0%) | | Series EE Notes, interest rate of 5.8%, face amount of $1,600, maturing May 1, 2025 (effective interest rate of 6.0%) | 1,583 | | | — | |
Series FF Notes, interest rate of 4.6%, face amount of $1,000, maturing June 15, 2030 (effective interest rate of 4.8%) | | Series FF Notes, interest rate of 4.6%, face amount of $1,000, maturing June 15, 2030 (effective interest rate of 4.8%) | 986 | | | — | |
Series GG Notes, interest rate of 3.5%, face amount of $1,000, maturing October 15, 2032 (effective interest rate of 3.7%) | | Series GG Notes, interest rate of 3.5%, face amount of $1,000, maturing October 15, 2032 (effective interest rate of 3.7%) | 985 | | | — | |
| | | | | |
| Commercial paper | 2,245 |
| | 2,371 |
| Commercial paper | — | | | 3,197 | |
| Credit Facility | — |
| | — |
| Credit Facility | 900 | | | — | |
| Capital lease obligations | 163 |
| | 171 |
| |
| Finance lease obligations | | Finance lease obligations | 153 | | | 157 | |
| Other | 223 |
| | 279 |
| Other | 143 | | | 247 | |
| | $ | 9,347 |
| | $ | 8,238 |
| | $ | 10,376 | | | $ | 10,940 | |
| Less: Current portion of long-term debt | (833 | ) | | (398 | ) | |
| Less current portion | | Less current portion | (1,173) | | | (977) | |
| | $ | 8,514 |
| | $ | 7,840 |
| | $ | 9,203 | | | $ | 9,963 | |
All our long-term debt is recourse to us but unsecured.unsecured, other than debt assumed in our acquisition of Elegant which we paid off in January 2020 and debt associated with one of our owned properties. All the Senior Notes shown in the table above are our unsecured and unsubordinated obligations, which rank equally with our other Senior Notes and all other unsecured and unsubordinated indebtedness that we have issued or will issue from time to time, and are governed by the terms of an indenture, dated as of November 16, 1998, between us and The Bank of New York Mellon (formerly The Bank of New York), as trustee. With the exception of the floating rate Series YBB Notes, we may redeem some or all of each series of the Senior Notes before maturity under the terms provided in the applicable form of Senior Note.
We are party to a multicurrency revolving credit agreement (the(as amended, the “Credit Facility”) that provides for up to $4$4.5 billion of aggregate effective borrowings to support our commercial paper program andfor general corporate needs, including working capital, capital expenditures, share repurchases, letters of credit, acquisitions and acquisitions.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. While anyWe classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings and/or borrowings under our Credit Facility generally have short-term maturities, we classify the outstanding 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 10, 2021. See28, 2024. In 2020, we made borrowings of $4.5 billion and repayments of $3.6 billion, resulting in total outstanding borrowings under the “Cash Requirements and Our Credit Facility” caption earlier in this reportFacility of $0.9 billion as of December 31, 2020.
In April 2020, we entered into an amendment to the Credit Facility (the “First Credit Facility Amendment”). The First Credit Facility Amendment waives the quarterly-tested leverage covenant in the “Liquidity and Capital Resources” section of Item 7 above for further information on our Credit Facility through and available borrowing capacityincluding the first quarter of 2021 (the “Covenant Waiver Period”), which waiver period may end sooner at December 31, 2018.our election, adjusts the required leverage levels for the covenant when it is re-imposed at the end of the Covenant Waiver Period, and imposes a new monthly-tested liquidity covenant for the duration of the Covenant Waiver Period. The First Credit Facility Amendment also makes certain other amendments to the terms of the Credit Facility, including increasing the interest and fees payable on the Credit Facility for the duration of the Covenant Waiver Period, tightening certain existing covenants, and imposing additional covenants for the duration of the Covenant Waiver Period. These covenant changes include tightening the lien covenant and the covenant on dividends, share repurchases and distributions, and imposing new covenants limiting asset sales, investments and discretionary capital expenditures.
In January 2021, we entered into two more amendments to the 2018Credit Facility (the “New Credit Facility Amendments,” and together with the First Credit Facility Amendment, the “Credit Facility Amendments”), which extend the Covenant Waiver Period through and including the fourth quarter of 2021 (which waiver period may end sooner at our election), revise the required leverage levels for such covenant when it is re-imposed at the end of the Covenant Waiver Period (starting at 5.50 to 1.00 when the leverage test is first re-imposed and gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal quarters, as further described in the Credit Facility), and increase the minimum liquidity amount under the liquidity covenant that is tested monthly for the duration of the Covenant Waiver Period. The New Credit Facility Amendments also make certain other amendments to the terms of the Credit Facility, including reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency Rate.
In April 2020, we issued $550$1.6 billion aggregate principal amount of 5.750 percent Series EE Notes due May 1, 2025 (the “Series EE Notes”). We pay interest on the Series EE Notes in May and November of each year, commencing in November 2020. We received net proceeds of approximately $1.581 billion from the offering of the Series EE Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes.
In June 2020, we issued $1.0 billion aggregate principal amount of 4.625 percent Series FF Notes due June 15, 2030 (the “Series FF Notes”). We pay interest on the Series FF Notes in June and December of each year, commencing in December 2020. We received net proceeds of approximately $985 million from the offering of the Series FF Notes, after deducting the underwriting discount and estimated expenses. We used the majority of these proceeds to repurchase Senior Notes with near term maturities, as further described below.
In June 2020, we completed a tender offer (the “Tender Offer”) and retired $853 million aggregate principal amount of three-month LIBOR plus 0.600 percentour Senior Notes consisting of:
•$351 million of our 2.3% Series YQ Notes due December 1,maturing January 15, 2022;
•$176 million of our 3.3% Series L Notes maturing September 15, 2022; and
•$326 million of our 2.1% Series DD Notes maturing October 3, 2022.
We used proceeds from our Series FF Notes offering to complete the repurchase of such notes, including the payment of accrued interest and other costs incurred.
In July 2020, (the “Series Y Notes”),we redeemed all $350 million aggregate principal amount of 4.150 percentour Series ZM Notes due December 1, 2023 (the “Series Z Notes”), and $300 millionin October 2020.
In August 2020, we issued $1.0 billion aggregate principal amount of 4.6503.500 percent Series AAGG Notes due December 1, 2028October 15, 2032 (the “Series AAGG Notes”). We will pay interest on the Series YGG Notes on March 1, June 1, September 1,in April and December 1October of each year, commencing on March 1, 2019, and will pay interest on the Series Z Notes and the Series AA Notes on June 1 and December 1 of each year, commencing on June 1, 2019.in April 2021. We received net proceeds of approximately $1,190$984 million from the offering of the Series Y Notes, the Series Z Notes, and the Series AAGG Notes, after deducting the underwriting discount and estimated expenses.
In the 2018 second quarter, we issued $450 million aggregate principal amount of 4.000 percent Series X Notes due April 15, 2028 (the “Series X Notes”). We will pay interest on the Series X Notes on April 15 and October 15 of each year, commencing on October 15, 2018. We received net proceeds of approximately $443 million from the offering of the Series X Notes, after deducting the underwriting discount and estimated expenses.
The proceeds from our 2018 senior note issuancesexpenses, which were made available for general corporate purposes, which may include working capital, capital expenditures, acquisitions, stock repurchases, orincluding the repayment of a portion of our outstanding commercial paper or other borrowings.borrowings under the Credit Facility.
The following table presents future principal payments, net of discounts, premiums, and debt issuance costs, for our debt as ofat year-end 2018:2020:
| | Debt Principal Payments ($ in millions) | Amount | Debt Principal Payments ($ in millions) | Amount |
| 2019 | $ | 833 |
| |
| 2020 | 912 |
| |
| 2021 | 3,108 |
| 2021 | $ | 1,173 | |
| 2022 | 1,114 |
| 2022 | 807 | |
| 2023 | 695 |
| 2023 | 682 | |
| 2024 | | 2024 | 1,494 | |
| 2025 | | 2025 | 2,302 | |
| Thereafter | 2,685 |
| Thereafter | 3,918 | |
| Balance at year-end 2018 | $ | 9,347 |
| |
| Balance at year-end 2020 | | Balance at year-end 2020 | $ | 10,376 | |
We paid cash for interest, net of amounts capitalized, of $377 million in 2020, $348 million in 2019, and $290 million in 2018, $234 million in 2017, and $165 million in 2016.2018.
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFITS
We sponsor numerous funded and unfunded domestic and international defined benefit pension plans. All defined benefit plans covering U.S. employees are frozen, meaning that employees do not accrue additional benefits. Certain plans covering non-U.S. employees remain active. We also sponsor the Starwood Retiree Welfare Program, which provides health care and life insurance benefits for certain eligible retired employees.
The following tables show changes in plan assets and accumulated benefit obligations and the funded status of our defined benefit pension and other postretirement benefit plans at year-end 2018 and 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits |
| ($ in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Plan Assets | | | | | | | | | | | |
| Beginning fair value of plan assets | $ | — |
| | $ | — |
| | $ | 294 |
| | $ | 262 |
| | $ | — |
| | $ | — |
|
| Actual return on plan assets, net of expenses | — |
| | — |
| | (16 | ) | | 29 |
| | — |
| | — |
|
| Employer contribution | 2 |
| | 2 |
| | — |
| | 2 |
| | 1 |
| | 1 |
|
| Participant contributions | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
Plan settlement (1) | — |
| | — |
| | (62 | ) | | — |
| | — |
| | — |
|
| Effect of foreign exchange rates | — |
| | — |
| | (6 | ) | | 10 |
| | — |
| | — |
|
| Benefits paid | (2 | ) | | (2 | ) | | (8 | ) | | (9 | ) | | (2 | ) | | (1 | ) |
| Ending fair value of plan assets | $ | — |
| | $ | — |
| | $ | 202 |
| | $ | 294 |
| | $ | — |
| | $ | — |
|
| Accumulated Benefit Obligations | | | | | | | | | | | |
| Beginning benefit obligations | $ | 21 |
| | $ | 21 |
| | $ | 246 |
| | $ | 229 |
| | $ | 14 |
| | $ | 15 |
|
| Interest cost | 1 |
| | 1 |
| | 8 |
| | 8 |
| | 1 |
| | — |
|
| Actuarial (gain) loss | (1 | ) | | 1 |
| | 2 |
| | 10 |
| | (2 | ) | | — |
|
| Participant contributions | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
Plan settlement (1) | — |
| | — |
| | (55 | ) | | — |
| | — |
| | — |
|
| Effect of foreign exchange rates | — |
| | — |
| | (4 | ) | | 8 |
| | — |
| | — |
|
| Benefits paid | (2 | ) | | (2 | ) | | (9 | ) | | (9 | ) | | (2 | ) | | (1 | ) |
| Ending accumulated benefit obligations | $ | 19 |
| | $ | 21 |
| | $ | 188 |
| | $ | 246 |
| | $ | 12 |
| | $ | 14 |
|
| Funded Status | | | | | | | | | | | |
| Overfunded (underfunded) at year-end | $ | (19 | ) | | $ | (21 | ) | | $ | 14 |
| | $ | 48 |
| | $ | (12 | ) | | $ | (14 | ) |
| |
(1)
| In 2018, we transferred the benefit obligations of one of our international pension plans located in the U.K. to Legal & General Assurance Society Limited (“LGAS”). The transaction met the criteria for settlement accounting, and accordingly, we removed the plan asset and liability from our Balance Sheet at year-end 2018. We reported the loss of $20 million in the “Merger-related costs and charges” caption of our Income Statement because we had assumed the plan in “Buy-In” status as a result of the Starwood Combination. |
The following table shows the classification of overfunded and (underfunded) amounts in our Balance Sheets at year-end 2018 and 2017:
|
| | | | | | | |
| ($ in millions) | At Year-End 2018 | | At Year-End 2017 |
| Other noncurrent assets | $ | 21 |
| | $ | 56 |
|
| Accrued expenses and other | (3 | ) | | (3 | ) |
| Other noncurrent liabilities | (35 | ) | | (40 | ) |
| | $ | (17 | ) | | $ | 13 |
|
The following table shows the benefit obligations for pension plans with accumulated benefit obligations that exceed the fair value of plan assets:
|
| | | | | | | | | | | | | | | |
| | Domestic Pension Benefits | | Foreign Pension Benefits |
| ($ in millions) | 2018 | | 2017 | | 2018 | | 2017 |
| Projected benefit obligation | $ | 19 |
| | $ | 21 |
| | $ | 8 |
| | $ | 8 |
|
| Accumulated benefit obligation | 19 |
| | 21 |
| | 7 |
| | 7 |
|
| Fair value of plan assets | — |
| | — |
| | — |
| | — |
|
The weighted average assumptions used to determine benefit obligations at year-end 2018 and 2017 were as follows:
|
| | | | | | | | | | | | | | | | | |
| | Domestic Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Discount rate | 4.25 | % | | 3.50 | % | | 3.88 | % | | 3.30 | % | | 4.24 | % | | 3.50 | % |
Rate of compensation increase (1) | n/a |
| | n/a |
| | 3.02 | % | | 3.02 | % | | n/a |
| | n/a |
|
| |
(1)
| Rate of compensation increase is not applicable to domestic pension benefits as all domestic plans are frozen and do not accrue additional benefits, or to other postretirement benefits as it is not an input in the benefit obligation determination. |
Our investment objectives for plan assets are to minimize asset value volatility and to ensure the assets are sufficient to pay plan benefits. The target asset allocation is 39% debt securities, 39% equity securities, and 22% other. We consider several factors in assessing the expected return on plan assets, including current and expected allocation of plan assets, investment strategy, historical rates of return and our expectations, as well as investment expert expectations, for investment performance over approximately a ten-year period.
