MARRIOTT INTERNATIONAL INC /MD/ Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Form 10-K)

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A discussion regarding our financial condition and results of operations for
year-end 2020 compared to year-end 2019 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/A for the fiscal year ended
December 31, 2020, as filed with the SEC on April 2, 2021 ("2020 Form 10-K").
BUSINESS AND OVERVIEW
Overview
We are a worldwide operator, franchisor, and licensor of hotel, residential, and
timeshare properties in 139 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 reportable
business segments: U.S. & Canada and International.
We earn base management fees and, under many agreements, incentive management
fees from the properties that we manage, and we earn franchise fees on the
properties that others operate under franchise agreements with us. In most
markets, base management and franchise fees typically consist of a percentage of
property-level revenue, or certain property-level revenue in the case of
franchise fees, while incentive management fees typically consist of a
percentage of net house profit after a specified owner return. For our hotels in
the Middle East and Africa, Asia Pacific excluding China, and Greater China
regions, incentive management fees typically consist of a percentage of gross
operating profit without adjustment for a specified owner return. Net house
profit is calculated as gross operating profit (also referred to as "house
profit") less non-controllable expenses such as property insurance, real estate
taxes, and furniture, fixtures, and equipment (FF&E) reserves. Additionally, we
earn franchise fees for use of our intellectual property, including fees from
our co-brand credit card, timeshare, and residential programs.
On September 23, 2016, we completed the acquisition of Starwood Hotels & Resorts
Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc.
("Starwood"), through a series of transactions, after which Starwood became an
indirect wholly-owned subsidiary of the Company. We refer to the Starwood
business and brands that we acquired as "Legacy-Starwood."
Performance Measures
We believe 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, 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. Comparisons to prior periods 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 that were open and
operating under one of our brands since the beginning of the last full calendar
year (since January 1, 2020 for the current period) and have not, in either the
current or previous year: (1) undergone significant room or public space
renovations or expansions, (2) been converted between company-operated and
franchised, or (3) sustained substantial property damage or business
interruption, with the exception of properties closed or otherwise experiencing
interruptions related to COVID-19, which we continue to classify as comparable.
For 2021 compared to 2020, we had 4,906 comparable U.S. & Canada properties and
1,510 comparable International properties. The RevPAR, ADR, and occupancy
comparisons between 2021 and 2019, which we discuss under the "Impact of
COVID-19" caption below, reflect properties that are defined as comparable as of
December 31, 2021, even if in 2019 they were not open and operating for the full
year or did not meet all the other criteria listed above.
Impact of COVID-19
COVID-19 continues to have a material impact on our business and industry.
However, the recovery of both global demand and ADR continued in 2021, led
primarily by robust leisure demand, which we expect to continue in 2022, and
travelers who continue to embrace multi-purpose trips, mixing remote work and
vacation time. The spread of COVID-19 variants, such as Delta and Omicron,
constrained the pace of the recovery in the latter half of 2021 and continues to
constrain the pace of recovery in the beginning of 2022. Business transient and
group demand continued to slowly improve in 2021 when
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compared to 2020, though this demand still remains meaningfully below
pre-pandemic 2019 levels. Although we have seen delays in the recovery of
business transient and group demand as a result of the emergence of COVID-19
variants, we expect this demand to gradually strengthen from current levels as
more workers return to the office and travel again. We have been encouraged by
the swift improvement in ADR, which in the 2021 second half returned to
pre-pandemic 2019 levels in certain U.S. and International markets and are
optimistic about sustaining strong ADR in 2022. However, we believe COVID-19
will continue to have a material negative impact on our future results for a
period of time that we are currently unable to predict.
Comparable systemwide constant dollar RevPAR in 2021 compared to 2020 improved
67.7 percent in our U.S. & Canada segment, 40.6 percent in our International
segment, and 60.4 percent worldwide. Comparable systemwide constant dollar
RevPAR in 2021 compared to pre-pandemic 2019 levels declined 32.5 percent in our
U.S. & Canada segment, 46.6 percent in our International segment, and 36.5
percent worldwide, with improvement in the decline each succeeding quarter
during 2021 for each of our segments and worldwide. Worldwide comparable
systemwide occupancy and constant dollar ADR were down only 11.9 percentage
points and 2.3 percent, respectively, in the 2021 fourth quarter compared to the
2019 fourth quarter, leading to RevPAR 19.0 percent below pre-pandemic 2019
levels.
In the U.S. & Canada, demand continued to recover in 2021, driven by strong
leisure demand particularly at our luxury and resort hotels and in tertiary
markets. Occupancy peaked in the 2021 third quarter before decreasing slightly
in the 2021 fourth quarter primarily due to seasonality. Urban destinations,
where we have a large presence in the U.S. & Canada, experienced meaningful
improvement in demand in 2021, though they continue to lag the recovery. In
other parts of the world, RevPAR continues to vary greatly by geographic market,
and demand is heavily impacted by the number of COVID-19 cases, vaccination
rates, and the nature and degree of government restrictions. In the 2021 fourth
quarter, the decline of comparable systemwide constant dollar RevPAR when
compared to pre-pandemic 2019 levels improved compared to the decline seen in
the 2021 third quarter in all our International regions except for Greater
China, which remained flat as a result of strict government restrictions in
response to COVID-19 outbreaks in several regions.
We continue to take measures to mitigate the negative financial and operational
impacts of COVID-19 for our hotel owners and our own business. At the corporate
level, we remain focused on managing our corporate general and administrative
costs and are being disciplined with respect to our capital expenditures and
