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, 20152018
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 | 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 | | Name of Each Exchange on Which Registered |
Class A Common Stock, $0.01 par value (253,481,935339,668,839 shares outstanding as of February 5, 2016)20, 2019) | | Nasdaq Global Select Market Chicago Stock Exchange |
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 rule 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 a small reportingan emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. |
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Large accelerated filerx | ý | | Accelerated filero | o |
Non-accelerated filero | o | Smaller reporting company | o |
| | | | (DoEmerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not check if a smaller reporting company) 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 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 30, 2015,29, 2018, was $14,801,193,15636,386,234,246.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 20162019 Annual Meeting of Shareholders are incorporated by reference into
Part III of this report.
MARRIOTT INTERNATIONAL, INC.
FORM 10-K TABLE OF CONTENTS
FISCAL YEAR ENDED DECEMBER 31, 20152018
Throughout this report, we refer to Marriott International, Inc., together with its consolidated subsidiaries, as “we,” “us,” “Marriott,” or “the Company.”
Beginning in 2013, we changed our financial reporting cycle to a calendar year-end reporting cycle and an end-of-month quarterly reporting cycle. Historically, our fiscal year was a 52-53 week fiscal year that ended on the Friday nearest to December 31. Unless otherwise specified, each reference to a particular year means the fiscal year ended on the date and containing the specified number of days that we show in the table under the caption “Fiscal Year” in Footnote No. 1, “Basis of Presentation,” to the Notes to our Consolidated Financial Statements.
In order to make this report easier to read, we also refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” (iv) our Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (v) our properties, brands, or markets in the United States (“U.S.”) and Canada as “North America” or “North American,” and (v)(vi) our properties, brands, or markets outside of the United Statesin our Caribbean and CanadaLatin America, Europe, and Middle East and Africa regions as “Other International,” and together with those in our Asia Pacific segment, as “International.” ReferencesIn addition, references throughout to numbered “Footnotes” refer to the numbered Notes to our Financial Statements that we include in the Financial Statements section of this report.
PART I
Corporate Structure and Business
We are a worldwide operator, franchisor, and licensor of hotelshotel, 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 also operate, market, and develop residential properties and provide services to home/condominium owner associations.
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 operate, franchise, or license 4,424 properties worldwide, with 759,330 rooms as of year-end 2015.
We believe that our portfolio of brands, shown in the following table, is the broadestlargest and most compelling range of brands and properties of any lodging company in the world. Our principal brands are listed
We discuss our operations in the following table:
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• The Ritz-Carlton®
| • Gaylord Hotels®
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• Bulgari® Hotels & Resorts
| • AC Hotels by Marriott®
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• EDITION®
| • Courtyard by Marriott® (“Courtyard®”)
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• JW Marriott®
| • Residence Inn by Marriott® (“Residence Inn®”)
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• Autograph Collection® Hotels
| • SpringHill Suites by Marriott® (“SpringHill Suites®”)
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• Renaissance® Hotels
| • Fairfield Inn & Suites by Marriott® (“Fairfield Inn & Suites®”)
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• Marriott Hotels®
| • TownePlace Suites by Marriott® (“TownePlace Suites®”)
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• Delta Hotels and Resorts®
| • Protea Hotels®
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• Marriott Executive Apartments®
| • Moxy Hotels®
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• Marriott Vacation Club®
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As of year-end 2015, we group operations into threereportable business segments: North American Full-Service, North American Limited-Service, and International,Asia Pacific. Our Europe, Middle East and provide financial information by segmentAfrica, and Caribbean and Latin America operating segments do not individually meet the criteria for 2015, 2014, and 2013 in Footnote No. 16, “Business Segments” and Footnote No. 12, “Property and Equipment.”separate disclosure as reportable segments.
Pending Combination withAcquisition of Starwood Hotels & Resorts Worldwide Inc.
On November 15, 2015, we entered into an Agreement and Plan of MergerSeptember 23, 2016 (the “Merger Agreement”Date”) to combine with, we completed the acquisition of Starwood Hotels & Resorts Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”). The Merger Agreement provides for the Company to combine with Starwood in, through a series of transactions (the “Starwood Combination”), after which Starwood will bebecame an indirect wholly ownedwholly-owned subsidiary of Marriott. Our Financial Statements and related discussions in this report include Starwood’s results of operations only from the Company (the “Starwood Combination”). If these transactions are completed, shareholders of Starwood will receive 0.920 sharesMerger Date through year-end 2018 and reflect the financial position of our Class A Common Stock, par value $0.01 per share,combined company at December 31, 2018 and $2.002017 except where we specifically state otherwise, such as certain statistics described under the caption “Performance Measures” in cash, without interest,Part II, Item 7. 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 each sharemore 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 common stock, par value $0.01 per share, that they own immediately before these transactions. We expect thatreservations database, effective as of the combination will closeend 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 mid-2016, after customary conditions are satisfied, including shareholder approvals, required antitrust approvals,Footnote 7. Commitments and theContingencies in Part II, Item 8.
completion of Starwood’s previously announced spin-off of its vacation ownership business, or another spin-off, split-off, analogous disposition, or sale of its vacation ownership business.
Company-Operated Properties
At year-end 2015,2018, we operated 1,116had 2,020 company-operated properties (300,305(566,759 rooms), which included properties under long-term management agreements with property owners, 41 properties (9,206 rooms) under long-termor lease agreements with property owners (management and lease agreements together, “the Operatingthe “Operating Agreements”), and six properties (1,437 rooms) that we own. In addition, we operated under long-term management agreements 41own, and home and condominium products (4,203 units)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 20 to 30 years, with options for us to renew for up to 50 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 in excess ofthat 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 suchthose 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 that we operate, we generally are responsible for hiring, training, and supervising the managers and employees who are 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 national 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 Venture Properties
We have franchising, licensing, and joint venture programs that permit other 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 program,programs, we generally receive an initial application fee and continuing royalty fees, which typically range from four to six 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 (losses)”earnings” caption of our Income Statements. Franchisees and certain joint ventures contribute to our national marketing and advertising programs and pay fees for use of our centralized reservation systems. Under
We also receive royalty fees under license agreements with us, MVW is both the exclusive developer and operator of timeshare, fractional, and related products under theits affiliates for certain brands, including Marriott brand and the exclusive developer of fractional and related products underVacation Club, Grand Residences by Marriott, The Ritz-Carlton brand.Destination Club, Westin, Sheraton, and for certain existing properties, St. Regis and The Luxury Collection. We receive license fees under licensing agreements withfrom MVW consisting of a fixed annual fee, adjusted for inflation, of $50 million plus two percent of the grosscertain variable fees based on sales price paid to MVW for initial developer sales of interests in vacation ownership units and residential real estate units and one percent of the gross sales price paid to MVW for resales of interests in vacation ownership units and residential real estate units, in each case that are identified with or use the Marriott or The Ritz-Carlton marks.volumes.
At year-end 2015,2018, we had 3,0744,735 franchised and licensed properties (420,562(729,413 rooms), 88 and 151 unconsolidated joint venture properties (10,810(21,196 rooms), and 58 licensed timeshare, fractional, and related properties (12,807 units).
Residential
We use or license our trademarks for the sale of residential real estate, typicallyoften in conjunction with hotel development, and receive branding fees for sales of such branded residential real estate by others. Residences areThird-party owners typically constructedconstruct and sold by third-party ownerssell residences with limited amounts, if any, of our capital at risk. We have used or licensed our JW Marriott, The Ritz-Carlton, Ritz-Carlton Reserve, W, The Luxury Collection, St. Regis, EDITION, Bulgari, Hotels & Resorts, EDITION,Marriott, Sheraton, Westin, Four Points, Delta and Autograph Collection Hotels, JW Marriott, and Marriott Hotels brand names and trademarks for residential real estate sales. While the worldwide residential market is very large, we believe the luxurious nature of our residential properties, the quality and exclusivity associated with our brands, and the hospitality services that we provide, all serve to make our residential properties bearing our trademarks distinctive.
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 a number ofor franchise properties under long-term management agreements that are owned or leased by Host Hotels & Resorts, Inc. (“Host”). In addition, Host is a partner in several partnerships that own properties operated by usthat we operate under long-term management agreements. See Footnote No. 18, “Relationship19. 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, caring,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
4
Our Brand Portfolio
At year-end 2015, we operated, franchised, or licensedbrands and properties in hospitality, with two overall styles of hotels -- Classic, offering time-honored hospitality for the modern traveler, and Distinctive, offering 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 geographical regions:table shows the geographic distribution of our brands at year-end 2018: |
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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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| | | North America | | Europe | | Middle East & Africa | | Asia Pacific | | Caribbean & Latin America | | Total |
| | | U.S. | Canada | | | | | |
| Properties | 39 | | 1 | | 12 | | 10 | | 27 | | 7 | | 96 |
| Rooms | 11,572 | | 267 | | 2,929 | | 3,166 | | 7,231 | | 1,966 | | 27,131 |
| Countries and Territories | 1 | | 1 | | 10 | | 6 | | 8 | | 6 | | 32 |
| Properties | — | | — | | 2 | | — | | 1 | | — | | 3 |
| Rooms | — | | — | | 143 | | — | | 59 | | — | | 202 |
| Countries and Territories | — | | — | | 2 | | — | | 1 | | — | | 3 |
| Properties | 2 | | — | | 2 | | — | | — | | — | | 4 |
| Rooms | 568 | | — | | 251 | | — | | — | | — | | 819 |
| Countries and Territories | 1 | | — | | 2 | | — | | — | | — | | 3 |
| Properties | 24 | | 1 | | 6 | | 4 | | 29 | | 13 | | 77 |
| Rooms | 13,938 | | 221 | | 2,065 | | 2,708 | | 11,764 | | 3,346 | | 34,042 |
| Countries and Territories | 1 | | 1 | | 6 | | 3 | | 7 | | 9 | | 27 |
| Properties | 53 | | 2 | | 30 | | 1 | | 3 | | 6 | | 95 |
| Rooms | 12,675 | | 460 | | 4,344 | | 446 | | 785 | | 4,098 | | 22,808 |
| Countries and Territories | 1 | | 1 | | 13 | | 1 | | 3 | | 6 | | 25 |
| Properties | 80 | | 2 | | 36 | | 3 | | 31 | | 8 | | 160 |
| Rooms | 26,798 | | 561 | | 8,632 | | 921 | | 12,116 | | 2,565 | | 51,593 |
| Countries and Territories | 1 | | 1 | | 16 | | 2 | | 7 | | 8 | | 35 |
| Properties | 327 | | 15 | | 94 | | 18 | | 45 | | 27 | | 526 |
| Rooms | 129,070 | | 5,355 | | 23,071 | | 6,206 | | 15,804 | | 7,771 | | 187,277 |
| Countries and Territories | 1 | | 1 | | 19 | | 8 | | 9 | | 16 | | 54 |
| Properties | — | | 36 | | — | | — | | — | | — | | 36 |
| Rooms | — | | 9,385 | | — | | — | | — | | — | | 9,385 |
| Countries and Territories | — | | 1 | | — | | — | | — | | — | | 1 |
| Properties | — | | — | | 5 | | 6 | | 15 | | 2 | | 28 |
| Rooms | — | | — | | 408 | | 759 | | 2,774 | | 240 | | 4,181 |
| Countries and Territories | — | | — | | 5 | | 4 | | 5 | | 2 | | 16 |
| Properties | 5 | | — | | — | | — | | — | | — | | 5 |
| Rooms | 8,098 | | — | | — | | — | | — | | — | | 8,098 |
| Countries and Territories | 1 | | — | | — | | — | | — | | — | | 1 |
| Properties | 5 | | — | | 78 | | — | | — | | — | | 83 |
| Rooms | 911 | | — | | 9,551 | | — | | — | | — | | 10,462 |
| Countries and Territories | 1 | | — | | 6 | | — | | — | | — | | 7 |
| Properties | 891 | | 25 | | 49 | | 5 | | 37 | | 30 | | 1,037 |
| Rooms | 124,630 | | 4,411 | | 9,220 | | 1,041 | | 9,243 | | 4,872 | | 153,417 |
| Countries and Territories | 1 | | 1 | | 18 | | 3 | | 8 | | 15 | | 46 |
| Properties | 669 | | 21 | | 3 | | 3 | | — | | 1 | | 697 |
| Rooms | 81,387 | | 3,025 | | 307 | | 301 | | — | | 109 | | 85,129 |
| Countries and Territories | 1 | | 1 | | 3 | | 3 | | — | | 1 | | 9 |
| Properties | 334 | | 2 | | — | | — | | — | | — | | 336 |
| Rooms | 39,451 | | 299 | | — | | — | | — | | — | | 39,750 |
| Countries and Territories | 1 | | 1 | | — | | — | | — | | — | | 2 |
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| | | North America | | Europe | | Middle East & Africa | | Asia Pacific | | Caribbean & Latin America | | Total |
| | | U.S. | Canada | | | | | |
| Properties | 743 | | 18 | | — | | — | | 2 | | 5 | | 768 |
| Rooms | 67,946 | | 2,024 | | — | | — | | 314 | | 788 | | 71,072 |
| Countries and Territories | 1 | | 1 | | — | | — | | 1 | | 1 | | 4 |
| Properties | 263 | | 7 | | — | | — | | — | | — | | 270 |
| Rooms | 26,272 | | 856 | | — | | — | | — | | — | | 27,128 |
| Countries and Territories | 1 | | 1 | | — | | — | | — | | — | | 2 |
| Properties | — | | — | | — | | 102 | | — | | — | | 102 |
| Rooms | — | | — | | — | | 9,609 | | — | | — | | 9,609 |
| Countries and Territories | — | | — | | — | | 8 | | — | | — | | 8 |
| Properties | — | | — | | 1 | | — | | — | | — | | 1 |
| Rooms | — | | — | | 162 | | — | | — | | — | | 162 |
| Countries and Territories | — | | — | | 1 | | — | | — | | — | | 1 |
Residences (1) | Properties | 31 | | 2 | | 2 | | — | | 2 | | 5 | | 42 |
| Rooms | 3,623 | | 214 | | 106 | | — | | 63 | | 252 | | 4,258 |
| Countries and Territories | 1 | | 1 | | 2 | | — | | 2 | | 2 | | 8 |
Timeshare (2) | Properties | 45 | | — | | 5 | | — | | 3 | | 5 | | 58 |
| Rooms | 10,540 | | — | | 919 | | — | | 332 | | 1,016 | | 12,807 |
| Countries and Territories | 1 | | — | | 3 | | — | | 1 | | 3 | | 8 |
| | Total Properties | 3,511 | | 132 | | 325 | | 152 | | 195 | | 109 | | 4,424 |
| | Total Rooms | 557,479 | | 27,078 | | 62,108 | | 25,157 | | 60,485 | | 27,023 | | 759,330 |
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| | | 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 |
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(1) | Figures include homeExcludes Design HotelsTM properties, which participate as partner hotels in our Loyalty Program and condominium productsare available for which we manage the related owners’ association.booking through our reservation channels. |
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(2)
| Timeshare properties are licensed by MVW under the Marriott Vacation Club, The Ritz-Carlton Destination Club, The Ritz-Carlton Residences, and Grand Residences by Marriott brand names. |
The Ritz-Carltonis a luxury hospitality brand where the genuine care and comfort of guests is the highest mission. Ritz-Carlton properties provide the finest personal service and facilities for its guests so that they will enjoy a warm, relaxed, yet refined ambience. The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of its guests. Established in 1983 with the purchase of The Ritz-Carlton, Boston and the rights to the name, the brand has grown worldwide with award-winning luxury hotels, residences, golf communities, elegant spas, innovative retail outlets, and acclaimed restaurants.
Bulgari Hotels & Resorts, developed in partnership with jeweler and luxury goods designer Bulgari Spa, is a collection of sophisticated, intimate luxury properties located in exclusive destinations. With properties in London, Milan, and Bali and food and beverage outlets in Tokyo, premium individuality is the rule - no detail is too small, no experience too grand. Each intimate location offers guests an exclusive celebration of contemporary design and superior service.
EDITION is a luxury lifestyle hotel brand that combines a personal, individualized, and unique hotel experience with the global reach and scale of Marriott International and creative vision of Ian Schrager. EDITION encompasses not only great design and true innovation, but also great personal, friendly, modern service as well as outstanding, one-of-a-kind food, beverage, and entertainment offerings. Each hotel with its rare individuality, authenticity, originality, and unique ethos reflects the best of the cultural and social milieu of its location and of the time.
JW Marriott is a global luxury brand of beautiful hotels and resorts located in gateway cities and exotic destinations around the world. JW Marriott properties have awe-inspiring spaces influenced by modern residential design, exceptional amenities and culinary experiences, and warm and engaging associates delivering intuitive service. JW Marriott's elegant yet approachable positioning provides a differentiated offering in the luxury hotel market, bridging the gap between full-service hotel brands and the super luxury brands at the top of the tier.
Autograph Collection Hotels are high personality upper-upscale and luxury independent hotels that deliver unique experiences and design across a global portfolio. Each property has been selected for its originality, rich character, uncommon details, remarkable design, or for its best-in-class resort amenities. From iconic to chic and artsy to luxurious, Autograph Collection is designed to attract guests who prefer original, locally authentic, and unique hotel experiences that other conventional brands do not offer.
Renaissance Hotels is a global, full-service brand in the upper-upscale tier that targets lifestyle-oriented business travelers. Each Renaissance hotel offers its own personality, local flavor, and distinctive style. Innovations include the Navigator program, which helps guests discover the soul of the neighborhood, and Evenings at Renaissance, which helps guests experience the unexpected with live music, mixology demonstrations, art exhibits, and more in the comfort of the hotel lobby bars and lounges. The diverse portfolio of properties includes historic icons, modern boutiques, resorts, and convention hotels.
Marriott Hotels is the Company’s global flagship premium brand, primarily serving business and leisure upper-upscale travelers and meeting groups. Marriott Hotels properties deliver premium choices, sophisticated style, and well-crafted details. Properties are located in downtown, urban, and suburban areas, near airports, and at resort locations. Typically, properties offer well-appointed guest rooms, convention and banquet facilities, destination-driven restaurants and lounges, concierge lounges, fitness centers, and swimming pools. Many resort properties have additional recreational facilities, such as tennis courts, golf courses, additional restaurants and lounges, and spa facilities.
Delta Hotels and Resorts is a full-service brand, primarily serving business travelers within the upscale and upper-upscale tiers. Delta Hotels and Resorts are focused on elevating and delivering on the essentials of business travel, through pragmatic and efficient design, thoughtfully appointed guest rooms, large functional work spaces, and complimentary Wi-Fi. Located in gateway cities, suburban areas, near airports, and resort locations, properties also feature flexible meeting spaces, food and beverage options, and premium fitness centers.
Marriott Executive Apartments provides international, five-star serviced apartments in emerging market gateway cities, designed for business executives who require housing outside their home country, usually for a month or longer. These one-, two-, and three-bedroom apartments are designed with upscale finishes, amenities, and services, including on-site gyms and other recreational facilities, a 24-hour front desk, weekly housekeeping services, laundry facilities within the apartment, and often on-site restaurants.
Gaylord Hotels offers guests an entertaining, upscale experience at world-class group and convention-oriented hotels. Gaylord Hotels is a leader in the group and meetings business and complements the Company’s network of large convention hotels. Properties are designed to celebrate the heritage of their destinations near Washington, D.C., Nashville, Tennessee, Orlando, Florida, Dallas, Texas, and opening late 2018 in Aurora, Colorado. Gaylord Hotels properties typically have between 1,400 rooms and 2,900 rooms, 400,000 to 600,000 square feet of meeting and convention space, world-class dining and entertainment offerings, and retail outlets in magnificent settings.
AC Hotels by Marriott is designed to attract the next generation design-conscious business traveler in the upper-moderate tier, who seeks a sleek, modern hotel with unique European touches. With hotels across Europe, and now in North America, and coming soon to South America, AC Hotels by Marriott properties are located in destination, downtown, and lifestyle centers. Properties feature the “AC Lounge,” offering cocktails, tapas-inspired appetizers, and shareable plates, where guests can work and collaborate during the day and relax and unwind in the evening.
Courtyard is our hotel product designed for the upscale tier, and is focused primarily on transient business travel. Hotels feature functionally designed guest rooms and meeting rooms, and offer free Wi-Fi, a swimming pool, an exercise room, and The Bistro (a self-serve food store open 24 hours a day). Courtyard Refreshing Business lobby fuses functionality, aesthetics, and technology to offer guests greater control of their environment. High-tech and high-touch meet high-style, providing flexibility to work, relax, eat, drink, and socialize all at one's own pace.
Residence Inn is the leading upscale extended-stay hotel brand designed for frequent and extended stay business and leisure travelers staying five or more nights. Residence Inn provides upscale design and style with spacious suites that feature separate living, sleeping, and working areas, as well as kitchens with full-size appliances. Guests can maintain their own pace and routines through free Wi-Fi, on-site exercise rooms, and comfortable places to work and relax. Additional amenities include free hot breakfast, evening social events three times a week, free grocery shopping services, 24-hour friendly and knowledgeable staffing, and on-site laundry facilities.
SpringHill Suites is the largest all-suites style hotel brand in the upscale tier that delivers industry leading service to guests who are enthusiastic about travel. The brand delivers a fresh and interesting hotel, focused on fusing form and function with modern décor. The suites feature proprietary West Elm furniture as a new standard. In addition, properties offer enhanced food and beverage choices, with craft beers and wine available in most markets, free hot breakfast, and fitness and wellness zones.
Fairfield Inn & Suites is a well-established leader in the moderate tier and targets no-nonsense travelers seeking a stress-free stay experience. Fairfield is committed to supporting guests’ desire to maintain balance and momentum by providing healthy options with our free hot breakfast, 24/7 Corner Market offerings, and on property fitness facilities. The hotels feature a
multi-functional lobby and guest rooms and suite rooms that are uniquely designed for restful sleep and productivity. Fairfield is our second largest distributed brand, located across three continents from urban gateway cities and exciting leisure destinations to secondary and tertiary markets.
TownePlace Suites is our extended-stay hotel brand in the upper-moderate tier, designed to appeal to business and leisure travelers who stay for five nights or more. Each suite provides functional spaces for living and working, including a full kitchen and a home office. Each hotel specializes in delivering service that helps guests make the best of long trips by helping them stay productive and upbeat. Additional amenities include daily housekeeping services, free hot breakfast, exercise facilities, a pool, 24-hour In A Pinch (food and beverage) Market, laundry facilities, and free Wi-Fi.
Protea Hotels is the leading hospitality brand in Africa and boasts the highest brand awareness and largest strategic footprint among all the major hospitality brands in Africa. Competing in the moderate and upper moderate tiers, Protea Hotels is ideal for both business and leisure travelers by offering properties in primary and secondary business centers and desirable leisure destinations. Protea Hotels offers modern facilities, proactive and friendly service, and consistent amenities such as full-service restaurants, meeting spaces, complimentary Wi-Fi, and well-appointed rooms, ensuring global standards for a high quality, relaxed, and successful stay.
Moxy Hotels is a design-led, lifestyle moderate tier brand with a chic, modern, and edgy personality. Moxy Hotels offers a vibrant and stylish public space and a fun, energetic, and lively social scene. The brand opened its first hotel in Italy in 2014 and is expanding to other European countries and the United States.
Licensed Brands
In 2011 we spun off our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our then wholly owned subsidiary MVW. Before the spin-off, we developed, operated, marketed, and sold timeshare interval, fractional ownership, and residential properties as part of our former Timeshare segment under the brand names discussed below, and in conjunction with the spin-off, we entered into licensing agreements with MVW for those brands.
Under those licensing agreements, MVW is the exclusive worldwide developer, marketer, seller, and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. MVW is also the exclusive global developer, marketer, and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand. The Ritz-Carlton generally provides on-site management for Ritz-Carlton branded properties. We receive license fees under the licensing agreements with MVW for the following brands:
Marriott Vacation Club is MVW’s signature offering in the upscale tier of the vacation ownership industry. Marriott Vacation Club resorts typically combine spacious accommodations with one-, two-, and three-bedroom options, living and dining areas, and in-unit kitchens and laundry facilities, with resort amenities.
Grand Residences by Marriott is an upscale tier vacation ownership and whole ownership residence brand. The ownership structure and physical products for these locations are similar to those MVW offers to Marriott Vacation Club owners, although the time period for each Grand Residences by Marriott ownership interest ranges between three and 13 weeks. MVW also offers whole ownership residential products under this brand.
The Ritz-Carlton Destination Club is MVW’s vacation ownership offering in the luxury tier of the industry. The Ritz-Carlton Destination Club provides luxurious vacation experiences commensurate with The Ritz-Carlton brand. The Ritz-Carlton Destination Club resorts typically feature luxurious two-, three- and four-bedroom units, and luxury resort amenities.
MVW offers Marriott Rewards® Points and The Ritz-Carlton Rewards® Points to its owners or potential owners as sales, tour, and financing incentives, in exchange for vacation ownership usage rights, for customer referrals, and to resolve customer service issues. MVW buys these points from our Marriott Rewards and The Ritz-Carlton Rewards programs.
At year-end 2015, MVW operated 58 properties, primarily in the United States, but also in other countries and territories. Many of MVW’s resorts are located adjacent to hotels we operate, such as Marriott Hotels and The Ritz-Carlton, and owners have access to certain hotel facilities during their vacation.
Other Activities
Credit Card ProgramsLoyalty Program, Sales and Marketing, and Reservation Systems.At year-end 2015, we had six credit card programs in the United States, Canada, and the United Kingdom, which include bothOn August 18, 2018, Marriott launched one loyalty program with unified benefits under its three legacy loyalty brands — Marriott Rewards, and The Ritz-Carlton Rewards, credit cards. We earn licensing fees based on card usage, and Starwood Preferred Guest (“SPG”). On February 13, 2019, the cards are designed to encourage loyalty to our brands.combined program completed its integration under one name, Marriott Bonvoy
Sales and Marketing, Reservation Systems, and Loyalty ProgramsTM. Members have access to Marriott Bonvoy’s diverse brand portfolio, rich benefits, and travel experiences. We focus on increasing valuerefer 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, experiences and other benefits, or miles with participating airline programs. We believe that our Loyalty Program generates substantial repeat business that might otherwise go to competing hotels. In 2018, Loyalty Program members purchased approximately 50 percent of our room nights. We continually enhance our Loyalty Program offerings and strategically market to this large and growing guest base to generate revenue. See the consumer“Loyalty Program” caption in Footnote 2. Summary of Significant Accounting Policies for more information.
Marriott.com, our international website, and “selling the way the customer wantsour mobile apps continued to buy.”grow significantly in 2018. Our web and mobile platforms allow for a seamless booking experience and easy enrollment in our Loyalty Program to book our exclusive Member Rates. Our Look No Further® Best Rate Guarantee gives customers access to the same rates whether they book through our telephone reservation system, our website, or any other Marriott reservation channel and ensures best rate integrity, strengthening consumer confidence in our brand. Our strong Marriott Rewardsbrand, and The Ritz-Carlton Rewardsgives guests greater access to the same rates when they book hotel rooms through our various direct channels. We also continue to grow engagement levels with millions of guests through our mobile guest recognition programs and our information-rich and easy-to-use Marriott.com website andservices - check-in, check-out, service requests, mobile app are also integral to our success.