The following tables present our fair value hierarchy of plan assets at year-end 2018 and 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At Year-End 2018 | | At Year-End 2017 |
| ($ in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | | | | | | | | | |
| Mutual funds | $ | 76 |
| | $ | — |
| | $ | — |
| | $ | 76 |
| | $ | 86 |
| | $ | — |
| | $ | — |
| | $ | 86 |
|
| Collective trusts | — |
| | 1 |
| | 36 |
| | 37 |
| | — |
| | 1 |
| | 101 |
| | 102 |
|
| Equity index trusts | 86 |
| | — |
| | — |
| | 86 |
| | 94 |
| | — |
| | — |
| | 94 |
|
| Money markets | — |
| | 2 |
| | — |
| | 2 |
| | 1 |
| | 9 |
| | — |
| | 10 |
|
| Bond index funds | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 2 |
| | — |
| | 2 |
|
| | $ | 162 |
| | $ | 4 |
| | $ | 36 |
| | $ | 202 |
| | $ | 181 |
| | $ | 12 |
| | $ | 101 |
| | $ | 294 |
|
The collective trust assets include investments in insurance contracts, which we valued using significant unobservable inputs, including plan specific data and bond interest rates. We value all other assets using quoted market prices in active markets or other observable inputs.
The following table shows our expected future pension and other postretirement benefit plan payments for the next ten years:
|
| | | | | | | | | | | | | | | |
| ($ in millions) | Domestic Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | Total |
| 2019 | $ | 2 |
| | $ | 17 |
| | $ | 1 |
| | $ | 20 |
|
| 2020 | 2 |
| | 9 |
| | 1 |
| | 12 |
|
| 2021 | 2 |
| | 10 |
| | 1 |
| | 13 |
|
| 2022 | 2 |
| | 10 |
| | 1 |
| | 13 |
|
| 2023 | 1 |
| | 11 |
| | 1 |
| | 13 |
|
| 2024-2028 | 7 |
| | 55 |
| | 5 |
| | 67 |
|
12. INTANGIBLE ASSETS AND GOODWILL
The following table details the composition of our intangible assets at year-end 20182020 and 2017:2019: | | | ($ in millions) | At Year-End 2018 | | At Year-End 2017 | ($ in millions) | At Year-End 2020 | | At Year-End 2019 |
| Definite-lived Intangible Assets | | | | Definite-lived Intangible Assets | | | |
| Costs incurred to obtain contracts with customers | $ | 1,347 |
| | $ | 1,137 |
| Costs incurred to obtain contracts with customers | $ | 1,674 | | | $ | 1,588 | |
| Contracts acquired in business combinations and other | 1,983 |
| | 2,052 |
| Contracts acquired in business combinations and other | 2,257 | | | 1,972 | |
| | 3,330 |
| | 3,189 |
| | 3,931 | | | 3,560 | |
| Accumulated amortization | (674 | ) | | (499 | ) | Accumulated amortization | (937) | | | (808) | |
| | 2,656 |
| | 2,690 |
| | 2,994 | | | 2,752 | |
| Indefinite-lived Intangible Brand Assets | 5,724 |
| | 5,854 |
| Indefinite-lived Intangible Brand Assets | 5,995 | | | 5,889 | |
| | $ | 8,380 |
| | $ | 8,544 |
| | $ | 8,989 | | | $ | 8,641 | |
We capitalize direct costs that we incur to obtain management, franchise, and license agreements. We amortize these costs on a straight-line basis over the initial term of the agreements, ranging from 15 to 30 years. In 2020, we recorded impairment charges totaling $64 million in the “Contract investment amortization” caption of our Income Statements to reduce the carrying amount of certain capitalized costs incurred to obtain contracts with customers, primarily due to the impact of COVID-19, most of which we recorded in our U.S. & Canada business segment.
For acquired definite-lived intangible assets, we recorded amortization expense of $97 million in 2020, $105 million in 2019, and $111 million in 2018 $116 million in 2017, and $31 million in 2016 in the “Depreciation, amortization, and other” caption of our Income Statements. For these assets, we estimate that our aggregate amortization expense will be $111$95 million for each of the next five fiscal years.
The following table details the carrying amount of our goodwill at year-end 20182020 and 2017:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | U.S. & Canada | | Asia Pacific | | EMEA | | CALA | | Total
Goodwill |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at year-end 2019 | $ | 5,338 | | | $ | 1,864 | | | $ | 1,522 | | | $ | 324 | | | $ | 9,048 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Foreign currency translation | 9 | | | 71 | | | 57 | | | (10) | | | 127 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at year-end 2020 | $ | 5,347 | | | $ | 1,935 | | | $ | 1,579 | | | $ | 314 | | | $ | 9,175 | |
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | North American Full-Service | | North American Limited-Service | | Asia Pacific | | Other International | | Total Goodwill |
| Balance at year-end 2017 | $ | 3,585 |
| | $ | 1,769 |
| | $ | 1,928 |
| | $ | 1,925 |
| | $ | 9,207 |
|
| Foreign currency translation | (19 | ) | | (14 | ) | | (66 | ) | | (69 | ) | | (168 | ) |
| Balance at year-end 2018 | $ | 3,566 |
| | $ | 1,755 |
| | $ | 1,862 |
| | $ | 1,856 |
| | $ | 9,039 |
|
13.NOTE 12. PROPERTY AND EQUIPMENT
The following table presents the composition of our property and equipment balances at year-end 20182020 and 2017:2019:
| | | ($ in millions) | At Year-End 2018 | | At Year-End 2017 | ($ in millions) | At Year-End 2020 | | At Year-End 2019 |
| Land | $ | 591 |
| | $ | 601 |
| Land | $ | 688 | | | $ | 684 | |
| Buildings and leasehold improvements | 1,275 |
| | 1,052 |
| Buildings and leasehold improvements | 1,045 | | | 1,100 | |
| Furniture and equipment | 1,439 |
| | 1,121 |
| Furniture and equipment | 640 | | | 1,225 | |
| Construction in progress | 168 |
| | 116 |
| Construction in progress | 29 | | | 196 | |
| | 3,473 |
| | 2,890 |
| | 2,402 | | | 3,205 | |
| Accumulated depreciation | (1,517 | ) | | (1,097 | ) | Accumulated depreciation | (888) | | | (1,301) | |
| | $ | 1,956 |
| | $ | 1,793 |
| | $ | 1,514 | | | $ | 1,904 | |
We record property and equipment at cost, including interest and real estate taxes we incur during development and construction. We capitalize the cost of improvements that extend the useful life of property and equipment when we incur them. These capitalized costs may include structural costs, equipment, fixtures, floor, and wall coverings. We expense all repair and maintenance costs when we incur them. We compute depreciation using the straight-line method over the estimated useful lives of the assets (generally three to 40 years), and we amortize leasehold improvements over the shorter of the asset life or lease term. Our gross depreciation expense totaled $322 million in 2020, $346 million in 2019, and $256 million in 2018 $231(of which $109 million in 2017, and $1572020, $121 million in 2016 (of which2019, and $147 million in 2018 $126 million in 2017, and $76 million in 2016 was included in reimbursed costs)the “Reimbursed expenses” caption of our Income Statements). Fixed assets attributed to operations located outside the U.S. were $533$679 million at year-end 2020 and $695 million at year-end 2019.
We recorded impairment charges for property and equipment, including leasehold improvements, and right-of-use assets on several U.S. & Canada leased hotels in 20182020 and $705 million2019 as discussed in 2017.Note 9.
14. NOTES RECEIVABLE
The following table presents the expected future principal payments, net of reserves and unamortized discounts, as well as interest rates for our notes receivable as of year-end 2018:
|
| | | |
Notes Receivable Principal Payments ($ in millions) | Amount |
| 2019 | $ | 6 |
|
| 2020 | 62 |
|
| 2021 | 2 |
|
| 2022 | 2 |
|
| 2023 | — |
|
| Thereafter | 59 |
|
| Balance at year-end 2018 | $ | 131 |
|
| Weighted average interest rate at year-end 2018 | 5.9% |
|
| Range of stated interest rates at year-end 2018 | 0 - 9% |
|
At year-end 2018, our recorded investment in impaired senior, mezzanine, and other loans was $45 million, and we had a $25 million allowance for credit losses, leaving $20 million of exposure to our investment in impaired loans. At year-end 2017, our recorded investment in impaired senior, mezzanine, and other loans was $95 million, and we had a $72 million allowance for credit losses, leaving $23 million of exposure to our investment in impaired loans. Our average investment in impaired senior, mezzanine, and other loans totaled $70 million during 2018, $84 million during 2017, and $73 million during 2016.
15.NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. We present the carrying values and the fair values of noncurrent financial assets and liabilities that qualify as financial instruments, determined under current guidance for disclosures on the fair value of financial instruments, in the following table:
| | | | At Year-End 2018 | | At Year-End 2017 | | At Year-End 2020 | | At Year-End 2019 |
| ($ in millions) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | ($ in millions) | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value |
| Senior, mezzanine, and other loans | $ | 125 |
| | $ | 116 |
| | $ | 142 |
| | $ | 130 |
| Senior, mezzanine, and other loans | $ | 159 | | | $ | 142 | | | $ | 117 | | | $ | 112 | |
| Total noncurrent financial assets | $ | 125 |
| | $ | 116 |
| | $ | 142 |
| | $ | 130 |
| Total noncurrent financial assets | $ | 159 | | | $ | 142 | | | $ | 117 | | | $ | 112 | |
| | | | | | | | | | | | | | | | |
| Senior Notes | $ | (5,928 | ) | | $ | (5,794 | ) | | $ | (5,087 | ) | | $ | (5,126 | ) | Senior Notes | $ | (8,031) | | | $ | (8,941) | | | $ | (6,441) | | | $ | (6,712) | |
| Commercial paper | (2,245 | ) | | (2,245 | ) | | (2,371 | ) | | (2,371 | ) | |
| Commercial paper/Credit Facility | | Commercial paper/Credit Facility | (900) | | | (900) | | | (3,197) | | | (3,197) | |
| Other long-term debt | (184 | ) | | (182 | ) | | (217 | ) | | (221 | ) | Other long-term debt | (126) | | | (128) | | | (174) | | | (179) | |
| Other noncurrent liabilities | (153 | ) | | (153 | ) | | (178 | ) | | (178 | ) | Other noncurrent liabilities | (426) | | | (426) | | | (196) | | | (196) | |
| Total noncurrent financial liabilities | $ | (8,510 | ) | | $ | (8,374 | ) | | $ | (7,853 | ) | | $ | (7,896 | ) | Total noncurrent financial liabilities | $ | (9,483) | | | $ | (10,395) | | | $ | (10,008) | | | $ | (10,284) | |
We estimate the fair value of our senior, mezzanine, and other loans by discounting cash flows using risk-adjusted rates, both of which are Level 3 inputs.