other investment spending. Share repurchases and cash dividends remain suspended
until our leverage ratios further improve, although assuming there is no
meaningful setback in the global recovery from COVID-19, we could restart some
level of capital returns in the second half of 2022 and more meaningful levels
of capital returns in 2023 and beyond. In 2021, we substantially completed
restructuring plans to achieve cost savings specific to our company-operated
properties. In addition, we continue to work with owners and franchisees by
adjusting renovation requirements for certain properties, deferring certain
hotel initiatives, and supporting owners and franchisees who are working with
their lenders to utilize FF&E reserves to meet working capital needs.
We continue to evaluate the availability of stimulus tax credits under the
Coronavirus Aid, Relief, and Economic Security Act, the Taxpayer Certainty and
Disaster Tax Relief Act of 2020 enacted as part of the Consolidated
Appropriations Act, 2021, the American Rescue Plan Act of 2021 ("ARPA"), and
other legislation. As of February 1, 2022, we have received Employee Retention
Tax Credit ("ERTC") refunds from the U.S. Treasury totaling $170 million,
including $119 million in 2020 and $51 million in 2021, of which we passed
through $94 million and $48 million, respectively, to the related hotels that we
manage on behalf of owners. We have received from the U.S. Treasury
substantially all expected ERTC refunds based on applications that we have
submitted as of February 1, 2022. Additionally, as of December 31, 2021, we have
received or expect to receive, through Medicare tax offsets and payments from
the U.S. Treasury pursuant to ARPA, a total of $35 million as reimbursement for
the cost of health coverage continuation provided to eligible former associates
and furloughed or part-time associates (and their eligible enrolled dependents)
in accordance with requirements under the Consolidated Omnibus Budget
Reconciliation Act of 1985 for the period of April 1, 2021 to September 30,
2021. Finally, in 2021, we received subsidies totaling $28 million from German
government COVID-19 assistance programs for certain of our leased hotels and
equity method investments in Germany.
The impact of COVID-19 on the Company remains fluid, as does our corporate and
property-level response. We expect to continue to assess the situation and may
implement additional measures to adapt our operations and plans to address 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 and could be
affected by other factors we are not currently able to predict.
Starwood Data Security Incident
On November 30, 2018, we announced a data security incident involving
unauthorized access to the Starwood reservations database (the "Data Security
Incident"). The Starwood reservations database is no longer used for business
operations.
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We are currently unable to estimate the range of total possible financial impact
to the Company from the Data Security Incident in excess of the expenses already
incurred. However, we do not believe this incident will impact our long-term
financial health. Although our insurance program includes coverage designed to
limit our exposure to losses such as those related to the Data Security
Incident, that insurance may not be sufficient or available to cover all of our
expenses or other losses (including fines and penalties) related to the Data
Security Incident. In addition, certain expenses by their nature (such as, for
example, expenses related to enhancing our cybersecurity program) are not
covered by our insurance program. We expect to incur significant expenses
associated with the Data Security Incident in future periods, primarily related
to legal proceedings and regulatory investigations (including possible
additional fines and penalties), increased expenses and capital investments for
information technology and information security and data privacy, and increased
expenses for compliance activities and to meet increased legal and regulatory
requirements. See Note 7 for additional information related to expenses incurred
in 2021, insurance recoveries, and legal proceedings and governmental
investigations related to the Data Security Incident.
System Growth and Pipeline
In 2021, our system grew from 7,642 properties (1,423,044 rooms) at year-end
2020 to 7,989 properties (1,479,179 rooms) at year-end 2021, reflecting gross
additions of 517 properties (86,372 rooms) and deletions of 171 properties
(30,236 rooms), including 88 properties from a primarily select-service
portfolio which left our system in the 2021 first quarter. Approximately 50
percent of our 2021 gross room additions are located outside U.S. & Canada, and
21 percent were conversions from competitor brands.
At year-end 2021, we had roughly 485,000 rooms in our development pipeline,
which includes more than 202,000 hotel rooms under construction and
approximately 19,000 hotel rooms approved for development but not yet under
signed contracts. Over half of the rooms in our development pipeline are outside
U.S. & Canada. In 2021, we signed management and franchise agreements for 599
properties, representing approximately 92,000 rooms, of which more than half of
the rooms are located outside U.S. & Canada. Contracts signed in 2021 reflected
the Company's strength in the luxury tier, with 40 properties signed (resulting
in a total of nearly 50,000 luxury rooms in our development pipeline at year-end
2021), as well as strong momentum in all-inclusive resort signings, with 22
properties signed in 2021. In addition, in 2021, longer stay brands, which
include Element Hotels, Residence Inn, and TownePlace Suites, accounted for 37
percent of the Company's rooms signings in U.S. & Canada. Conversions accounted
for 27 percent of rooms signings in 2021.
In 2022, we expect total gross rooms growth to approach 5.0 percent and net
rooms growth of 3.5 to 4.0 percent.
Properties and Rooms
At year-end 2021, we operated, franchised, and licensed the following properties
and rooms:
                            Managed                        Franchised/Licensed                      Owned/Leased                               Residential                           Total
                  Properties           Rooms        Properties                Rooms        Properties              Rooms                                 Properties        Rooms          Properties          Rooms
U.S. & Canada        638              218,798        4,983                   713,781            26                6,483                                      65           6,925            5,712             945,987
International      1,305              334,374          805                   163,955            38                9,209                                      37           2,953            2,185             510,491