Marriott.com and Marriott Mobile are two of our fastest growing booking channels. Now averaging over 60 million visitors each month, and with updated designs, personalized experiences, and a new direct booking campaign - It Pays to Book Direct - Marriott.com is making it easierkey, and more rewarding for- across our hotel portfolio. In 2018, we significantly expanded the number of hotels across our portfolio that offer mobile key, enabling guests to book directly with us. Beyonduse 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 creating a simple and efficient digital booking experience, while elevating the booking, Marriott Mobile also now givesservice experience through mobile guest services and generating superior guest satisfaction and more memorable stays at our guests unprecedented access to services on-the-go, like mobile check-in and check-out (one of our most widely-used digital features). In 2015, we also launched mobile service requests at all full-service hotels around the globe where guests can use the Marriott Mobile App to engage in a two-way chat with the hotel prior to their arrival and throughout their stay. Marriott Rewards members now enjoy a superior stay experience thanks to these member-exclusive digital services. We continue to explore and test other digital offerings that could make the hotel booking and the hotel stay experience at any one of our hotels more convenient, easy, and personalized.properties.
At year-end 2015,2018, we operated 1722 hotel reservation centers, eight in the United StatesU.S. and Canada and nine14 in other countries and territories, which handle reservation requests for our lodging brands worldwide, including franchised properties. We own onetwo of the U.S. facilities and either lease the others or share space with an existing Marriotta company-operated property. While pricing is set by our hotels, our reservation system manages and controls inventory and allows us to utilize third 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.
We believe our global sales and revenue management organization isorganizations 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 sales 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, increaseincreasing efficiency in analysis and decision making, and produceproducing higher property-level revenue for the hotels in our system.portfolio. Most of the hotels in our systemportfolio utilize web-based programs to effectively manage the rate set upset-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.
Our customer loyalty programs, Marriott Rewards and The Ritz-Carlton Rewards, had over 54 million members and 16 participating brands as of year-end 2015. MVW and other program partners also participate in our rewards programs. The rewards programs yield repeat guest business by rewarding frequent stays with points toward free hotel stays and other rewards, or airline miles with any of 41 participating airline programs. We believe that our rewards programs generate substantial repeat business that might otherwise go to competing hotels. In 2015, rewards program members purchased over 50 percent of our room nights. We continue to enhance our rewards program offerings and strategically market to this large and growing customer base. Our loyal rewards member base provides a low cost and high impact vehicle for our revenue generation efforts. See the “Rewards Programs” caption in Footnote No. 2, “Summary of Significant Accounting Policies” for more information.
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 Marriott Rewards and The Ritz-Carlton Rewards programs,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.
Environmental ResponsibilityCredit Card Programs.We have multi-year agreements with JP Morgan Chase and Sustainable HotelsAmerican 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. Our sustainability strategy supports business growth, conservation of natural resources,Guided by our 2025 Sustainability and protecting our planet through wide-reaching environmental initiatives. Marriott’s environmental goals are to: (1) reduce energy and water consumption by 20 percent by 2020; (2) empower our hotel development partners to build sustainable hotels; (3) green our multi-billion dollar supply chain; (4) educate and inspire associates and guests to conserve and preserve; and (5) address environmental challenges through innovative conservation initiatives including rainforest protection and water conservation. We recently achieved our goal of reducing water consumption by 20 percent by 2020 and are continuing to make progress on our other 2020 goals.
We recognize our responsibility to reduce wasteSocial 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 energy consumptionwaste footprints, investing in our hotelscommunities, and corporate offices. Our focus remains on continually integrating greater environmental sustainability throughout our business. In the year
ahead, we intend to build upon our progress and begin to set the stage for our next generation of sustainability goals. We were the first major hotel chain to calculate our carbon footprint and launch a plan to improve energy efficiency, conserve water, and support globally significant projects that reduce deforestation. We use Energy and Environmental Action (EEAP) plans, our best-practice auditing tool, to help our properties achieve energy and water reduction goals. Working in partnership with the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED®) certification, Marriott is empowering our hotel development partners to build sustainable hotels. We developed the first LEED Volume Program (LVP) for the hospitality industry to provide a streamlined path to certification through a pre-certified hotel prototype. The LEED Volume Program can save our owners 25 percent in energy and water consumption for the life of their buildings and should recover their initial investment in two to six years. Marriott has one of the largest portfolios of LEED-certified buildings in the hospitality industry (over 50), with dozens more in the development pipeline.advancing human rights.
Global Design Division. Our Global Design division provides design, development, construction, 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. Similar toLike third-party contractors, Global Design provides these services on a fee basis to owners and franchisees of our branded properties.
Marriott Golf. At year-end 2015, Marriott Golf managed 35 golf course facilities as part of our management of hotels and for other golf course owners. In addition, we provide similar services to three facilities operated by others.
Competition
We encounter strong competition both as a lodging operator and as a franchisor. ThereAccording to lodging industry data, there are approximately 873over 1,400 lodging management companies in the United States,U.S., including approximately 1121 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. Our managementManagement 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.
We also compete for guests with large companies that offer online travel services as part of their business model, search engines such as Google and Bing, and online services including Airbnb and HomeAway 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, security, and the ability to earn and redeem Loyalty 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 from 2010 through 2015,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 customerguest loyalty, owner preference, and associate satisfaction, in order 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 2015,2018, approximately 7071 percent of U.S. hotel rooms were brand-affiliated. Most of the branded properties are franchises, under which the operatorowner pays the franchisor a fee for use of its hotel name and reservation system. In the franchising business, we face a number ofmany competitors that have strong
brands and customerguest appeal, including Hilton, Intercontinental Hotels Group, Hyatt, Starwood, Wyndham, Accor, Choice, Carlson Rezidor,Radisson, Best Western, La Quinta, and others.
Outside the United States,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 increase in many overseas markets as local economies grow, trade barriers decline, international travel accelerates, and hotel owners seek the economies of centralized reservation systems and marketing programs.
Based on lodging industry data, we have more than a 10an approximately15 percent share of the U.S. hotel market (based on number of rooms) and we estimate less than a twofour percent share of the lodginghotel market outside the United States.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”) than our direct competitors in most market areas. We attribute this performance premium to our success in achieving and maintaining strong customerguest preference. We believe that the location and quality of our lodging facilities, our marketing programs, our reservation systems, and our emphasis on guest service and guest and associate satisfaction contribute to customerguest preference across all of 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 renovation of buildingsrefurbishment and replacement of furnishings.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 conjunction with the conversion.
Employee Relations
At year-end 2015,2018, we had approximately 127,500176,000 employees, approximately 11,00022,000 of whom were represented by labor unions. WeThese numbers do not include hotel personnel employed by our owners, franchisees, and management companies hired by our franchisees. Although we experienced labor disruptions in certain U.S. markets in 2018 in connection with our contract negotiations with unions representing certain of our organized associates in those markets, those contract negotiations and labor disruptions have been resolved and we believe relations with our employees are positive.
Environmental Compliance
The properties we operate or develop are subject to national, regional, state or provincial, and local laws and regulations that govern the discharge of materials into the environment or otherwise relate to protecting the environment. Those environmental provisions include requirements that address health and safety; the use, management, and disposal of hazardous substances 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.
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”), 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”“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 U.S. Securities and Exchange Commission (the “SEC”).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 as a result ofdue to new information, future developments, or otherwise.
Risks and Uncertainties
We are subject to various risks that could have a negative effect on us or on our financial condition. You should understand that these risks could cause results to differ materially from those we express in forward-looking statements contained in this report or in other Company communications. Because there is no way to determine in advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give equal weight to each of the following:
Our industry is highly competitive, which may impact our ability to compete successfully with other hotel properties and home and apartment sharing services for customers.guests. We operate in markets that contain many competitors. Each of our hotel brands competes with major hotel chains as well asand home and apartment sharing services in national and international venues, and with independent companies in regional markets. Our ability to remain competitive and to 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 programsLoyalty 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 uncertaintydownturns could continue to impact our financial results and growth. Weak economic conditions in Europe and otherone or more parts of the world, the strength or continuation of recovery in countries that have experienced improved economic conditions, changes in oil prices and currency values, potential disruptions in national, regional, or global economies generally and the U.S. economytravel business in particular that might result from changing governmental policies in areas such as a result of governmental action or inaction on the federal deficit, budget,trade, travel, immigration, healthcare, and related issues, political instability in some areas, and the uncertainty over how long any of these conditions willcould continue, could continue to have a negative impact on the lodging industry. U.S. government travel is also a significant partBecause of our business, and this aspect of our business may continue to suffer due to U.S. federal spending cuts and any further limitations that may result from congressional action or inaction. As a result of such current economic conditions and uncertainty, we continue to experience weakened demand for our hotel rooms in some markets. Recent improvements in demand trends in other markets may not continue, and ourOur future financial results and growth could be further harmed or constrained if the recovery stallseconomic 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 could in the future suffer due to U.S. federal spending cuts, or government hiring restrictions 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 theOur Integration of Starwood Combination
We will be subjectThe continued diversion of resources and management’s attention to various uncertainties and contractual restrictions, including the risk of litigation, while the Starwood Combination is pending that could cause disruption and may make it more difficult to maintain relationships with employees, hotel owners, hotel franchisees, suppliers or customers. Uncertainty about the effect of the Starwood Combination on employees, hotel owners, hotel franchisees, suppliers and customers may have an adverse effect on our business. Although we intend to take steps designed to reduce any adverse effects, these uncertainties could impair our ability to attract, retain and motivate key personnel until the Starwood Combination is completed and for a period of time after that, and could cause customers, suppliers and others that deal with us to seek to change our existing business relationships.
The pursuit of the Starwood Combination and the preparation for the integration mayof Starwood 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. The diversion of management’s attention away from day-to-day business concernsresources and any difficulties encountered in the transition and integration processmay continue to do so for some time, which could adversely affect our financial results.
In addition, the Merger Agreement restricts each company, without the other’s consent, from making certain acquisitions and taking other specified actions until the Starwood Combination closes or the Merger Agreement terminates. These restrictions could prevent us from pursuing otherwise attractive business opportunities and making other changes tohave adverse effects on our business before completion of the Starwood Combination or termination of the Merger Agreement.
A number of lawsuits challenging the Starwood Combination were filed on behalf of purported shareholders of Starwood, naming various combinations of Starwood’s directors, Starwood, Marriott, and others, as defendants. Although Marriott was dismissed from these lawsuits, an adverse ruling in any pending or future actions may prevent or delay the Starwood Combination from being completed. Starwood’s board of directors has also received demand letters from purported shareholders alleging that Starwood’s board of directors breached its fiduciary duties in connection with its approval of the Starwood Combination and demanding that Starwood’s board of directors conduct an investigation and take other actions. Similar lawsuits could be filed and similar demand letters could in the future be received by Starwood, Marriott, and their respective boards of directors. One of the conditions to the closing of the Starwood Combination is the absence of any judgment, order, law or other legal restraint by a court or other governmental entity of competent jurisdiction that prevents the consummation of the Starwood Combination. Accordingly, if any of the plaintiffs is successful in obtaining an injunction prohibiting the consummation of the Starwood Combination, then such injunction could prevent the Starwood Combination from becoming effective, or delay its becoming effective within the expected time frame.
Failure to complete the Starwood Combination could negatively impact our stock price and our future business and financial results.If we do not complete the Starwood Combination, our ongoing business could be adversely affected, and we may be subject to several risks, including the following:
being required to pay a termination fee under certain circumstances as provided in the Merger Agreement;
having to pay certain costs relating to the Starwood Combination, such as legal, accounting, financial advisor and other fees and expenses;
our stock price could decline to the extent that the current market prices reflect a market assumption that the Starwood Combination will be completed; and
having had our management focus on the Starwood Combination instead of on pursuing other opportunities that could have been beneficial to us.
If the Starwood Combination is not completed, we cannot assure you that these risks will not materialize and will not materially adversely affect our business, financial results and stock price.
Our ability to complete the Starwood Combination is subject to certain closing conditions and the receipt of consents and approvals from government entities which may impose conditions that could adversely affect us or cause the Starwood Combination to be abandoned. The Merger Agreement contains certain closing conditions, including, among others:
the approval by the holders of a majority of all outstanding shares of Starwood common stock of the transactions;
the approval by the holders of a majority of the votes cast at the special meeting of Marriott shareholders in favor of the proposal to issue shares of Marriott common stock to Starwood shareholders;
the absence of any judgment, order, law or other legal restraint by a court or other governmental entity of competent jurisdiction that prevents the consummation of the Starwood Combination;
the approval for listing by NASDAQ of the shares of Marriott common stock issuable in the Starwood Combination; and
the spin-off of Starwood’s Vistana vacation ownership business (“Vistana”), or, if the spin-off of Vistana and Vistana’s subsequent merger with a wholly owned subsidiary of Interval Leisure Group, Inc. is not consummated, the completion of another spin-off, split-off or analogous distribution of Vistana or the sale of Vistana by Starwood.
We cannot assure you that the various closing conditions will be satisfied, or that any required conditions will not materially adversely affect the combined company after the Starwood Combination closes, or will not result in the abandonment or delay of the Starwood Combination. For instance, the consummation of the disposition of Starwood’s Vistana business may be delayed or not occur, which could cause the Starwood Combination to be delayed or abandoned.
In addition, before the Starwood Combination may be completed, various approvals and declarations of non-objection must be obtained from certain regulatory and governmental authorities, including the expiration or termination of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act and receipt of consents and approvals from the
European Commission and various other governmental entities. These regulatory and governmental entities could impose conditions on the granting of such approvals. Such conditions and the process of obtaining regulatory approvals could have the effect of delaying closing of the Starwood Combination or of imposing additional costs or limitations on the combined company following the closing. The regulatory approvals may not be received at all, may not be received in a timely fashion, or may contain conditions. In addition, Starwood’s and Marriott’s respective obligations to complete the Starwood Combination are conditioned on the receipt of certain regulatory approvals or waiver by the other party of such condition.
Any delay in completing the Starwood Combination could reduce or eliminate the benefits that we expect to achieve. As discussed above, the Starwood Combination is subject to a number of conditions beyond Starwood’s and our control that could prevent, delay or otherwise materially adversely affect the completion of the combination. We cannot predict whether and when these conditions will be satisfied. Any delay in completing the Starwood Combination could cause the combined company not to realize some or all of the synergies that we expect to achieve if the Starwood Combination is successfully completed within the expected time frame.
The combined company may not be able to integrate successfully and manySome of the anticipated benefits of combining Starwood and Marriott may still not be realized. We entered into the Merger Agreementdecided to acquire Starwood with the expectation that the Starwood Combination willwould result in various benefits. Although we have already achieved substantial benefits, including, among other things, operating efficiencies. Achieving those anticipated benefits isothers remain subject to a number ofseveral uncertainties, including whether we can integrate the business of Starwood in an efficient and effective manner.achieve certain revenue synergies.
The integration processIntegration could also take longer than we anticipate and could result in the lossinvolve unexpected costs. Disruptions of valuable employees, the disruption of each legacy company’s ongoing businesses, processes, and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect the combined company’s ability to achieve the benefits we anticipate. The combined company’s resulting portfolio of approximately 30 brands could be challenging for us to maintain and grow, and the harmonization ofcompany. We have encountered challenges in harmonizing our different reservations and other systems, our Loyalty Program, and other business practices, could be more difficult, disruptive, and time consuming than we anticipate. The combined company’s resultsmay encounter additional or increased challenges related to integration. Because of operations could also be adversely affected by any issues attributable to either company’s operations that arisethese or are based on events or actions that occur before the Starwood Combination closes. The combined company may also have difficulty addressing possible differences in corporate cultures and management philosophies. The integration process is subject to a number of uncertainties, andother factors, we cannot assure you that the benefits we anticipate will be realized at allwhen or as quickly as we expect. If we don’t achieve those benefits, our costs could increase, our expected net income could decrease, and the combined company’s future business, financial condition, operating results and prospects could suffer.
We will incur substantial transaction costs in connection with the Starwood Combination. We expect to incur a number of non-recurring expenses both before and after completing the Starwood Combination, including in obtaining necessary consents and approvals and combining the operations of the two companies. These fees and costs will be substantial. We may also incur unanticipated costs in the integration of the businesses of Starwood and Marriott. Although we expect that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction-related costs over time, this net benefit may not be achieved in the near term, or at all. Further, if the Starwood Combination is not completed, we would have to recognize certain of these expenses without realizing the expected benefits of the combination.
Our shareholders will be diluted by the Starwood Combination. The Starwood Combination will dilute the ownership position of our current shareholders. We currently estimate that, upon completion of the combination, our shareholders before the merger will own approximately 61% and former Starwood shareholders will own approximately 39% of the combined company’s outstanding common stock. Because of this, our current shareholders may have less influence on the management and policies of the combined company than they now have on us.
Our future results will suffer if we do not effectively manage our expanded operations following the completion of the Starwood Combination. Following the completion of the Starwood Combination, the size of the business of the combined company will increase significantly beyond the current size of our business. Our future success depends, in part, upon our ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We cannot assure you that we will be successfulable to fully realize additional benefits from the Starwood Combination in the form of enhancing revenues or that we will realize the expectedachieving other operating efficiencies, cost savings, and otheror benefits, from the combinationor that we currently anticipate.challenges encountered with our harmonization efforts will not have adverse effects on our business or reputation.
The combined company may not be ableProgram changes associated with our integration efforts could have a negative effect on guest preference or behavior. Our integration efforts involved significant changes to retain Marriott and/or Starwood personnel successfully aftercertain 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 Starwood Combination is completed. The success of the Starwood Combination will depend in part on the combined company’s ability to retain the talents and dedication of key employees that Marriott and Starwood currently employ. It is possible that these employees may decide not to remain with Marriott or Starwood, as applicable, while the Starwood Combination is pending or
with the combined company after the combination is consummated. If key employees terminate their employment, or if the combined company cannot maintain a sufficient number of employees to maintain effective operations, the combined company’s business activitieschanges could be adversely affectednegatively perceived by certain guests and management’s attentionconsumers, could be diverted from successfully integrating Starwood to hiring suitable replacements,affect guest preference or could alter reservation, spending or other guest or consumer behavior, all of which may cause the combined company’scould adversely affect our market share, reputation, business, to suffer. In addition, we may not be able to locate suitable replacements for any key employees who leave either company,financial condition, or offer employment to potential replacements on reasonable terms.results of operations.
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, or 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. In addition, someSome courts have also applied principles of agency law principles and related fiduciary standards to managers of third-party hotel properties, including us (or have interpreted hotel management agreements asto be “personal services contracts”). This means, among other things, that propertyProperty 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. In addition, some management and franchise agreements may be terminated, or property owners may attempt to terminate such agreements, in connection with the Starwood Combination. If 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. 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 agreements due to premature terminations could hurt our financial performance or our ability to grow our business.
Our lodging operations are subject to global, regional,national, and nationalregional 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 that have resultedresulting 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 United States, particularly following the Starwood Combination,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. We currently operate or franchise hotels and resortsMore than a third of the rooms in 87 countries, and our operationssystem are located outside of the United States represented approximately 19 percent of our revenues in 2015. In addition, Starwood reported that as of September 30, 2015 it operated or franchised hotels and resorts in approximately 100 countries,U.S. and its operations outside the United States (including operations associated with Starwood’s Vistana vacation ownership business which it is to spin off prior to our combination) represented a majority of Starwood’s revenues in both 2014 and the nine months ending September 30, 2015.territories. We expect that our international operations, and resulting revenues, will continue to grow, particularly following the Starwood Combination. As a result, we aregrow. This increasingly exposedexposes us to the challenges and risks of doing business outside the United States,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, otherwise 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) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in managing an organization doing business in many different countries; (5)(4) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (6)(5) rapid changes in government policy, political or civil unrest, in the Middle East and elsewhere, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott legislation; and (7)(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 in order 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 United StatesU.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, or damage our reputation.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 United States.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 outside of the U.S. are generally reported in local currency, which we then translate to U.S. dollars for inclusion in our consolidated financial statements.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. Our efforts to mitigate some of our foreign currency exposure by enteringWe 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. In this regard, theseThese 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 recently launched,new or newly acquired or recently announced brands, such as EDITION, AC Hotels by Marriott in the Americas, Protea Hotels, Moxy Hotels, and Delta Hotels and Resorts, and those expected to bewe 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 customers.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 thethose brands, or any new 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 new 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, such as Hurricane Sandy in the Northeastern United States, the earthquake and tsunami in Japan, andwell as man-made disasters in recent years as well asand the potential spread of contagious diseases such as MERS (Middle East Respiratory Syndrome), Zika virus, and Ebola in locations where we own, manage, or franchise significant properties and areas of the world from which we draw a large number of customers,guests, have in the past caused and could in the future cause a decline in business or leisure travel and reduce demand for lodging.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, such as recent events in Ukraine and Russia, the Middle East, 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 may 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 servicesystems initiatives, and the timing and amount of capital investments.investments, and reimbursement for certain system initiatives and costs. Such disagreements may be more likely when hotel returns are weaker. We seek to resolve any disagreements in order to develop and maintain positive relations with current and potential hotel owners and joint venture partners, but we are notcannot always able to do so. Failure to resolve such disagreements has resulted in litigation, and could do so in the future. If any such litigation results in a significantan 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 in the quality or reputation of these brands could have an adverseadversely impact on our market share, reputation, business, financial condition, or results of operations. EventsCertain 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. IfMany 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 declines,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 be affected.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 in connection withfor lodging, timeshare, residential, services, and our credit card programs. Under the terms of their agreements with us, our franchisees and licensees interact directly with customersguests 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 customerguest 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, pursuing any such recourse, remedy, or terminationit could be expensive andor time consuming for us to pursue such remedies. In addition, weWe 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 every instance.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.insurance, or the cost of such insurance could increase. We haveMarriott 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, andcustomary. 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, or 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 too expensive to justifythe cost of obtaining insurance.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.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 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. In order to fund new hotel investments, as well as refurbish and improve existing hotels, bothBoth we and current and potential hotel owners must periodically spend money.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 can exert little control. The difficulty of obtainingObtaining 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 development of additionaladding lodging facilities entails entering into and maintaining various arrangements with property owners. The terms of our management agreements and franchise agreements and leases 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 anticipated room rate structure.demand for construction resources.
Our development and renovation activities expose us to project cost, completion, and resale risks. We occasionally develop, newor 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 20152014 and 20142015 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) continuedany 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 that could increase project costs, impair project operations, or increase project completion risks.and may decrease our ability to manage risk. Partnerships,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 partiesparties. 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, or could have or develop business interests, policies, or objectives that are inconsistent with ours. Althoughours, 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 actively seekcould 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 minimizeadditional risk, such risks before investing in partnerships, joint ventures, or similar structures, actions by another investor may present additional risks of project delay,as increased project costs, project delays, or operational difficulties following project completion. Such disputesThese risks may also 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. In certain hotel and timeshare projects weWe participate, through licensing agreements or directly or through noncontrolling interests, and/or licensing agreements, in the development and sale of residential properties associated with our brands, including residences and condominiums under many of our The Ritz-Carlton, EDITION, JW Marriott, Autograph Collection,luxury and Marriottpremium 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 the following:risks that (1) weakness in residential real estate and demand generally may reduce our profits and could make it more difficult to convince future hotel 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 existing 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 signed contracts.contract. The eventual opening of such pipeline hotels and, in particular the hotels approved for developmenthotels 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 and in particular hotels not yet under contract, will result in new hotels that enterentering 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 in connection with enteringwhen we enter into or amendingamend 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.
Planned transactions we announce may be delayed, not occur at all, or involve unanticipated costs. From time to time we announce transactions that we expect will close at a future date, such as our anticipated acquisition of Starwood Hotels &
Resorts. If the conditions to consummating these transactions are neither satisfied nor waived by the time we expect, the closings could be delayed or not occur at all.
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, and property management, human resources and payroll systems, our Marriott Rewards and The Ritz-Carlton Rewards programs,Loyalty Program, and technologies we make available to our guests.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 sothat as quickly or effectively as our competitors or within budgeted costs and time frames, our business could suffer.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™, 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 Marriott’s Look No Further®our Best Rate Guarantee hasand Member Rate programs have helped prevent customerlimit guest preference shift to the 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 customers,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 customersguests toward their websites (a practice that has been challenged by various trademark owners in federal court). Although Marriott haswe 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 if online intermediaries succeed in significantly shifting loyalties from our lodging brands to their travel services, diverting bookings away from Marriott.com,our direct online channels, or through their fees, increasingincrease the overall cost of Internet bookings for our hotels. In addition, if we failare not able to reachnegotiate new agreements on satisfactory agreementsterms when our existing contracts with intermediaries as our contracts with them(which generally have 2- to 3- year terms) come up for periodic 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 mightthan the expiring agreements, or if we are not able to negotiate new agreements and our hotels no longer appear on theirintermediary 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 could lose business as a result.take to enhance our direct marketing and reservation channels or to rely on other channels or other intermediary websites.
We are exposed to risks and costs associated with protecting the integrity and security of internalcompany, associate, and customerguest data. Our businesses process,In the operation of our business, we collect, store, use, and transmit large volumes of internal employeedata regarding associates, guests, customers, owners, licensees, franchisees, and customer data,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 thosesystems maintained by third parties, including our owners, franchisees, licensees, and licensees, as well as our service providers, in areas such as human resources outsourcing, website hosting, and various forms of electronic communications.providers. The integrity and protection of that customer, employee, and companythis data is critical to our business. If thatthis data is inaccurate or incomplete, we could make faulty decisions.
Our customersguests and employeesassociates 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 demanding in both the United StatesU.S., the European Union, Asia, and other jurisdictions where 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 employeeassociate and customerguest expectations, or may require significant additional investments or time in order 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.
Cyber-attacksThe Data Security Incident could have a disruptive effectnumerous adverse effects on our business. As a result of the Data Security Incident, we are a party to numerous class action lawsuits brought by consumers and others in the U.S. and Canada, one securities class action lawsuit in the U.S., and one shareholder derivative lawsuit in the U.S. 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, shareholders or others seeking monetary damages or other relief. A number of federal, state and foreign governmental authoritieshave also made inquiries or opened investigations 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.Responding to and resolving these lawsuits, claims and investigations may result in material remedial and other expenses which may not be covered by insurance, including fines. Governmental authorities investigating 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 may continue to be, devoted to the Data Security Incident. The Data Security Incident and publicity related to it 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 insurance 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) related to the Data Security Incident. Further, as a result of the Data Security Incident and market forces beyond our control, relevant insurance coverage may not be available in the future on commercially reasonable terms or at all.
Our remediation efforts related to the Data Security Incident will be costly and may not be effective. Following the Data Security Incident, we implemented additional technical measures on 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.
Additional cyber-security 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 with the Data Security Incident, 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, and their service providers also may not be sufficient. Efforts to hack or breachcircumvent security measures, efforts to gain unauthorized access to data, failures of systems or software to operate as designed or intended, viruses, “ransomware” or other malware, “phishing” or other types of business email compromises, operator error, or inadvertent releases of data have impacted, and may materiallyin the future impact, our including our owners’, franchisees’, licensees’, or service providers’, information systems and records.records or those of our owners, franchisees, licensees, or service providers. Our reliance on computer, Internet-based, and mobile systems and communications, and the frequency and sophistication of efforts by hackersthird parties to gain unauthorized access or prevent authorized access to such systems, have greatly increased significantly in recent years. AWe have experienced cyber-attacks, attempts to disrupt access to our systems and data, and attempts to affect the integrity of our data, and the frequency and sophistication of such efforts could continue to increase. In addition to the consequences of the Data Security Incident discussed above, any significant theft of, unauthorized access to, loss of, loss of access to, or fraudulent use of customer, employee,guest, associate, owner, franchisee, licensee, or company data could adversely impact our reputation and could result in legal, regulatory and other consequences, including remedial and other expenses, fines, or litigation. BreachesDepending on the nature and scope of the event, compromises in the security of our information systems or those of our owners, franchisees, licensees, or service providers or other disruptions in data services could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.profits, negative publicity, and other adverse effects on our business, including lost sales, boycotts, reduced enrollment and/or participation in our Loyalty Program, litigation, loss of development opportunities, or associate retention and recruiting difficulties, all of which could affect our market share, reputation, business, financial condition, or results of operations. 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 magnify the severity of these adverse effects. In addition, although we carry cyber/privacy liability insurance that is designed to protect us against certain losses related to cyber risks, suchthat insurance coverage may not be insufficientsufficient to cover all expenses or other losses (including fines) or all types of claims that may arise in connection with cyber-attacks, security breaches,compromises, and other related breaches.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. Furthermore, in the future such insurance may not be available on commercially reasonable terms, or at all.