We estimate the fair value of our other long-term debt, including the current portion and excluding leases, using expected future payments discounted at risk-adjusted rates, which are Level 3 inputs. We determine the fair value of our Senior Notes using quoted market prices, which are directly observable Level 1 inputs. As noteddiscussed in Footnote 10. Long-Term Debt,Note 10, even though our commercial paper borrowings generally have short-term maturities of 30 days or less, we classify outstanding commercial paper borrowings (if any) as long-term based on our ability and intent to refinance them on a long-term basis. As we arehave historically been a frequent issuer of commercial paper, we use pricing from recent transactions as Level 2 inputs in estimating fair value.At year-end 2018 and year-end 2017,2019, we determined that the carrying value of our commercial paper approximated fair value due to the short maturity. At year-end 2020, all of our previously issued commercial paper has matured and been repaid. Due to changes to our credit ratings as a result of the impact of COVID-19 on our business, we currently are not issuing commercial paper. The carrying value of our Credit Facility borrowings approximate fair value because they bear interest at a market rate. Our other noncurrent liabilities largely consist of guarantees. As we note in the “Guarantees” caption of Footnote 2. Summary of Significant Accounting Policies,Note 2, we measure our liability for guarantees at fair value on a
nonrecurring basis, which is when we issue or modify a guarantee using Level 3 internally developed inputs.At year-end 20182020 and year-end 2017,2019, we determined that the carrying values of our guarantee liabilities approximated their fair values based on Level 3 inputs.
See the “Fair Value Measurements” caption of Footnote 2. Summary of Significant Accounting PoliciesNote 2 for more information on the input levels we use in determining fair value.
16.NOTE 14. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table details the accumulated other comprehensive loss activity for 2018, 2017,2020, 2019, and 2016:2018:
| | | | | | | | | | | | | | | | | |
| ($ in millions) | Foreign Currency Translation Adjustments | | Derivative Instrument and Other Adjustments | | Accumulated Other Comprehensive Loss |
| Balance at year-end 2017 | $ | (23) | | | $ | 6 | | | $ | (17) | |
Other comprehensive (loss) income before reclassifications (1) | (391) | | | 4 | | | (387) | |
| Reclassification adjustments | 11 | | | 6 | | | 17 | |
| Net other comprehensive (loss) income | (380) | | | 10 | | | (370) | |
| Adoption of ASU 2016-01 | — | | | (4) | | | (4) | |
| Balance at year-end 2018 | $ | (403) | | | $ | 12 | | | $ | (391) | |
Other comprehensive income before reclassifications (1) | 35 | | | 2 | | | 37 | |
| Reclassification adjustments | — | | | (7) | | | (7) | |
| Net other comprehensive income (loss) | 35 | | | (5) | | | 30 | |
| Balance at year-end 2019 | $ | (368) | | | $ | 7 | | | $ | (361) | |
Other comprehensive income before reclassifications (1) | 229 | | | 7 | | | 236 | |
| Reclassification adjustments | — | | | (10) | | | (10) | |
| Net other comprehensive income (loss) | 229 | | | (3) | | | 226 | |
| Balance at year-end 2020 | $ | (139) | | | $ | 4 | | | $ | (135) | |
(1)Other comprehensive (loss) income before reclassifications for foreign currency translation adjustments includes intra-entity foreign currency transactions that are of a long-term investment nature, which resulted in (losses) gains of $(44) million for 2020, $6 million for 2019, and $14 million for 2018.
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Foreign Currency Translation Adjustments | | Derivative Instrument Adjustments | | Available-For-Sale Securities Unrealized Adjustments | | Pension and Postretirement Adjustments | | Accumulated Other Comprehensive Loss |
| Balance at year-end 2015 | $ | (192 | ) | | $ | (8 | ) | | $ | 4 |
| | $ | — |
| | $ | (196 | ) |
Other comprehensive (loss) income before reclassifications (1) | (311 | ) | | 1 |
| | 2 |
| | 5 |
| | (303 | ) |
| Reclassification of losses | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
| Net other comprehensive (loss) income | (311 | ) | | 3 |
| | 2 |
| | 5 |
| | (301 | ) |
| Balance at year-end 2016 | $ | (503 | ) | | $ | (5 | ) | | $ | 6 |
| | $ | 5 |
| | $ | (497 | ) |
Other comprehensive income (loss) before reclassifications (1) | 478 |
| | (14 | ) | | (2 | ) | | 7 |
| | 469 |
|
| Reclassification of losses | 2 |
| | 9 |
| | — |
| | — |
| | 11 |
|
| Net other comprehensive income (loss) | 480 |
| | (5 | ) | | (2 | ) | | 7 |
| | 480 |
|
| Balance at year-end 2017 | $ | (23 | ) | | $ | (10 | ) | | $ | 4 |
| | $ | 12 |
| | $ | (17 | ) |
Other comprehensive (loss) income before reclassifications (1) | (391 | ) | | 12 |
| | — |
| | (8 | ) | | (387 | ) |
| Reclassification of losses | 11 |
| | 6 |
| | — |
| | — |
| | 17 |
|
| Net other comprehensive (loss) income | (380 | ) | | 18 |
| | — |
| | (8 | ) | | (370 | ) |
| Adoption of ASU 2016-01 | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
| Balance at year-end 2018 | $ | (403 | ) | | $ | 8 |
| | $ | — |
| | $ | 4 |
| | $ | (391 | ) |
| |
(1)
| Other comprehensive (loss) income before reclassifications for foreign currency translation adjustments includes gains (losses) on intra-entity foreign currency transactions that are of a long-term investment nature of $14 million for 2018, $(147) million for 2017, and $69 million for 2016. |
17.NOTE 15. BUSINESS SEGMENTS
We are a diversified global lodging company withdiscuss our operations in the following three reportable business segments:
North American Full-Service, which includes our Luxury United States and Premium brands located in the Canada (“U.S. & Canada”); Asia Pacific; and Canada;
North American Limited-Service, which includes our Select brands located in the U.S.Europe, Middle East and Canada;Africa (“EMEA”). Our Caribbean and
Asia Pacific, which includes all brand tiers in our Asia Pacific region.
The following Latin America (“CALA”) operating segments dosegment does not meet the applicable accounting criteria for separate disclosure as a reportable business segments: Caribbeansegment, and Latin America, Europe,we include its results in “Unallocated corporate and Middle East and Africa. We present these operating segments togetherother.” In the 2020 fourth quarter, we changed the name of our largest segment from “North America” to “U.S. & Canada.” Other than the name change, we made no other changes to the composition of this segment. In January 2021, we modified our reportable segment structure as “Other International”a result of a change in the tables below.way management intends to evaluate results and allocate resources within the Company. Beginning with the 2021 first quarter, we will report the following two operating segments: U.S. & Canada and International.
We evaluate the performance of our operating segments using “segment profits”profits/loss” which is based largely on the results of the segment without allocating corporate expenses, income taxes, or indirect general, administrative, and other expenses.expenses, merger-related costs, or above-property restructuring charges. We assign gains and losses, equity in earnings or losses, from our joint ventures, and direct general, administrative, and other expenses, and other restructuring charges to each of our segments. “Unallocated corporate” representscorporate 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 and merger-related charges, equity in earnings or losses, and other gains or losses that we do not allocate to our segments. Beginning in the 2018 first quarter, “Unallocated corporate” also includes revenues and expenses forsegments as well as results of our Loyalty Program, and we reflected this change in the prior period amounts shown in the tables below. Additionally, in 2016, “Unallocated corporate” also included the impact of Legacy-Starwood operations for the eight days ended September 30, 2016, as we did not allocate Legacy-Starwood’s results to our segments for the period between the Merger Date and the end of the 2016 third quarter.CALA operating segment.
Our President and Chief Executive Officer, who is our “chiefchief operating decision maker” (“CODM”),maker monitors assets for the consolidated company,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 as of year-end 2018, year-end 2017, and year-end 2016:for the last three fiscal years:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| ($ in millions) | U.S. & Canada | | Asia Pacific | | EMEA | | Total |
| Gross fee revenues | $ | 914 | | | $ | 183 | | | $ | 110 | | | $ | 1,207 | |
| Contract investment amortization | (108) | | | (7) | | | (12) | | | (127) | |
| Net fee revenues | 806 | | | 176 | | | 98 | | | 1,080 | |
| Owned, leased, and other revenue | 198 | | | 89 | | | 153 | | | 440 | |
| Cost reimbursement revenue | 6,901 | | | 347 | | | 507 | | | 7,755 | |
| Total reportable segment revenue | $ | 7,905 | | | $ | 612 | | | $ | 758 | | | $ | 9,275 | |
| Unallocated corporate and other | | | | | | | 1,296 | |
| Total revenue | | | | | | | $ | 10,571 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 |
| ($ in millions) | U.S. & Canada | | Asia Pacific | | EMEA | | Total |
| Gross fee revenues | $ | 2,265 | | | $ | 477 | | | $ | 418 | | | $ | 3,160 | |
| Contract investment amortization | (48) | | | (2) | | | (8) | | | (58) | |
| Net fee revenues | 2,217 | | | 475 | | | 410 | | | 3,102 | |
| Owned, leased, and other revenue | 715 | | | 178 | | | 553 | | | 1,446 | |
| Cost reimbursement revenue | 13,901 | | | 536 | | | 969 | | | 15,406 | |
| Total reportable segment revenue | $ | 16,833 | | | $ | 1,189 | | | $ | 1,932 | | | $ | 19,954 | |
| Unallocated corporate and other | | | | | | | 1,018 | |
| Total revenue | | | | | | | $ | 20,972 | |
| | | | 2018 | | 2018 |
| ($ in millions) | North American Full-Service | | North American Limited-Service | | Asia Pacific | | Other International | | Total | ($ in millions) | U.S. & Canada | | Asia Pacific | | EMEA | | Total |
| Gross fee revenues | $ | 1,255 |
| | $ | 903 |
| | $ | 479 |
| | $ | 518 |
| | $ | 3,155 |
| Gross fee revenues | $ | 2,158 | | | $ | 479 | | | $ | 387 | | | $ | 3,024 | |
| Contract investment amortization | (33 | ) | | (12 | ) | | (2 | ) | | (11 | ) | | (58 | ) | Contract investment amortization | (45) | | | (2) | | | (7) | | | (54) | |
| Net fee revenues | 1,222 |
| | 891 |
| | 477 |
| | 507 |
| | 3,097 |
| Net fee revenues | 2,113 | | | 477 | | | 380 | | | 2,970 | |
| Owned, leased, and other revenue | 593 |
| | 128 |
| | 182 |
| | 668 |
| | 1,571 |
| Owned, leased, and other revenue | 721 | | | 182 | | | 563 | | | 1,466 | |
| Cost reimbursement revenue | 11,257 |
| | 2,198 |
| | 459 |
| | 1,091 |
| | 15,005 |
| Cost reimbursement revenue | 13,455 | | | 459 | | | 926 | | | 14,840 | |
| Total segment revenue | $ | 13,072 |
| | $ | 3,217 |
| | $ | 1,118 |
| | $ | 2,266 |
| | $ | 19,673 |
| |
| Unallocated corporate | | | | | | | | | 1,085 |
| |
| Total reportable segment revenue | | Total reportable segment revenue | $ | 16,289 | | | $ | 1,118 | | | $ | 1,869 | | | $ | 19,276 | |
| Unallocated corporate and other | | Unallocated corporate and other | | 1,482 | |
| Total revenue | | | | | | | | | $ | 20,758 |
| Total revenue | | $ | 20,758 | |
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 |
| ($ in millions) | North American Full-Service | | North American Limited-Service | | Asia Pacific | | Other International | | Total |
| Gross fee revenues | $ | 1,202 |
| | $ | 842 |
| | $ | 431 |
| | $ | 476 |
| | $ | 2,951 |
|
| Contract investment amortization | (25 | ) | | (11 | ) | | (1 | ) | | (13 | ) | | (50 | ) |
| Net fee revenues | 1,177 |
| | 831 |
| | 430 |
| | 463 |
| | 2,901 |
|
| Owned, leased, and other revenue | 697 |
| | 132 |
| | 191 |
| | 685 |
| | 1,705 |
|
| Cost reimbursement revenue | 11,035 |
| | 2,256 |
| | 433 |
| | 1,140 |
| | 14,864 |
|
| Total segment revenue | $ | 12,909 |
| | $ | 3,219 |
| | $ | 1,054 |
| | $ | 2,288 |
| | $ | 19,470 |
|
| Unallocated corporate | | | | | | | | | 982 |
|
| Total revenue | | | | | | | | | $ | 20,452 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 2016 |
| ($ in millions) | North American Full-Service | | North American Limited-Service | | Asia Pacific | | Other International | | Total |
| Gross fee revenues | $ | 856 |
| | $ | 746 |
| | $ | 231 |
| | $ | 312 |
| | $ | 2,145 |
|
| Contract investment amortization | (21 | ) | | (9 | ) | | (1 | ) | | (9 | ) | | (40 | ) |
| Net fee revenues | 835 |
| | 737 |
| | 230 |
| | 303 |
| | 2,105 |
|
| Owned, leased, and other revenue | 390 |
| | 119 |
| | 127 |
| | 438 |
| | 1,074 |
|
| Cost reimbursement revenue | 8,199 |
| | 2,038 |
| | 274 |
| | 922 |
| | 11,433 |
|
| Total segment revenue | $ | 9,424 |
| | $ | 2,894 |
| | $ | 631 |
| | $ | 1,663 |
| | $ | 14,612 |
|
| Unallocated corporate | | | | | | | | | 795 |
|
| Total revenue | | | | | | | | | $ | 15,407 |
|
Revenues attributed to operations located outside the U.S. were$1,910 million in 2020, $4,400 million in 2019, and $4,246 million in 2018, $3,830including cost reimbursement revenue outside the U.S. of $1,247 million in 2017, and $3,1872020, $2,394 million in 2016.2019, and $2,244 million in 2018.