Timeshare              -                    -           92                    22,701             -                    -                                       -               -               92              22,701
Total              1,943              553,172        5,880                   900,437            64               15,692                                     102           9,878            7,989           1,479,179



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Lodging Statistics
The following tables present RevPAR, occupancy, and ADR statistics for
comparable properties for 2021 and 2021 compared to 2020. Systemwide statistics
include data from our franchised properties, in addition to our company-operated
properties.
                                               RevPAR                                        Occupancy                                  Average Daily Rate
                                     2021              vs. 2020                 2021                 vs. 2020                       2021               vs. 2020

Comparable Company-Operated
Properties
U.S. & Canada                     $ 95.79                   85.1  %                47.1  %                19.9  % pts.          $  203.44                    6.8  %
Greater China                     $ 67.01                   28.5  %                55.5  %                 9.7  % pts.          $  120.67                    6.0  %

Asia Pacific excluding China      $ 40.45                    0.7  %                36.4  %                 5.5  % pts.          $  111.05                  (14.5) %
Caribbean & Latin America         $ 78.07                   63.3  %                43.6  %                15.6  % pts.          $  179.04                    4.8  %
Europe                            $ 64.63                   81.5  %                33.4  %                12.8  % pts.          $  193.55                   11.8  %
Middle East & Africa              $ 84.18                   59.6  %                51.5  %                15.7  % pts.          $  163.51                   10.8  %

International - All (1)           $ 63.17                   39.1  %                44.5  %                10.7  % pts.          $  142.01                    5.8  %
Worldwide (2)                     $ 78.01                   61.5  %                45.7  %                14.9  % pts.          $  170.83                    8.9  %
Comparable Systemwide Properties
U.S. & Canada                     $ 81.55                   67.7  %                55.2  %                18.4  % pts.          $  147.84                   11.7  %
Greater China                     $ 64.06                   26.9  %                54.2  %                 9.0  % pts.          $  118.09                    5.8  %
Asia Pacific excluding China      $ 43.23                    2.2  %                37.8  %                 6.1  % pts.          $  114.50                  (14.3) %
Caribbean & Latin America         $ 63.98                   74.3  %                41.8  %                16.6  % pts.          $  152.94                    5.0  %
Europe                            $ 56.23                   71.3  %                32.6  %                11.5  % pts.          $  172.71                   10.7  %
Middle East & Africa              $ 77.69                   60.3  %                50.6  %                15.5  % pts.          $  153.52                   11.2  %