Changes in privacy lawand data security laws could increase our operating costs, increase our exposure to fines and litigation, and adversely affect our ability to market our products effectively. We are subject to numerous, complex, and
frequently changing laws, regulations, and contractual obligations designed to protect personal information, including foreignin the U.S., the European Union, Asia, and other jurisdictions. Non-U.S. data protectionprivacy and data security laws, various U.S. federal and state laws, and creditpayment card industry security standards, and other
applicable information privacy and security standards.standards are all applicable to us. Significant legislative or regulatory changes could be adopted in the future, including in reaction to the Data Security Incident or data breaches experienced by other companies. 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.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 had opened an investigation into our online privacy policy and related practices. This investigation is separate from the ICO’s investigation specifically related to the Data Security Incident. As a result of this investigation, we could be exposed to significant fines and remediation costs in addition to any imposed as a result of the Data Security Incident, and adverse publicity related to the investigation could adversely affect our reputation.
Additionally, 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 laws on marketing and solicitation or international data protectionprivacy, 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’s marketing materials. If access to these lists waswere 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 system, such as in connection with the Starwood Combination,systems could adversely affect our performance and results. We manage a global reservation systemsystems that communicatescommunicate reservations to our branded hotels that individuals make directly with us online, through our mobile app, orapps, through our telephone call centers, or through intermediaries like travel agents, Internet travel web siteswebsites, and other distribution channels. The cost, speed, accuracy and efficiency of our reservation systemsystems 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 system.systems. In addition, the risk of disruption in the functioning of our global reservation systemsystems could increase in connection with the systemongoing systems integration that we anticipate undertaking following consummationis part of the Starwood Combination.our integration of Starwood. Disruptions in or changes to our reservation systemsystems could result in a disruption to our business and the loss of important data.
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 thesesuch laws, regulations, or policies including those associated with health care, tax or financial reforms, 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, includingand other modifications that could reduce the profits that we can effectively realize from our non-U.S. operations or that 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, mostthe legislation known as the U.S. company effective tax rates reflect the factTax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) requires complex computations to be performed that income earned and reinvested outside the United States is generally taxed at local rates, which are often much lower thanwere not previously required by U.S. tax rates. If changeslaw, 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 laws, regulations,controversies in various jurisdictions, and these jurisdictions may assess additional tax liabilities against us. Developments in an audit, investigation, or interpretations significantly increaseother 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 rates on non-U.S. income,accruals. Although we believe our effective tax rate could increaseestimates are reasonable, the final outcome of audits, investigations, and our profitsany other tax controversies could be reduced. If such increases resultedmaterially different from our status as a U.S. company, those changes could place us at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower localhistorical tax rates.
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. Any shortage of skilled labor could also require higher wages that would increase our labor costs, which could reduce our profits.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 shareholder holding 15 percent or more of our outstanding voting stock could not acquire us without Board of Director consent for at least three years after the date the shareholder 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 shareholder approval, implement other anti-takeover defenses, such as a shareholder rights plan.
Item 1B. Unresolved Staff Comments.
None.
We describe our company-operated properties in Part I, Item 1. “Business”“Business” earlier in this report, and under the “Properties by Segment and Rooms” caption in Part II, Item 7. “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, and reservation centers, and sales offices, as well as our corporate headquarters, are located in leased facilities. We also lease space in a numberfacilities, both domestically and internationally.
As of buildings with combined space of approximately 1.1 million square feet in Maryland where our corporate and The Ritz-Carlton headquarters are located.December 31, 2018, we owned or leased the following hotel properties: |
| | | | | |
| 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 |
|
| Residence Inn Las Vegas Convention Center | | Las Vegas, NV | | 192 |
|
| Leased Hotels | | | | |
| Albuquerque Airport Courtyard | | Albuquerque, NM | | 150 |
|
| 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 International | | | | |
| Owned Hotels | | | | |
| Sheraton 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 |
|
| Courtyard by Marriott Toulouse Airport | | Toulouse, France | | 187 |
|
| Courtyard by Marriott Aberdeen Airport | | Aberdeen, UK | | 194 |
|
| Courtyard by Marriott Rio de Janeiro Barra da Tijuca | | Barra da Tijuca, Brazil | | 264 |
|
| Residence Inn Rio de Janeiro Barra da Tijuca | | Barra da Tijuca, Brazil | | 140 |
|
| Leased Hotels | | | | |
| Grosvenor House, A JW Marriott Hotel | | London, UK | | 496 |
|
| The Ritz-Carlton, Berlin | | Berlin, Germany | | 303 |
|
| 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 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 |
|
| |
| Item 3. | Legal Proceedings. |
See the information under “Legal Proceedings” the “Litigation, Claims, and Government Investigations” captionin Footnote No. 7, “Commitments7. Commitments and Contingencies”Contingencies, which we incorporate here by reference.
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 the 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. |
Not applicable.
Executive Officers of the Registrant
See the information under “Executive Officers of the Registrant” 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. |
Market Information and Dividends
The table below presents the price rangeAt February 20, 2019,339,668,839 shares of our Class A Common Stock (our “common stock”) and the per share cash dividends we declared for each fiscal quarter during the last two years.
|
| | | | | | | | | | | | |
| | | Stock Price | | Dividends Declared per Share |
| | | High | | Low | |
| 2015 | First Quarter | $ | 85.00 |
|
| $ | 72.77 |
|
| $ | 0.2000 |
|
| | Second Quarter | 84.33 |
|
| 73.77 |
|
| 0.2500 |
|
| | Third Quarter | 78.76 |
|
| 63.95 |
|
| 0.2500 |
|
| | Fourth Quarter | 79.88 |
|
| 64.64 |
|
| 0.2500 |
|
|
| | | | | | | | | | | | |
| | | Stock Price | | Dividends Declared per Share |
| | | High | | Low | |
| 2014 | First Quarter | $ | 56.20 |
| | $ | 47.21 |
| | $ | 0.1700 |
|
| | Second Quarter | 64.31 |
| | 55.00 |
| | 0.2000 |
|
| | Third Quarter | 73.28 |
| | 63.37 |
| | 0.2000 |
|
| | Fourth Quarter | 79.25 |
| | 59.61 |
| | 0.2000 |
|
At February 5, 2016, 253,481,935 shares of our common stock were outstanding and were held by 32,94736,417 shareholders of record. Since October 21, 2013, ourOur common stock has tradedtrades on the NASDAQ Global Select Market (“NASDAQ”) and the Chicago Stock Exchange. Before October 21, 2013, our common stock traded onExchange under the New York Stock Exchange and the Chicago Stock Exchange. The fiscal year-end closing price for our stock was $67.04 on December 31, 2015, and $78.03 on December 31, 2014. All prices are reported on the consolidated transaction reporting system.trading symbol MAR.
Fourth Quarter 20152018 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, 2015-October 31, 2015 | 0.7 |
| | 74.24 |
| | 0.7 |
| | 15.0 |
|
| November 1, 2015-November 30, 2015 | — |
| | — |
| | — |
| | 15.0 |
|
| December 1, 2015-December 31, 2015 | 0.6 |
| | 68.54 |
| | 0.6 |
| | 14.4 |
|
|
| | | | | | | | | | | | |
| (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 |
|
| |
(1) | On February 12, 2015,November 9, 2017, we announced that our Board of Directors had increased the authorization to repurchase our common stock repurchase authorization by 2530 million shares as part of an ongoing share repurchase program.shares. At year-end 2015, 14.42018, 10.7 million shares remained available for repurchase under previousBoard approved authorizations.In addition, on February 11, 2016, we announced that15, 2019, our Board of Directors further increased our common stock repurchase authorization by 25 million shares.shares. We repurchase shares in the open market and in privately negotiated transactions. |
Item 6. Selected Financial Data.
The following table presents a summary of our selected historical financial data derived from our last 10 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“Management’s Discussion and Analysis of Financial Condition and Results of Operations”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 costs and other charges we incurred in 20082016 and 2009, timeshare strategy-impairment charges we incurred in 20092011 and 2011,2009, and our 2011 spin-off of our former timeshare operations and timeshare development business. For periods before2016, we include Legacy-Starwood results from the 2011 spin-off, we continueMerger Date to include our former Timeshare segment in our historical financial results as a component of continuing operations because of our significant continuing involvement in MVW’s future operations.year-end 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year (1) |
| ($ in millions, except per share data) | 2015 | | 2014 | | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | | 2006 |
| Income Statement Data: | | |
| | | | | | | | | | | | | | | | |
Revenues (2) | $ | 14,486 |
| | $ | 13,796 |
| | $ | 12,784 |
| | $ | 11,814 |
| | $ | 12,317 |
| | $ | 11,691 |
| | $ | 10,908 |
| | $ | 12,879 |
| | $ | 12,990 |
| | $ | 11,995 |
|
Operating income (loss) (2) | $ | 1,350 |
| | $ | 1,159 |
| | $ | 988 |
| | $ | 940 |
| | $ | 526 |
| | $ | 695 |
| | $ | (152 | ) | | $ | 765 |
| | $ | 1,183 |
| | $ | 1,089 |
|
| Income (loss) from continuing operations attributable to Marriott | $ | 859 |
| | $ | 753 |
| | $ | 626 |
| | $ | 571 |
| | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | | $ | 359 |
| | $ | 697 |
| | $ | 712 |
|
Cumulative effect of change in accounting principle (3) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (109 | ) |
Discontinued operations (4) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | (1 | ) | | 5 |
|
| Net income (loss) attributable to Marriott | $ | 859 |
| | $ | 753 |
| | $ | 626 |
| | $ | 571 |
| | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | | $ | 362 |
| | $ | 696 |
| | $ | 608 |
|
Per Share Data (5): |
| | | | | | | | | | | | | | | | | | |
| Diluted earnings (losses) per share from continuing operations attributable to Marriott shareholders | $ | 3.15 |
| | $ | 2.54 |
| | $ | 2.00 |
| | $ | 1.72 |
| | $ | 0.55 |
| | $ | 1.21 |
| | $ | (0.97 | ) | | $ | 0.97 |
| | $ | 1.73 |
| | $ | 1.64 |
|
| Diluted losses per share from cumulative effect of accounting change | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (0.25 | ) |
| Diluted earnings per share from discontinued operations attributable to Marriott shareholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 0.01 |
| | — |
| | 0.01 |
|
| Diluted earnings (losses) per share attributable to Marriott shareholders | $ | 3.15 |
| | $ | 2.54 |
| | $ | 2.00 |
| | $ | 1.72 |
| | $ | 0.55 |
| | $ | 1.21 |
| | $ | (0.97 | ) | | $ | 0.98 |
| | $ | 1.73 |
| | $ | 1.40 |
|
| Cash dividends declared per share | $ | 0.9500 |
| | $ | 0.7700 |
| | $ | 0.6400 |
| | $ | 0.4900 |
| | $ | 0.3875 |
| | $ | 0.2075 |
| | $ | 0.0866 |
| | $ | 0.3339 |
| | $ | 0.2844 |
| | $ | 0.2374 |
|
| Balance Sheet Data (at year-end): |
| | | | | | | | | | | | | | | | | | |
Total assets (8) | $ | 6,082 |
| | $ | 6,833 |
| | $ | 6,794 |
| | $ | 6,342 |
| | $ | 5,910 |
| | $ | 8,983 |
| | $ | 7,933 |
| | $ | 8,903 |
| | $ | 8,942 |
| | $ | 8,588 |
|
Long-term debt (8) | 3,807 |
| | 3,447 |
| | 3,147 |
| | 2,528 |
| | 1,816 |
| | 2,691 |
| | 2,234 |
| | 2,975 |
| | 2,790 |
| | 1,818 |
|
| Shareholders’ (deficit) equity | (3,590 | ) | | (2,200 | ) | | (1,415 | ) | | (1,285 | ) | | (781 | ) | | 1,585 |
| | 1,142 |
| | 1,380 |
| | 1,429 |
| | 2,618 |
|
| Other Data: |
| | | | | | | | | | | | | | | | | | |
| Base management fees | $ | 698 |
| | $ | 672 |
| | $ | 621 |
| | $ | 581 |
| | $ | 602 |
| | $ | 562 |
| | $ | 530 |
| | $ | 635 |
| | $ | 620 |
| | $ | 553 |
|
| Franchise fees | 853 |
| | 745 |
| | 666 |
| | 607 |
| | 506 |
| | 441 |
| | 400 |
| | 451 |
| | 439 |
| | 390 |
|
| Incentive management fees | 319 |
| | 302 |
| | 256 |
| | 232 |
| | 195 |
| | 182 |
| | 154 |
| | 311 |
| | 369 |
| | 281 |
|
| Total fees | $ | 1,870 |
| | $ | 1,719 |
| | $ | 1,543 |
| | $ | 1,420 |
| | $ | 1,303 |
| | $ | 1,185 |
| | $ | 1,084 |
| | $ | 1,397 |
| | $ | 1,428 |
| | $ | 1,224 |
|
| Fee Revenue-Source: |
| | | | | | | | | | | | | | | | | | |
North America (6) | $ | 1,458 |
| | $ | 1,319 |
| | $ | 1,186 |
| | $ | 1,074 |
| | $ | 970 |
| | $ | 878 |
| | $ | 806 |
| | $ | 1,038 |
| | $ | 1,115 |
| | $ | 955 |
|
Total Outside North America (7) | 412 |
| | 400 |
| | 357 |
| | 346 |
| | 333 |
| | 307 |
| | 278 |
| | 359 |
| | 313 |
| | 269 |
|
| Total fees | $ | 1,870 |
| | $ | 1,719 |
| | $ | 1,543 |
| | $ | 1,420 |
| | $ | 1,303 |
| | $ | 1,185 |
| | $ | 1,084 |
| | $ | 1,397 |
| | $ | 1,428 |
| | $ | 1,224 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, except for 2008 which included 53 weeks. |
| |
(2) | Balances do not reflect the impact of discontinued operations. Also, for periods prior to 2009, we reclassified our provision for loan losses associated with our lodging operations to the “General, administrative, and other” caption of our Income Statements to conform to our presentation for periods beginning in 2009. This reclassification only affected operating income. |
| |
(3)
| We adopted certain provisions of Accounting Standards Certification Topic 978 (previously Statement of Position 04-2, “Accounting for Real Estate Time Sharing Transactions”), in 2006, which we reported in our Income Statements as a cumulative effect of change in accounting principle. |
| |
(4)
| The following businesses became discontinued operations in the year we announced that we would sell or exit them: synthetic fuel (2007). |
| |
(5)
| We issued stock dividends in the third and fourth quarters of 2009, and a stock split in the form of a stock dividend on June 9, 2006. We have adjusted all per share data retroactively to reflect those stock dividends. |
| |
(6)
| Represents fee revenue from the United StatesU.S. (but not Hawaii before 2011) and Canada. |
| |
(7)(3)
| Represents fee revenue outside of North America, as defined in footnote (6)(2) above. |
| |
(8)(4)
| Effective year-end 2014,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. Prior periodsYears 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. |
BUSINESS AND OVERVIEW
Overview
We are a worldwide operator, franchisor, and licensor of hotelshotel, residential, and timeshare properties in 87130 countries and territories under 1930 brand names. We also develop, operate, and market residential properties and provide services to home/condominium owner associations. Under our asset-light business model, we typically manage or franchise hotels, rather than own them. We groupdiscuss our operations into threein the following reportable business segments: North American Full-Service, North American Limited-Service, and International.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.
We earn base management fees and in many cases 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. BaseIn 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 adjustedafter a specified owner return. In our Middle East and Africa and Asia Pacific 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 (house profit)(also referred to as “house profit,” which we discuss under the “Performance Measures” section below) less non-controllable expenses such as 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, we believe minimizing our capital investments and adopting a strategy of recycling theour investments that we do make maximizes and maintains our financial flexibility.
We remain focused on doing the things that we do well; that is, selling rooms, taking care 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 as a result ofdue to our skilled management teams, dedicated associates, superior customerguest service with an emphasis on guest and associate satisfaction, significant distribution, our Marriott Rewards and The Ritz-Carlton Rewards loyalty programs, aLoyalty Program, multichannel reservations system,reservation systems, and desirable 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 technology offerings.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 website, Marriott.com,websites, and of our associated mobile smartphone applications, and mobile website that connect to Marriott.com, through functionality and service improvements, and we expect to continue capturing an increasing proportion of property-level reservations via this cost-efficient channel.improvements.
Our profitability, as well as that of owners and franchisees, has benefited from our approach to property-level and above-property productivity. PropertiesManaged properties in our system continue to maintain very 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.
Pending Combination with Starwood Hotels & Resorts Worldwide, Inc.
Data Security Incident
On November 15, 2015,30, 2018, we entered intoannounced 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 Agreementunauthorized party had copied information from the Starwood reservations database and Plantaken steps towards removing it. The information copied from the Starwood reservations database over time included information about guests who made a reservation at 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 Merger (the “Merger Agreement”) to combine with Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”).birth, gender, arrival and departure information, reservation dates, and communication preferences. The Merger Agreement providescombination of information varied by guest. Based on our analysis as of the date of this filing, we believe that the upper limit for the Companytotal number of guest records involved in this incident is approximately 383 million records. In many instances, there appear to combinebe multiple records for the same guest, so we have concluded with Starwood in a seriesfair degree of transactions after which Starwood will be an indirect wholly owned subsidiarycertainty 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 data in the database. Based on 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, and based on the preliminary information we have as 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 conduct a comprehensive forensic review to determine the scope 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 were in the Starwood reservations database, and we completed sending these emails on December 21, 2018. We also established a multi-language dedicated website and multi-language call center to answer guests’ questions about the incident. The dedicated website provides guests details of the incident, the information affected, the steps being taken to investigate, FAQs and information about how guests can monitor and protect their 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 (the “Starwood Combination”). If these transactions are completed, shareholders of Starwoodfrom the Data Security Incident. However, we do not believe this incident will receive 0.920 shares ofimpact our Class A Common Stock, par value $0.01 per share, and $2.00 in cash, without interest, for each share of Starwood common stock, par value $0.01 per share, that they own immediately before these transactions.long-term financial health. We maintain insurance designed to limit our exposure to losses such as those related to the Data Security Incident. We expect that the combinationcost of such insurance will closeincrease significantly in mid-2016, after customary conditions are satisfied, including shareholder approvals, required antitrust approvals,2019 and future years. We expect to incur significant expenses associated with the completion of Starwood’s previously announced spin-off of its vacation ownership business, or another spin-off, split-off, analogous disposition, or sale of its vacation ownership business.Data Security Incident in future periods, primarily related to legal proceedings and regulatory investigations, increased expenses and capital investments for IT and information security, incident response and customer care, and increased expenses for insurance, compliance activities, and to meet increased legal and regulatory requirements. See Footnote 7. Commitments and Contingencies for information related to expenses incurred in 2018, insurance recoveries, and legal proceedings and governmental investigations related to the Data Security Incident.
Performance Measures
We believe Revenue per Available Room (“RevPAR”),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. 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, 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.
References to year-end 2015Our RevPAR statistics throughout this report, including occupancyfor 2018, 2017, and ADR, reflect2016, include Legacy-Starwood comparable properties for each of the twelve months ended December 31, 2015,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 comparedan indicator of the performance of our brands and to the twelve months ended December 31, 2014. For the properties located in countries that use currencies other than the U.S. dollar, the comparisonsallow 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, 20142017 for the current period), and have not, in either the current or previous year: (i) undergone significant room or public space renovations or expansions, (ii) been converted between company-operated and franchised, or (iii) sustained substantial property damage or business interruption. Comparable properties represented the following percentages of our properties for each year indicated: (1) 86% ofFor 2018 compared to 2017, we had 4,109 comparable North American properties (87% excluding Delta Hotels and Resorts) in 2015, 87% in 2014,1,173 comparable International properties. For 2017 compared to 2016, we had 3,883 comparable North American properties and 89% in 2013; (2) 57% of1,030 comparable International properties (68% excluding Protea Hotels) in 2015, 57% (71% excluding Protea Hotels) in 2014, and 75% in 2013; and (3) 82% of total properties (85% excluding Protea Hotels and Delta Hotels and Resorts) in 2015, 82% of total properties (85% excluding Protea Hotels) in 2014, and 87% in 2013.properties.
We also believe company-operated house profit margin, which is the ratio 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 revenue and the related expenses including payroll and benefits expenses, as well as repairs and maintenance, utility, general and administrative, and sales and marketing expenses. House profit does not include the impact of management fees, furniture, fixtures and equipment replacement reserves, insurance, taxes, or other fixed expenses.
Business Trends
Our 20152018 full-year results reflected a year-over-year increase in the number of properties in our system, favorable economic climate and demand for our brands in many markets around the world, reflectingand generally low supply growth in the U.S. and Europe, moderate GDP growth in North America, improved pricing in most North American markets, and a year-over-year increase in the number of properties in our system.favorable economic conditions. Comparable worldwide systemwide RevPAR for 20152018 increased 5.22.6 percent to $112.25, average daily rates$117.37, ADR increased 4.12.0 percent on a constant dollar basis to $152.30,$160.37, and occupancy increased 0.80.4 percentage points to 73.773.2 percent, compared to 2014.2017.
Generally strong U.S.In North America, RevPAR increased in 2018, driven by both higher transient and group business and transient demand contributed to increased room rate growth in 2015, allowing us to eliminate discounts, shift business into higher rated price categories, and raise room rates. Thedemand. RevPAR growth was partially constrained by new select-service lodging supply in certain markets and moderating GDP growth latecomparisons to 2017 natural disasters. In our Asia Pacific segment in the year.
In 2015, bookings for future group business2018, RevPAR grew in the U.S. improved. New group business booked in 2015 for any period in the future increased 9 percent year over year. The 2016 group revenue pace for systemwide full-service hotels (Marriott, JW Marriott, Renaissance, The Ritz-Carlton,most markets, led by China, Indonesia and Gaylord brands) in North America was up more than 6 percent as of year-end 2015, compared to the 2015 group booking pace measured as of year-end 2014. In North America, RevPAR from transient
guests increased 5 percent in 2015 reflecting strong demand from professional services, technology, and defense firms moderated somewhat by weaker demand from manufacturing, pharmaceutical, and energy companies.
TheIndia. Our Europe region experienced higher demand in 2015 across2018, led by strong transient business in most countries primarily due to increased group and transient business driven by special events anddemand from the weak currency,World Cup, partially constrained by weaker demandlower RevPAR in France, particularly late in the year. Results improved in RussiaSpain. In our Middle East and Africa region, RevPAR decreased due to increased domestic travel. In the Asia Pacific region, demand increased led by growth from corporategeopolitical instability and other transient business in Japan, India, Thailand, and Indonesia. The growth was partially offset by weaker results in South Korea. RevPAR in Greater China moderated in 2015 due to the impact of supply growth in certain Southern China markets, continued austerity in Beijing, and lower inbound travel to Hong Kong, while demand in Shanghai remained strong.the Middle East, demand was weaker in 2015, reflecting the region’s instability and lower oil prices, partially offset by strong government and group demandgrowth in Saudi Arabia. Demand in the United Arab Emirates was constrained mainly by new supply and, to a lesser extent, a reduction in travelers from Russia. In Africa, results were favorable in 2015. In theAfrica. RevPAR grew across our Caribbean and Latin America strong performanceregion, driven by higher ADR, partially due to lower supply following 2017 hurricane activity in the region in 2015 was driven by greater demand in Mexico and increased leisure travel to our Caribbean and Mexican resorts for most of the year, constrained somewhat by oversupply of hotels in Panama and weaker economies in Brazil and Puerto Rico.Caribbean.
We monitor market conditions and provide the tools for our hotels to price rooms daily in accordance with individual property demand levels, generally adjusting room rates as demand changes. Our hotels modify the mix of business to improve revenue as demand changes. Demand for higher rated rooms improved in most markets in 2015, which allowed our hotels to reduce discounting and special offers for transient business in many markets. This mix improvement benefited ADR. For our company-operated properties, we continue to focus on enhancing property-level house profit margins and making productivity improvements. In 2018 compared to 2017 at comparable properties, worldwide company-operated house profit margins increased by 40 basis points, primarily reflecting RevPAR growth, improved productivity, procurement cost savings, and synergy savings from the Starwood Combination. International company-operated house profit margins increased by 70 basis points, and North American company-operated house profit margins increased by 10 basis points.
System Growth and Pipeline
In 2018, we added 494 properties with 80,255 rooms around the world across our portfolio of brands. Approximately 45 percent of the added rooms are located outside North America, and 12 percent are conversions from competitor brands. In 2018, 107 properties (21,176 rooms) exited our system.
At year-end 2018, our development pipeline grew to a record 478,000 rooms, with more than half located outside of North America. The pipeline includes hotel rooms under construction and under signed contracts, and nearly 23,000 hotel rooms approved for development but not yet under signed contracts. In 2018, we signed management and franchise agreements for 816 properties (125,000 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, we expect the number of our open hotel rooms will increase approximately 5.5 percent net, reflecting room exits of 1.0 to 1.5 percent.
Properties and Rooms
At year-end 2018, we operated, franchised, and licensed the following properties and rooms:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| |
(1) | Other represents unconsolidated equity method investments, which we present in the “Equity in earnings” caption of our Income Statements. |
Lodging Statistics
The following lodging statistics present RevPAR, occupancy, and ADR for comparable properties 2018, 2018 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. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties.
2018 Compared to 2017
|
| | | | | | | | | | | | | | | | | | | | |
| 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 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| 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, |
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. |
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 following discussion presents an analysis of our consolidated results of our operations for 2015, 2014,2018, 2017, and 2013.
Revenues
2015 Compared to 2014 |
| | | | | | | | | | | | | | |
| ($ in millions) | December 31,
2015 | | December 31,
2014 | | Increase (decrease) from prior year | | Percentage change from prior year |
| Base management fees | $ | 698 |
| | $ | 672 |
| | $ | 26 |
| | 4 | % |
| Franchise fees | 853 |
| | 745 |
| | 108 |
| | 14 | % |
| Incentive management fees | 319 |
| | 302 |
| | 17 |
| | 6 | % |
| | 1,870 |
| | 1,719 |
| | 151 |
| | 9 | % |
| Owned, leased, and other revenue | 986 |
| | 1,022 |
| | (36 | ) | | (4 | )% |
| Cost reimbursements | 11,630 |
| | 11,055 |
| | 575 |
| | 5 | % |
| | $ | 14,486 |
| | $ | 13,796 |
| | $ | 690 |
| | 5 | % |
The $26 million increase in base management fees reflected stronger RevPAR ($29 million) and the impact of unit growth across our system ($25 million),partially offset by the impact of unfavorable foreign exchange rates ($11 million), lower fees due to properties that converted from managed to franchised ($7 million), and decreased recognition of previously deferred fees ($8 million).
The $108 million increase in total franchise fees reflected the impact of unit growth across our system ($55 million), stronger RevPAR due to increased demand ($31 million), increased relicensing and application fees ($22 million), and higher fees from properties that converted to franchised from managed ($7 million), partially offset by the impact of unfavorable foreign exchange rates ($7 million).