Segment Profits and Losses
| | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | 2018 |
U.S. & Canada (1) | $ | 198 | | | $ | 2,000 | | | $ | 1,939 | |
Asia Pacific (2) | 1 | | | 369 | | | 456 | |
EMEA (3) | (200) | | | 318 | | | 328 | |
| Unallocated corporate and other | (47) | | | (720) | | | (60) | |
| Interest expense, net of interest income | (418) | | | (368) | | | (318) | |
| Benefit (provision) for income taxes | 199 | | | (326) | | | (438) | |
| Net (loss) income | $ | (267) | | | $ | 1,273 | | | $ | 1,907 | |
|
| | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 |
| North American Full-Service | $ | 1,153 |
| | $ | 1,238 |
| | $ | 801 |
|
| North American Limited-Service | 786 |
| | 827 |
| | 702 |
|
| Asia Pacific | 456 |
| | 361 |
| | 160 |
|
| Other International | 570 |
| | 420 |
| | 222 |
|
| Other unallocated corporate | (302 | ) | | 386 |
| | (447 | ) |
| Interest expense, net of interest income | (318 | ) | | (250 | ) | | (199 | ) |
| Income taxes | (438 | ) | | (1,523 | ) | | (431 | ) |
| Net income | $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
(2) Includes cost reimbursements, net of $(18) million in 2020, $(9) million in 2019, and zero in 2018.
(3) Includes cost reimbursements, net of $(33) million in 2020, $(8) million in 2019, and zero in 2018.
Segment (losses) profits attributed to operations located outside the U.S. were $(198) million in 2020, $982 million in 2019, and $1,155 million in 2018, $837including cost reimbursements, net (cost reimbursement revenue, net of reimbursed expenses) outside the U.S. of $(62) million in 2017, and $4462020, $(18) million in 2016. The 2018 segment profits consisted of segment profits of $4562019, and $(14) million from Asia Pacific, $266 million from Europe, $242 million from the Caribbean and Latin America, $62 million from the Middle East and Africa, and $129 million from other locations.in 2018.
Depreciation, Amortization, and Other
|
| | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 |
| North American Full-Service | $ | 82 |
| | $ | 82 |
| | $ | 43 |
|
| North American Limited-Service | 15 |
| | 14 |
| | 13 |
|
| Asia Pacific | 26 |
| | 32 |
| | 8 |
|
| Other International | 70 |
| | 71 |
| | 34 |
|
| Unallocated corporate | 33 |
| | 30 |
| | 21 |
|
| | $ | 226 |
| | $ | 229 |
| | $ | 119 |
|
| | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | 2018 |
| U.S. & Canada | $ | 209 | | | $ | 218 | | | $ | 97 | |
| Asia Pacific | 30 | | | 25 | | | 26 | |
| EMEA | 58 | | | 51 | | | 51 | |
| Unallocated corporate and other | 49 | | | 47 | | | 52 | |
| $ | 346 | | | $ | 341 | | | $ | 226 | |
Capital Expenditures
| | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | 2018 |
| U.S. & Canada | $ | 12 | | | $ | 287 | | | $ | 305 | |
| Asia Pacific | 2 | | | 2 | | | 6 | |
| EMEA | 12 | | | 29 | | | 36 | |
| Unallocated corporate and other | 109 | | | 335 | | | 209 | |
| $ | 135 | | | $ | 653 | | | $ | 556 | |
|
| | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 |
| North American Full-Service | $ | 290 |
| | $ | 21 |
| | $ | 35 |
|
| North American Limited-Service | 15 |
| | 10 |
| | 7 |
|
| Asia Pacific | 6 |
| | 12 |
| | 1 |
|
| Other International | 40 |
| | 42 |
| | 38 |
|
| Unallocated corporate | 205 |
| | 155 |
| | 118 |
|
| | $ | 556 |
| | $ | 240 |
| | $ | 199 |
|
18.NOTE 16. RELATED PARTY TRANSACTIONS
Equity Method Investments
We have equity method investments in entities that own properties for which we provide management services and receive fees. In addition, in some cases we provide loans, preferred equity, or guarantees to these entities.
The following tables present financialtable presents Income Statement data resulting from transactions with these related parties:parties. This table does not include our Financial Statement captions with insignificant related party activity.
Income Statement Data
|
| | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 |
| Base management fees | $ | 25 |
| | $ | 28 |
| | $ | 18 |
|
| Incentive management fees | 12 |
| | 15 |
| | 10 |
|
| Contract investment amortization | (2 | ) | | (2 | ) | | (2 | ) |
| Owned, leased, and other revenue | — |
| | 2 |
| | — |
|
| Cost reimbursement revenue | 332 |
| | 356 |
| | 222 |
|
| Depreciation, amortization, and other | (2 | ) | | (3 | ) | | (1 | ) |
| General, administrative, and other | — |
| | (1 | ) | | — |
|
| Reimbursed expenses | (337 | ) | | (356 | ) | | (222 | ) |
| Gains and other income, net | 51 |
| | 658 |
| | 1 |
|
| Interest income | — |
| | 4 |
| | 5 |
|
| Equity in earnings | 103 |
| | 40 |
| | 9 |
|
Balance Sheet Data
|
| | | | | | | |
| ($ in millions) | At Year-End 2018 | | At Year-End 2017 |
| Current assets | | | |
| Accounts and notes receivable, net | $ | 31 |
| | $ | 42 |
|
| Prepaid expenses and other | 1 |
| | — |
|
| Intangible assets | | | |
| Contract acquisition costs and other | 32 |
| | 39 |
|
| Equity method investments | 732 |
| | 734 |
|
| Other noncurrent assets | 10 |
| | 17 |
|
| Current liabilities | | | |
| Accounts payable | (4 | ) | | (11 | ) |
| Accrued expenses and other | (16 | ) | | (17 | ) |
| Deferred tax liabilities | (20 | ) | | (41 | ) |
| Other noncurrent liabilities | (11 | ) | | (4 | ) |
Undistributed earnings attributable to our equity method investments represented approximately $70 million of our consolidated retained earnings at year-end 2018. | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | 2018 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Cost reimbursement revenue | $ | 107 | | | $ | 233 | | | $ | 332 | |
| | | | | |
| | | | | |
| Reimbursed expenses | (110) | | | (236) | | | (337) | |
| | | | | |
| | | | | |
| | | | | |
| Equity in (losses) earnings | (141) | | | 13 | | | 103 | |
Summarized Financial Information for Investees
The following tables present summarized financial information for the entities in which we have equity method investments: |
| | | | | | | | | | | |
| ($ in millions) | 2018 | | 2017 | | 2016 (1) |
| Sales | $ | 932 |
| | $ | 1,176 |
| | $ | 747 |
|
| Net income | 221 |
| | 222 |
| | 101 |
|
|
| | | | | | | |
| ($ in millions) | At Year-End 2018 | | At Year-End 2017 |
| Assets (primarily composed of hotel real estate managed by us) | $ | 2,724 |
| | $ | 2,234 |
|
| Liabilities | 1,843 |
| | 1,649 |
|
| | | | | | | | | | | | | | | | | |
| ($ in millions) | 2020 | | 2019 | | 2018 |
| Sales | $ | 259 | | | $ | 815 | | | $ | 932 | |
| Net (loss) income | (212) | | | 80 | | | 221 | |
| |
(1) | | | | | | | | | | | | | ($ in millions) | At Year-End 2020 | | At Year-End 2019 | | Assets (primarily composed of hotel real estate managed by us) | $ | 2,348 | | | $ | 2,555 | | | Liabilities | 1,623 | | | 1,691 | |
| 2016 sales and net income for entities in which we acquired an investment through the Starwood Combination are for the period from the Merger Date to year-end 2016. |
The carrying amount of our equity method investments was $732$422 million at year-end 20182020 and $734$577 million at year-end 2017.2019. This value exceeded our share of the book value of the investees'investees’ net assets by $419$294 million at year-end 20182020 and $441$311 million at year-end 2017,2019, primarily due to the value that we assigned to land, contracts, and buildings owned by the investees.
In 2020, we recorded impairment charges totaling $77 million in the “Equity in (losses) earnings” caption of our Income Statements to reduce the carrying amount of certain investments, primarily due to the impact of COVID-19, most of which we recorded in our U.S. & Canada business segment.
Other Related Parties
We received management fees of approximately $13$3 million in 2018, $132020, $12 million in 2017,2019, and $13 million in 2016,2018, plus reimbursement of certain expenses, from our operation of properties owned by JWM Family Enterprises, L.P., which is beneficially owned and controlled by J.W. Marriott, Jr., Deborah Marriott Harrison, and other members of the Marriott family.
19.NOTE 17. RELATIONSHIP WITH MAJOR CUSTOMER
Host Hotels & Resorts, Inc., formerly known as Host Marriott Corporation, and its affiliates (“Host”) owned or leased 7459 lodging properties at year-end 20182020 and 8160 at year-end 20172019 that we operated or franchised. Over the last three years, we recognized revenues, including cost reimbursement revenue, of $1,037 million in 2020, $2,406 million in 2019, and $2,542 million in 2018 $2,671 million in 2017, and $2,015 million in 2016 from those lodging properties, and included those revenues in our North American Full-ServiceU.S. & Canada and North American Limited-ServiceEurope, Middle East and Africa reportable business segments, and our Caribbean and Latin America and Europe operating segments.