International - All (1)           $ 58.75                   40.6  %                42.4  %                10.8  % pts.          $  138.71                    4.8  %
Worldwide (2)                     $ 74.66                   60.4  %                51.3  %                16.1  % pts.          $  145.56                   10.0  %



(1)Includes Greater China, Asia Pacific excluding China, Caribbean & Latin
America, Europe, and Middle East & Africa.
(2)Includes U.S. & Canada and International - All.
CONSOLIDATED RESULTS
Our results in 2021 continued to be impacted by COVID-19. See the "Impact of
COVID-19" section above for more information about the impact to our business
during 2021, and the discussion below for additional analysis of our
consolidated results of operations for 2021 compared to 2020.
Fee Revenues
($ in millions)                     2021                  2020                               Change 2021 vs. 2020
Base management fees           $        669          $        443                $              226                     51  %
Franchise fees                        1,790                 1,153                               637                     55  %
Incentive management fees               235                    87                               148                    170  %
Gross fee revenues                    2,694                 1,683                             1,011                     60  %
Contract investment
amortization                            (75)                 (132)                               57                     43  %
Net fee revenues               $      2,619          $      1,551                $            1,068                     69  %


The increase in base management fees primarily reflected higher RevPAR due to
the ongoing recovery in lodging demand from the impacts of COVID-19.
The increase in franchise fees primarily reflected higher RevPAR due to the
ongoing recovery in lodging demand from the impacts of COVID-19, higher co-brand
credit card fees ($102 million), unit growth ($89 million), and higher
residential branding fees ($39 million).
The increase in incentive management fees primarily reflected higher profits at
certain managed hotels due to the ongoing recovery in lodging demand from the
impacts of COVID-19. In 2021, we earned incentive management fees from 47
percent of our managed properties worldwide, compared to 37 percent in 2020. We
earned incentive management fees from 13 percent of our U.S. & Canada managed
properties and 63 percent of our International managed properties in 2021,
compared to 3 percent in U.S. & Canada and 56 percent in International in 2020.
In addition, 71 percent of our total incentive management fees in 2021 came from
our International managed properties versus 92 percent in 2020.
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Contract investment amortization changed primarily due to lower impairments of
investments in management and franchise contracts.
Owned, Leased, and Other
($ in millions)                   2021                  2020                               Change 2021 vs. 2020
Owned, leased, and other
revenue                      $        796          $        568                $              228                     40  %
Owned, leased, and other -
direct expenses                       734                   677                                57                      8  %
Owned, leased, and other,
net                          $         62          $       (109)               $              171                       nm*


* Percentage change is not meaningful.
Owned, leased, and other revenue, net of direct expenses increased primarily due
to net stronger results at our owned and leased properties driven by the ongoing
recovery in lodging demand from the impacts of COVID-19, higher termination fees
of $20 million, and $18 million of subsidies under German government COVID-19
assistance programs for certain of our leased hotels.
Cost Reimbursements
($ in millions)                  2021         2020                        Change 2021 vs. 2020
Cost reimbursement revenue    $ 10,442      $ 8,452            $            1,990                    24  %
Reimbursed expenses             10,322        8,435                         1,887                    22  %
Cost reimbursements, net      $    120      $    17            $              103                      nm*


* Percentage change is not meaningful.
Cost reimbursements, net (cost reimbursement revenue, net of reimbursed
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. 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 cost
reimbursements, including our Loyalty Program.
The increase in cost reimbursements, net primarily reflects higher revenues, net
of expenses, for our centralized programs and services. This increase is
partially offset by higher expenses for our Loyalty Program.
Other Operating Expenses
($ in millions)                      2021                  2020                               Change 2021 vs. 2020
Depreciation, amortization, and
other                           $        220          $        346                $             (126)                   (36) %
General, administrative, and
other                                    823                   762                                61                      8  %
Restructuring and
merger-related charges                     8                   267                              (259)                   (97) %