The $17 million increase in incentive management fees reflected higher RevPAR and house profit margins primarily at company-managed North American properties, particularly at a few large portfolios of managed hotels whose improved net house profits allowed them to reach their owners priority threshold and begin to record incentive fees. Higher incentive fees also reflected the addition of hotels included in the Delta Hotels and Resorts acquisition, partially offset by $15 million in unfavorable foreign exchange rates and $7 million of lower incentive fees from properties under renovation.
The $36 million decrease in owned, leased, and other revenue reflected $44 million of lower owned and leased revenue, partially offset by $8 million in higher other revenue predominantly from branding fees and hotel service programs that we
acquired as part of our acquisition of Protea Hotels in the 2014 second quarter. Lower owned and leased revenue reflected net weaker performance impacted by unfavorable foreign exchange rates, a decrease of $27 million attributable to properties that converted to managed or franchised or left our system, and $16 million net unfavorable impact of properties under renovation, partially offset by increases of $10 million from Protea Hotel leases we acquired in the 2014 second quarter and $6 million from The Miami Beach EDITION hotel, which opened in the 2014 fourth quarter and which we subsequently sold in the 2015 first quarter as discussed in Footnote No. 3, “Acquisitions and Dispositions.”
Cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer but also includes reimbursements for other costs, such as those associated with our rewards programs, reservations, and marketing programs. As we record cost reimbursements based upon costs incurred with no added markup, this revenue and related expense has no impact on either our operating or net income. The $575 million increase in total cost reimbursements revenue reflected the impact of higher occupancies and growth across our system. Since the end of 2014, our managed rooms increased by 12,668 rooms and our franchised rooms increased by 31,883 rooms, net of rooms at hotels exiting our system.
|
| | | | | | | | | | | | | | |
| ($ in millions) | December 31,
2014 | | December 31,
2013 | | Increase from prior year | | Percentage change from prior year |
| Base management fees | $ | 672 |
| | $ | 621 |
| | $ | 51 |
| | 8 | % |
| Franchise fees | 745 |
| | 666 |
| | 79 |
| | 12 | % |
| Incentive management fees | 302 |
| | 256 |
| | 46 |
| | 18 | % |
| | 1,719 |
| | 1,543 |
| | 176 |
| | 11 | % |
| Owned, leased, and other revenue | 1,022 |
| | 950 |
| | 72 |
| | 8 | % |
| Cost reimbursements | 11,055 |
| | 10,291 |
| | 764 |
| | 7 | % |
| | $ | 13,796 |
| | $ | 12,784 |
| | $ | 1,012 |
| | 8 | % |
The $51 million increase in total base management fees, largely reflected stronger RevPAR due to increased demand ($34 million), the impact of unit growth across our system ($21 million),and increased recognition of previously deferred fees ($16 million), partially offset by a decrease in fees from terminated units ($8 million), decreased fees due to properties that converted from managed to franchised ($8 million), unfavorable foreign exchange rates ($6 million), and three fewer days of activity ($2 million).
The $79 million increase in total franchise fees, reflected stronger RevPAR due to increased demand ($35 million), new unit growth across our system ($35 million), increased relicensing fees ($10 million), and fees from properties that converted to franchised from managed ($7 million), partially offset by a decrease in fees from terminated units ($4 million) and three fewer days of activity ($3 million).
The $46 million increase in incentive management fees largely reflected higher net house profit at our North American and International managed hotels in addition to unit growth in International markets, partially offset by the impact of unfavorable foreign exchange rates ($5 million) and higher North American Full-Service deferred fees recognized in 2013 ($5 million). We estimate that the three fewer days of activity in 2014 compared to 2013 reduced fee revenues by approximately $5 million.
The $72 million increase in owned, leased, and other revenue, predominantly reflected $56 million of higher owned and leased revenue, $17 million in revenue from various Protea Hotels programs, $9 million in higher branding fees, and $2 million in other program revenue, partially offset by $14 million lower termination fee revenue in 2014. Higher owned and leased revenue reflected $43 million from Protea Hotel leases associated with the acquisition, $30 million in revenue from a North American Full-Service managed property that we acquired in the 2013 fourth quarter, and stronger performance across our new and existing owned and leased International properties, partially offset by $37 million attributable to five International properties that converted to managed or franchised properties. Combined branding fees for credit card endorsements and the sale of branded residential real estate by others totaled $127 million in 2014 and $118 million in 2013.
The $764 million increase in total cost reimbursements revenue reflected the impact of higher occupancies at our properties and growth across our system.
Operating Income
2015 Compared to 2014
Operating income increased by $191 million to $1,350 million in 2015 from $1,159 million in 2014. The $191 million increase in operating income reflected a $108 million increase in franchise fees, a $26 million increase in base management fees, a $25 million decrease in general, administrative, and other expenses, a $17 million increase in incentive management fees, a $9 million decrease in depreciation, amortization, and other expense, and $6 million of higher owned, leased, and other revenue, net of direct expenses. We discuss the reasons for the increases in base management fees, franchise fees, and incentive management fees compared to 2014 in the preceding “Revenues” section.
The $6 million (2 percent) increase in owned, leased, and other revenue, net of direct expenses was largely attributable to $4 million in higher branding fees. Owned and leased revenue, net of direct expenses was unchanged as stronger results at several of our International properties, including $4 million of lower lease payments for properties that moved to managed, franchised, or left our system, were offset by $10 million of weaker performance due to renovations.
Depreciation, amortization and other expense decreased by $9 million (6 percent) to $139 million in 2015 from $148 million in 2014. The decrease reflected a $25 million favorable variance to the 2014 impairment charge on the EDITION hotels, partially offset by the 2015 impairment charges of $6 million for The Miami Beach EDITION residences and $6 million for The New York (Madison Square Park) EDITION, which are both discussed in Footnote No. 3, “Acquisitions and Dispositions,” and a $4 million impairment charge on corporate equipment.
General, administrative, and other expenses decreased by $25 million (4 percent) to $634 million in 2015 from $659 million in 2014. The decrease largely reflected a $28 million net favorable impact to our legal expenses associated with litigation resolutions, $24 million of development costs that we deferred in 2015 related to our growing franchise pipeline, and $5 million in lower foreign exchange losses compared to the 2014 devaluation of assets denominated in Venezuelan Bolivars, partially offset by $20 million of higher costs incurred to grow our brands globally, $5 million of transaction costs related to the Starwood Combination, and $5 million from the Delta Hotels and Resorts acquisition.
2014 Compared to 2013
Operating income increased by $171 million to $1,159 million in 2014 from $988 million in 2013. The $171 million increase in operating income reflected a $79 million increase in franchise fees, a $51 million increase in base management fees, a $46 million increase in incentive management fees, and $26 million of higher owned, leased, and other revenue, net of direct expenses, partially offset by a $21 million increase in depreciation, amortization, and other expense, and a $10 million increase in general, administrative, and other expenses. We discuss the reasons for the increases in base management fees, franchise fees, and incentive management fees compared to 2013 in the preceding “Revenues” section.
The $26 million (12 percent) increase in owned, leased, and other revenue, net of direct expenses was largely attributable to $23 million of higher owned and leased revenue, net of direct expenses, $9 million in higher branding fees, $4 million from various programs at Protea Hotels, and $2 million in other program revenue, partially offset by $14 million in higher termination fees in 2013. Higher owned and leased revenue, net of direct expenses of $23 million primarily reflects $14 million in net favorable results at several leased properties, $10 million of revenue, net of direct expenses for a North American Full-Service managed property that we acquired in the 2013 fourth quarter, and $7 million of revenue, net of direct expenses for new Protea Hotel leases, partially offset by $6 million attributable to International properties that converted to managed or franchised.
Depreciation, amortization and other expense increased by $21 million (17 percent) to $148 million in 2014 from $127 million in 2013. The increase reflected the $25 million net impairment charge on the EDITION hotels discussed in Footnote No. 3, “Acquisitions and Dispositions,” $5 million in accelerated amortization related to contract terminations, $5 million in higher contract amortization primarily from Protea Hotels, and $3 million in higher depreciation related to a North American Full-Service property that we acquired in the 2013 fourth quarter, partially offset by $13 million of accelerated amortization related to contract terminations in 2013 and $5 million of 2013 depreciation for two International properties that converted to managed contracts.
General, administrative, and other expenses increased by $10 million (2 percent) to $659 million in 2014 from $649 million in 2013. The increase largely reflected $9 million from the addition of Protea Hotels and related transition costs, $7 million from net unfavorable foreign exchange rates, primarily from the devaluation of assets denominated in Venezuelan Bolivars, and $6 million of increased guarantee funding, partially offset by $8 million litigation settlements recognized in 2013, and a $5 million performance cure payment in 2013 for an International property.
Gains and Other Income, Net
2015 Compared to 2014
Gains and other income, net increased by $19 million (238 percent) to $27 million in 2015 compared to $8 million in 2014. The increase primarily reflects the $41 million gain on the redemption of our preferred equity ownership interest, discussed in Footnote No. 14, “Fair Value of Financial Instruments.” The increase was partially offset by an $11 million disposal loss for an International property and a $4 million expected disposal loss for a North American Limited-Service segment plot of land, both discussed in Footnote No. 3, “Acquisitions and Dispositions.”
2014 Compared to 2013
Gains and other income, net decreased by $3 million (27 percent) to $8 million in 2014 compared to $11 million in 2013. This decrease in gains and other income, net reflected a gain of $8 million on the sale of a portion of our shares of a publicly traded company in the 2013 second quarter, partially offset by $4 million in net distribution from cost method investments (not allocated to any of our segments) in 2014.
Interest Expense
2015 Compared to 2014
Interest expense increased by $52 million (45 percent) to $167 million in 2015 compared to $115 million in 2014. The increase was due to net lower capitalized interest expense as a result of the completion of The Miami Beach EDITION in the 2014 fourth quarter and The New York (Madison Square Park) EDITION in the 2015 second quarter ($25 million), interest on the Series O Notes and Series P Notes that we issued in the 2015 third quarter and the Series N Notes that we issued in the 2014 fourth quarter ($17 million), and an unfavorable variance to the 2014 debt premium accretion true-up ($7 million).
2014 Compared to 2013
Interest expense decreased by $5 million (4 percent) to $115 million in 2014 compared to $120 million in 2013. This decrease was principally from $8 million in higher debt premium accretion which included a true-up, $2 million in lower interest on an exited lease obligation, $2 million decrease due to lower interest rates on our Marriott Rewards program, and a $2 million increase in capitalized interest primarily related to development of EDITION hotels in Miami Beach and New York, offset by completion of The London EDITION in the 2013 fourth quarter. This was partially offset by a net $8 million increase due to the issuance of higher net senior note borrowings.
Interest Income
2015 Compared to 2014
Interest income decreased by $1 million (3 percent) to $29 million in 2015 compared to $30 million in 2014. This decrease was primarily due to lower interest income on the preferred equity ownership interest that was redeemed in the 2015 second quarter ($5 million), partially offset by higher interest income on the $85 million mezzanine loan (net of a $15 million discount) we provided to an owner in conjunction with entering into a franchise agreement for an International property in the 2014 second quarter ($5 million).
2014 Compared to 2013
Interest income increased by $7 million (30 percent) to $30 million in 2014 compared to $23 million in 2013. The increase was primarily due to $6 million earned on the $85 million mezzanine loan (net of a $15 million discount) provided to an owner in conjunction with entering into a franchise agreement for an International property in the 2014 second quarter, and $2 million earned on the mandatorily redeemable preferred equity ownership interest acquired in the 2013 second quarter. See Footnote No. 13, “Notes Receivable” for more information on the mezzanine loan.
Equity in Earnings (Losses)
2015 Compared to 2014
Equity in earnings of $16 million in 2015 increased by $10 million from equity in earnings of $6 million in 2014. The increase reflects a $22 million year-over-year impact from the reversal in 2015 of an $11 million litigation reserve that was recorded in 2014 and associated with an equity investment and a $5 million benefit recorded in 2015 following an adjustment to an International investee’s liabilities. The increase was partially offset by a $6 million impairment charge relating to an
International joint venture and an unfavorable variance to a $9 million benefit recorded in 2014 for two of our International investments, following the reversal of their liabilities associated with a tax law change in a country in which they operate.
2014 Compared to 2013
Equity in earnings of $6 million in 2014 improved by $11 million from equity in losses of $5 million in 2013. The increase was driven by a $9 million reversal of deferred tax liabilities associated with a tax law change in a country in which two of our International joint ventures operate, $9 million in higher earnings from three of our International and one of our North American Full-Service joint ventures, and a favorable variance from a $4 million impairment charge in the 2013 second quarter associated with a corporate investment (not allocated to any of our segments) that we determined was fully impaired because we do not expect to recover the investment. This was partially offset by an $11 million litigation reserve associated with another equity investment discussed above (not allocated to any of our segments).
Provision for Income Tax
2015 Compared to 2014
Our tax provision increased by $61 million (18 percent) to $396 million in 2015 from $335 million in 2014. The increase was primarily due to higher pre-tax earnings and unfavorable comparisons to the 2014 resolution of a U.S. federal tax issue relating to a guest marketing program, the 2014 release of an international valuation allowance, and the 2014 resolution of an international financing activity tax issue. The increase was partially offset by a favorable IRS settlement relating to share-based compensation ($12 million), a tax benefit from an International property disposition ($7 million), and a favorable comparison to the 2014 tax on unrealized foreign exchange gains that were taxed within a foreign jurisdiction ($5 million).
2014 Compared to 2013
Our tax provision increased by $64 million (24 percent) to $335 million in 2014 from $271 million in 2013. The increase was primarily due to higher pre-tax earnings, unrealized foreign exchange gains that were taxed within a foreign jurisdiction, and non-recurring favorable foreign true-ups in 2013. The increase was partially offset by the favorable resolution of a U.S. federal tax issue relating to a guest marketing program ($21 million), the release of an international valuation allowance ($7 million), and the resolution of an international financing activity tax issue ($5 million).
Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)
Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”), a financial measure not required by, or presented in2016. 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.
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 income excludingproceeds, and we intend to use the impactremainder of interest expense, provisionthe net proceeds, for income taxes,the benefit of our system of hotels. Spending under those plans is, and depreciation and amortization. Our non-GAAP measure of Adjusted EBITDA further adjusts EBITDA to exclude (1) the pre-tax EDITION impairment charges of $12 million in 2015 and $25 million in 2014, which we recordedwill be, expensed in the “Depreciation, amortization, and other”“Reimbursed expenses” caption of our Income Statements, following an evaluationcausing a reduction in our profitability in the periods it is expensed.
Fee Revenues
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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 increase 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 our co-brand credit card agreements, $82 million from unit growth, $21 million from RevPAR growth, $15 million from properties that converted from managed to franchised, and $6 million of higher relicensing and application fees, partially offset by lower fees of $9 million from properties that were terminated.
The $42 million increase in incentive management fees primarily reflected net higher profits at managed hotels and $14 million from unit growth.
In 2018, we earned incentive management fees from 72 percent of our EDITION hotelsmanaged properties worldwide versus 71 percent in 2017. We earned incentive management fees from 59 percent of managed properties in North America and residences for recovery; (2) the82 percent of managed properties outside North America in 2018, compared to 60 percent in North America and 80 percent outside North America in 2017. In addition, 63 percent of our total incentive management fees in 2018 came from our managed properties outside North America versus 62 percent in 2017.
2017 Compared to 2016
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 contract investment amortization primarily reflected $5 million of higher contract write-offs related to terminated contracts at Legacy-Marriott hotels.
Owned, Leased, and Other
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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 million of lower owned and leased profits attributable to properties sold, partially offset by $51 million of higher termination fees and $17 million of 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 pre-tax lossof 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 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.
2018 Compared to 2017
Cost reimbursement revenue, net of reimbursed expenses, decreased $462 million, primarily due to lower Loyalty Program revenues net of expenses, spending funded by the proceeds from the 2017 sale of our interest in Avendra, and higher expenses for reservations and marketing.
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
Depreciation, amortization, and other expenses increased by $110 million, primarily reflecting higher depreciation and amortization on dispositionsLegacy-Starwood assets.
General, administrative, and other expenses increased by $178 million, primarily due to the Starwood Combination, $14 million of real estate, which we recorded in the “Gainshigher litigation expenses, $10 million of higher compensation expenses, and $10 million from net unfavorable foreign exchange rates.
Merger-related costs and charges decreased by $227 million, primarily due to lower employee termination and transaction costs, partially offset by $39 million of higher integration costs.
Non-Operating Income (Expense)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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”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 2018 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 ($6 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 ($65 million), partially offset by our $6 million share of the 2017 gain on an equity method investee’s sale of a property.
2017 Compared to 2016
Gains and other income, net increased by $683 million, primarily due to the gain on the disposition of our ownership interest in Avendra and the gain on the sale of the Charlotte Marriott City Center. See the “Dispositions” caption of our Income StatementsFootnote 3. Dispositions and Acquisitions for more information.
Interest expense increased by $54 million, primarily due to an increase in 2015; (3) the $41 million pre-tax gain triggered by a mandatory redemption feature of a preferred equity investment in 2015; and (4) share-based compensation expense for all periods presented.
We believe that Adjusted EBITDA is a meaningful indicator of our operating performance because it permits period-over-period comparisons of our ongoing core operations before the excluded items and facilitates our comparison of results before these items with results from other lodging companies, and because it excludes certain items that can vary widely across different industries or among companies within the lodging industry. For example, interest expense can be dependent on a company’s capital structure, debt levels, and credit ratings, and accordingly interest expense’s impact on earnings varies significantly among companies. Similarly, tax positions will vary among companies as a result of their differing abilitiesthe Starwood Combination and higher commercial paper borrowings, partially offset by $18 million of lower interest due to take advantageSenior Note maturities and a $13 million favorable variance to the bridge term loan facility commitment costs that we incurred in 2016.
Interest income increased by $3 million, primarily due to issuances of tax benefits and the tax policiesnew loans, partially offset by $7 million of the jurisdictionslower interest income on a repaid loan.
Equity in which they operate. As a result, effective tax rates and provisionearnings increased by $31 million, primarily due to higher earnings by Legacy-Starwood investees.
Income Taxes
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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 Compared to 2017
Provision for income taxes can vary considerably among companies. Our Adjusted EBITDA also excludes depreciationdecreased by $1,085 million, primarily due to the nonrecurring net tax expense in 2017 related to the 2017 Tax Act and amortizationthe reduction of the U.S. federal tax rate in 2018 ($744 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), the release of tax reserves due to the completion of certain examinations ($34 million), and the income tax consequences of an intercompany transaction ($18 million). The decrease was partially offset by the current period’s provisional estimate of tax for global intangible low-taxed income (“GILTI”) under the 2017 Tax Act ($34 million), tax expense which we report under “Depreciation, amortization,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 other,” as well as depreciation included under “Reimbursed costs”the 2017 release of a tax reserve due to the favorable settlement of a tax position ($12 million).
See Footnote 6. Income Taxes for further information on the 2017 Tax Act.
2017 Compared to 2016
Provision for income taxes increased by $1,092 million, primarily due to the 2017 Tax Act ($586 million), higher earnings due to the inclusion of Legacy-Starwood operations for the full year 2017 ($275 million), the gain on the sale of our interest in our Income Statements, because companies utilize productiveAvendra ($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 different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variabilityASU 2016-09 ($72 million), change in the relative costsjurisdictional mix of productive assetsearnings ($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 the depreciation and amortization expense among companies. We also exclude share-based compensation expense to address the considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted.adjustments resulting from finalizing prior years’ returns ($10 million).
Adjusted EBITDA has limitations and should not be considered in isolation or a substitute for performance measures calculated under GAAP. This non-GAAP measure excludes certain cash expenses that we are obligated to make. In addition,
other companies in our industry may calculate Adjusted EBITDA differently than we do or may not calculate it at all, which limits the usefulness of Adjusted EBITDA as a comparative measure.
We present our 2015 and 2014 Adjusted EBITDA calculations that reflect the changes we describe above and reconcile this measure with Net Income in the following table:
|
| | | | | | | |
| ($ in millions) | 2015 | | 2014 |
| Net Income | $ | 859 |
| | $ | 753 |
|
| Interest expense | 167 |
| | 115 |
|
| Tax provision | 396 |
| | 335 |
|
| Depreciation and amortization | 127 |
| | 123 |
|
| Depreciation classified in Reimbursed costs | 58 |
| | 51 |
|
| Interest expense from unconsolidated joint ventures | 2 |
| | 3 |
|
| Depreciation and amortization from unconsolidated joint ventures | 10 |
| | 10 |
|
| EBITDA | $ | 1,619 |
| | $ | 1,390 |
|
| EDITION impairment charge | 12 |
| | 25 |
|
| Loss on dispositions of real estate | 15 |
| | — |
|
| Gain on redemption of preferred equity ownership interest | (41 | ) | | — |
|
| Share-based compensation (including share-based compensation reimbursed by third-party owners) | 113 |
| | 109 |
|
| Adjusted EBITDA | $ | 1,718 |
| | $ | 1,524 |
|
BUSINESS SEGMENTS
We are a diversified global lodging company withThe following discussion presents an analysis of the results of operations in threeof our reportable business segments: North American Full-Service, North American Limited-Service, and International.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 No. 16, “Business17. Business Segments” to our Financial Statements for other information about each segment, including revenues and a reconciliation of 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.
Properties by Segment
At year-end 2015, we operated, franchised, and licensed the following properties by segment and brand:North American Full-Service
|
| | | | | | | | | | | | | | | | | |
| | Company-Operated | | Franchised / Licensed | | Other (2) |
| | Properties | | Rooms | | Properties | | Rooms | | Properties | | Rooms |
| North American Full-Service | | | | | | | | | | | |
| Marriott Hotels | 132 |
| | 69,954 |
| | 200 |
| | 61,556 |
| | — |
| | — |
|
| JW Marriott | 15 |
| | 9,690 |
| | 10 |
| | 4,469 |
| | — |
| | — |
|
| Marriott Conference Centers | 10 |
| | 2,915 |
| | — |
| | — |
| | — |
| | — |
|
| Renaissance Hotels | 28 |
| | 12,229 |
| | 54 |
| | 15,130 |
| | — |
| | — |
|
| Autograph Collection Hotels | 3 |
| | 1,065 |
| | 52 |
| | 12,070 |
| | — |
| | — |
|
| Delta Hotels and Resorts | 26 |
| | 6,828 |
| | 10 |
| | 2,557 |
| | — |
| | — |
|
| Gaylord Hotels | 5 |
| | 8,098 |
| | — |
| | — |
| | — |
| | — |
|
| The Ritz-Carlton | 39 |
| | 11,410 |
| | 1 |
| | 429 |
| | — |
| | — |
|
The Ritz-Carlton Residences (1) | 31 |
| | 3,757 |
| | 1 |
| | 55 |
| | — |
| | — |
|
| EDITION | 2 |
| | 568 |
| | — |
| | — |
| | — |
| | — |
|
EDITION Residences (1) | 1 |
| | 25 |
| | — |
| | — |
| | — |
| | — |
|
| Total North American Full-Service | 292 |
| | 126,539 |
| | 328 |
| | 96,266 |
| | — |
| | — |
|
| | | | | | | | | | | | |
| North American Limited-Service | | | | | | | | | | | |
| Courtyard | 276 |
| | 43,890 |
| | 640 |
| | 85,151 |
| | — |
| | — |
|
| Residence Inn | 111 |
| | 16,719 |
| | 579 |
| | 67,693 |
| | — |
| | — |
|
| Fairfield Inn & Suites | 5 |
| | 1,324 |
| | 756 |
| | 68,646 |
| | — |
| | — |
|
| SpringHill Suites | 30 |
| | 4,720 |
| | 306 |
| | 35,030 |
| | — |
| | — |
|
| TownePlace Suites | 15 |
| | 1,740 |
| | 255 |
| | 25,388 |
| | — |
| | — |
|
| AC Hotels by Marriott | — |
| | — |
| | — |
| | — |
| | 5 |
| | 911 |
|
| Total North American Limited-Service | 437 |
|
| 68,393 |
|
| 2,536 |
|
| 281,908 |
|
| 5 |
|
| 911 |
|
| | | | | | | | | | | | |
| Total North American Locations | 729 |
|
| 194,932 |
|
| 2,864 |
|
| 378,174 |
|
| 5 |
|
| 911 |
|
| | | | | | | | | | | | |
| International | | | | | | | | | | | |
| Marriott Hotels | 145 |
| | 41,201 |
| | 39 |
| | 11,651 |
| | — |
| | — |
|
| JW Marriott | 48 |
| | 18,789 |
| | 4 |
| | 1,094 |
| | — |
| | — |
|
| Marriott Executive Apartments | 28 |
| | 4,181 |
| | — |
| | — |
| | — |
| | — |
|
| Renaissance Hotels | 53 |
| | 17,194 |
| | 25 |
| | 7,040 |
| | — |
| | — |
|
| Autograph Collection Hotels | 3 |
| | 584 |
| | 32 |
| | 8,741 |
| | 5 |
| | 348 |
|
| Protea Hotels | 47 |
| | 5,680 |
| | 55 |
| | 3,929 |
| | — |
| | — |
|
| The Ritz-Carlton | 52 |
| | 14,713 |
| | — |
| | — |
| | — |
| | — |
|
The Ritz-Carlton Residences (1) | 8 |
| | 416 |
| | — |
| | — |
| | — |
| | — |
|
| The Ritz-Carlton Serviced Apartments | 4 |
| | 579 |
| | — |
| | — |
| | — |
| | — |
|
| Bulgari Hotels & Resorts | 2 |
| | 117 |
| | 1 |
| | 85 |
| | — |
| | — |
|
Bulgari Residences (1) | 1 |
| | 5 |
| | — |
| | — |
| | — |
| | — |
|
| EDITION | 1 |
| | 173 |
| | 1 |
| | 78 |
| | — |
| | — |
|
| Courtyard | 73 |
| | 15,354 |
| | 48 |
| | 9,022 |
| | — |
| | — |
|
| Residence Inn | 5 |
| | 517 |
| | 2 |
| | 200 |
| | — |
| | — |
|
| Fairfield Inn & Suites | 5 |
| | 716 |
| | 2 |
| | 386 |
| | — |
| | — |
|
| AC Hotels by Marriott | — |
| | — |
| | — |
| | — |
| | 78 |
| | 9,551 |
|
| Moxy Hotels | — |
| | — |
| | 1 |
| | 162 |
| | — |
| | — |
|
| Total International | 475 |
|
| 120,219 |
|
| 210 |
|
| 42,388 |
|
| 83 |
|
| 9,899 |
|
| | | | | | | | | | | | |
Timeshare (3) | — |
| | — |
| | 58 |
| | 12,807 |
| | — |
| | — |
|
| | | | | | | | | | | | |
| Total | 1,204 |
|
| 315,151 |
|
| 3,132 |
|
| 433,369 |
|
| 88 |
|
| 10,810 |
|
| |
(1)
| Represents projects where we manage the related owners’ association. We include residential properties once they possess a certificate of occupancy. |
| |
(2)
| We present results for all AC Hotels by Marriott properties and five International Autograph Collection properties in the “Equity in earnings (losses)” caption of our Income Statements. |
| |
(3)
| Timeshare properties licensed by MVW under the Marriott Vacation Club, The Ritz-Carlton Destination Club, The Ritz-Carlton Residences, and Grand Residences by Marriott brand names. Includes products that are in active sales as well as those sold out. MVW reports its property and room counts on a fiscal year basis for the MVW fiscal year ended January 1, 2016.
|
The following discussion reflects all three of our reportable segments. We consider total segment revenues and total segment profits (as defined in Footnote No. 16, “Business Segments”) to be meaningful indicators of our performance because they measure our growth in profitability and enable investors to compare the revenues and profits of our operations to our competitors. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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 | % |
20152018 Compared to 2014
We added 300 properties (51,547 rooms) and 51 properties (6,328 rooms) exited our system in 2015.