Host is also a partner in certain unconsolidated partnerships that own lodging properties that we operate under long-term agreements. Host was affiliated with 10 such properties at year-end 2018 and 11 such properties at year-end 2017. We recognized revenues, including cost reimbursement revenue, of $123 million in 2018, $114 million in 2017, and $100 million in 2016 from those lodging properties, and included those revenues in our North American Full-Service reportable business segment and our Europe operating segment.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA – UNAUDITED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions, except per share data) | 2020 |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Fiscal
Year |
| Revenues | $ | 4,681 | | | $ | 1,464 | | | $ | 2,254 | | | $ | 2,172 | | | $ | 10,571 | |
| Operating income (loss) | $ | 114 | | | $ | (154) | | | $ | 252 | | | $ | (128) | | | $ | 84 | |
| Net income (loss) | $ | 31 | | | $ | (234) | | | $ | 100 | | | $ | (164) | | | $ | (267) | |
Basic earnings (loss) per share (1) | $ | 0.10 | | | $ | (0.72) | | | $ | 0.31 | | | $ | (0.50) | | | $ | (0.82) | |
Diluted earnings (loss) per share (1) | $ | 0.09 | | | $ | (0.72) | | | $ | 0.31 | | | $ | (0.50) | | | $ | (0.82) | |
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions, except per share data) | 2018 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year |
| Revenues | $ | 5,009 |
| | $ | 5,409 |
| | $ | 5,051 |
| | $ | 5,289 |
| | $ | 20,758 |
|
| Operating income | $ | 530 |
| | $ | 818 |
| | $ | 596 |
| | $ | 422 |
| | $ | 2,366 |
|
| Net income | $ | 420 |
| | $ | 667 |
| | $ | 503 |
| | $ | 317 |
| | $ | 1,907 |
|
Basic earnings per share (1) | $ | 1.17 |
| | $ | 1.89 |
| | $ | 1.45 |
| | $ | 0.93 |
| | $ | 5.45 |
|
Diluted earnings per share (1) | $ | 1.16 |
| | $ | 1.87 |
| | $ | 1.43 |
| | $ | 0.92 |
| | $ | 5.38 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions, except per share data) | 2019 |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Fiscal
Year |
| Revenues | $ | 5,012 | | | $ | 5,305 | | | $ | 5,284 | | | $ | 5,371 | | | $ | 20,972 | |
| Operating income | $ | 510 | | | $ | 409 | | | $ | 607 | | | $ | 274 | | | $ | 1,800 | |
| Net income | $ | 375 | | | $ | 232 | | | $ | 387 | | | $ | 279 | | | $ | 1,273 | |
Basic earnings per share (1) | $ | 1.10 | | | $ | 0.70 | | | $ | 1.17 | | | $ | 0.85 | | | $ | 3.83 | |
Diluted earnings per share (1) | $ | 1.09 | | | $ | 0.69 | | | $ | 1.16 | | | $ | 0.85 | | | $ | 3.80 | |
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions, except per share data) | 2017 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year |
| Revenues | $ | 4,912 |
| | $ | 5,211 |
| | $ | 5,078 |
| | $ | 5,251 |
| | $ | 20,452 |
|
| Operating income | $ | 546 |
| | $ | 744 |
| | $ | 790 |
| | $ | 424 |
| | $ | 2,504 |
|
| Net income | $ | 371 |
| | $ | 489 |
| | $ | 485 |
| | $ | 114 |
| | $ | 1,459 |
|
Basic earnings per share (1) | $ | 0.96 |
| | $ | 1.29 |
| | $ | 1.30 |
| | $ | 0.31 |
| | $ | 3.89 |
|
Diluted earnings per share (1) | $ | 0.95 |
| | $ | 1.28 |
| | $ | 1.29 |
| | $ | 0.31 |
| | $ | 3.84 |
|
| |
(1)
| (1)The sum of the earnings per share for the four quarters may differ from annual earnings per share due to the required method of computing the weighted average shares in interim periods. |
In the 2018 fourth quarter, we identified errors related to our Loyalty Program, which resulted in the understatement of cost reimbursement revenue, net of reimbursed expenses in our previously issued financial statements for the 2018 first, second, and third quarters. Correction of the errors resulted in a $99 million increase to net income for the 2018 first threefour quarters combined. We concluded that the errors were and continue to be immaterial to those financial statements. We revised each prior period presented in the 2018 quarterly financial data table above to reflect the correction of the immaterial errors because recording the out of period adjustments would have been materialmay differ from annual earnings per share due to the 2018 fourth quarter. The table below presentsrequired method of computing the effects of our adjustments.weighted average shares in interim periods.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 |
| | First Quarter | | Second Quarter | | Third Quarter |
| ($ in millions, except per share amounts) | As Previously Reported | Adjustments | As Adjusted | | As Previously Reported | Adjustments | As Adjusted | | As Previously Reported | Adjustments | As Adjusted |
| REVENUES | | | | | | | | | | | |
| Base management fees | $ | 273 |
| $ | — |
| $ | 273 |
| | $ | 300 |
| $ | — |
| $ | 300 |
| | $ | 279 |
| $ | — |
| $ | 279 |
|
| Franchise fees | 417 |
| — |
| 417 |
| | 475 |
| — |
| 475 |
| | 502 |
| — |
| 502 |
|
| Incentive management fees | 155 |
| — |
| 155 |
| | 176 |
| — |
| 176 |
| | 151 |
| — |
| 151 |
|
| Gross fee revenues | 845 |
| — |
| 845 |
| | 951 |
| — |
| 951 |
| | 932 |
| — |
| 932 |
|
| Contract investment amortization | (18 | ) | — |
| (18 | ) | | (13 | ) | — |
| (13 | ) | | (13 | ) | — |
| (13 | ) |
| Net fee revenues | 827 |
| — |
| 827 |
| | 938 |
| — |
| 938 |
| | 919 |
| — |
| 919 |
|
| Owned, leased, and other revenue | 406 |
| — |
| 406 |
| | 423 |
| — |
| 423 |
| | 397 |
| — |
| 397 |
|
| Cost reimbursement revenue | 3,773 |
| 3 |
| 3,776 |
| | 3,985 |
| 63 |
| 4,048 |
| | 3,733 |
| 2 |
| 3,735 |
|
| | 5,006 |
| 3 |
| 5,009 |
| | 5,346 |
| 63 |
| 5,409 |
| | 5,049 |
| 2 |
| 5,051 |
|
| OPERATING COSTS AND EXPENSES | | | | | | | | | | | |
| Owned, leased, and other-direct | 336 |
| — |
| 336 |
| | 334 |
| — |
| 334 |
| | 315 |
| — |
| 315 |
|
| Depreciation, amortization, and other | 54 |
| — |
| 54 |
| | 58 |
| — |
| 58 |
| | 52 |
| — |
| 52 |
|
| General, administrative, and other | 247 |
| — |
| 247 |
| | 217 |
| — |
| 217 |
| | 221 |
| — |
| 221 |
|
| Merger-related costs and charges | 34 |
| — |
| 34 |
| | 18 |
| — |
| 18 |
| | 12 |
| — |
| 12 |
|
| Reimbursed expenses | 3,835 |
| (27 | ) | 3,808 |
| | 3,979 |
| (15 | ) | 3,964 |
| | 3,879 |
| (24 | ) | 3,855 |
|
| | 4,506 |
| (27 | ) | 4,479 |
| | 4,606 |
| (15 | ) | 4,591 |
| | 4,479 |
| (24 | ) | 4,455 |
|
| OPERATING INCOME | 500 |
| 30 |
| 530 |
| | 740 |
| 78 |
| 818 |
| | 570 |
| 26 |
| 596 |
|
| Gains and other income, net | 59 |
| — |
| 59 |
| | 114 |
| — |
| 114 |
| | 18 |
| — |
| 18 |
|
| Interest expense | (75 | ) | — |
| (75 | ) | | (85 | ) | — |
| (85 | ) | | (86 | ) | — |
| (86 | ) |
| Interest income | 5 |
| — |
| 5 |
| | 6 |
| — |
| 6 |
| | 5 |
| — |
| 5 |
|
| Equity in earnings | 13 |
| — |
| 13 |
| | 21 |
| — |
| 21 |
| | 61 |
| — |
| 61 |
|
| INCOME BEFORE INCOME TAXES | 502 |
| 30 |
| 532 |
| | 796 |
| 78 |
| 874 |
| | 568 |
| 26 |
| 594 |
|
| Provision for income taxes | (104 | ) | (8 | ) | (112 | ) | | (186 | ) | (21 | ) | (207 | ) | | (85 | ) | (6 | ) | (91 | ) |
| NET INCOME | $ | 398 |
| $ | 22 |
| $ | 420 |
| | $ | 610 |
| $ | 57 |
| $ | 667 |
| | $ | 483 |
| $ | 20 |
| $ | 503 |
|
| EARNINGS PER SHARE | | | | | | | | | | | |
| Earnings per share - basic | $ | 1.11 |
| $ | 0.06 |
| $ | 1.17 |
| | $ | 1.73 |
| $ | 0.16 |
| $ | 1.89 |
| | $ | 1.39 |
| $ | 0.06 |
| $ | 1.45 |
|
| Earnings per share - diluted | $ | 1.09 |
| $ | 0.07 |
| $ | 1.16 |
| | $ | 1.71 |
| $ | 0.16 |
| $ | 1.87 |
| | $ | 1.38 |
| $ | 0.05 |
| $ | 1.43 |
|
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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Item 9A. | Controls and Procedures. |
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, weWe evaluated under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)). as of the end of the period covered by this annual report under the supervision and with the participation of our management, including our Acting Co-Principal Executive Officers and Chief Financial Officer. Management necessarily applied its judgment in assessing the costs and benefits of those controls and procedures, which by their nature, can provide only reasonable assurance about management’s control objectives. You should note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon this evaluation, our ChiefActing Co-Principal Executive OfficerOfficers and the Chief Financial Officer concluded that our disclosure controls and procedures were not effective because ofand operating to provide reasonable assurance that we record, process, summarize, and report the material weaknessinformation we are required to disclose in internal control over financial reporting described below. In light of the material weakness, management performed additional procedures to validate the accuracy and completeness of the financial results impacted by the control deficiencies. Such procedures included the validation of data underlying key financial models, substantive logic inspection, fluctuation analyses, and detailed testing.
Material Weakness in Internal Control Over Financial Reporting
A material weakness (as defined in Rule 12b-2reports that we file or submit under the Exchange Act) is a deficiency, or combination of deficiencies,Act within the time periods specified in internal control over financial reporting, such that there is a reasonable possibility that a material misstatementthe rules and forms of the company’s annual or interim financial statements will not be prevented or detected on aSEC, and to provide reasonable assurance that we accumulate and communicate such information to our management, including our Acting Co-Principal Executive Officers and Chief Financial Officer, as appropriate to allow timely basis.
In the 2018 fourth quarter, we identified the following deficiencies in the design of internal control over financial reporting for our Loyalty Program.
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1. | There were not sufficient resources with an understanding of both the requirements under generally accepted accounting principles of ASU 2014-09 and Loyalty Program operations involved in the initial implementation and ongoing monitoring of ASU 2014-09 to allow the individuals responsible for the review of the Loyalty Program accounting model to prevent or detect material misstatements on a timely basis in the normal course of their review. |
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2. | The combination of the Starwood Preferred Guest and Marriott Rewards programs in August 2018 resulted in delayed, incomplete, and inaccurate reporting of Loyalty Program data such that the financial results of the Loyalty Program could not be properly recorded on a timely basis. |
These control deficiencies resulted in errors in the calculation of cost reimbursement revenue and reimbursed expenses in our previously issued financial statements for the 2018 first, second, and third quarters. Although the errors were not material to those financial statements, we concluded that the combination of control deficiencies represented a material weakness. Ernst & Young LLP, an independent registered public accounting firm, has independently assessed our internal control over financial reporting and its report is included in Part II, Item 8 of this report.