Depreciation, amortization, and other expenses decreased primarily due to lower
impairment charges. See Note 8 for more information about the operating lease
impairment charges.
General, administrative, and other expenses increased primarily due to higher
compensation costs compared to our 2020 cost reduction measures, which included
reducing compensation, implementing reduced work weeks for many of our corporate
associates, and furloughing a substantial number of associates, as well as
higher legal expenses ($34 million). The increase was partially offset by a
lower provision for credit losses ($76 million) and a favorable litigation
settlement ($18 million).
Restructuring and merger-related charges decreased primarily due to the prior
year increase to the put option liability discussed in Note 7 ($243 million) and
2020 restructuring charges ($56 million), partially offset by the 2020 partial
reversal of the liability related to the ICO fine, which was reduced to £18.4
million in October 2020 ($39 million).
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Non-Operating Income (Expense)
($ in millions)                   2021       2020                        Change 2021 vs. 2020
Gains and other income, net      $  10      $   9            $             1                        11  %
Loss on extinguishment of debt    (164)         -                       (164)                         nm*
Interest expense                  (420)      (445)                        25                         6  %
Interest income                     28         27                          1                         4  %
Equity in losses                   (24)      (141)                       117                        83  %


* Percentage change is not meaningful.
In the 2021 third quarter, we recorded a loss on extinguishment of debt due to
the Tender Offer discussed in Note 9.
Interest expense changed, primarily due to lower Credit Facility and commercial
paper average borrowings and interest rates, partially offset by higher interest
on Senior Note issuances, net of maturities.
Equity in losses changed, primarily due to 2020 impairment losses ($77 million)
and the ongoing recovery in lodging demand from the impacts of COVID-19.
Income Taxes
($ in millions)                    2021                  2020                               Change 2021 vs. 2020
(Provision) benefit for
income taxes                  $        (81)         $        199                $             (280)                   (141) %


Our tax provision in 2021, compared to our tax benefit in 2020, primarily
reflected the increase in operating income ($256 million), lower tax benefit
from impairment charges ($64 million) and the prior year tax benefit from the
Sheraton Grand Chicago put option reserve ($61 million). The change was
partially offset by the current year release of tax reserves due to favorable
audit resolutions during 2021 ($43 million) and a current year tax benefit from
the loss on extinguishment of debt ($42 million).
BUSINESS SEGMENTS
Our segment results in 2021 continued to be impacted by COVID-19. See the
"Impact of COVID-19" section above for more information about the impact to our
business during 2021 and the discussion below for additional analysis of the
operating results of our reportable business segments.
($ in millions)             2021         2020                        Change 2021 vs. 2020
U.S. & Canada
Segment revenues         $ 10,356      $ 7,905            $            2,451                    31  %
Segment profit              1,394          198                         1,196                   604  %
International
Segment revenues            2,254        1,597                           657                    41  %
Segment profit (loss)         258         (222)                          480                   216  %


                                                             Properties                                                                               Rooms
                                                                                                                   December 31,
                          December 31, 2021        December 31, 2020             vs. December 31, 2020                 2021              December 31, 2020             vs. December 31, 2020
U.S. & Canada                      5,712                 5,534                       178              3  %             945,987               924,090                    21,897              2  %
International                      2,185                 2,017                       168              8  %             510,491               476,199                    34,292              7  %