Total segment revenues increased by $678 million to $14,218 million in 2015, a five percent increase from revenues of $13,540 million in 2014, and total segment profits increased by $111 million to $1,504 million in 2015, an eight percent increase from $1,393 million in 2014.
The year-over-year increase in segment revenues of $678 million was a result of a $572 million increase in cost reimbursements revenue, a $109 million increase in franchise fees, a $26 million increase in base management fees, and a $17 million increase in incentive management fees, partially offset by a $46 million decrease in owned, leased, and other revenue. The year-over-year increase of $111 million in segment profits reflected a $109 million increase in franchise fees, a $26 million increase in base management fees, and a $17 million increase in incentive management fees, partially offset by a $20 million decrease in gains and other income, net, a $12 million decrease in equity in earnings, a $6 million increase in general, administrative, and other expenses, and a $3 million decrease in owned, leased, and other revenue, net of direct expenses. For more information on the variances, see the preceding sections beginning with “Revenues.”
In 2015, 68 percent of our managed properties paid incentive management fees to us versus 50 percent in 2014. Managed properties that paid incentive management fees in 2015 represented 63 percent of properties in North America and 74 percent outside of North America, compared to 36 percent in North America and 73 percent outside of North America in 2014. The percentage of North American properties that paid incentive management fees to us increased compared to 2014 due to a few large North American Limited-Service portfolios of properties that paid incentive management fees in 2015 but did not do so in 2014. In addition, in 2015, 51 percent of our incentive fees came from properties outside of North America versus 56 percent in 2014.
Compared to 2014, worldwide comparable company-operated house profit margins in 2015 increased by 80 basis points and worldwide comparable company-operated house profit per available room (“HP-PAR”) increased by 7.5 percent on a constant U.S. dollar basis, reflecting higher occupancy, rate increases, improved productivity, and solid cost controls. These same factors contributed to North American company-operated house profit margins increasing by 80 basis points compared to 2014. HP-PAR at those same properties increased by 7.8 percent. International company-operated house profit margins increased by 70 basis points, and HP-PAR at those properties increased by 6.9 percent reflecting increased demand and higher RevPAR in most locations and improved productivity.
See “Statistics” below for detailed information on Systemwide RevPAR and Company-operated RevPAR by segment, region, and brand.
2014 Compared to 2013
We added 311 properties (46,050 rooms) and 52 properties (6,418 rooms) exited our system in 2014. These figures do not include residential units. During 2014, we also added two residential properties (30 units) and no residential properties or units exited our system.
Total segment revenues increased by $1,022 million to $13,540 million in 2014, an 8 percent increase from revenues of $12,518 million in 2013, and total segment profits increased by $196 million to $1,393 million in 2014 from $1,197 million in 2013.
The year-over-year increase in segment revenues of $1,022 million was a result of a $787 million increase in cost reimbursements revenue, an $80 million increase in franchise fees, a $58 million increase in owned, leased, and other revenue, a $51 million increase in base management fees, and a $46 million increase in incentive management fees. The year-over-year increase of $196 million in segment profits reflected an $80 million increase in franchise fees, a $51 million increase in base management fees, a $46 million increase in incentive management fees, $19 million of lower joint venture equity losses, a $11 million increase in owned, leased, and other revenue, net of direct expenses, and $4 million of lower depreciation, amortization, and other expense, partially offset by a $16 million increase in general, administrative, and other expenses. For more information on the variances, see the preceding sections beginning with “Revenues.”
In 2014, 50 percent of our managed properties paid incentive management fees to us versus 38 percent in 2013. Managed properties that paid incentive management fees in 2014 represented 36 percent of properties in North America and 73 percent
outside of North America, compared to 21 percent in North America and 70 percent outside of North America in 2013. In addition, in 2014, 56 percent of our incentive fees came from properties outside of North America versus 58 percent in 2013. Further, we earned $24 million in incentive management fees in 2014 from properties that did not earn any incentive management fees in 2013.
Compared to 2013, worldwide comparable company-operated house profit margins in 2014 increased by 120 basis points and HP-PAR increased by 9.7 percent on a constant U.S. dollar basis, reflecting higher occupancy, rate increases, improved productivity, and solid cost controls. These same factors contributed to North American company-operated house profit margins increasing by 150 basis points compared to 2013. HP-PAR at those same properties increased by 11.4 percent. International company-operated house profit margins increased by 70 basis points, and HP-PAR at those properties increased by 6.6 percent reflecting increased demand and higher RevPAR in most locations and improved productivity. Note that 2014 had three fewer days of activity when compared to 2013.
See “Statistics” below for detailed information on Systemwide RevPAR and Company-operated RevPAR by segment, region, and brand.
Development
In 2015, we added 300 properties with 51,547 rooms across our brands, including 9,590 rooms from the acquisition of Delta Hotels and Resorts, and 51 properties (6,328 rooms) left our system. No residential properties entered or left our system. Highlights of the year included:
Converting 39 properties (7,301 rooms), or 14 percent of our gross room additions for the year, to our brands;
Adding approximately 32 percent of all the new rooms outside North America; and
Adding 173 properties (19,712 rooms) to our North American Limited-Service brands.
We have over 270,000 hotel rooms in our development pipeline as of year-end 2015, which includes hotel rooms under construction and under signed contracts, as well as nearly 27,000 hotel rooms approved for development but not yet under signed contracts. We expect the number of our open hotel rooms (gross) to increase approximately 8 percent in 2016. This development pipeline and expected hotel room growth information does not include rooms that will join our system through the Starwood Combination.
We believe that we have access to sufficient financial resources to finance our growth, as well as to support our ongoing operations and meet debt service and other cash requirements. Nonetheless, our ability to develop and update our brands and the ability of hotel developers to build or acquire new Marriott-branded properties, both of which are important parts of our growth plan, depend in part on capital access, availability and cost for other hotel developers and third-party owners. These growth plans are subject to numerous risks and uncertainties, many of which are outside of our control. See the “Forward-Looking Statements” and “Risks and Uncertainties” captions earlier in this report and the “Liquidity and Capital Resources” caption later in this report.
Statistics
The following tables show occupancy, average daily rate, and RevPAR for comparable properties, for each of the brands in our North American Full-Service and North American Limited-Service segments, and for our International properties by region. Systemwide statistics include data from our franchised properties, in addition to our owned, leased, and managed properties.
|
| | | | | | | | | | | | | | |
| | Comparable Company-Operated
North American Properties | | Comparable Systemwide North American Properties | |
| | 2015 |
| Change vs. 2014 | | 2015 |
| Change vs. 2014 | |
| Marriott Hotels | | | | | | | | |
| Occupancy | 75.4 | % | | 0.6 | % | pts. | 72.6 | % | | 0.6 | % | pts. |
| Average Daily Rate | $ | 195.28 |
| | 3.8 | % | | $ | 175.53 |
| | 4.2 | % | |
| RevPAR | $ | 147.33 |
| | 4.7 | % | | $ | 127.52 |
| | 5.0 | % | |
| Renaissance Hotels | | | | | | | | |
| Occupancy | 75.2 | % | | 0.8 | % | pts. | 73.9 | % | | 0.8 | % | pts. |
| Average Daily Rate | $ | 182.13 |
| | 4.4 | % | | $ | 164.02 |
| | 4.3 | % | |
| RevPAR | $ | 136.91 |
| | 5.5 | % | | $ | 121.20 |
| | 5.4 | % | |
| Autograph Collection Hotels | | | | | | | | |
| Occupancy | * |
| | * |
| pts. | 77.5 | % | | 1.1 | % | pts. |
| Average Daily Rate | * |
| | * |
| | $ | 229.90 |
| | 1.9 | % | |
| RevPAR | * |
| | * |
| | $ | 178.16 |
| | 3.5 | % | |
| The Ritz-Carlton | | | | | | | | |
| Occupancy | 72.1 | % | | (0.1 | )% | pts. | 72.1 | % | | (0.1 | )% | pts. |
| Average Daily Rate | $ | 359.92 |
| | 2.9 | % | | $ | 359.92 |
| | 2.9 | % | |
| RevPAR | $ | 259.41 |
| | 2.7 | % | | $ | 259.41 |
| | 2.7 | % | |
| Composite North American Full-Service | | | | | | | | |
| Occupancy | 74.9 | % | | 0.6 | % | pts. | 73.1 | % | | 0.6 | % | pts. |
| Average Daily Rate | $ | 209.72 |
| | 3.5 | % | | $ | 187.40 |
| | 3.8 | % | |
| RevPAR | $ | 157.10 |
| | 4.3 | % | | $ | 136.95 |
| | 4.6 | % | |
| Courtyard | | | | | | | | |
| Occupancy | 72.8 | % | | 0.7 | % | pts. | 73.1 | % | | 0.8 | % | pts. |
| Average Daily Rate | $ | 139.08 |
| | 5.2 | % | | $ | 136.58 |
| | 5.0 | % | |
| RevPAR | $ | 101.18 |
| | 6.3 | % | | $ | 99.88 |
| | 6.1 | % | |
| Residence Inn | | | | | | | | |
| Occupancy | 78.5 | % | | 0.4 | % | pts. | 79.4 | % | | 0.1 | % | pts. |
| Average Daily Rate | $ | 143.14 |
| | 6.0 | % | | $ | 139.51 |
| | 5.3 | % | |
| RevPAR | $ | 112.33 |
| | 6.5 | % | | $ | 110.75 |
| | 5.5 | % | |
| Fairfield Inn & Suites | | | | | | | | |
| Occupancy | nm |
| | nm |
| pts. | 70.6 | % | | 0.3 | % | pts. |
| Average Daily Rate | nm |
| | nm |
| | $ | 108.71 |
| | 4.2 | % | |
| RevPAR | nm |
| | nm |
| | $ | 76.70 |
| | 4.7 | % | |
| TownePlace Suites | | | | | | | | |
| Occupancy | 72.7 | % | | 0.1 | % | pts. | 74.8 | % | | 0.3 | % | pts. |
| Average Daily Rate | $ | 102.99 |
| | 8.2 | % | | $ | 101.83 |
| | 4.6 | % | |
| RevPAR | $ | 74.83 |
| | 8.3 | % | | $ | 76.15 |
| | 5.0 | % | |
| SpringHill Suites | | | | | | | | |
| Occupancy | 76.0 | % | | 1.6 | % | pts. | 74.8 | % | | 0.3 | % | pts. |
| Average Daily Rate | $ | 125.24 |
| | 5.1 | % | | $ | 118.64 |
| | 4.8 | % | |
| RevPAR | $ | 95.21 |
| | 7.5 | % | | $ | 88.80 |
| | 5.2 | % | |
| Composite North American Limited-Service | | | | | | | | |
| Occupancy | 74.5 | % | | 0.7 | % | pts. | 74.4 | % | | 0.5 | % | pts. |
| Average Daily Rate | $ | 137.92 |
| | 5.5 | % | | $ | 127.65 |
| | 4.9 | % | |
| RevPAR | $ | 102.76 |
| | 6.5 | % | | $ | 94.99 |
| | 5.6 | % | |
| Composite North American - All | | | | | | | | |
| Occupancy | 74.7 | % | | 0.6 | % | pts. | 73.9 | % | | 0.5 | % | pts. |
| Average Daily Rate | $ | 179.53 |
| | 4.2 | % | | $ | 148.53 |
| | 4.5 | % | |
| RevPAR | $ | 134.18 |
| | 5.0 | % | | $ | 109.83 |
| | 5.2 | % | |
* There are no company-operated comparable properties.
nm means not meaningful as the brand is predominantly franchised.
|
| | | | | | | | | | | | | | |
| | Comparable Company-Operated
Properties | | Comparable Systemwide
Properties | |
| | 2015 | | Change vs. 2014 | | 2015 | | Change vs. 2014 | |
| Caribbean and Latin America | | | | | | | | |
| Occupancy | 72.4 | % | | 0.2 | % | pts. | 70.7 | % | | 0.6 | % | pts. |
| Average Daily Rate | $ | 248.05 |
| | 4.9 | % | | $ | 210.46 |
| | 3.3 | % | |
| RevPAR | $ | 179.58 |
| | 5.2 | % | | $ | 148.86 |
| | 4.1 | % | |
| Europe | | | | | | | | |
| Occupancy | 75.9 | % | | 1.7 | % | pts. | 74.3 | % | | 1.5 | % | pts. |
| Average Daily Rate | $ | 173.07 |
| | 4.1 | % | | $ | 167.63 |
| | 4.0 | % | |
| RevPAR | $ | 131.43 |
| | 6.5 | % | | $ | 124.59 |
| | 6.2 | % | |
| Middle East and Africa | | | | | | | | |
| Occupancy | 61.2 | % | | 2.7 | % | pts. | 61.6 | % | | 2.8 | % | pts. |
| Average Daily Rate | $ | 181.16 |
| | (3.5 | )% | | $ | 178.37 |
| | (3.0 | )% | |
| RevPAR | $ | 110.85 |
| | 0.9 | % | | $ | 109.80 |
| | 1.6 | % | |
| Asia Pacific | | | | | | | | |
| Occupancy | 74.1 | % | | 3.4 | % | pts. | 74.6 | % | | 3.2 | % | pts. |
| Average Daily Rate | $ | 153.83 |
| | — | % | | $ | 155.24 |
| | 0.9 | % | |
| RevPAR | $ | 114.00 |
| | 4.7 | % | | $ | 115.77 |
| | 5.5 | % | |
Total International (1) | | | | | | | | |
| Occupancy | 72.9 | % | | 2.3 | % | pts. | 72.5 | % | | 2.1 | % | pts. |
| Average Daily Rate | $ | 176.24 |
| | 1.7 | % | | $ | 171.20 |
| | 2.1 | % | |
| RevPAR | $ | 128.50 |
| | 5.0 | % | | $ | 124.13 |
| | 5.1 | % | |
Total Worldwide (2) | | | | | | | | |
| Occupancy | 74.1 | % | | 1.2 | % | pts. | 73.7 | % | | 0.8 | % | pts. |
| Average Daily Rate | $ | 178.46 |
| | 3.4 | % | | $ | 152.30 |
| | 4.1 | % | |
| RevPAR | $ | 132.30 |
| | 5.0 | % | | $ | 112.25 |
| | 5.2 | % | |
| |
(1)
| Includes properties located outside of the United States and Canada for The Ritz-Carlton, Bulgari Hotels & Resorts, EDITION, Autograph Collection Hotels, Renaissance Hotels, Marriott Hotels, Courtyard, Residence Inn, and Fairfield Inn & Suites brands. |
| |
(2)
| Includes properties worldwide for The Ritz-Carlton, Bulgari Hotels & Resorts, EDITION, Autograph Collection Hotels, Renaissance Hotels, Marriott Hotels, Gaylord Hotels, Courtyard, Residence Inn, SpringHill Suites, Fairfield Inn & Suites, and TownePlace Suites brands. |
|
| | | | | | | | | | | | | | |
| | Comparable Company-Operated
North American Properties (1) | | Comparable Systemwide
North American Properties (1) | |
| | 2014 | | Change vs. 2013 | | 2014 | | Change vs. 2013 | |
| Marriott Hotels | | | | | | | | |
| Occupancy | 75.1 | % | | 1.6 | % | pts. | 72.6 | % | | 1.5 | % | pts. |
| Average Daily Rate | $ | 188.39 |
| | 3.5 | % | | $ | 171.43 |
| | 4.0 | % | |
| RevPAR | $ | 141.42 |
| | 5.7 | % | | $ | 124.49 |
| | 6.2 | % | |
| Renaissance Hotels | | | | | | | | |
| Occupancy | 73.1 | % | | 1.1 | % | pts. | 72.6 | % | | 1.9 | % | pts. |
| Average Daily Rate | $ | 177.42 |
| | 3.7 | % | | $ | 160.77 |
| | 3.9 | % | |
| RevPAR | $ | 129.76 |
| | 5.2 | % | | $ | 116.69 |
| | 6.7 | % | |
| Autograph Collection Hotels | | | | | | | | |
| Occupancy | * |
| | * |
| pts. | 75.4 | % | | (1.0 | )% | pts. |
| Average Daily Rate | * |
| | * |
| | $ | 229.58 |
| | 8.9 | % | |
| RevPAR | * |
| | * |
| | $ | 173.04 |
| | 7.5 | % | |
| The Ritz-Carlton North America | | | | | | | | |
| Occupancy | 72.9 | % | | 1.5 | % | pts. | 72.9 | % | | 1.5 | % | pts. |
| Average Daily Rate | $ | 338.48 |
| | 4.0 | % | | $ | 338.48 |
| | 4.0 | % | |
| RevPAR | $ | 246.89 |
| | 6.2 | % | | $ | 246.89 |
| | 6.2 | % | |
| Composite North American Full-Service | | | | | | | | |
| Occupancy | 74.5 | % | | 1.6 | % | pts. | 72.8 | % | | 1.5 | % | pts. |
| Average Daily Rate | $ | 200.77 |
| | 3.6 | % | | $ | 182.00 |
| | 4.1 | % | |
| RevPAR | $ | 149.48 |
| | 5.8 | % | | $ | 132.44 |
| | 6.4 | % | |
| Residence Inn | | | | | | | | |
| Occupancy | 78.4 | % | | 2.2 | % | pts. | 79.3 | % | | 1.9 | % | pts. |
| Average Daily Rate | $ | 135.58 |
| | 4.4 | % | | $ | 130.82 |
| | 4.2 | % | |
| RevPAR | $ | 106.24 |
| | 7.4 | % | | $ | 103.79 |
| | 6.7 | % | |
| Courtyard | | | | | | | | |
| Occupancy | 71.8 | % | | 3.0 | % | pts. | 72.5 | % | | 2.3 | % | pts. |
| Average Daily Rate | $ | 129.72 |
| | 5.0 | % | | $ | 129.32 |
| | 4.5 | % | |
| RevPAR | $ | 93.18 |
| | 9.6 | % | | $ | 93.77 |
| | 7.8 | % | |
| Fairfield Inn & Suites | | | | | | | | |
| Occupancy | nm |
| | nm |
| pts. | 70.1 | % | | 2.2 | % | pts. |
| Average Daily Rate | nm |
| | nm |
| | $ | 102.80 |
| | 3.9 | % | |
| RevPAR | nm |
| | nm |
| | $ | 72.11 |
| | 7.3 | % | |
| TownePlace Suites | | | | | | | | |
| Occupancy | 72.6 | % | | 6.3 | % | pts. | 74.7 | % | | 3.2 | % | pts. |
| Average Daily Rate | $ | 95.23 |
| | 8.7 | % | | $ | 96.84 |
| | 5.3 | % | |
| RevPAR | $ | 69.09 |
| | 19.0 | % | | $ | 72.38 |
| | 9.9 | % | |
| SpringHill Suites | | | | | | | | |
| Occupancy | 73.8 | % | | 1.9 | % | pts. | 74.6 | % | | 2.6 | % | pts. |
| Average Daily Rate | $ | 112.14 |
| | 4.8 | % | | $ | 112.16 |
| | 3.9 | % | |
| RevPAR | $ | 82.78 |
| | 7.5 | % | | $ | 83.65 |
| | 7.6 | % | |
| Composite North American Limited-Service | | | | | | | | |
| Occupancy | 73.7 | % | | 2.8 | % | pts. | 74.0 | % | | 2.3 | % | pts. |
| Average Daily Rate | $ | 128.82 |
| | 4.9 | % | | $ | 120.36 |
| | 4.2 | % | |
| RevPAR | $ | 94.95 |
| | 9.0 | % | | $ | 89.11 |
| | 7.5 | % | |
| Composite North American - All | | | | | | | | |
| Occupancy | 74.2 | % | | 2.0 | % | pts. | 73.6 | % | | 2.0 | % | pts. |
| Average Daily Rate | $ | 173.11 |
| | 3.8 | % | | $ | 143.27 |
| | 4.1 | % | |
| RevPAR | $ | 128.39 |
| | 6.7 | % | | $ | 105.39 |
| | 7.0 | % | |
* There are no company-operated comparable properties.
nm means not meaningful as the brand is predominantly franchised.
| |
(1)
| Statistics include only properties located in the United States. |
|
| | | | | | | | | | | | | | |
| | Comparable Company-Operated
Properties (1) | | Comparable Systemwide
Properties (1) | |
| | 2014 | | Change vs. 2013 | | 2014 | | Change vs. 2013 | |
| Caribbean and Latin America | | | | | | | | |
| Occupancy | 73.6 | % | | 2.7 | % | pts. | 71.3 | % | | 2.2 | % | pts. |
| Average Daily Rate | $ | 239.95 |
| | 6.9 | % | | $ | 205.88 |
| | 5.9 | % | |
| RevPAR | $ | 176.66 |
| | 11.0 | % | | $ | 146.83 |
| | 9.4 | % | |
| Europe | | | | | | | | |
| Occupancy | 74.9 | % | | 1.4 | % | pts. | 73.1 | % | | 1.3 | % | pts. |
| Average Daily Rate | $ | 193.20 |
| | 1.3 | % | | $ | 185.06 |
| | 0.9 | % | |
| RevPAR | $ | 144.61 |
| | 3.2 | % | | $ | 135.28 |
| | 2.7 | % | |
| Middle East and Africa | | | | | | | | |
| Occupancy | 60.1 | % | | 5.8 | % | pts. | 60.3 | % | | 5.4 | % | pts. |
| Average Daily Rate | $ | 190.60 |
| | (2.5 | )% | | $ | 186.19 |
| | (1.6 | )% | |
| RevPAR | $ | 114.47 |
| | 7.9 | % | | $ | 112.26 |
| | 8.1 | % | |
| Asia Pacific | | | | | | | | |
| Occupancy | 73.7 | % | | 1.9 | % | pts. | 74.1 | % | | 1.8 | % | pts. |
| Average Daily Rate | $ | 176.48 |
| | 2.1 | % | | $ | 176.43 |
| | 2.4 | % | |
| RevPAR | $ | 130.04 |
| | 4.8 | % | | $ | 130.71 |
| | 5.0 | % | |
Total International (2) | | | | | | | | |
| Occupancy | 72.6 | % | | 2.2 | % | pts. | 71.9 | % | | 2.0 | % | pts. |
| Average Daily Rate | $ | 192.04 |
| | 2.2 | % | | $ | 185.39 |
| | 2.1 | % | |
| RevPAR | $ | 139.35 |
| | 5.4 | % | | $ | 133.37 |
| | 5.1 | % | |
Total Worldwide (3) | | | | | | | | |
| Occupancy | 73.7 | % | | 2.1 | % | pts. | 73.3 | % | | 2.0 | % | pts. |
| Average Daily Rate | $ | 178.96 |
| | 3.3 | % | | $ | 150.23 |
| | 3.7 | % | |
| RevPAR | $ | 131.83 |
| | 6.3 | % | | $ | 110.09 |
| | 6.6 | % | |
| |
(1)
| International includes properties located outside the United States and Canada, except for worldwide, which includes the United States. |
| |
(2)
| Company-operated statistics include the Marriott Hotels, Renaissance Hotels, Autograph Collection Hotels, The Ritz-Carlton, Bulgari Hotels & Resorts, Courtyard, and Residence Inn brands. In addition to the foregoing brands, systemwide statistics also include the Fairfield Inn & Suites brand. |
| |
(3)
| Company-operated and systemwide statistics include properties worldwide for the Marriott Hotels, Renaissance Hotels, Autograph Collection Hotels, Gaylord Hotels, The Ritz-Carlton, Bulgari Hotels & Resorts, Courtyard, Residence Inn, Fairfield Inn & Suites, TownePlace Suites, and SpringHill Suites brands. |
North American Full-Service includes The Ritz-Carlton, EDITION, JW Marriott, Autograph Collection Hotels, Renaissance Hotels, Marriott Hotels, Delta Hotels and Resorts, and Gaylord Hotels located in the United States and Canada.
|
| | | | | | | | | | | | | | | | | |
| ($ in millions) | | | Annual Change |
| | 2015 | | 2014 | | 2013 | | Change 2015/2014 | | Change 2014/2013 |
| Segment revenues | $ | 8,825 |
| | $ | 8,323 |
| | $ | 7,978 |
| | 6 | % | | 4 | % |
| Segment profits | $ | 561 |
| | $ | 524 |
| | $ | 490 |
| | 7 | % | | 7 | % |
2015 Compared to 20142017
In 2015,2018, across our North American Full-Service segment, we added 5744 properties (15,345(10,454 rooms), including 37 and 20 properties (9,590 rooms) from the Delta Hotels and Resorts acquisition, and five properties (1,398(6,923 rooms) left our system.
For the twelve months ended December 31, 2015, compared to the twelve months ended December 31, 2014, RevPAR for comparable systemwide North American Full-Service properties increased by 4.6 percent to $136.95, occupancy for these properties increased by 0.6 percentage points to 73.1 percent, and average daily rates increased by 3.8 percent to $187.40.
The $37 million increase in segment profits compareddecreased by $85 million, primarily due to 2014, was driven by $44the following:
$119 million of lower cost reimbursement revenue, net of reimbursed expenses;
$45 million of higher base management and franchise fees, 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;
$8 million of higher incentive management fees, partially offsetprimarily driven by $6net higher profits at managed hotels;
$24 million of lower owned, leased, and other revenue, net of direct expenses, $4primarily reflecting $60 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, $4primarily due to administrative cost savings largely due to synergies associated with the Starwood Combination;
$1 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 million, partially offset by the 2018 gain on the sale of two properties of $22 million; and $3
$1 million of higher depreciation, amortization, and other expense.
Base management and franchise fees were higherequity in earnings, primarily due to stronger RevPAR driven by rate and unit growth,our $10 million share of the 2018 gain on an equity method investee’s sale of a property, partially offset by $5our $6 million share of contract modifications and terminations. Increased incentive management fees were primarily driven by higher net house profits at managed hotels.
Lower owned, leased, and other revenue, net of direct expenses primarily reflected $8 million of weaker performance at a North American Full-Service property under renovation.property.
General, administrative, and other expenses were higher due to $5 million from the Delta Hotels and Resorts acquisition and $2 million in higher reserves for guarantee funding, partially offset by $3 million of other property expenses incurred in 2014.
Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $7,911 million in 2015, compared to $7,465 million in 2014.
20142017 Compared to 20132016
In 2014,2017, across our North American Full-Service segment we added 2355 properties (5,093(13,056 rooms) and no12 properties (zero(2,912 rooms) left our system.
For the twelve months ended December 31, 2014, compared to the twelve months ended December 31, 2013, RevPAR for comparable systemwide North American Full-Service propertiessegment profits increased by 6.4 percent$437 million, primarily due to $132.44, occupancy for these properties increased by 1.5 percentage points to 72.8 percent, and average daily rates increased by 4.1 percent to $182.00.the following:
The $34$38 million increase in segment profits, compared to 2013, was driven by $30of higher cost reimbursement revenue, net of reimbursed expenses;
$301 million of higher base management and franchise fees, 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 $17 million of lower Legacy-Marriott residential branding fees;
$45 million of higher incentive management fees, and $5 million of lower depreciation, amortization, and other expense, partially offsetprimarily driven by $11 million of lower owned, leased, and other revenue, net of direct expenses, and $8$31 million of higher general, administrative,Legacy-Starwood fees and other expenses.