Remediation of Material Weakness
We have developed a remediation plan that includes steps to increase dedicated personnel, improve reporting processes, and enhance related supporting technology. We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weakness are remediated as soon as possible.decisions about required disclosure.
Internal Control Over Financial Reporting
We have set forth management’s report on internal control over financial reporting and the attestation report of our independent registered public accounting firm on our internal control over financial reporting in Part II, Item 8 of this Form 10-K, and we incorporate those reports here by reference.
As outlined above, we are in the process of taking steps to remediate the material weakness. We made no other changes in internal control over financial reporting during the fourth quarter of 20182020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 9B. | Other Information. |
Item 9B. Other Information.
None.
PART III
Items 10, 11, 12, 13, 14.
As described below, we incorporate by reference in this Annual Report on Form 10-K certain information appearing in the Proxy Statement that we will furnish to our shareholdersstockholders for our 20192021 Annual Meeting of Shareholders.
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| Item 10. Directors, Executive Officers, and Corporate Governance. | We incorporate this information by reference to “Our“Nominees to our Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Audit“Committees of the Board — Audit Committee,” “Transactions with Related Persons,” “Delinquent Section 16(a) Reports,” and “Selection of Director Nominees” sections of our Proxy Statement. We have included information regarding our executive officers and our Code of Ethics below. |
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| Item 11. Executive Compensation. | We incorporate this information by reference to the “Executive and Director Compensation” and “Compensation Committee Interlocks and Insider Participation” sections of our Proxy Statement. |
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| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | We incorporate this information by reference to the “Securities Authorized for Issuance Under Equity Compensation Plans” and the “Stock Ownership” sections of our Proxy Statement. |
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| Item 13. Certain Relationships and Related Transactions, and Director Independence. | We incorporate this information by reference to the “Transactions with Related Persons” and “Director Independence” sections of our Proxy Statement. |
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Item 14. Principal AccountingAccountant Fees and Services. | We incorporate this information by reference to the “Independent Registered Public Accounting Firm Fee Disclosure” and the “Pre-Approval of Independent Auditor Fees and Services Policy” sections of our Proxy Statement. |
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
We include below certain information on our executive officers. This information is as of February 1, 2019,16, 2021, except where indicated.
On February 16, 2021, the Company announced that Arne M. Sorenson, President and Chief Executive Officer, unexpectedly passed away on February 15, 2021. On February 2, 2021, the Company announced that Mr. Sorenson would step back from full-time management to facilitate more demanding treatment for pancreatic cancer. At that time, Stephanie Linnartz, Group President, Consumer Operations, Technology and Emerging Businesses, and Anthony G. Capuano, Group President, Global Development, Design and Operations Services, began jointly overseeing the day-to-day operations of the Company’s business units and corporate functions. Ms. Linnartz and Mr. Capuano are expected to continue in this capacity until Marriott’s Board of Directors appoints a new President and Chief Executive Officer. |
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| Name and Title | | Age | | Business Experience |
J.W. Marriott, Jr.
Executive Chairman and
Chairman of the Board
| | 8688 |
| | J.W. Marriott, Jr. was elected Executive Chairman effective March 31, 2012, having relinquished his position as Chief Executive Officer. He served as Chief Executive Officer of the Company and its predecessors since 1972. He joined Marriott in 1956, became President and a Director in 1964, Chief Executive Officer in 1972, and Chairman of the Board in 1985. Mr. Marriott serves on the Board of Trustees of The J. Willard & Alice S. Marriott Foundation and the Executive Committee of the World Travel & Tourism Council. Mr. Marriott has served as a Director of the Company and its predecessors since 1964. He holds a Bachelor of Science degree in bankingBanking and financeFinance from the University of Utah. Mr. Marriott plans to transition to the role of Chairman Emeritus in 2022. |
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Arne M. Sorenson
Liam Brown
Group President, United States and Chief Executive Officer Canada | | 60 |
| | Arne M. Sorenson isLiam Brown became Group President, United States and Chief Executive Officer of Marriott.Canada effective in January 2021. Prior to this role, Mr. Sorenson became the third CEO in the Company’s history in 2012. Before that, heBrown served as Marriott’sthe President and Chief Operating Officer. He has held a number of positions since joining Marriott in 1996, including Executive Vice President, Chief Financial Officer, President of Continental European Lodging, and Senior Vice President of Business Development. He was elected to Marriott’s Board of Directors in 2011. Mr. Sorenson is active on multiple boards. He joined the Microsoft Board of Directors in November 2017. He is also a member of the Business Roundtable, serving on both its Immigration and Infrastructure Committees. He serves on the Board of Trustees for The Brookings Institution, the Board of Directors for the Warrior-Scholar Project, and as a member of the Luther College Board of Regents. Before he joined Marriott, Mr. Sorenson was a Partner with the law firm Latham & Watkins in Washington, D.C. He holds a Bachelor of Arts degree from Luther College in Decorah, Iowa and a J.D. from the University of Minnesota Law School. |
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Bao Giang Val Bauduin
Controller and Chief
Accounting Officer
| | 42 |
| | Val Bauduin became Marriott’s Controller and Chief Accounting Officer in June 2014, with responsibility for the accounting operations of the Company including oversight of Financial Reporting & Analysis, Accounting Policy, Governance, Risk Management (Insurance, Claims, Business Continuity, Fire & Life Safety), Global Finance Shared Services, and the Corporate Finance Business Partners. Before joining Marriott, Mr. Bauduin was a Partner and U.S. Hospitality leader of Deloitte & Touche LLP from 2011 to 2014, where he served as a Travel, Hospitality & Leisure industry expert for Deloitte teams globally. He has supported complex capital market transactions, including initial public offerings, mergers, acquisitions, spinoffs, and real estate development projects related to gaming and hospitality. Mr. Bauduin earned a Bachelor of Arts in Economics from the University of Notre Dame and a Master of Business Administration from The Wharton School at the University of Pennsylvania. He is also a Certified Public Accountant. |
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Liam Brown
President & Managing Director
Europe
| | 58 |
| | Liam Brown was appointed President & Managing Director of Europe a division that encompasses Continentalfrom 2018 to 2019, followed by Group President of Europe, the United Kingdom, and Ireland,Middle East & Africa in January 2019.2020. Mr. Brown joined Marriott in 1989 and most recently served as President for Franchising, Owner Services and Managed by Marriott Select Brands, North America since 2012.from 2012 to 2018. Other key positions held by Mr. Brown include Chief Operations Officer for Thethe Americas for Select Service & Extended Stay Lodging and Owner & Franchise Services, as well as Senior Vice President and Executive Vice President of Development for Marriott’s Select Service & Extended Stay lodging products. Mr. Brown currentlyalso serves on the Board of Directors forof the International FranchiseAmerican Hotel and Lodging Association. He holds a Hotel Diploma and Business Degree from the Dublin Institute of Technology, Trinity College and earned his Master of Business Administration from the Robert H. Smith School of Management at the University of Maryland. |
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|
| | | | | |
Name and Title | | Age | | Business Experience |
Anthony G. Capuano
Group President, Global Development, Design and Operations Services (Acting Co-Principal Executive Vice President
and Global Chief Development Officer
Officer) | | 5355 |
| | Anthony G. Capuano became Marriott’s Executive ViceGroup President, Global Development, Design and Global Chief Development OfficerOperations Services in 2009.January 2020. He is responsible for leading the Company’s global development and design efforts and oversees the Company’s Global Operations discipline. In February 2021, Mr. Capuano also began to share responsibility with Ms. Linnartz for overseeing the day-to-day operations of all Marriott lodging brandsMarriott’s business units and supervises 20 offices outsidecorporate functions, which arrangement is expected to continue until the Company’s Board of North America as well as multiple offices across North America.Directors appoints a permanent CEO. During this time, Mr. Capuano will be overseeing the Company’s U.S. & Canada segment and Finance. Mr. Capuano began his Marriott International career in 1995 as part of the Market Planning and Feasibility team. Between 1997 and 2005, he led Marriott’s full-service development efforts in the Western U.S. and& Canada. In early 2008, his responsibilities expanded to include all of North AmericaU.S. & Canada and the Caribbean and Latin America.America and he became Executive Vice President and Global Chief Development Officer in 2009. Mr. Capuano began his professional career in Laventhol and Horwath’s Boston-based Leisure Time Advisory Group. He then joined Kenneth Leventhal and Company’s hospitality consulting group in Los Angeles, CA. Mr. Capuano earned his bachelor’s degree in Hotel Administration from Cornell University. He is an active member of the Cornell Hotel Society of Hotelmen and a member of The Cornell School of Hotel Administration Dean’s Advisory Board. Mr. Capuano is also a member of the American Hotel and Lodging Association’s Industry Real Estate Financial Advisory Council. |
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David Grissen
Group PresidentName and Title | | 61Age |
| Business Experience |
Felitia Lee
Controller and
Chief Accounting Officer | David Grissen | 59 | | | Felitia Lee became Group President effective February 2014, assuming additional responsibility for The Ritz-CarltonMarriott’s Controller and Global Operations Services. He became the Group President for the AmericasChief Accounting Officer and principal accounting officer in 2012,August 2020, with responsibility for all business activities including Operations, Sales and Marketing, Revenue Management, Human Resources, Engineering, Rooms Operations, Food and Beverage, Retail, Spa, Information Technology and Development. Before this, he served as President, Americas from 2010; Executive Vice Presidentthe accounting operations of the Eastern Region from 2005;Company including oversight of Financial Reporting & Analysis, Accounting Policy, General Accounting, Governance, Risk Management (Insurance, Claims, Business Continuity, Fire & Life Safety), Global Finance Shared Services, and Finance Contract Compliance. Ms. Lee joined Marriott in May 2020, supporting the management of the Company’s accounting operations. Prior to joining Marriott, Ms. Lee was the Senior Vice President and Controller for Kohl’s Corporation, a publicly-traded retailer, since 2018, where she was responsible for financial reporting, Sarbanes-Oxley processes, capital management, tax planning and compliance. Prior to joining Kohl’s Corporation, Ms. Lee held numerous positions with PepsiCo, Inc., a publicly-traded global food and beverage company, culminating in Vice President and Controller of the Mid-Atlantic RegionPepsi Beverage Company after the merger of PepsiCo with two of its largest bottlers in 2010. Earlier in her career, Ms. Lee held a variety of financial leadership positions with such organizations as Pilkington, plc and Senior Vice PresidentCoopers & Lybrand (an accounting firm now part of Finance and Business DevelopmentPricewaterhouseCoopers). She earned her Bachelor of Science in Accounting from 2000. Mr. GrissenSanta Clara University. She is chair of the Americas’ Hotel Development Committeea Certified Public Accountant and a member of the Lodging Strategy Group and Corporate Growth Committee. He is a memberAmerican Institute of the Board of Directors of Regis Corporation. Mr. Grissen holds a Bachelor of Arts degree from Michigan State University and earned his Master of Business Administration from Loyola University in Chicago.Certified Public Accountants. |
| | | | |
Alex Kyriakidis
President & Managing Director
Middle East & Africa
|
| 66 |
|
| Alex Kyriakidis became President & Managing Director, Middle East & Africa (MEA), for Marriott in 2012. He is responsible for all business activities for MEA, including Development, Brands, Sales, Marketing, Finance, Human Resources, Legal, and Operations. Before joining Marriott in 2012, Mr. Kyriakidis served as Global Managing Director - Travel, Hospitality & Leisure for Deloitte LLP. In this role, Mr. Kyriakidis led the Global Travel, Hospitality & Leisure Industry team, where he was responsible for a team of 4,500 professionals. He has dozens of years of experience providing strategic, financial, M&A, operational, asset management and integration services to the travel, hospitality and leisure sectors and has served clients in 25 countries, predominantly in the EMEA and Asia/Pacific regions. Mr. Kyriakidis is a fellow of the Arab Society of Certified Accountants, the British Association of Hotel Accountants, and the Institute of Chartered Accountants in England and Wales. He holds a Bachelor of Science degree in computer science and mathematics from Leeds University in the United Kingdom. |
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Stephanie Linnartz
Group President, Consumer Operations, Technology and Emerging Businesses (Acting Co-Principal Executive Vice President and
Global Chief Commercial Officer
Officer) | | 5052 |