U.S. & Canada
U.S. & Canada segment profit increased primarily due to the following:
•$666 million of higher gross fee revenues, primarily reflecting higher
comparable systemwide RevPAR driven by increases in both occupancy and ADR as
well as higher profits at certain managed hotels due to the ongoing recovery in
lodging demand from the impacts of COVID-19, unit growth, and higher residential
branding fees, partially offset by lower fees from properties that were
terminated;
•$131 million of higher cost reimbursement revenue, net of reimbursed expenses;
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•$117 million of lower depreciation, amortization, and other expenses, primarily
reflecting lower operating lease impairment charges;
•$84 million of lower equity in losses, primarily reflecting prior year
impairment charges ($60 million) and lower losses recorded by investees due to
the ongoing recovery in lodging demand from the impacts of COVID-19;
•$62 million of higher owned, leased, and other revenue, net of direct expenses,
primarily reflecting net stronger results at owned and leased properties due to
the ongoing recovery in lodging demand from the impacts of COVID-19;
•$55 million of lower general, administrative, and other expenses, primarily
reflecting lower provision for credit losses ($34 million) and a favorable
litigation settlement ($18 million);
•$53 million of lower contract investment amortization costs, primarily
reflecting lower contract impairment charges; and
•$28 million of lower restructuring and merger-related charges.
International
International 2021 segment profit, compared to the 2020 segment loss, primarily
reflected:
•$230 million of higher gross fee revenues, primarily reflecting higher
comparable systemwide RevPAR driven by increases in both occupancy and ADR as
well as higher profits at certain managed hotels due to the ongoing recovery in
lodging demand from the impacts of COVID-19, unit growth, and higher residential
branding fees;
•$108 million of higher owned, leased, and other revenue, net of direct
expenses, primarily reflecting net stronger results at owned and leased
properties due to the ongoing recovery in lodging demand from the impacts of
COVID-19, subsidies under German government COVID-19 assistance programs for
certain of our leased hotels, and higher termination fees;
•$69 million of higher cost reimbursement revenue, net of reimbursed expenses;
•$27 million of lower general, administrative, and other expenses primarily
reflecting lower provision for credit losses; and
•$18 million of lower equity in losses primarily due to the ongoing recovery in
lodging demand from the impacts of COVID-19.
STOCK-BASED COMPENSATION
See Note 5 for more information.
NEW ACCOUNTING STANDARDS
We do not expect that accounting standard updates issued to date and that are
effective after December 31, 2021 will have a material effect on our Financial
Statements.
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LIQUIDITY AND CAPITAL RESOURCES
Our 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 2021, our long-term debt had a weighted average interest
rate of 3.4 percent and a weighted average maturity of approximately 6.5 years.
Including the effect of interest rate swaps, the ratio of our fixed-rate
long-term debt to our total long-term debt was 0.8 to 1.0 at year-end 2021.
In response to the negative impact COVID-19 had on our cash from operations in
2021 and 2020, which we expect to continue to be negatively impacted, we remain
focused on preserving our financial flexibility and managing our debt
maturities. We also remain focused on managing our corporate general and
administrative costs and our capital expenditures and other investment spending.
Share repurchases and dividends remain suspended until our leverage ratios
further improve, although assuming there is no meaningful setback in the global
recovery from COVID-19, we could restart some level of capital returns in the
second half of 2022 and more meaningful levels of capital returns in 2023 and
beyond. In 2021, we issued $1.8 billion aggregate principal amount of senior
notes, redeemed all $400 million aggregate principal amount of our Series N
Notes, and repurchased and retired $1 billion aggregate principal amount of our
Series EE Notes maturing in 2025, which we discuss further under the "Sources of
Liquidity - Senior Notes Issuances, Redemptions, and Repurchases" section below
and in Note 9.
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
Our Credit Facility provides for up to $4.5 billion of aggregate borrowings for
general corporate needs, including working capital, capital expenditures,
letters of credit, acquisitions, and to support our commercial paper program if
and when we resume issuing commercial paper. Borrowings under the Credit
Facility generally bear interest at LIBOR (the London Interbank Offered Rate)
plus a spread, based on our public debt rating. We also pay quarterly fees on
the Credit Facility at a rate based on our public debt rating. We classify
outstanding borrowings under the Credit Facility and outstanding commercial
paper borrowings (if any) as long-term based on our ability and intent to
refinance the outstanding borrowings on a long-term basis. The Credit Facility
expires on June 28, 2024. As of December 31, 2021, we had total outstanding
borrowings under the Credit Facility of $1.1 billion and remaining borrowing
capacity of $3.4 billion.
We entered into amendments to the Credit Facility in April 2020 and January 2021
(the "Credit Facility Amendments"), as described in our Annual Report on Form
10-K for the fiscal year ended December 31, 2020, as amended. The debt leverage
covenant in the Credit Facility, which is tested each quarter and was waived
pursuant to the Credit Facility Amendments through and including the fourth
quarter of 2021, resumes beginning with the quarter ending March 31, 2022. The
Credit Facility Amendments adjusted the required leverage levels for this