Base management and franchise fees were higher due to stronger RevPAR as a result of increased demand and unit growth, partially offset by $7 million from terminated units. The increase in incentive management fees was primarily driven by higher net house profitprofits at Legacy-Marriott managed hotels, partially offset by $5 million in deferred fees recognized in 2013.hotels;
The decrease in depreciation, amortization, and other expense primarily reflected $11 million of accelerated amortization related to contract terminations in 2013, partially offset by $3 million of higher depreciation for a property that we acquired in the 2013 fourth quarter and $2 million in higher accelerated amortization related to contract terminations in 2014.
The decrease in owned, leased, and other revenue, net of direct expenses primarily reflected $7 million of lower termination fees, $6 million of lower branding fees, and $6 million of pre-opening costs, partially offset by $10 million in revenue, net of direct expenses, for a property we acquired in the 2013 fourth quarter.
General, administrative, and other expenses increased primarily due to a $4 million increase in guarantee funding and $3 million of other property expenses.
Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $7,465 million in 2014, compared to $7,190 million in 2013.
North American Limited-Service includes AC Hotels by Marriott, Courtyard, Residence Inn, SpringHill Suites, Fairfield Inn & Suites, and TownePlace Suites located in the United States and Canada.
|
| | | | | | | | | | | | | | | | | |
| ($ in millions) | | | | | | | Annual Change |
| | 2015 | | 2014 | | 2013 | | Change 2015/2014 | | Change 2014/2013 |
| Segment revenues | $ | 3,193 |
| | $ | 2,962 |
| | $ | 2,583 |
| | 8 | % | | 15 | % |
| Segment profits | $ | 651 |
| | $ | 574 |
| | $ | 479 |
| | 13 | % | | 20 | % |
2015 Compared to 2014
In 2015, across our North American Limited-Service segment we added 173 properties (19,712 rooms) and 26 properties (2,820 rooms) left our system. The majority of the properties that left our system were Fairfield Inn & Suites and Residence Inn properties.
For the twelve months ended December 31, 2015, compared to the twelve months ended December 31, 2014, RevPAR for comparable systemwide North American Limited-Service properties increased by 5.6 percent to $94.99, occupancy for these properties increased by 0.5 percentage points to 74.4 percent, and average daily rates increased by 4.9 percent to $127.65.
The $77 million increase in segment profits, compared to 2014, reflected $73 million of higher base management and franchise fees, $13 million of higher incentive management fees, $2 million of lower general, administrative, and other
expenses, and $1 million of lower depreciation, amortization, and other expense, partially offset by $5 million of lower owned, leased, and other revenue, net of direct expenses, $4 million of lower gains and other income, net, and $3 million of lower equity in earnings.
Base management and franchise fees were higher due to unit growth and stronger room rates, including $19 million of higher franchise licensing and application fees, partially offset by a $5 million reduction in previously deferred fees and $3 million of contract terminations. Increased incentive management fees were primarily driven by a few large portfolios of managed hotels whose improved net house profits allowed them to reach their owners priority threshold and begin to record incentive fees.
Lower owned, leased, and other revenue, net of direct expenses primarily reflected $7 million of lower termination fees, partially offset by $3 million of higher net earnings at several leased properties.
Gains and other income, net were lower due to a $4 million expected disposal loss on a plot of land. See Footnote No. 3, “Acquisitions and Dispositions” for more information.
Lower equity in earnings was driven by the redemption of our investment in an entity that owns two hotels.
Cost reimbursements revenue and expenses for our North American Limited-Service segment properties totaled $2,366 million in 2015, compared to $2,217 million in 2014.
2014 Compared to 2013
In 2014, across our North American Limited-Service segment we added 120 properties (13,928 rooms) and 32 properties (3,030 rooms) left our system. The majority of the properties that left our system were Fairfield Inn & Suites and Residence Inn properties.
For the twelve months ended December 31, 2014, compared to the twelve months ended December 31, 2013, RevPAR for comparable systemwide North American Limited-Service properties increased by 7.5 percent to $89.11, occupancy for these properties increased by 2.3 percentage points to 74.0 percent, and average daily rates increased by 4.2 percent to $120.36.
The $95 million increase in segment profits, compared to 2013, primarily reflected $80 million of higher base management and franchise fees, $11$60 million of higher owned, leased, and other revenue, net of direct expenses, and $7primarily reflecting $67 million of higher incentive management fees.Legacy-Starwood owned and leased profits;
Higher base management and franchise fees were primarily driven by higher RevPAR for comparable properties and unit growth, and included $15$39 million of higher deferred management feesdepreciation, amortization, and $10other expenses, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets;
$22 million of higher relicensing fees. Increased incentive management fees resulted from net house profit growth at managed hotels.
The increase in owned, leased,gains and other revenue,income, net, primarily due to the gain on the sale of direct expenses, primarily reflected $5a North American Full-Service hotel in the 2017 second quarter; and
$16 million of higher netequity in earnings, at several leased properties and $4 million ofprimarily due to higher termination fees.earnings by Legacy-Starwood investees.
Cost reimbursements revenue and expenses forNorth American Limited-Service
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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 properties totaled $2,217 million in 2014, compared to $1,939 million in 2013.
International includes properties, regardless of brand, that are located outside the United States and Canada.
|
| | | | | | | | | | | | | | | | | |
| ($ in millions) | | | | | | | Annual Change |
| | 2015 | | 2014 | | 2013 | | Change 2015/2014 | | Change 2014/2013 |
| Segment revenues | $ | 2,200 |
| | $ | 2,255 |
| | $ | 1,957 |
| | (2 | )% | | 15 | % |
| Segment profits | $ | 292 |
| | $ | 295 |
| | $ | 228 |
| | (1 | )% | | 29 | % |
2015 Compared to 2014
In 2015, across our International regions we added 70281 properties (16,490(33,418 rooms) and 2038 properties (2,110(3,415 rooms) left our system.
For the twelve months ended December 31, 2015, comparedNorth American Limited-Service segment profits decreased by $41 million, primarily due to the twelve months ended December 31, 2014, RevPAR for comparable systemwide international properties increased by 5.1 percent to $124.13, occupancy for these properties increased by 2.1 percentage points to 72.5 percent, and average daily rates increased by 2.1 percent to $171.20. See “Business and Overview” for a discussion of trends in the various International regions.following:
The $3 million decrease in segment profits in 2015, compared to 2014, consisted of $12$100 million of lower gainscost reimbursement revenue, net of direct expenses; and other income, net, $9 million of lower equity in earnings, $6 million of lower incentive management fees, and $4 million of higher general, administrative, and other expenses, partially offset by $18
$63 million of higher base management and franchise fees, $8primarily reflecting $56 million from unit growth, $7 million from RevPAR growth, and $5 million of higher relicensing and application fees, partially offset by $6 million of lower fees from properties that were terminated.
2017 Compared to 2016
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
$6 million of lower incentive management fees, primarily driven by softer performance and a change in the specified owner return at a Legacy-Marriott portfolio of managed hotels.
Asia Pacific
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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, primarily due to the following changes:
$26 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 higher owned, leased, and other revenue, net of direct expenses, and $2primarily due to $14 million of lower depreciation, amortization, and other expense.
Base management and franchise fees increased due to stronger RevPAR, driven by both occupancy and rate, and unit growth, partially offset by the impact of $16 million in unfavorable foreign exchange rates. Lower incentive management fees reflected $15 million in unfavorable foreign exchange rates, partially offset by higher net house profit at managed hotels and unit growth.
Higher owned, leased, and other revenue, net of direct expenses largely reflected favorable operating results at several of our properties, including $4 million of lower lease payments for properties that moved to managed, franchised, or left our system, and $7 million of increased termination fees, partially offset by $4$13 million in lower branding fees,owned and $2 million from a property that convertedleased profits attributable to managed.properties sold;
Lower depreciation, amortization, and other expense was driven by amortization true-ups and lower depreciation from an International property sold in 2015, partially offset by $5$1 million of higher depreciation at several of our leased properties.
General,general, administrative, and other expenses, increased primarily due to $6 million of higher costs for branding and service initiativesbad debt reserves partially offset by administrative cost savings largely due to grow our brands globally.synergies associated with the Starwood Combination;
Lower$71 million of higher gains and other income, net, primarily reflected an $11reflecting a $57 million lossgain on the sale of an International property discussed in Footnote No. 3, “Acquisitionstwo properties and Dispositions.”
Lower equity in earnings reflected an unfavorable variance to a $9$13 million benefit recorded in 2014 for twofrom gains on sales of our International investments, following the reversalinterest in two equity method investments; and
$29 million of their liabilities associated with a tax law change in a country in which they operate, and a $6 million impairment charge relating to an International joint venture, partially offset by a $5 million benefit recorded in 2015 following an adjustment to an International investee’s liabilities.lower cost reimbursement revenue, net of reimbursement expenses.
Cost reimbursements revenue and expenses for our International properties totaled $1,282 million in 2015, compared to $1,305 million in 2014.
20142017 Compared to 20132016
In 2014,2017, across our International regionsAsia Pacific segment we added 17077 properties (26,737(18,035 rooms) and 1610 properties (3,130(3,961 rooms) left our system.
For the twelve months ended December 31, 2014, comparedAsia Pacific segment profits increased by $201 million, primarily due to the twelve months ended December 31, 2013, RevPAR for comparable systemwide international properties increased by 5.1 percent to $133.37, occupancy for these properties increased by 2.0 percentage points to 71.9 percent, and average daily rates increased by 2.1 percent to $185.39. See “Business and Overview” for a discussionfollowing:
$45 million of results in the various International regions.higher cost reimbursement revenue, net of reimbursement expenses;
The $67 million increase in segment profits in 2014, compared to 2013, primarily consisted of $22 million in higher incentive management fees, $21$108 million of higher base management and franchise fees, $17primarily due to $88 million of higher equity in earnings,Legacy-Starwood fees, $9 million of higher Legacy-Marriott branding fees, $6 million from Legacy-Marriott unit growth, and $11$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 $6$5 million of lower Legacy-Marriott Global Design profits;
$24 million of higher depreciation, amortization, and other expenses, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets;
$31 million of higher general, administrative, and other expenses.expenses, primarily due to the Starwood Combination; and
The increase in base management and franchise fees was driven by unit growth and$8 million of higher RevPAR, partially offset by the impact of $3 million in unfavorable foreign exchange rates and $4 million from terminated units. Increased incentive management fees were primarily driven by higher net house profit at managed hotels and unit growth, partially offset by the impact of $4 million in unfavorable foreign exchange rates.
The increase of equity in earnings, was driven by a $9 million reversal of deferred tax liabilities associated with a tax law change in a country in which two of our International joint ventures operate and $7 million in increased earnings at three of our joint ventures.
The increase in owned, leased, and other revenue, net of direct expenses largely reflected $10 million from Protea Hotels programs and leases acquired in the 2014 second quarter, $5 million in higher costs in 2013 related to three leases we terminated, $5 million of pre-opening costs in 2013, $4 million from new units, and $4 million of favorable operating profits, partially offset by an unfavorable variance of $12 million in termination fees recognized in 2013, and $6 million in earnings from properties that converted to managed or franchised.
The increase in general, administrative, and other expenses was primarily due to $5 million related to the Protea Hotels acquisition and $5 million in higher compensation, partially offsetearnings by a $5 million performance cure payment for one property in 2013.Legacy-Starwood investees.
Cost reimbursements revenue and expenses for our International properties totaled $1,305 million in 2014, compared to $1,071 million in 2013.
SHARE-BASED COMPENSATION
Under our Stock and Cash Incentive Plan, we award: (1) stock options to purchase our common stock; (2) stock appreciation rights (“SARs”) for our common stock; (3) restricted stock units (“RSUs”) of our common stock; and (4) deferred stock units. We also issue performance-based RSUs (“PSUs”) to named executive officers and some of their direct reports under the Stock and Cash Incentive Plan.
During 2015, we granted 1.3 million RSUs, 0.1 million PSUs, and 0.3 million SARs. See Footnote No. 5, “Share-Based5. Share-Based Compensation” for more information.
NEW ACCOUNTING STANDARDS
See Footnote No. 2 “Summary2. Summary of Significant Accounting Policies” to our Financial Statements for information on our anticipated adoption of recently issued accounting standards.
LIQUIDITY AND CAPITAL RESOURCES
Cash Requirements and Our Credit FacilitiesFacility
OurWe are party to a multicurrency revolving credit agreement (the “Credit Facility”) that provides for $2,000 millionup to $4 billion of aggregate effective borrowings to support our commercial paper program and general corporate needs, including working capital, capital expenditures, share repurchases, letters of credit, and acquisitions. The availability of the Credit Facility also supports our commercial paper program. In addition, we may use borrowings under the Credit Facility, or commercial paper supported by the Credit Facility, to finance all or part of the cash component of the consideration to Starwood shareholders in connection with the Starwood Combination and certain fees and expenses incurred in connection with the combination. 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 any 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 term of the Credit Facility expires on July 18, 2018.June 10, 2021.
The Credit Facility contains certain covenants, including a single financial covenant that limits our maximum leverage (consisting of the(the ratio of Adjusted Total Debt to Consolidated EBITDA, each as defined in the Credit Facility) to not more than 4 to 1. The Credit Facility defines EBITDA as net income less cost reimbursement revenue, plus reimbursed expenses, plus the sum of interest expense, income taxes, depreciation, amortization, and non-recurring non-cash charges.
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 leverage covenant under the Credit Facility, and do not expect that the covenants will restrict our ability to meet our anticipated borrowing and guarantee levels or increase those levels should we decide to do so in the future.
We believe the Credit Facility and our access to capital markets, together with cash we expect to generate from operations, remain adequate to meet 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 United States.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 classify any outstanding commercial paper and Credit Facility borrowings as long-term based on our ability and intent to refinance them on a long-term basis. We reserve unused capacity under our Credit Facility to repay outstanding commercial paper borrowings in the event thatif 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 2015,2018, our available borrowing capacity amounted to $1,158$2,067 million and reflected borrowing capacity of $1,062$1,751 million under our Credit Facility and our cash balance of $96$316 million. We calculated that borrowing capacity by taking $2,000 million$4 billion of effective aggregate bank commitments under our Credit Facility and subtracting $938$2,249 million of outstanding commercial paper (there being no outstanding letters of credit under our Credit Facility).
We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to execute our announced growth plans.plans and fund our liquidity needs. We expect to continue meeting part of our financing and liquidity needs primarily through commercial paper borrowings, issuances of senior notes,Senior Notes, and access to long-term committed
credit facilities. If conditions in the lodging industry deteriorate, or if disruptions in the capital markets take place as they did in the immediate aftermath of both the 2008 worldwide financial crisis and the events of September 11, 2001, we may be unable to place some or all of our commercial paper on a temporary or extended basis and may have to rely more on borrowings under the Credit Facility, which we believe will be adequate to fund our liquidity needs, including repayment of debt obligations, but which may or may not carry a higher cost than commercial paper. Since we continue to have ample flexibility under the Credit Facility’s covenants, we expect that undrawn bank commitments under the Credit Facility will remain available to us even if business conditions were to deteriorate markedly.
Cash from Operations
Cash from operations and non-cash items for the last three fiscal years are as follows:
| | | ($ in millions) | 2015 | | 2014 | | 2013 | 2018 | | 2017 | | 2016 |
| Cash from operations | $ | 1,430 |
| | $ | 1,224 |
| | $ | 1,140 |
| $ | 2,357 |
| | $ | 2,227 |
| | $ | 1,619 |
|
Non-cash items (1) | 395 |
| | 328 |
| | 316 |
| 287 |
| | 1,397 |
| | 514 |
|
| |
(1) | Includes depreciation, amortization, impairments, share-based compensation, and deferred income taxes.taxes, and contract investment amortization. |
Our ratio of current assets to current liabilities was 0.4 to 1.0 at year-end 20152018 and 0.5 to 1.0 at year-end 2014.2017. 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.
Our ratios of earnings to fixed charges for the last five fiscal years, the calculations of which we detail in Exhibit 12 to this 2015 Annual Report on Form 10-K, are as follows:
|
| | | | | | | | |
| Fiscal Years |
| 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| 6.4x | | 6.2x | | 5.1x | | 4.6x | | 2.3x |
Spin-off Cash Tax Benefits
Tax matters that could affect our cash tax benefits related to the 2011 spin-off of our timeshare operations and timeshare development business were resolved in 2013. As we expected, the spin-off resulted in our realization through 2015 of approximately $480 million of cash tax benefits, relating to the value of the timeshare business. We realized $447 million of those benefits through 2014 and expect to realize approximately $33 million of cash tax benefits in 2015.
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 of $305$556 million in 2015, $4112018, $240 million in 2014,2017, and $296$199 million in 2013. These included expenditures related to the development and construction of new hotels and acquisitions of hotel properties, improvements to existing properties, and systems initiatives.2016. Capital expenditures in 2015 decreased2018 increased by $106$316 million compared to 2014,2017, primarily relatedreflecting the acquisition of the Sheraton Grand Phoenix, improvements to the 2014 development of two EDITION hotels, partially offset by 2015 renovations at a North American Full-Service propertyour worldwide systems, and investments in our reservations system.net higher spending on several owned properties. Capital expenditures in 20142017 increased by $115$41 million compared to 2013,2016, primarily relateddue to developing two EDITIONimprovements to our worldwide systems and improvements to hotels and our 2014 acquisition of an International property, partially offset by the completion of The London EDITIONacquired in the 2013 fourth quarter.Starwood Combination.
We expect 2016 investment spending on capital expenditures and other investments will total approximately $450$500 million to $550$700 million for 2019, including acquisitions, loan advances, equity and other investments, contract acquisition costs, and various capital expenditures (including approximately $100$225 million for maintenance capital spending. Investment spending also includes other capital expenditures, loan advances, contract acquisition costs, acquisitions, and equity and other investments. See our Condensed Consolidated Statements of Cash Flows for information on investment spending for 2015. Our anticipated investment spending does not include additional investments we may make in connection with the Starwood Combination, which we expect will close in mid-2016, after customary conditions are satisfied, including shareholder approvals, required antitrust approvals, and the completion of Starwood’s previously announced spin-off of its vacation ownership business, or another spin-off, split-off, analogous disposition, or sale of its vacation ownership business. See Footnote No. 3, “Acquisitions and Dispositions,” for more information about the Starwood Combination.spending).
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 inherent in the lodging industry and other constraints inherent in the capital markets as a whole.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 venture interests in hotels, most of which we have sold or are seeking to sell, 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, 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 operating 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 $673$479 million cash proceeds in 20152018 and $435$1,418 million in 2014.2017. See Footnote No. 3, “Acquisitions3. Dispositions and Dispositions,”Acquisitions for more information on completed dispositions and planned dispositions.
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 $26$35 million in 20152018, compared to net advancescollections of $69$94 million in 2014.2017. At year-end 2015,2018, we had a $3$131 million senior loan (current) and $218 million of mezzanine and other loans ($215 million noncurrent and $3 million current) outstanding, compared with a $3 million senior loan (current) and $239 million of mezzanine and other loans ($215 million noncurrent and $24 million current) outstanding at year-end 2014. In 2015, our notes receivable balance for senior, mezzanine, and other loans decreased by $21outstanding, compared to $149 million primarily reflecting $86 million of collections on MVW notes receivable issued to us in 2011 in conjunction with our Timeshare spin-off, partially offset by the issuance of the $58 million mezzanine loan (net of a $6 million discount) described in Footnote No. 13, “Notes Receivable.”outstanding at year-end 2017.
Equity and Cost Method Investments. Cash outflows of $7$72 million in 2015, $62018, $62 million in 2014,2017, and $16$13 million in 20132016 for equity and cost method investments primarily reflectsreflect our investments in a number ofseveral joint ventures.
Cash from Financing Activities Cash Flows
Debt. Debt increased by $336$1,109 million in 2015,2018, to $4,107$9,347 million at year-end 20152018 from $3,771$8,238 million at year-end 2014,2017, primarily due to the issuance of our Series X, Y, Z, and reflected $790 million ($800 million face amount) in Series O and PAA Notes, issuances, partially offset by $314 million from the redemptionmaturity of our Series GS Notes ($330 million) and a $134 million decrease inlower outstanding commercial paper borrowings.($126 million). See Footnote No. 10, “Long-Term Debt”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 2015,2018, our long-term debt had ana weighted average interest rate of 2.93.3 percent and ana weighted average maturity of approximately 4.64.8 years. The ratio of our fixed-rate long-term debt to our total long-term debt was 0.80.7 to 1.0 at year-end 2015.2018.
See the “Cash“Cash Requirements and Our Credit Facilities,Facility,” caption in this “Liquidity and Capital Resources” section for more information on our Credit Facility.
Share Repurchases.We purchased 25.721.5 million shares of our common stock in 20152018 at an average price of $75.48$130.67 per share, 24.229.2 million shares in 20142017 at an average price of $62.09$103.66 per share, and 20.08.0 million shares in 20132016 at an average price of $41.46$71.55 per share. At year-end 2015, 14.42018, 10.7 million shares remained available for repurchase under Board approved authorizations, from our Board of Directors. On and on February 11, 2016, we announced that15, 2019, our Board of Directors further increased our common stock repurchase authorization by 25 million shares, the authorization to repurchase our common stock. We purchase sharesshares. For additional information, see “Fourth Quarter 2018 Issuer Purchases of Equity Securities” in the open market and in privately negotiated transactions.Part II, Item 5.
Dividends. Our Board of Directors declared and paid the following quarterly cash dividends in 2015:2018: (1) $0.20$0.33 per share declared on February 12, 20159, 2018 and paid March 27, 201530, 2018 to shareholders of record on February 27, 2015;23, 2018, (2) $0.25$0.41 per share declared on May 8, 20154, 2018 and paid June 26, 201529, 2018 to shareholders of record on May 22, 2015;18, 2018, (3) $0.25$0.41 per share declared on August 6, 20159, 2018 and paid September 25, 201528, 2018 to shareholders of record on August 20, 2015;23, 2018, and (4) $0.25$0.41 per share declared on November 58, 2018 and paid December 2831, 2018 to shareholders of record on November 19.21, 2018. Our Board of Directors declared a cash dividend of $0.25$0.41 per share on February 11, 2016,15, 2019, payable on March 31, 201629, 2019 to shareholders of record on February 25, 2016.March 1, 2019.
Contractual Obligations and Off BalanceOff-Balance Sheet Arrangements
Contractual Obligations
The following table summarizes our contractual obligations at year-end 2015:2018: | | | | | | Payments Due by Period | | | Payments Due by Period |
| ($ in millions) | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years |
Debt (1) | $ | 4,661 |
| | $ | 415 |
| | $ | 1,429 |
| | $ | 1,105 |
| | $ | 1,712 |
| $ | 10,483 |
| | $ | 1,074 |
| | $ | 4,392 |
| | $ | 2,054 |
| | $ | 2,963 |
|
Capital lease obligations (1) | 5 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
| 230 |
| | 13 |
| | 26 |
| | 26 |
| | 165 |
|
| Operating leases where we are the primary obligor: | | | | | | | | | | |
| Recourse | 776 |
| | 114 |
| | 209 |
| | 136 |
| | 317 |
| |
| Nonrecourse | 186 |
| | 12 |
| | 26 |
| | 18 |
| | 130 |
| |
| Operating leases where we are the primary obligor | | 2,073 |
| | 171 |
| | 315 |
| | 292 |
| | 1,295 |
|
| Purchase obligations | 173 |
| | 71 |
| | 99 |
| | 3 |
| | — |
| 286 |
| | 153 |
| | 116 |
| | 17 |
| | — |
|
| Other noncurrent liabilities | 48 |
| | 1 |
| | 8 |
| | 2 |
| | 37 |
| 136 |
| | 3 |
| | 28 |
| | 20 |
| | 85 |
|
| Total contractual obligations | $ | 5,849 |
| | $ | 614 |
| | $ | 1,773 |
| | $ | 1,265 |
| | $ | 2,197 |
| $ | 13,208 |
| | $ | 1,414 |
| | $ | 4,877 |
| | $ | 2,409 |
| | $ | 4,508 |
|
| |
(1) | Includes principal as well as interest payments. |
The preceding table does not reflect Transition Tax payments totaling $507 million as a result of the 2017 Tax Act. In addition, the table does not reflect unrecognized tax benefits at year-end 20152018 of $24$559 million. See Footnote No. 6, “Income Taxes” for additional information.
In addition to the purchase obligations noted in the preceding table, in the normal course of business we enter into purchase commitments to manage the daily operating needs of the hotels that we manage. Since we are reimbursed from the cash flows of the hotels, these obligations have minimal impact on our net income and cash flow.
Guarantee
Other Commitments
The following table summarizes our guarantee, investment, and loan commitments at year-end 2015:2018: |
| | | | | | | | | | | | | | | | | | | |
| | | | Amount of Guarantee Commitments Expiration by Period |
| ($ in millions) | Total Amounts Committed | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years |
| Total guarantees where we are the primary obligor | $ | 228 |
| | $ | 5 |
| | $ | 29 |
| | $ | 97 |
| | $ | 97 |
|
| Total guarantees where we are secondarily liable | 92 |
| | 24 |
| | 51 |
| | 9 |
| | 8 |
|
| Total guarantee commitments | $ | 320 |
| | $ | 29 |
| | $ | 80 |
| | $ | 106 |
| | $ | 105 |
|
|
| | | | | | | | | | | | | | | | | | | |
| ($ 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 |
|
| Investment and loan commitments (expected funding by period) | 19 |
| | 8 |
| | 9 |
| | 2 |
| | — |
|
| Total other commitments | $ | 365 |
| | $ | 61 |
| | $ | 87 |
| | $ | 125 |
| | $ | 92 |
|
In conjunction with financing obtained for specific projects or properties owned by joint ventures in which we are a party, 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.
InvestmentIn addition, we granted a hotel owner a one-time right to require us to purchase the leasehold interest in the land and Loanhotel for $300 million in cash, exercisable in 2022. See Footnote 7. Commitments and Contingencies for more information.
We also had the following investment and loan commitments outstanding at year-end 2015: |
| | | | | | | | | | | | | | | | | | | |
| | | | Amount of Expected Funding by Period |
| ($ in millions) | Total Amounts Committed | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years |
| Total investment and loan commitments | $ | 85 |
| | $ | 38 |
| | $ | 47 |
| | $ | — |
| | $ | — |
|
For further information, on our investment and loan commitments, including the nature of the commitments and their expirations, see the “Commitments”“Commitments” caption in Footnote No. 7, “Commitments7. Commitments and Contingencies.”
Letters of Credit
At year-end 2015,2018, we also had $82$136 million of letters of credit outstanding (all outside the Credit Facility)Facility, as defined in Footnote 10. Long-Term Debt), the majoritymost of which were for our self-insurance programs. Surety bonds issued as of year-end 20152018 totaled $159$152 million, the majoritymost of which federal, state and local 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 and/or franchise services and receive fees. We also have equity method investments in entities that provide management and/or franchise services to hotels 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 members of the Marriott family.
For more information, including the impact to our financial statements of transactions with these related parties, see Footnote No. 17, “Related18. 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 at the timewhen 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 at the timewhen the estimate or assumption was made. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result ofdue to unforeseen events or otherwise could have a material impact on our financial position or results of operations.
Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure presented below relating to them.
See Footnote No. 2, “Summary2. Summary of Significant Accounting Policies” for further information onrelated to our critical accounting policies and estimates, which are as follows:
Rewards ProgramsLoyalty Program, including how members earn points, how we estimate the valuebreakage of future redemption obligation,hotel points, credit card points, and howfree 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 recognize revenue for these programs;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;
Loan Loss Reserves, including information on how we measure impairment on senior, mezzanine, and other loans of these types; and
Income Taxes, including information on how we determine our current year amounts payable or refundable, as well as our estimate of deferred tax assets and liabilities.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. |
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 investment in a publicly traded company. Changes in the price of the underlying stock can impact the fair value of our investment. We account for our investments as available-for-sale securities under the guidance for accounting for certain investments in debt and equity securities. At year-end 2015, our investments had a fair value of $37 million.