| | Stephanie Linnartz became the Global Chief Commercial OfficerGroup President, Consumer Operations, Technology and Emerging Businesses in March 2013 and was named an executive officer in February 2014.January 2020. She has responsibilityis responsible for the Company’s brand management, marketing, digital, sales, reservations,marketing, revenue management, consumer insight,distribution, customer experience and innovation, information technology functions.and digital functions, including Marriott Bonvoy, the Company’s loyalty program. In February 2021, Ms. Linnartz also began to share responsibility with Mr. Capuano for overseeing the day-to-day operations of Marriott’s business units and corporate functions, which arrangement is expected to continue until the Company’s Board of Directors appoints a permanent CEO. During this time, Ms. Linnartz will be overseeing the Company’s International segment, as well as Legal, Human Resources and Communications & Public Affairs. Ms. Linnartz also is responsible for developing, incubating, and running new lines of business. Before assuming her current position, Ms. Linnartz, who began her Marriott career in 1997, served as Global Chief Commercial Officer from 2013 to 2019; Global Officer, Sales and Revenue Management from 2009 to 2013; Senior Vice President, Global Sales from 2008 to 2009; and Senior Vice President, Sales and Marketing Planning and Support from 2005 to 2008.2008; and prior to that, various roles in Marriott’s Finance and Business Development Department. She currently serves on the Board of Directors of The Home Depot. She holds a bachelor’s degree in Political Science and Government from the College of the Holy Cross, where she sits on the Board of Trustees, and earned her Master of Business Administration from the College of William and Mary. |
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| Name and Title | | Age | | Business Experience |
Kathleen K. Oberg
Executive Vice President and
Chief
Financial Officer | | 5860 |
| | Kathleen (“Leeny”) K. Oberg was appointed as Marriott’s Chief Financial Officer, effective January 1, 2016. Previously, Ms. Oberg was the Chief Financial Officer for The Ritz-Carlton since 2013, where she contributed significantly to the brand’s performance, growth, and organizational effectiveness. Prior to assuming that role, Ms. Oberg served in a range of financial leadership positions with Marriott. From 2008 to 2013, she was the Company’s Senior Vice President, Corporate and Development Finance, where she led a team that valued new hotel development projects and merger and acquisition opportunities, prepared the Company’s long-range plans and annual budgets, and made recommendations for the Company’s financial and capital allocation strategy. From 2006 to 2008, Ms. Oberg served in London as Senior Vice President, International Project Finance and Asset Management for Europe and the Middle East and Africa, and as the region’s senior finance executive. Ms. Oberg first joined Marriott as part of its Investor Relations group in 1999. Before joining Marriott, Ms. Oberg held a variety of financial leadership positions with such organizations as Sodexo (previously Sodexo Marriott Services), Sallie Mae, Goldman Sachs, and Chase Manhattan Bank. She currently serves on the Adobe Board of Directors. She earned her Bachelor of Science in Commerce, with concentrations in Finance and Management Information Systems from the University of Virginia, McIntire School of Commerce and received her Master of Business Administration from Stanford University Graduate School of Business. |
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Rena Hozore Reiss
Executive Vice President and
General Counsel
| | 5961 |
| | Rena Hozore Reiss became Executive Vice President and General Counsel in December 2017. Ms. Reiss previously held the position of Executive Vice President, General Counsel and Corporate Secretary at Hyatt Hotels where she led the global legal team and oversaw Hyatt’s risk management team and corporate transactions group. Prior to her position with Hyatt, Ms. Reiss was an attorney in Marriott’s law department from 2000 to 2010 building her career in roles with increasing responsibility, ultimately holding the position of Senior Vice President and Associate General Counsel in which she led Marriott’s managed development efforts in the America’sAmericas region. Before joining Marriott, Ms. Reiss was a partner at Counts & Kanne, Chartered, in Washington, D.C. and Associate General Counsel at the Miami Herald Publishing Company. Ms. Reiss also serves on the Board of Directors of the American Hotel and Lodging Association. She earned her A.B. from Princeton University and her J.D. from Harvard Law School. |
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David A. Rodriguez
Executive Vice President
and Global Chief Human Resources Officer
| | 6062 |
| | David A. Rodriguez was appointed Executive Vice President and Global Chief Human Resources Officer in 2006. Before joining Marriott in 1998, he held senior roles in human resources at Citicorp (now Citigroup) from 1989 through 1998. Dr. Rodriguez holds a Bachelor of Arts degree and a doctorate degree in industrial/organizational psychologyIndustrial and Organizational Psychology from New York University. He is a member of the Board of Directors at American Woodmark. He is an elected fellow of the National Academy of Human Resources, achairman of the American Health Policy Institute, vice chair and member of the executive committees of the Human Resources Policy Association, and the American Health Policy Institute, and a governor on the board of the Health Transformation Alliance. |
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Craig S. Smith
Group President, & Managing Director
Asia Pacific
International | | 5658 |
| | Craig S. Smith became Group President, International effective in January 2021. From October 2019 until December 2020, Mr. Smith was Group President and Managing Director of Asia Pacific, inand he previously served as President and Managing Director of Asia Pacific since June 2015, assuming the responsibility for the strategic leadership of all operational and development functions spanning the region. Mr. Smith began his career with Marriott in 1988. Before his current position,becoming President and Managing Director of Asia Pacific, Mr. Smith served as President of Marriott’s Caribbean and Latin AmericanAmerica region from 20112013 to 2015. Before moving to the Caribbean and Latin AmericanAmerica region in 2011,2013, he was Executive Vice President and Chief Operations Officer for Asia Pacific. As the son of an American diplomat, Mr. Smith has lived in 13 countries, working in North America, the Caribbean, Latin America, Asia Pacific, and Australia. He is fluent in Spanish and conversant in Portuguese. Mr. Smith earned his Master of Business Administration from the Rotman School of Management at the University of Toronto and a Bachelor of Science from Brigham Young University. |
Code of Ethics and Business Conduct Guide
The Company has long maintained and enforced a Code of Ethics that applies to all Marriott associates, including our Chairman of the Board, ChiefActing Co-Principal Executive Officer,Officers, Chief Financial Officer, and Principal Accounting Officer, and to each member of the Board. The Code of Ethics is encompassed in our Business Conduct Guide, which is available in the Investor Relations section of our website (www.marriott.com/(Marriott.com/investor) by clicking on “Governance” and then “Documents & Charters.” We intend to post on that website any future changes or amendments to our Code of Ethics, and any waiver of our Code of Ethics that applies to our Chairman of the Board, any of our executive officers, or a member of our Board within four business days following the date of the amendment or waiver.
PART IV
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Item 15. | Exhibits and Financial Statement Schedules. |
Item 15. Exhibits and Financial Statement Schedules.
LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
We include this portion of Item 15 under Part II, Item 8 of this Annual Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES
We include the financial statement schedule information required by the applicable accounting regulations of the SEC in the notes to our financial statements and incorporate that information in this Item 15 by reference.
(3) EXHIBITS
Any shareholderstockholder who wants a copy of the following Exhibits may obtain one from us upon request at a charge that reflects the reproduction cost of such Exhibits. Requests should be made to the Secretary, Marriott International, Inc., 10400 Fernwood Road, Department 52/862, Bethesda, MD 20817.
We have not filed as exhibits certain instruments defining the rights of holders of the long-term debt of Marriott or its subsidiary Starwood Hotels & Resorts Worldwide, LLC, pursuant to Item 601(b)(4)(iii) of Regulation S-K promulgated under the Exchange Act, because the amount of debt authorized and outstanding under each such instrument does not exceed 10 percent of the total assets of the Company’s and its consolidated subsidiaries. The Company agrees to furnish a copy of any such instrument to the Commission upon request.
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| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
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2.13.1 | | Agreement and Plan of Merger, dated as of November 15, 2015, by and among the Company, Starwood, and certain of their subsidiaries. | | |
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2.2 | | Amendment No. 1 to Agreement and Plan of Merger, dated March 20, 2016, by and among the Company, Starwood, and certain of their subsidiaries. | | |
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3.1 | | Restated Certificate of Incorporation. | | |
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| 3.2 | | Amended and Restated Bylaws. | | |
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| 4.1 | | Form of Common Stock Certificate. | | |
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| 4.2 | | Indenture, dated as of November 16, 1998, between the Company and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, N.A., formerly known as The Chase Manhattan Bank. | | |
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| 4.3 | | Description of Registrant’s Securities | | |
| | Description | | |
| 10.1.1 | | U.S. $4,500,000 Fifth Amended and Restated Credit Agreement dated as of June 28, 2019 with Bank of America, N.A. as administrative agent and certain banks. | | |
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| 10.1.2 | | First Amendment, dated as of April 13, 2020, to the Fifth Amended and Restated Credit Agreement with Bank of America, N.A. as administrative agent, and certain banks, dated as of June 28, 2019. | | |
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| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
10.1.110.1.3 | | U.S. $4,000,000,000 FourthSecond Amendment, dated as of January 26, 2021, to the Fifth Amended and Restated Credit Agreement dated as of June 10, 2016 with Bank of America, N.A., as administrative agent, and certain banks.banks, dated as of June 28, 2019. | | |
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10.1.210.1.4 | | FirstThird Amendment, dated as of December 7, 2018January 26, 2021, to the FourthFifth Amended and Restated Credit Agreement dated as of June 10, 2016 with Bank of America, N.A., as administrative agent, and certain banks.banks, dated as of June 28, 2019. | | |
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| 10.2.1 | | License, Services and Development Agreement entered into on November 17, 2011, among the Company, Marriott Worldwide Corporation, Marriott Vacations Worldwide Corporation, and the other signatories thereto. | | |
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| 10.2.2 | | First Amendment to License, Services, and Development Agreement for Marriott Projects, dated February 26, 2018, among the Company, Marriott Worldwide Corporation, Marriott Vacations Worldwide Corporation, and the other signatories thereto. | | |
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| 10.2.3 | | Letter of Agreement, effective as of September 1, 2018, among Marriott International, Inc., Marriott Worldwide Corporation, Marriott Rewards, LLC, Starwood Hotels & Resorts Worldwide, LLC, Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., Vistana Signature Experiences, Inc. and ILG, LLC. | | |
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| 10.3.1 | | License, Services and Development Agreement entered into on November 17, 2011, among The Ritz-Carlton Hotel Company, L.L.C., Marriott Vacations Worldwide Corporation, and the other signatories thereto. | | |
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| 10.3.2 | | First Amendment to License, Services, and Development Agreement for Ritz-Carlton Projects, dated February 26, 2018, among The Ritz-Carlton Hotel Company, L.L.C., Marriott Vacations Worldwide Corporation, and the other signatories thereto. | | |
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| 10.4.1 | | Marriott Rewards Affiliation Agreement entered into on November 17, 2011, among the Company, Marriott Rewards, L.L.C., Marriott Vacations Worldwide Corporation and certain of its subsidiaries, Marriott Ownership Resorts, Inc., and the other signatories thereto. | | |
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| 10.4.2 | | First Amendment to the Marriott Rewards Affiliation Agreement, dated February 26, 2018, among the Company, Marriott Rewards, LLC, Marriott Vacations Worldwide Corporation, and Marriott Ownership Resorts, Inc. | | |
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10.5.1 | | Non-Competition Agreement entered into on November 17, 2011, with Marriott Vacations Worldwide Corporation. | | |
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10.5.2 | | Termination of Noncompetition Agreement, dated February 26, 2018, between the Company and MVWC. | | |
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10.6.1 | | Noncompetition Agreement, dated as of May 11, 2016, between Starwood and Vistana Signature Experiences, Inc. | | |
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| 10.4.3 | | Second Amendment to Marriott Rewards Affiliation Agreement, dated November 25, 2019, among the Company, Marriott Rewards, LLC, Marriott Vacations Worldwide Corporation, and Marriott Ownership Resorts, Inc. | | |
| | Description | | |
| *10.5.1 | | Marriott International, Inc. Stock and Cash Incentive Plan, as Amended Through February 13, 2014. | | |
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| *10.5.2 | | Amendment dated August 7, 2014 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
| *10.5.3 | | | | |