covenant when it is re-imposed (starting at 5.50 to 1.00 for the test period
ending on March 31, 2022 and gradually stepping down to 4.00 to 1.00 over the
succeeding five fiscal quarters, as further described in the Credit Facility).
The Credit Facility Amendments also amended certain other terms of the Credit
Facility, including reducing the rate floor for the LIBOR Daily Floating Rate
and the Eurocurrency Rate.
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.
Senior Notes Issuances, Redemptions, and Repurchases
In January 2022, we made a $404 million cash payment of principal and interest
to retire, at maturity, all of our outstanding Series Q Notes.
In September 2021, we completed a tender offer (the "Tender Offer") and
purchased and retired $1 billion aggregate principal amount of our 5.750 percent
Series EE Notes maturing May 1, 2025. We used the net proceeds from our Series
II Notes offering described below and cash on hand to complete the repurchase of
such Series EE Notes, including the payment of accrued interest and other costs
incurred. As a result of the Tender Offer, in the 2021 third quarter, we
recorded a loss of $164 million in the "Loss on extinguishment of debt" caption
of our Income Statements.
In September 2021, we issued $700 million aggregate principal amount of 2.750
percent Series II Notes due October 15, 2033 (the "Series II Notes"). We will
pay interest on the Series II Notes in April and October of each year,
commencing in April 2022. We received net proceeds of approximately $693 million
from the offering of the Series II Notes, after deducting the underwriting
discount and estimated expenses. We used the net proceeds to fund the Tender
Offer, as further described above.
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In August 2021, we redeemed all $400 million aggregate principal amount of our
Series N Notes due in October 2021.
In March 2021, we issued $1.1 billion aggregate principal amount of 2.850
percent Series HH Notes due April 15, 2031 (the "Series HH Notes"). We pay
interest on the Series HH Notes in April and October of each year. We received
net proceeds of approximately $1,089 million from the offering of the Series HH
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 outstanding borrowings under the Credit Facility.
Commercial Paper
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. As a result, we
have had to rely more on borrowings under the Credit Facility and issuance of
senior notes, which carry higher interest costs than commercial paper.
Uses of Cash
Cash, cash equivalents, and restricted cash totaled $1,421 million at
December 31, 2021, an increase of $527 million from year-end 2020, primarily due
to net cash provided by operating activities ($1,177 million) and Credit
Facility borrowings, net of repayments ($150 million), partially offset by
Senior Notes repayments, net of issuances ($368 million), capital and technology
expenditures ($183 million), cash paid for debt extinguishment costs associated
with the Tender Offer ($155 million), and financing outflows for employee
stock-based compensation withholding taxes ($90 million).
Cash from Operations
Net cash provided by operating activities decreased by $462 million in 2021
compared to 2020, primarily due to net cash inflow from our Loyalty Program in
2020 and higher cash paid for income taxes, partially offset by higher net
income recorded in 2021 (adjusted for non-cash items and the loss on
extinguishment of debt). Cash inflow from our Loyalty Program in 2020 included
$920 million of cash received from the prepayment of certain future revenues
under the amendments to our existing U.S.-issued co-brand credit card
agreements, which reduced in 2021 and will in the future reduce the amount of
cash we receive from these card issuers.
Our ratio of current assets to current liabilities was 0.6 to 1.0 at year-end
2021 and 0.5 to 1.0 at year-end 2020. We have significant borrowing capacity
under our Credit Facility should we need additional working capital.
Investing Activities Cash Flows
Capital Expenditures and Other Investments. We made capital and technology
expenditures of $183 million in 2021 and $135 million in 2020. Capital
expenditures in 2021 increased by $48 million compared to 2020, primarily
reflecting higher spending on our new headquarters.
We expect capital expenditures and other investments will total approximately
$600 million to $700 million for 2022, including capital and technology
expenditures, loan advances, contract acquisition costs, and other investing
activities (including approximately $250 million for maintenance capital
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. We have made, and expect
to continue making, selective and opportunistic investments to add units to our
lodging business, which may include property acquisitions and renovations, new
construction, loans, guarantees, and equity investments. Over time, we seek to
minimize capital invested in our business through asset sales subject to
long-term management or franchise agreements.
Dispositions. Property and asset sales generated $12 million cash proceeds in
2021 and $260 million in 2020.
Loan Activity. From time to time, we make loans to owners of hotels that we
operate or franchise. Loan collections, net of loan advances, amounted to $27
million in 2021, compared to net advances of $33 million in 2020. At year-end
2021, we had $153 million of senior, mezzanine, and other loans outstanding,
compared to $163 million outstanding at year-end 2020.
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Financing Activities Cash Flows
Debt. Debt decreased by $238 million in 2021, to $10,138 million at year-end
2021 from $10,376 million at year-end 2020. See "Sources of Liquidity," caption
in this "Liquidity and Capital Resources" section and Note 9 for additional
information on the Senior Note and Credit Facility transactions in 2021.
Share Repurchases and Dividends. We did not repurchase any shares of our common
stock in 2021. At year-end 2021, 17.4 million shares remained available for