We use derivative instruments, including cash flow hedges, net investment in non-U.S. operations hedges, and other derivative instruments, as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and currency exchange rates. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes. See Footnote No. 2, “Summary2. Summary of Significant Accounting Policies” for more information on derivative instruments.
The following table sets forth the scheduled maturities and the total fair value as of year-end 20152018 for our financial instruments that are impacted by market risks:
| | | | Maturities by Period | | | | | Maturities by Period | | | | |
| ($ in millions) | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | There- after | | Total Carrying Amount | | Total Fair Value | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | There- after | | Total Carrying Amount | | Total Fair Value |
Assets - Maturities represent expected principal receipts, fair values represent assets. | Assets - Maturities represent expected principal receipts, fair values represent assets. | Assets - Maturities represent expected principal receipts, fair values represent assets. |
| Fixed-rate notes receivable | $ | 2 |
| | $ | 2 |
| | $ | 19 |
| | $ | 1 |
| | $ | 2 |
| | $ | 39 |
| | $ | 65 |
| | $ | 65 |
| $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | 38 |
| | $ | 46 |
| | $ | 46 |
|
| Average interest rate | | | | | | | | | | | | | 2.09 | % | | | | | | | | | | | | | | | 1.27 | % | | |
| Floating-rate notes receivable | $ | 4 |
| | $ | 1 |
| | $ | 41 |
| | $ | 4 |
| | $ | — |
| | $ | 106 |
| | $ | 156 |
| | $ | 151 |
| $ | 4 |
| | $ | 60 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 21 |
| | $ | 85 |
| | $ | 76 |
|
| Average interest rate | | | | | | | | | | | | | 5.73 | % | | | | | | | | | | | | | | | 4.65 | % | | |
Liabilities - Maturities represent expected principal payments, fair values represent liabilities. | Liabilities - Maturities represent expected principal payments, fair values represent liabilities. | Liabilities - Maturities represent expected principal payments, fair values represent liabilities. |
| Fixed-rate debt | $ | (299 | ) | | $ | (301 | ) | | $ | (9 | ) | | $ | (605 | ) | | $ | (357 | ) | | $ | (1,593 | ) | | $ | (3,164 | ) | | $ | (2,943 | ) | $ | (827 | ) | | $ | (359 | ) | | $ | (857 | ) | | $ | (1,107 | ) | | $ | (687 | ) | | $ | (2,555 | ) | | $ | (6,392 | ) | | $ | (6,254 | ) |
| Average interest rate | | | | | | | | | | | | | 3.68 | % | | | | | | | | | | | | | | | 3.45 | % | | |
| Floating-rate debt | $ | — |
| | $ | — |
| | $ | (938 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (938 | ) | | $ | (938 | ) | $ | — |
| | $ | (547 | ) | | $ | (2,245 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (2,792 | ) | | $ | (2,793 | ) |
| Average interest rate | | | | | | | | | | | | | 0.62 | % | | | | | | | | | | | | | | | 2.88 | % | | |
| |
| 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, 2015,2018, 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, 20152018, 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
TheTo the Shareholders and Board of Directors and Shareholders 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, 20152018, 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.’s (the Company) has not maintained effective internal control over financial reporting as of December 31, 2018, 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. as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2018, and the related notes. This material weakness was considered in determining the nature, timing 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, which 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’sCompany’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 Public Company Accounting Oversight Board (United States).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
In our opinion,March 1, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Marriott International, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based
Opinion on the COSO criteria.Financial Statements
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), theaccompanying consolidated balance sheets of Marriott International, Inc. (the Company) as of December 31, 20152018 and 2014,2017, and the related consolidated statements of income, comprehensive income, shareholders’ (deficit) equity and cash flows for each of the three fiscal years in the period ended December 31, 20152018 of Marriott International, Inc. and our report dated February 18, 2016 expressed an unqualified opinion thereon.
McLean, Virginia
February 18, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Marriott International, Inc.
We have audited the accompanying consolidated balance sheets of Marriott International, Inc. as of December 31, 2015 and 2014,, and the related consolidated statements of income, comprehensive income, shareholders’ (deficit) equity and cash flows for each ofnotes (collectively referred to as the three fiscal years in the period ended December 31, 2015“financial statements”). 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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Marriott International, Inc.the Company at December 31, 20152018 and 2014,2017, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 31, 2015,2018, 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), Marriott International, Inc.’sthe Company’s internal control over financial reporting as of December 31, 2015,2018, 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 February 18, 2016March 1, 2019 expressed an unqualifiedadverse 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.
McLean,
We have served as the Company’s auditor since 2002.
Tysons, Virginia
February 18, 2016March 1, 2019
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years 20152018, 20142017, and 20132016
($ in millions, except per share amounts)
| | | | December 31,
2015 | | December 31,
2014 | | December 31,
2013 | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| REVENUES | | | | | | | | | | |
Base management fees (1) | $ | 698 |
| | $ | 672 |
| | $ | 621 |
| $ | 1,140 |
| | $ | 1,102 |
| | $ | 806 |
|
| Franchise fees | 853 |
| | 745 |
| | 666 |
| 1,849 |
| | 1,586 |
| | 1,157 |
|
Incentive management fees (1) | 319 |
| | 302 |
| | 256 |
| 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) | 986 |
| | 1,022 |
| | 950 |
| 1,635 |
| | 1,752 |
| | 1,125 |
|
Cost reimbursements (1) | 11,630 |
| | 11,055 |
| | 10,291 |
| |
Cost reimbursement revenue (1) | | 15,543 |
| | 15,455 |
| | 11,934 |
|
| | 14,486 |
| | 13,796 |
| | 12,784 |
| 20,758 |
| | 20,452 |
| | 15,407 |
|
| OPERATING COSTS AND EXPENSES | | | | | | | | | | |
| Owned, leased, and other-direct | 733 |
| | 775 |
| | 729 |
| 1,306 |
| | 1,411 |
| | 901 |
|
Reimbursed costs (1) | 11,630 |
| | 11,055 |
| | 10,291 |
| |
Depreciation, amortization, and other (1) | 139 |
| | 148 |
| | 127 |
| 226 |
| | 229 |
| | 119 |
|
General, administrative, and other (1) | 634 |
| | 659 |
| | 649 |
| 927 |
| | 921 |
| | 743 |
|
| Merger-related costs and charges | | 155 |
| | 159 |
| | 386 |
|
Reimbursed expenses (1) | | 15,778 |
| | 15,228 |
| | 11,834 |
|
| | 13,136 |
| | 12,637 |
| | 11,796 |
| 18,392 |
| | 17,948 |
| | 13,983 |
|
| OPERATING INCOME | 1,350 |
| | 1,159 |
| | 988 |
| 2,366 |
| | 2,504 |
| | 1,424 |
|
Gains and other income, net (1) | 27 |
| | 8 |
| | 11 |
| 194 |
| | 688 |
| | 5 |
|
Interest expense (1) | (167 | ) | | (115 | ) | | (120 | ) | |
| Interest expense | | (340 | ) | | (288 | ) | | (234 | ) |
Interest income (1) | 29 |
| | 30 |
| | 23 |
| 22 |
| | 38 |
| | 35 |
|
Equity in earnings (losses) (1) | 16 |
| | 6 |
| | (5 | ) | |
Equity in earnings (1) | | 103 |
| | 40 |
| | 9 |
|
| INCOME BEFORE INCOME TAXES | 1,255 |
| | 1,088 |
| | 897 |
| 2,345 |
| | 2,982 |
| | 1,239 |
|
| Provision for income taxes | (396 | ) | | (335 | ) | | (271 | ) | (438 | ) | | (1,523 | ) | | (431 | ) |
| NET INCOME | $ | 859 |
| | $ | 753 |
| | $ | 626 |
| $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| EARNINGS PER SHARE | | | | | | | | | | |
| Earnings per share - basic | $ | 3.22 |
| | $ | 2.60 |
| | $ | 2.05 |
| $ | 5.45 |
| | $ | 3.89 |
| | $ | 2.78 |
|
| Earnings per share - diluted | $ | 3.15 |
| | $ | 2.54 |
| | $ | 2.00 |
| $ | 5.38 |
| | $ | 3.84 |
| | $ | 2.73 |
|
| |
(1) | See Footnote No. 17, “Related18. Related Party Transactions” to our Consolidated Financial Statements for disclosure of related party amounts. |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years 20152018, 20142017, and 20132016
($ in millions)
| | | | December 31,
2015 | | December 31,
2014 | | December 31,
2013 | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| Net income | $ | 859 |
| | $ | 753 |
| | $ | 626 |
| $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| Other comprehensive (loss) income: | | | | | | | | | | |
| Foreign currency translation adjustments | (123 | ) | | (41 | ) | | 1 |
| (391 | ) | | 478 |
| | (311 | ) |
| Other derivative instrument adjustments, net of tax | 10 |
| | 8 |
| | — |
| |
| Derivative instrument adjustments, net of tax | | 12 |
| | (14 | ) | | 1 |
|
| Unrealized (loss) gain on available-for-sale securities, net of tax | (7 | ) | | 5 |
| | 5 |
| — |
| | (2 | ) | | 2 |
|
| Reclassification of (gains) losses, net of tax | (6 | ) | | 2 |
| | (6 | ) | |
| 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 | (126 | ) | | (26 | ) | | — |
| (370 | ) | | 480 |
| | (301 | ) |
| Comprehensive income | $ | 733 |
| | $ | 727 |
| | $ | 626 |
| $ | 1,537 |
| | $ | 1,939 |
| | $ | 507 |
|
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
Fiscal Years-Ended 20152018 and 20142017
($ in millions)
| | | | December 31,
2015 | | December 31,
2014 | December 31,
2018 | | December 31,
2017 |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and equivalents | $ | 96 |
| | $ | 104 |
| $ | 316 |
| | $ | 383 |
|
Accounts and notes receivable, net (1) | 1,103 |
| | 1,100 |
| 2,133 |
| | 1,973 |
|
| Prepaid expenses | 77 |
| | 64 |
| |
Other (1) | 30 |
| | 109 |
| |
Prepaid expenses and other (1) | | 249 |
| | 235 |
|
| Assets held for sale | 78 |
| | 233 |
| 8 |
| | 149 |
|
| | 1,384 |
| | 1,610 |
| 2,706 |
| | 2,740 |
|
| Property and equipment, net | 1,029 |
| | 1,460 |
| 1,956 |
| | 1,793 |
|
| Intangible assets | | | | | | |
| Brands | | 5,790 |
| | 5,922 |
|
Contract acquisition costs and other (1) | 1,451 |
| | 1,351 |
| 2,590 |
| | 2,622 |
|
| Goodwill | 943 |
| | 894 |
| 9,039 |
| | 9,207 |
|
| | 2,394 |
| | 2,245 |
| 17,419 |
| | 17,751 |
|
Equity and cost method investments (1) | 165 |
| | 224 |
| |
Equity method investments (1) | | 732 |
| | 734 |
|
| Notes receivable, net | 215 |
| | 215 |
| 125 |
| | 142 |
|
Deferred taxes, net (1) | 672 |
| | 819 |
| |
| Deferred tax assets | | 171 |
| | 93 |
|
Other noncurrent assets (1) | 223 |
| | 260 |
| 587 |
| | 593 |
|
| | $ | 6,082 |
| | $ | 6,833 |
| $ | 23,696 |
| | $ | 23,846 |
|
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
| Current liabilities | | | | | | |
| Current portion of long-term debt | $ | 300 |
| | $ | 324 |
| $ | 833 |
| | $ | 398 |
|
Accounts payable (1) | 593 |
| | 605 |
| 767 |
| | 783 |
|
| Accrued payroll and benefits | 861 |
| | 799 |
| 1,345 |
| | 1,214 |
|
| Liability for guest loyalty programs | 952 |
| | 677 |
| |
| Liability for guest loyalty program | | 2,529 |
| | 2,121 |
|
Accrued expenses and other (1) | 527 |
| | 633 |
| 963 |
| | 1,291 |
|
| | 3,233 |
| | 3,038 |
| 6,437 |
| | 5,807 |
|
| Long-term debt | 3,807 |
| | 3,447 |
| 8,514 |
| | 7,840 |
|
| Liability for guest loyalty programs | 1,622 |
| | 1,657 |
| |
| Liability for guest loyalty program | | 2,932 |
| | 2,819 |
|
Deferred tax liabilities (1) | | 485 |
| | 605 |
|
| Deferred revenue | | 731 |
| | 583 |
|
Other noncurrent liabilities (1) | 1,010 |
| | 891 |
| 2,372 |
| | 2,610 |
|
| Shareholders’ deficit | | | | |
| Shareholders’ equity | | | | |
| Class A Common Stock | 5 |
| | 5 |
| 5 |
| | 5 |
|
| Additional paid-in-capital | 2,821 |
| | 2,802 |
| 5,814 |
| | 5,770 |
|
| Retained earnings | 4,878 |
| | 4,286 |
| 8,982 |
| | 7,242 |
|
| Treasury stock, at cost | (11,098 | ) | | (9,223 | ) | (12,185 | ) | | (9,418 | ) |
| Accumulated other comprehensive loss | (196 | ) | | (70 | ) | (391 | ) | | (17 | ) |
| | (3,590 | ) | | (2,200 | ) | 2,225 |
| | 3,582 |
|
| | $ | 6,082 |
| | $ | 6,833 |
| $ | 23,696 |
| | $ | 23,846 |
|
| |
(1) | See Footnote No. 17, “Related18. Related Party Transactions” to our Consolidated Financial Statements for disclosure of related party amounts. |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years 20152018, 20142017, and 20132016
| | | | December 31,
2015 | | December 31,
2014 | | December 31,
2013 | December 31,
2018 | | December 31,
2017 | | December 31,
2016 |
| OPERATING ACTIVITIES | | | | | | | | | | |
| Net income | $ | 859 |
| | $ | 753 |
| | $ | 626 |
| $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| Adjustments to reconcile to cash provided by operating activities: | | | | | | | | | | |
| Depreciation, amortization, and other | 139 |
| | 148 |
| | 127 |
| 284 |
| | 279 |
| | 159 |
|
| Share-based compensation | 113 |
| | 109 |
| | 116 |
| 184 |
| | 181 |
| | 212 |
|
| Income taxes | 143 |
| | 71 |
| | 73 |
| (239 | ) | | 887 |
| | 103 |
|
| Liability for guest loyalty program | 233 |
| | 175 |
| | 99 |
| 520 |
| | 298 |
| | 221 |
|
| Contract acquisition costs | | (152 | ) | | (185 | ) | | (76 | ) |
| Merger-related charges | | 16 |
| | (124 | ) | | 209 |
|
| Working capital changes | (126 | ) | | (120 | ) | | 50 |
| (76 | ) | | (30 | ) | | (106 | ) |
| (Gain) loss on asset dispositions | | (194 | ) | | (687 | ) | | 1 |
|
| Other | 69 |
| | 88 |
| | 49 |
| 107 |
| | 149 |
| | 88 |
|
| Net cash provided by operating activities | 1,430 |
| | 1,224 |
| | 1,140 |
| 2,357 |
| | 2,227 |
| | 1,619 |
|
| INVESTING ACTIVITIES | | | | | | | | | | |
| Acquisition of a business, net of cash acquired | | — |
| | — |
| | (2,392 | ) |
| Capital expenditures | (305 | ) | | (411 | ) | | (296 | ) | (556 | ) | | (240 | ) | | (199 | ) |
| Dispositions | 673 |
| | 435 |
| | — |
| 479 |
| | 1,418 |
| | 211 |
|
| Loan advances | (66 | ) | | (103 | ) | | (7 | ) | (13 | ) | | (93 | ) | | (32 | ) |
| Loan collections | 92 |
| | 34 |
| | 77 |
| 48 |
| | 187 |
| | 67 |
|
| Equity and cost method investments | (7 | ) | | (6 | ) | | (16 | ) | |
| Contract acquisition costs | (121 | ) | | (65 | ) | | (61 | ) | |
| Acquisition of a business, net of cash acquired | (137 | ) | | (184 | ) | | (112 | ) | |
| Redemption of / (investment in) debt security | 121 |
| | — |
| | (65 | ) | |
| Other | 117 |
| | (13 | ) | | (39 | ) | (10 | ) | | (61 | ) | | (1 | ) |
| Net cash provided by (used in) investing activities | 367 |
| | (313 | ) | | (519 | ) | |
| Net cash (used in) provided by investing activities | | (52 | ) | | 1,211 |
| | (2,346 | ) |
| FINANCING ACTIVITIES | | | | | | | | | | |
| Commercial paper/Credit Facility, net | (140 | ) | | 235 |
| | 311 |
| (129 | ) | | 60 |
| | 1,373 |
|
| Issuance of long-term debt | 790 |
| | 394 |
| | 345 |
| 1,646 |
| | — |
| | 1,482 |
|
| Repayment of long-term debt | (325 | ) | | (7 | ) | | (407 | ) | (397 | ) | | (310 | ) | | (326 | ) |
| Issuance of Class A Common Stock | 40 |
| | 178 |
| | 199 |
| 4 |
| | 6 |
| | 34 |
|
| Dividends paid | (253 | ) | | (223 | ) | | (196 | ) | (543 | ) | | (482 | ) | | (374 | ) |
| Purchase of treasury stock | (1,917 | ) | | (1,510 | ) | | (834 | ) | (2,850 | ) | | (3,013 | ) | | (568 | ) |
| Share-based compensation withholding taxes | | (105 | ) | | (157 | ) | | (100 | ) |
| Other | — |
| | — |
| | (1 | ) | — |
| | — |
| | (24 | ) |
| Net cash used in financing activities | (1,805 | ) | | (933 | ) | | (583 | ) | |
| (DECREASE) INCREASE IN CASH AND EQUIVALENTS | (8 | ) | | (22 | ) | | 38 |
| |
| CASH AND EQUIVALENTS, beginning of period | 104 |
| | 126 |
| | 88 |
| |
| CASH AND EQUIVALENTS, end of period | $ | 96 |
| | $ | 104 |
| | $ | 126 |
| |
| 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 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period (1) | | 429 |
| | 887 |
| | 117 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1) | | $ | 360 |
| | $ | 429 |
| | $ | 887 |
|
| |
(1) | 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’ (DEFICIT) EQUITY
Fiscal Years 2015, 2014,2018, 2017, and 20132016
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | |
Common Shares Outstanding | Common Shares Outstanding | | | Total | | Class A Common Stock | | Additional Paid-in- Capital | | Retained Earnings | | Treasury Stock, at Cost | | Accumulated Other Comprehensive Loss | Common Shares Outstanding | | | Total | | Class A Common Stock | | Additional Paid-in- Capital | | Retained Earnings | | Treasury Stock, at Cost | | Accumulated Other Comprehensive Loss |
| 310.9 |
| | Balance at December 28, 2012 | $ | (1,285 | ) | | $ | 5 |
| | $ | 2,585 |
| | $ | 3,509 |
| | $ | (7,340 | ) | | $ | (44 | ) | |
| 256.3 | |
| | Balance at December 31, 2015 | $ | (3,590 | ) | | $ | 5 |
| | $ | 2,821 |
| | $ | 4,878 |
| | $ | (11,098 | ) | | $ | (196 | ) |
| — |
| | Net income | 626 |
| | — |
| | — |
| | 626 |
| | — |
| | — |
|
| | Adoption of ASU 2014-09 | (264 | ) | | — |
| | — |
| | (264 | ) | | — |
| | — |
|
| — |
| | Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | Net income | 808 |
| | — |
| | — |
| | 808 |
| | — |
| | — |
|
| — |
| | Dividends | (195 | ) | | — |
| | — |
| | (195 | ) | | — |
| | — |
|
| | Other comprehensive loss | (301 | ) | | — |
| | — |
| | — |
| | — |
| | (301 | ) |
| 7.1 |
| | Employee stock plan | 269 |
| | — |
| | 131 |
| | (103 | ) | | 241 |
| | — |
| |
| (20 | ) | | Purchase of treasury stock | (830 | ) | | — |
| | — |
| | — |
| | (830 | ) | | — |
| |
| 298.0 |
| | Balance at December 31, 2013 | (1,415 | ) | | 5 |
| | 2,716 |
| | 3,837 |
| | (7,929 | ) | | (44 | ) | |
| — | |
| | 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 | 753 |
| | — |
| | — |
| | 753 |
| | — |
| | — |
|
| | Net income | 1,459 |
| | — |
| | — |
| | 1,459 |
| | — |
| | — |
|
| — |
| | Other comprehensive income | (26 | ) | | — |
| | — |
| | — |
| | — |
| | (26 | ) |
| | Other comprehensive loss | 480 |
| | — |
| | — |
| | — |
| | — |
| | 480 |
|
| — |
| | Dividends | (223 | ) | | — |
| | — |
| | (223 | ) | | — |
| | — |
|
| | Dividends | (482 | ) | | — |
| | — |
| | (482 | ) | | — |
| | — |
|
| 6.1 |
| | Employee stock plan | 211 |
| | — |
| | 86 |
| | (81 | ) | | 206 |
| | — |
| |
| (24.2 | ) | | Purchase of treasury stock | (1,500 | ) | | — |
| | — |
| | — |
| | (1,500 | ) | | — |
| |
| 279.9 |
| | Balance at December 31, 2014 | (2,200 | ) | | 5 |
| | 2,802 |
| | 4,286 |
| | (9,223 | ) | | (70 | ) | |
| 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 | ) |
| — |
| | Net income | 859 |
| | — |
| | — |
| | 859 |
| | — |
| | — |
|
| | Adoption of ASU 2016-01 | — |
| | — |
| | — |
| | 4 |
| | — |
| | (4 | ) |
| — |
| | Other comprehensive loss | (126 | ) | | — |
| | — |
| | — |
| | — |
| | (126 | ) |
| | Adoption of ASU 2016-16 | 372 |
| | — |
| | — |
| | 372 |
| | — |
| | — |
|
| — |
| | Dividends | (253 | ) | | — |
| | — |
| | (253 | ) | | — |
| | — |
|
| | Net income | 1,907 |
| | — |
| | — |
| | 1,907 |
| | — |
| | — |
|
| 2.1 |
| | Employee stock plan | 70 |
| | — |
| | 19 |
| | (14 | ) | | 65 |
| | — |
| |
| (25.7 | ) | | Purchase of treasury stock | (1,940 | ) | | — |
| | — |
| | — |
| | (1,940 | ) | | — |
| |
| 256.3 |
| (1) | Balance at December 31, 2015 | $ | (3,590 | ) | | $ | 5 |
| | $ | 2,821 |
| | $ | 4,878 |
| | $ | (11,098 | ) | | $ | (196 | ) | |
| | | | | | | | | | | | | | |
| — | |
| | 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 2015,2018, we had 265.3339.1 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
1. BASIS OF PRESENTATION
The consolidated financial statements present the results of operations, financial position, and cash flows of Marriott International, Inc. (“Marriott,” and together with its consolidated subsidiaries (referred to in this report as “we,” “us,” “Marriott,” or “the Company”Company.”). In order to make this report easier to read, we also refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” (iv) our Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (v) our properties, brands, or markets in the United States (“U.S.”) and Canada as “North America” or “North American,” and (v)(vi) our properties, brands, or markets outside of the United Statesin our Caribbean and CanadaLatin America, Europe, and Middle East and Africa regions as “Other International,” and together with those in our Asia Pacific segment, as “International.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes in these Notes to Consolidated Financial Statements, unless otherwise noted.
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. 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 20152018 and fiscal year-end 20142017 and the results of our operations and cash flows for fiscal years 2015, 2014,2018, 2017, and 2013.2016. 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). See the “New Accounting Standards Adopted” caption in Footnote 2. Summary of Significant Accounting Policies for additional information.
In addition,the 2018 fourth quarter, we identified errors related to our Loyalty Program, which resulted in 2015, we recordedthe 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 cumulative $25$99 million adjustmentincrease to “Retained earnings”net income for the 2018 first three quarters combined. We concluded that the errors were and continue to correctbe 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 attributablebecause recording the out of period adjustments would have been material to excess tax benefitsthe 2018 fourth quarter. See Part II, Item 8 “Supplementary Data” for share-based compensation thatmore information.
Acquisition of Starwood Hotels & Resorts Worldwide
On September 23, 2016 (the “Merger Date”), we allocated to foreign affiliates,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 had previously resulted in immaterial overstatements in both the “Provision for income taxes” inStarwood 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 “Additional paid-in-capital” in our Balance SheetsAcquisitions for the years 2003-2014.
Fiscal Year
Beginning with our 2013 fiscal year, we changed our financial reporting cycle to a calendar year-end reporting cycle and an end-of-month quarterly reporting cycle. Accordingly, our 2013 fiscal year began on December 29, 2012 (the day after the end of the 2012 fiscal year) and ended on December 31, 2013. Historically, our fiscal year was a 52-53 week fiscal year that endedmore information on the Friday nearest to December 31. As a result, our 2015 and 2014 fiscal years had three fewer days than our 2013 fiscal year.Starwood Combination.
The table below presents each completed fiscal year we refer to in this report, the date the fiscal year ended, and the number of days in that fiscal year, and unless otherwise specified, each reference to a particular year means the fiscal year ended on the date shown below:
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| Fiscal Year | | Fiscal Year-End Date | | Number of Days | | Fiscal Year | | Fiscal Year-End Date | | Number of Days |
| 2015 | | December 31, 2015 | | 365 | | 2010 | | December 31, 2010 | | 364 |
| 2014 | | December 31, 2014 | | 365 | | 2009 | | January 1, 2010 | | 364 |
| 2013 | | December 31, 2013 | | 368 | | 2008 | | January 2, 2009 | | 371 |
| 2012 | | December 28, 2012 | | 364 | | 2007 | | December 28, 2007 | | 364 |
| 2011 | | December 30, 2011 | | 364 | | 2006 | | December 29, 2006 | | 364 |
Beginning in 2014, our fiscal years are the same as the corresponding calendar year (each beginning on January 1 and ending on December 31, and containing 365 or 366 days).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Our revenues include: (1) base management and incentive management fees; (2) franchise fees (including licensing fees from MVW after the spin-off of $59 million for 2015, $60 million for 2014, and $61 million for 2013); (3) revenues from lodging properties we own or lease; and (4) cost reimbursements. Management fees are typically composed of a base fee, which is a percentage of the revenues of hotels, and an incentive fee, which is generally based on hotel profitability. Franchise fees are typically composed of initial application fees and continuing royalties generated from our franchise programs, which permit the hotel owners and operators to use certain of our brand names. Cost reimbursements include direct and indirect costs that are reimbursed to us by properties that we manage, franchise, or license.
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 revenue when we earn them under the contracts. In interim periods and at year-end, wethose amounts become payable. We recognize incentive management fees that would beon a monthly basis over the term of the agreement based on each property's financial results, as long as we do not expect a significant reversal due as if the contracts were to terminate at that date, exclusive of any termination fees payableprojected future hotel performance or receivable by us.cash flows in future periods.
Franchise Fee and LicenseRoyalty 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 feesapplication or renewal and license fees as revenue in each accounting period as we earn those fees fromare recognized on a straight-line basis over the franchiseeinitial or licensee underrenewal term of the contracts.franchise agreements.
Owned and Leased UnitsHotel Revenue: We recognize room sales and revenues from other guest services forAt our owned and leased units whenhotels, 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 when we have rendered the services.