10.6.2 | | Termination of Noncompetition Agreement, effective as of September 1, 2018, between Starwood Hotels & Resorts Worldwide, LLC and Vistana Signature Experiences, Inc. | | |
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*10.7.1 | | Marriott International, Inc. Stock and Cash Incentive Plan, as Amended Through February 13, 2014. | | |
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*10.7.2 | | Amendment dated August 7, 2014 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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*10.7.3 | | Amendment dated September 23, 2016 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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*10.7.410.5.4 | | Amendment dated May 5, 2017 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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*10.7.510.5.5 | | Amendment dated February 15, 2019 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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*10.8.110.5.6 | | Amendment dated May 10, 2019 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| *10.5.7 | | Amendment dated May 8, 2020 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| *10.6.1 | | Marriott International, Inc. Executive Deferred Compensation Plan, Amended and Restated as of January 1, 2009. | | |
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*10.8.210.6.2 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective January 1, 2010. | | |
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*10.8.310.6.3 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective April 1, 2010. | | |
| | | | |
*10.8.410.6.4 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective October 25, 2011. | | |
| | | | |
*10.8.510.6.5 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective November 19, 2011. | | |
| | | | |
*10.8.610.6.6 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective January 1, 2013. | | |
| | | | |
*10.8.710.6.7 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective September 23, 2016 (409A). | | |
| | | | |
*10.8.810.6.8 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective September 23, 2016 (Starwood deferral elections). | | |
| | | | |
*10.8.910.6.9 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective January 1, 2019. | | |
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*10.9.110.7.1 | | Form of Employee Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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*10.9.210.7.2 | | Form of Senior Executive Supplemental Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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*10.10.110.8.1 | | Form of Executive Restricted Stock Unit/MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (pre-February 2018). | | |
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| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
*10.10.210.8.2 | | Form of Retention Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (pre-February 2018). | | |
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*10.10.3 | | Form of Executive Restricted Stock Unit/MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (February 2018). | | |
| | | | |
*10.10.410.8.3 | | Form of Retention Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (February 2018). | | |
| | | | |
*10.11.110.8.4 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (March 2019). | | |
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| *10.8.5 | | Form of Retention Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (March 2019). | | |
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| *10.9.1 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (pre-February 2018). | | |
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*10.11.210.9.2 | | Form of Senior Executive Supplemental Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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*10.11.310.9.3 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (For Non-Employee Directors). | | |
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*10.11.410.9.4 | | Form of Stock Appreciation RightRights Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (February 2018). | | |
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*10.12.110.9.5 | | Form of Performance Share Unit AwardStock Appreciation Rights Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (pre-February 2018)(March 2019). | | |
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*10.12.210.10.1 | | Form of Business Integration Performance Share Unit Award Agreement for the Marriott International Inc. Stock and Cash Incentive Plan. | | |
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*10.12.3 | | Form of Performance Share Unit Award Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (February 2018). | | |
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*10.1310.10.2 | | Form of Performance Share Unit Award Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (March 2019). | | |
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| *10.11 | | Summary of Marriott International, Inc. Director Compensation. | | |
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*10.1410.12 | | Marriott International, Inc. Executive Officer Annual Cash Incentive Program. | | |
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*10.15.110.13.1 | | Starwood 1999 Long-Term Incentive Compensation Plan. | | |
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*10.15.210.13.2 | | First Amendment to the Starwood 1999 Long-Term Incentive Compensation Plan, dated as of August 1, 2001. | | |
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*10.15.310.13.3 | | Second Amendment to the Starwood 1999 Long-Term Incentive Compensation Plan. | | |
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*10.16.110.14.1 | | Starwood 2002 Long-Term Incentive Compensation Plan. | | |
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*10.16.210.14.2 | | First Amendment to the Starwood 2002 Long-Term Incentive Compensation Plan. | | |
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*10.17.1 | | Starwood 2004 Long-Term Incentive Compensation Plan, amended and restated as of December 31, 2008. | | |
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| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
*10.17.2 | | | | |
| *10.15.1 | | Starwood 2004 Long-Term Incentive Compensation Plan, amended and restated as of December 31, 2008. | | |
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| *10.15.2 | | First Amendment to the Starwood 2004 Long-Term Incentive Compensation Plan. | | |
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*10.18.110.16.1 | | Starwood 2013 Long-Term Incentive Compensation Plan. | | |
| | | | |
*10.18.210.16.2 | | Amendment dated May 5, 2017 to the Starwood 2013 Long-Term Incentive Compensation Plan. | | |
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*10.1910.17 | | Amendment dated June 29, 2016 to the Starwood 2013 Long-Term Incentive Compensation Plan, the Starwood 2004 Long-Term Incentive Compensation Plan, the Starwood 2002 Long-Term Incentive Compensation Plan, and the Starwood 1999 Long-Term Incentive Compensation Plan. | | |
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*10.2010.18 | | Amendment dated September 23, 2016 to the Starwood 2013 Long-Term Incentive Compensation Plan, the Starwood 2004 Long-Term Incentive Compensation Plan, the Starwood 2002 Long-Term Incentive Compensation Plan, and the Starwood 1999 Long-Term Incentive Compensation Plan. | | |
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*10.2110.19 | | Amendment dated November 10, 2016 to the Marriott International, Inc. Stock and Cash Incentive Plan, the Starwood 2013 Long-Term Incentive Compensation Plan, the Starwood 2004 Long-Term Incentive Compensation Plan, the Starwood 2002 Long-Term Incentive Compensation Plan, and the Starwood 1999 Long-Term Incentive Compensation Plan. | | |
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†10.2210.20 | | Amended and Restated Side Letter Agreement - Program Affiliation, dated February 26, 2018, among the Company, Marriott Vacations Worldwide, and certain of their subsidiaries. | | |
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10.2310.21 | | Aircraft Time Sharing Agreement, effective as of September 20, 2018, between Marriott International Administrative Services, Inc. and J. Willard Marriott Jr. | | |
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| 21 | | Subsidiaries of Marriott International, Inc. | | |
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| 23 | | Consent of Ernst & Young LLP. | | |
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| 31.1 | | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a). | | |
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| 31.2 | | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a). | | |
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| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
32 | | |
| 32 | | Section 1350 Certifications. | | |
| | |
101.INS101 | | The following financial statements from Marriott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL Instance Document.(Extensible Business Reporting Language): (i) the Consolidated Statements of (Loss) Income for the year ended December 31, 2020, December 31, 2019, and December 31, 2018; (ii) the Consolidated Balance Sheets at December 31, 2020, and December 31, 2019; (iii) the Consolidated Statements of Cash Flows for the year ended December 31, 2020, December 31, 2019, and December 31, 2018; (iv) the Consolidated Statements of Comprehensive (Loss) Income for the year ended December 31, 2020, December 31, 2019, and December 31, 2018; (v) the Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2020, December 31, 2019, and December 31, 2018; and (vi) Notes to Consolidated Financial Statements. | | Submitted electronically with this report. |
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101.SCH101.INS | | XBRL Instance Document. | | Submitted electronically with this report. |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document. | | Submitted electronically with this report. |
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| 101.CAL | | XBRL Taxonomy Calculation Linkbase Document. | | Submitted electronically with this report. |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase. | | Submitted electronically with this report. |
| | |
| 101.LAB | | XBRL Taxonomy Label Linkbase Document. | | Submitted electronically with this report. |
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| 101.PRE | | XBRL Taxonomy Presentation Linkbase Document. | | Submitted electronically with this report. |
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*104 | Denotes management contract or compensatory plan. | The cover page from Marriott International, Inc.’s Annual Report on Form 10-K/A for the year ended December 31, 2020, formatted in Inline XBRL (included as Exhibit 101). | | Submitted electronically with this report. |
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† | Portions of this exhibit were redacted pursuant to a confidential treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Exchange Act. The redacted portions of this exhibit have been filed with the Securities and Exchange Commission. |
We* Denotes management contract or compensatory plan.
† Portions of this exhibit were redacted pursuant to a confidential treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Exchange Act. The redacted portions of this exhibit have submitted electronicallybeen filed with the following documents formatted in XBRL (Extensible Business Reporting Language) as Exhibit 101 to this report: (i) the Consolidated Statements of Income for the year-ended December 31, 2018, December 31, 2017,Securities and December 31, 2016; (ii) the Consolidated Balance Sheets at December 31, 2018, and December 31, 2017; (iii) the Consolidated Statements of Cash Flows for the year-ended December 31, 2018, December 31, 2017, and December 31, 2016; (iv) the Consolidated Statements of Comprehensive Income for the year-ended December 31, 2018, December 31, 2017, and December 31, 2016; (v) the Consolidated Statements of Shareholders’ Equity for the year-ended December 31, 2018, December 31, 2017, and December 31, 2016; and (vi) Notes to Consolidated Financial Statements.Exchange Commission.
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Item 16. | Form 10-K Summary. |
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, we have duly caused this Form 10-K10-K/A to be signed on our behalf by the undersigned, thereunto duly authorized, on this 1st2nd day of March 2019.April 2021.
MARRIOTT INTERNATIONAL, INC.
| | | | | | | | | | | | | | |
| By: | | /s/Anthony G. Capuano | | |
| | Anthony G. Capuano | | |
By: | | /s/Arne M. Sorenson |
| | Arne M. Sorenson |
| | President and Chief Executive Officer | | |
Pursuant to the requirements of the Exchange Act, this Form 10-K10-K/A has been signed by the following persons on our behalf in the capacities indicated and on the date indicated above.
| | | | | | | | |
| PRINCIPAL EXECUTIVE OFFICER: |
| | |
| /s/Anthony G. Capuano | | Chief Executive Officer and Director |
| Anthony G. Capuano | |
| | |
PRINCIPAL EXECUTIVE OFFICER: | | |
| | |
/s/Arne M. Sorenson | | President, Chief Executive Officer and Director |
Arne M. Sorenson | | |
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| PRINCIPAL FINANCIAL OFFICER: |
|
|
| | |
| /s/Kathleen K. Oberg |
| Executive Vice President and Chief Financial Officer |
| Kathleen K. Oberg | |
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| PRINCIPAL ACCOUNTING OFFICER: | | |
| | |
/s/Bao Giang Val BauduinFelitia Lee | | Controller and Chief Accounting Officer |
Bao Giang Val BauduinFelitia Lee | |
| | |
| DIRECTORS: | | |
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/s/J.W.Deborah Marriott Jr.Harrison | | /s/Lawrence W. Kellner |
J.W. Marriott, Jr., Executive Chairman and Chairman of the Board | | Lawrence W. Kellner, Director |
| | |
/s/Mary K. Bush | | /s/Debra L. Lee |
Mary K. Bush,Deborah Marriott Harrison, Director | | Debra L. Lee, Director |
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/s/Bruce W. DuncanFrederick A. Henderson | | /s/Aylwin B. Lewis |
Bruce W. Duncan,Frederick A. Henderson, Director | | Aylwin B. Lewis, Director |
| | |
| /s/Eric Hippeau | | /s/Margaret M. McCarthy |
| Eric Hippeau, Director | | Margaret M. McCarthy, Director |
| | |
/s/Deborah Marriott HarrisonLawrence W. Kellner | | /s/George Muñoz |
Deborah Marriott Harrison, Director | | George Muñoz, Director |
| | |
/s/Frederick A. Henderson | | /s/Steven S Reinemund |
Frederick A. Henderson, Director | | Steven S Reinemund, Director |
| | |
/s/Eric Hippeau | | /s/Susan C. Schwab |
Eric Hippeau,Lawrence W. Kellner, Director | | Susan C. Schwab, Director |
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