repurchase under Board approved authorizations. We also did not declare any cash
dividends in 2021. We do not anticipate repurchasing additional shares or
declaring cash dividends until our leverage ratios further improve. Assuming
there is no meaningful setback in the global recovery from COVID-19, we could
restart some level of capital returns in the second half of 2022 and more
meaningful levels of capital returns in 2023 and beyond.
Material Cash Requirements
Our material cash requirements include the following contractual obligations and
off-balance sheet arrangements.
•At year-end 2021, we had $12,169 million of debt, including principal and
future interest payments, of which $1,134 million is payable within the next 12
months from year-end 2021. See Note 9 for further information about our
long-term debt.
•We enter into operating and finance leases primarily for hotels, offices, and
equipment, which are discussed in Note 8.
•At December 31, 2021, projected Deemed Repatriation Transition Tax payments
under the U.S. tax legislation enacted on December 22, 2017, commonly referred
to as the 2017 Tax Cuts and Jobs Act, totaled $349 million, of which $43 million
is payable within the next 12 months from year-end 2021.
•The Company also had guarantees, a contingent purchase obligation, commitments,
and letters of credit as of year-end 2021, which are discussed in Note 7. The
majority of our guarantee commitments are not expected to be funded within the
next 12 months from year-end 2021. In addition to the purchase obligations
discussed in Note 7, in the normal course of business, we enter into purchase
commitments and incur other obligations to manage the daily operating needs of
the hotels that we manage. Since our contracts with owners require reimbursement
for these amounts, these obligations are expected to have minimal impact on our
net income and cash flow.
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 Note 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. Changes in these estimates
could result in material changes to our liability for guest loyalty program and
Loyalty Program revenue. Based on the conditions existing at December 31, 2021
and holding other factors constant, a one percent decrease in our estimate of
the breakage of points could result in an increase in the liability for guest
loyalty program of approximately $40 million. The breakage impact may vary
significantly depending on the specific Loyalty Program points for which the
anticipated breakage changes.
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Goodwill, including how we evaluate the fair value of reporting units and when
we record an impairment loss on goodwill. During the 2021 fourth quarter, we
conducted our annual goodwill impairment test and no impairment charges were
recorded. The estimated fair values of all our reporting units significantly
exceeded their carrying values at the date of their most recent estimated fair
value determination.
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. During 2021, we evaluated our intangibles and
long-lived asset groups for impairment and did not record any material
impairment charges. The estimated fair values of all our indefinite-lived
intangible assets significantly exceeded their carrying values at the date of
their most recent estimated fair value determination.
Investments, including information on how we evaluate the fair value of
investments and when we record impairment losses on investments. During 2021, we
evaluated our investments for impairment and did not record any material
impairment charges.
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 the 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 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 Note 2 for more information on derivative
instruments.
The following table sets forth the scheduled maturities and the total fair value
as of year-end 2021 for our financial instruments that are impacted by market
risks:
                                                                          Maturities by Period
                                                                                                                                              Total             Total
                                                                                                                           There-           Carrying            Fair
($ in millions)                        2022            2023             2024              2025             2026             after            Amount             Value
Assets - Maturities represent expected principal receipts. Fair values represent assets.
Fixed-rate notes receivable          $    6          $    2          $      9          $      2          $    2          $     28          $     49          $     43
Average interest rate                                                                                                                          1.03  %

Variable rate notes receivable $3 $42 $16 $1 $3 $39 $104

          $     97
Average interest rate                                                                                                                          3.06  %
Liabilities - Maturities represent expected principal payments. Fair values represent liabilities.
Fixed-rate debt                      $ (572)         $ (675)         $      -          $ (1,302)         $ (746)         $ (4,855)         $ (8,150)         $ (8,615)
Average interest rate                                                                                                                          3.69  %
Floating-rate debt                   $ (226)         $    -          $ (1,616)         $      -          $    -          $      -          $ (1,842)         $ (1,853)
Average interest rate                                                                                                                          1.52  %



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