Cost Reimbursements: We recognize cost reimbursements fromUnder 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, when we incur the related reimbursable costs.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 also include certain operational and administrative costs as provided for in our contracts with the owners. AsWe 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 contract term, and accordingly, when we recover the costs have no added markup,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 recognize revenue within the revenue“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 expense have no impact on eitherreimbursement from hotel owners in our operating orand net income. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively. In addition, proceeds from the sale of our interest in Avendra that we expend for the benefit of our hotel owners are included in “Reimbursed expenses.”
Other Revenue: Includes other third-party licensingGlobal Design fees, brandingwhich we describe below, termination fees, for third-party residential sales and credit card licensing, land rental income, and other revenue.property and brand revenues. We generally recognize termination fees when collection is probable, and other revenue as services are rendered and when collection is reasonably assured.rendered. Amounts received in advance are deferred as liabilities.
Real Estate Sales
We reduce gains on sales of real estate byprovide hotel design and construction review quality assurance (“Global Design”) services to our maximum exposuremanaged and franchised hotel owners, generally during the period prior to loss ifa 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 have continuing involvement withmay be entitled to receive a one-time fixed fee that is payable during the property and do not transfer substantially allpre-opening period of the risks and rewards of ownership. In sales transactions wherehotel. As these services are not a distinct performance obligation, we retainrecognize the fees on a management contract,straight-line basis over the terms and conditionsinitial term of the management contractor 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 generally comparablerequired to collect certain taxes and fees from customers on behalf of governmental agencies and remit these to the terms and conditions ofapplicable governmental agencies on a periodic basis. We do not include these taxes in determining the management contracts obtained directly with third-party owners in competitive bid processes.transaction price.
Rewards Programs
Marriott Rewards and The Ritz-Carlton Rewards are our frequent guest loyalty programs.Loyalty Program.
Loyalty Program members earn points based on the money they spend at our hotels,hotels; purchases of timeshare interval, fractional ownership, and residential productsproducts; and to a lesser degree, through participation in travel experiences and affiliated partners’ programs, such as those offered by credit card, car rental, and credit cardairline 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 provide Marriott Rewards and The Ritz-Carlton Rewardsoperate our Loyalty Program as a cross-brand marketing programsprogram to participating properties, with the objective of operating the programs on a break-even basis to us. We collect amounts that we expect will, in the aggregate, equal the costs of point redemptions and program operating costs over time.
We defer revenue we receive from managed, franchised, and Marriott-owned/leased hotels and program partners.properties. Our management and franchise agreements require that properties reimburse us currently for a portion of the costs of operating the rewards programs,Loyalty Program, including costs for marketing, promotion, communication with, and performing member services for rewards programLoyalty Program members, with no added mark-up. We receive contributions on a monthly basis from managed, franchised, owned, and leased hotels based on a portion of qualified spend by Loyalty Program members. Due toWe recognize these contributions into revenue as the requirement that properties reimburse us for program operating costs as incurred, we recognize the related cost reimbursements revenues from properties for our rewards programs when we incur and expense such costs. We also recognize the component of revenue from program partners that corresponds to program maintenance services when we incur and expense such costs. When points are redeemed and we provide the related service. The amount of revenue we recognize the amounts we previously deferred as revenue and the corresponding expense relating to the costs of the awards redeemed.
The recorded liability related to these programs totaled $2,574 million at year-end 2015 and $2,334 million at year-end 2014. We estimate the reasonableness and the value of the futureupon point redemption obligations using statistical formulas that project timing of future point redemptions based on historical levels, including anis impacted by our estimate of the “breakage” for points that members
will never redeem,redeem. We estimate breakage based on our historical experience and an estimateexpectations 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. 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 institution that issues the credit cards, to arrange for the redemption of Loyalty Program points that members will eventually redeem. A ten percent reductionas discussed in the estimatepreceding paragraph, and to provide free night certificates 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 “breakage” wouldthe 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, we 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. 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 million, to $831 million at December 31, 2018 from $685 million at December 31, 2017, primarily as a result of our Global Design, co-brand credit card, and application and relicensing activities described in the estimated“year-end 2015Revenue Recognition” caption above.
Our current and noncurrent Loyalty Program liability increased by$164 million. $521 million, to $5,461 million at December 31, 2018 from $4,940 million at December 31, 2017, primarily reflecting an increase in points earned, partially offset by deferred revenue of $1,897 million that we recognized in 2018.
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 classify certain direct costs to fulfill a contract with a customer in the “Other noncurrent assets” caption 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 million at December 31, 2018 and $295 million at December 31, 2017. See Footnote 12. Intangible Assets and Goodwill 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 Sharing Plan
We contribute to a profit sharing plantax-qualified retirement plans for the benefit of U.S. employees meetingwho meet certain eligibility requirements who electand choose to participate in the plan.plans. Participating employees specify the percentage or amount of salary deferred.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 profit sharingCompany contributions of $80$224 million in 2015, $762018, $119 million in 2014,2017, and $75$91 million in 2013.2016.
Non-U.S. Operations
The U.S. dollar is the functional currency of our consolidated and unconsolidated entities operating in the United States.U.S. The functional currency of our consolidated and unconsolidated entities operating outside of the United StatesU.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’ 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 gains and losses from non-U.S. currencyfor third-party transactions, currently in operating costs and expenses, and those amounted to losses of $6 million in 2015, $16 million in 2014, and $5 million in 2013.expenses.
Share-Based Compensation
We grantOur share-based compensation awards at exercise prices or strike prices that equal the market priceprimarily consist of our commonrestricted stock on the date of grant. For all share-based awards, weunits (“RSUs”). We measure compensation costs for our share-based payment transactions at fair value on the grant date, and we recognize those costs in our Financial Statements over the vesting period during which the employee provides service (“the service period”) in exchange for the award.
On the grant date, we use a binomial lattice-based valuation modelAdvertising Costs
We expense costs to estimate the fair value of each stock appreciation rightproduce advertising as they are incurred and stock option granted. This valuation model uses a range of possible stock price outcomes over the term of the award, discounted back to a present value using a risk-free rate. Because of the limitations with closed-form valuation models, suchcommunicate advertising as the Black-Scholes model, we have determined that this more flexible binomial model provides a better estimate ofcommunication occurs and record such amounts in reimbursed expenses to the fair valueextent undertaken on behalf of our stock appreciation rightsowners and stock options because it takes into account employeefranchisees. We recognized advertising costs of $660 million in 2018, $562 million in 2017, and non-employee director exercise behavior based on changes$409 million in the price of our stock and also allows us to use other dynamic assumptions. See Footnote No. 5, “Share-Based Compensation” for further information.2016.
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 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, 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, in order 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 No. 6,“6. Income Taxes” 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 when losses are probable, based on an assessment of historical collection activity and current business conditions. Our accounts receivable reserve was $25$66 million at year-end 20152018 and $33$46 million at year-end 2014.2017.
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. See Footnote No. 3, “Acquisitions and Dispositions” for additional information on planned dispositions.
Goodwill
We assesstest goodwill for potential impairment at least annually in the end of each fiscal year,fourth quarter, or during the yearmore 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 first 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 of a reporting unit is less than its carrying amount. Qualitative factors that we consider include, for example, macroeconomic and industry conditions, overall financial performance, and other relevant entity-specific events. 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 two-step goodwillquantitative impairment test to identify potential goodwill impairment and measureby comparing the amount of goodwill impairment we will recognize, if any.
In the first step of the two-step goodwill impairment test (“Step 1”), we compare the estimated fair value of thea reporting unit with its carrying value. If the estimated fair value of the reporting unit exceeds its carrying amount, no further analysis is needed. If, however, the estimated fair value of the reporting unit is less than its carrying amount, we proceed to the second step and calculate the implied fair value of the reporting unit goodwill to determine whether any impairment is required. We calculate the implied fair value of the reporting unit goodwill by allocating the estimated fair value of the reporting unit to all of the unit’s assets and liabilities as if the unit had been acquired in a business combination. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in the amount of that excess. In allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit, we use industry and market data, as well as knowledge of the industry and our past experience.amount.
We calculate the estimated fair value of a reporting unit using a weighting of the income approach.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 at the end of each fiscal year,annually, or during the yearmore frequently if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. Similar toLike 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 implied 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 under performanceunderperformance 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 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”“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.
Investments
We may hold an equity interestinterests in ventures established to develop or acquire and own hotel properties. These ventures are generally limited liability companiesproperties or limited partnerships.that otherwise support our hospitality operations. We account for these investments in such entities usingas either an equity method investment, a financial asset, or a controlled subsidiary. We apply the costequity method of accounting if we have significant influence over the entity, typically when we ownhold 20 percent of the voting common stock (or equivalent) of an investee but do not have a minimal investment andcontrolling financial interest. In certain circumstances, such as with investments in limited liability or limited partnerships, we apply the equity method of accounting when we own more than a minimal investment.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 otherthe 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 exercise significant influence overdetermine that there has been an “other-than-temporary” decline in the entities. If we do not exercise significant influence,venture’s estimated fair value compared to its carrying value. We perform qualitative assessments for investments we account for the investment using the costfair value alternative method of accounting. We consolidate entities thatand we control.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.
We evaluate an investment for impairment when circumstances indicate that we may not be able to recover the carrying value. For example, when evaluating our ventures, we consider loan defaults, significant under-performance relative to historical or projected operating performance, or significant negative industry or economic trends.
We impair investments we account for using the equity and cost methods 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. 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 calculate the estimated fair value of an investment using either a market approach or an income 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.
For investments in securities classified as available-for-sale, we determine the cost basis of the securities sold using specific identification, meaning that we track our securities individually.
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 No. 14, “Fair15. Fair Value of Financial Instruments”Instruments 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 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 other comprehensive income (“OCI”). We release the derivative’s gain or loss from OCI to match the timing of the underlying hedged items’ effect on 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 OCI 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.
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 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, we individually assess loans for impairment. We use internally generated cash flow projections to determine if we expect the loans towill 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 it is likely that a loan will not be collected based on financial or other business indicators, including our historical experience, our policy is to charge off the loan in the quarter in which we deem it uncollectible.
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 heading “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 property, liability, workers’ compensation, 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 2.0three 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 are subject to a variety of assessments for our insurance activities, including those by state guaranty funds and workers’ compensation second-injury funds. We record our liabilities for these assessments in the “Accrued expenses and other” caption of our Balance Sheets. These liabilities, which are not discounted, totaled $5 million at year-end 2015 and $4 million at year-end 2014. We expect to pay the $5 million liability for assessments by the end of 2016.
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 incurred.we incur them. See Footnote 3. Dispositions and Acquisitions for additional information.
New Accounting Standards Not Yet Adopted
Accounting Standards Update No.(“ASU”) 2016-02 “Leases” (Topic 842).ASU 2016-02 introduces a lessee model that brings substantially all leases onto the balance sheet. Under the new standard, a lessee will recognize on its balance sheet a lease liability 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 statement 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. We adopted ASU 2016-18 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 2018 first quarter using the modified retrospective transition method and recorded an adjustment of $372 million for the cumulative effect to retained earnings at January 1, 2018.
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 in the statement of cash flows and primarily impacts our presentation of cash outflows for commercial paper. Under ASU 2016-15, we are required to attribute a portion of the payments to accreted interest and classify that portion as cash outflows for operating activities. We adopted ASU 2016-15 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 2016-01 “Recognition and Measurement 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 changes in the fair value in net income. We adopted ASU 2016-01 in the 2018 first quarter using the modified retrospective transition method 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 No.2014-09 and several related ASUs (collectively referred to as “ASU 2014-09”)
ASU No. 2014-09 supersedes supersede the revenue recognition requirements in Topic 605, Revenue Recognition, as well as most industry-specific guidance, and significantly enhances comparability of revenue recognition practices across entities and industries by providingprovide a principles-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following five steps: (1) identify the contractTopic 606, Revenue from Contracts with a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.Customers. ASU No. 2014-09 also specifies the accounting for somecertain costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements. The Financial Accounting Standards Board (“FASB”) has deferredWe adopted ASU No. 2014-09 for one year, and with that deferral,in the standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which for us will be our 2018 first quarter. Wequarter using the full retrospective transition method.
When we adopted ASU 2014-09, we applied the following expedients and exemptions, which are permitted to use either the retrospective or the modified retrospective method when adopting ASU No. 2014-09. We are still assessing the potential impact that ASU No. 2014-09 will have on our financial statements and disclosures, but we believe that there could be changes to the revenue recognition of real estate sales, franchise fees, and incentive management fees.
Accounting Standards Update No. 2015-03 - “Simplifying the Presentation of Debt Issuance Costs” (“ASU No. 2015-03”)
In April 2015, the FASB issued ASU No. 2015-03, which requires entities to present debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. We adopted the standard in the 2015 fourth quarter and retrospectively appliedallowed by the standard, to our prior period Financial Statements and disclosures:
We used the 2014 Balance Sheet by reclassifying $10 milliontransaction price at the date of debt issuance costs from “Other noncurrent assets” to “Long-term debt.”contract completion for our contracts that had variable consideration and were completed before January 1, 2018.
Accounting Standards Update No. 2015-17 - “Balance Sheet ClassificationWe considered the aggregate effect of Deferred Taxes” (“ASU No. 2015-17”)
In November 2015,all contract modifications that occurred before January 1, 2016 when: (1) identifying satisfied and unsatisfied performance obligations; (2) determining the FASB issued ASU No. 2015-17, which requires entities with a classified balance sheet to present all deferred tax assetstransaction price; and liabilities as noncurrent. We adopted(3) allocating the standard in the 2015 fourth quarter and retrospectively applied the standardtransaction price to the 2014 Balance Sheet, resulting in reclassifications of $311 million of current deferred tax assetssatisfied and $22 million of current deferred tax liabilities to noncurrent deferred tax assets.
3. ACQUISITIONS AND DISPOSITIONSunsatisfied performance obligations.
2016 Planned Acquisition
On November 15, 2015, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) to combine with Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”). The Merger Agreement provides forWe did not: (1) disclose the Company to combine with Starwood in a series of transactions after which Starwood will be an indirect wholly owned subsidiary of the Company. If these transactions are completed, shareholders of Starwood will receive 0.920 shares of our common stock, par value $0.01 per share, and $2.00 in cash, without interest, for each share of Starwood common stock, par value $0.01 per share, that they own immediately before these transactions. We expect that the combination will close in mid-2016, after customary conditions are satisfied, including shareholder approvals, required antitrust approvals, and the completion of Starwood’s previously announced spin-off of its vacation ownership business, or another spin-off, split-off, analogous disposition, or sale of its vacation ownership business.
2015 Acquisitions
In the 2015 second quarter, we acquired the Delta Hotels and Resorts brand, management and franchise business, together with related intellectual property, from Delta Hotels Limited Partnership, a subsidiary of British Columbia Investment Management Corporation (“bcIMC”) for approximately $134 million (C$170 million), plus $2 million (C$2 million) of working capital, for a total purchase price of $136 million (C$172 million) in cash. We finalized the purchase accounting during the 2015 third quarter and recognized approximately: $127 million (C$161 million) in intangible assets consisting of contract assets of $17 million (C$22 million), an indefinite-lived brand intangible of $91 million (C$115 million), and goodwill of $19 million (C$24 million); and $9 million (C$11 million) of tangible assets consisting of property and equipment and other assets. As a resultamount of the transaction price that we added 37 open hotels and resorts with 9,590 rooms across Canada, including 27 properties under management agreements (13allocated to remaining performance obligations; or (2) include an explanation of which have new 30-year management agreements with bcIMC-affiliated entities) and 10 properties under franchise agreements, plus five hotels under development (including one under a new 30-year management agreement with a bcIMC-affiliated entity).when we expect to recognize the revenue allocated to remaining performance obligations.
2015 Dispositions and Planned Dispositions as of Year-End 2015
We sold The Miami Beach EDITION duringfollowing tables present the 2015 first quarter, and we sold The New York (Madison Square Park) EDITION at the beginningeffect of the 2015 second quarter. We received total cash proceedsadoption of $566 million in 2015. InASUs 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 2015 first quarter, we recorded a $6 million impairment charge for The New York (Madison Square Park) EDITION“As Adjusted” amounts shown in the “Depreciation, amortization, and other” caption of our Income Statements as our cost estimates exceeded our total fixed sales price. We did not allocatetables below. See the charge to any of our segments.
In the 2015 first quarter, we sold our interest in an International property and received $27 million (€24 million) in cash.
In the 2015 third quarter, our equity method investment in an entity that owns two hotels was redeemed. We received $42 million in cash, which was our basis in the investment, and included the proceeds in the “other” caption of our Investing Activities section of our Consolidated Statements of Shareholders’ Equity for the impact of the adoption of new accounting standards on our shareholders’ equity.
Income Statements
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended December 31, 2017 | | Twelve Months Ended December 31, 2016 |
| ($ 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) | Includes reclassifications among various captions, including Deferred revenue and Other noncurrent liabilities, to conform to current period presentation. |
Statements of Cash Flows.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. DISPOSITIONS AND ACQUISITIONS
Dispositions
In the 2015 fourth quarter,2018, we sold an International propertythe following properties and received $62 million in cash. We recorded a lossrecognized total gains of $11$132 million in the “Gains and other income, net” caption of our Income Statements.Statements:
At year-end 2015, 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; and
The Sheraton Buenos Aires Hotel & Convention Center and Park Tower, A Luxury Collection Hotel, Buenos Aires, two Caribbean and Latin America properties.
In 2018, we held $78 millionsold our interest in three equity method investments, whose assets included a plot of assets classified as “Assets held for sale”land in Italy, the W Hotel Mexico City, and $3 millionthe Royal Orchid Sheraton Hotel & Towers in Bangkok, and we recognized total gains of liabilities associated with those assets, which we recorded under “Accrued expenses and other” on our Balance Sheet for assets that we expect to
sell by early 2016. We determined that the carrying values of those assets exceeded their fair values, which we estimated using a market approach and Level 3 inputs. Consequently, we recorded charges for the expected disposal loss, which represents the amount by which the carrying values, including any goodwill we must allocate, exceeds the fair values, less our anticipated cost to sell. We classified assets as held for sale and associated liabilities that relate to the following:
$47$42 million in assetsthe “Gains and $1 millionother income, net” caption of our Income Statements. Also in liabilities for2018, a Caribbean and Latin America investee sold the JW Marriott Mexico City, and a North American Limited-Service segment plot of land. During the 2015 second quarter, we determined that achieving certain milestones outlined in a signed purchase and sale agreement was likely,Full-Service investee sold The Ritz-Carlton Toronto, and we recorded our share of the gains of $55 million and $10 million, respectively, in the “Equity in 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 $4long-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 expected lossgain in the “Gains and other income, net” caption of our Income Statements.
$31In 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 assets2017 and $2$5 million in liabilities for The Miami Beach EDITION residences (the “residences”). During the 2015 first quarter, we recorded a $6 million charge,2018, which we did not allocate to anyreflected in the “Gains and other income, net” caption of our segments, following a reviewIncome Statements. After cash paid for income taxes, the gain totaled $425 million. We committed to the owners of comparable property values. We classified the residences chargehotels 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 “Depreciation, amortization, and other”“Reimbursed expenses” caption of our Income Statements, because it is parttotaled $115 million ($85 million after-tax) in 2018. In conjunction with the sale of Avendra to Aramark, we entered into a larger mixed-use projectnew five-year procurement services agreement with Avendra for which we had recorded similar chargesthe benefit of our managed and owned properties in prior periods. During 2015, we sold five residences and received $20 million in cash.
2014 AcquisitionsNorth America.
In the 2014 second quarter, we acquired the Protea Hotel Group’s brands and hotel management business (“Protea Hotels”) for $195 million (ZAR 2.059 billion) in cash. We finalized the purchase accounting during the 2015 second quarter, adjusting fair value amounts that we had provisionally recognized in the 2014 second quarter following refinements to our intangible valuation models. The 2015 second quarter adjustments included a decrease to our contract assets of $40 million and a decrease to our indefinite-lived brand intangible of $12 million, with a corresponding increase to goodwill. These adjustments, and the related contract asset amortization impacts, did not have a significant impact on our previously reported Financial Statements, and accordingly, we did not retrospectively adjust those Financial Statements.
In the 2014 fourth quarter, we acquired a property under construction in Brazil for $31 million (R$74 million) in cash.
2014 Dispositions
In the 2014 first quarter,2016, we sold The London EDITION toSt. Regis San Francisco, a third party, received approximately $233 millionNorth American Full-Service property.
Acquisitions
In 2018, we purchased the Sheraton Grand Phoenix, a North American Full-Service property that we manage, for $255 million.
2016 Starwood Combination
The following table presents the fair value of each type of consideration that we transferred in cash,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 simultaneously entered into definitive agreements to sellLiabilities Assumed. The Miami Beach and The New York (Madison Square Park) EDITION hotels upon completion of construction to the same third party. The total sales price for the three EDITION hotels was approximately $816 million in cash and assumed liabilities.We retained long-term management agreements for eachfollowing table presents our fair value estimates of the hotels. During 2014,assets that we evaluatedacquired and the three hotels for recovery and recorded a $25 million net impairment charge, primarily attributable to The Miami Beach EDITION, inliabilities that we assumed on the “Depreciation, amortization, and other” captionMerger Date: |
| | | |
| ($ 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 our Income Statements as our cost estimates exceeded our total fixed sales price. We did not allocate the charge to any of our segments.
At year-end 2014, we had $233 million in assets related to The Miami Beach EDITION hotel and residences (the hotel representing $157 million inacquired property and equipment using a combination of the income, cost, and $17 millionmarket 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 current assets) classifiedentities 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 “Assets held for sale” captionmarket.
The following table presents our estimates of the Balance Sheetfair values of Starwood’s identified intangible assets and $26 million in liabilities (the hotel representing $14 million) classified in liabilities held for sale intheir 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 “Accrued expensesvalue 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 other” captionfranchise agreements using the multi-period excess earnings method, which is a variation of the Balance Sheet.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 did not classify The New York (Madison Square Park) EDITIONvalued the lease contract intangibles using an income approach. These valuation approaches utilize Level 3 inputs.
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 held for sale becauseof the hotel was under construction and not yet available for immediate sale in its present condition.
In the 2014 fourth quarter, we sold a portion of The Miami Beach EDITION residences and received approximately $100Merger Date. Pro forma revenues totaled $22,492 million in cash.
In the 2014 fourth quarter, we sold for approximately $422016. Pro forma net income totaled $1,180 million in cash a land parcel to a third-party that agreed to develop a property. We retained certain repurchase rights in2016, 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 event the buyer breaches covenants. We reclassified the property to “Other” current assets and offset this amount with a liability for the cash received.
In the 2014 first quarter, we sold our right to acquire the landlord’s interest in a leased real estate property and certain attached assetsactual results of operations of the property, consistingcombined company would have been if the Starwood Combination had occurred on January 1, 2015, nor are they indicative of $106 million (€77 million) in property and equipment and $48 million (€35 million) in liabilities. We received $62 million (€45 million) in cash and transferred $45 million (€33 million)future results of related obligations. We continue to operate the property under a long-term management agreement.operations.
4. 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:
| | | | 2015 | | 2014 | | 2013 | | | | | | | |
| (in millions, except per share amounts) | | | | | | 2018 | | 2017 | | 2016 |
| Computation of Basic Earnings Per Share | | | | | | | | | | |
| Net income | $ | 859 |
| | $ | 753 |
| | $ | 626 |
| $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| Weighted average shares outstanding | 267.3 |
| | 289.9 |
| | 305.0 |
| |
| Shares for basic earnings per share | | 350.1 |
| | 375.2 |
| | 290.9 |
|
| Basic earnings per share | $ | 3.22 |
| | $ | 2.60 |
| | $ | 2.05 |
| $ | 5.45 |
| | $ | 3.89 |
| | $ | 2.78 |
|
| Computation of Diluted Earnings Per Share | | | | | | | | | | |
| Net income | $ | 859 |
| | $ | 753 |
| | $ | 626 |
| $ | 1,907 |
| | $ | 1,459 |
| | $ | 808 |
|
| Weighted average shares outstanding | 267.3 |
| | 289.9 |
| | 305.0 |
| |
| Shares for basic earnings per share | | 350.1 |
| | 375.2 |
| | 290.9 |
|
| Effect of dilutive securities | | | | | | | | | | |
| Employee stock option and appreciation right plans | 2.3 |
| | 3.1 |
| | 4.0 |
| |
| Deferred stock incentive plans | 0.6 |
| | 0.7 |
| | 0.8 |
| |
| Restricted stock units | 2.6 |
| | 3.1 |
| | 3.2 |
| |
| Share-based compensation | | 4.1 |
| | 4.7 |
| | 4.8 |
|
| Shares for diluted earnings per share | 272.8 |
| | 296.8 |
| | 313.0 |
| 354.2 |
| | 379.9 |
| | 295.7 |
|
| Diluted earnings per share | $ | 3.15 |
| | $ | 2.54 |
| | $ | 2.00 |
| $ | 5.38 |
| | $ | 3.84 |
| | $ | 2.73 |
|
We compute the effect of dilutive securities using the treasury stock method and average market prices during the period. We excluded the following antidilutive stock options and stock appreciation rights in our calculation of diluted earnings per share because their exercise prices were greater than the average market prices for the applicable periods: 0.2 million for 2015, zero for 2014, and 0.4 million for 2013.
5. SHARE-BASED COMPENSATION
Under our Stock and Cash Incentive Plan (the “Stock Plan”), we award: (1) stock options (our “Stock Option Program”) to purchase our Class A Common Stock (“common stock”); (2) stock appreciation rights (“SARs”) for our common stock (our “SAR Program”); (3) restricted stock units (“RSUs”) of our common stock; and (4) deferred stock units. We also issue performance-based RSUs (“PSUs”) to named executive officers and some of their direct reports under the Stock Plan. We grant awards at exercise prices or strike prices that equal the market price of our common stock on the date of grant.
During 2015, we granted 1.3 million RSUs, 0.1 million PSUs, and 0.3 million SARs.
We recorded share-based compensation expense for award grants of $113 million in 2015, $109 million in 2014, and $116 million in 2013. Deferred compensation costs for unvested awards totaled $116 million at year-end 2015 and $114 million at year-end 2014. As of year-end 2015, we expect to recognize these deferred compensation expenses over a weighted average period of two years.
We present the tax benefits and costs resulting from the exercise or vesting of share-based awards as financing cash flows. The exercise of share-based awards resulted in tax benefits of $34 million in 2015, $92 million in 2014, and $121 million in 2013.
We received cash from the exercise of stock options of $6 million in 2015, $86 million in 2014, and $78 million in 2013.
RSUs and PSUs
We issuegranted RSUs under the Stock Planin 2018 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. We recognize compensation expense for RSUs over the service period equal to the fair market value of the stock units on the date of issuance. Upon vesting, RSUs convert to shares of our common stock which we distribute from treasury shares. In additionWe also granted performance-based RSUs (“PSUs”) in 2018 to beingcertain executive officers, which are earned, subject to pro-rata annual vesting conditioned on continued service consistent with the standard form of RSUs, PSUs are also subject toemployment and the satisfaction of certain performance conditions based on achievement of pre-established targets for EBITDA, RevPAR Index, room openings, andand/or net administrative expense over, or at the end of, a three-year vestingperformance period. The following information on RSUs includes PSUs.
We had deferred compensation costs for RSUs of approximately $112$167 million at year-end 20152018 and $109$164 million at year-end 2014.2017. The weighted average remaining term for RSU grantsRSUs outstanding at year-end 20152018 was two years.
The following table provides additional information on RSUs for the last three fiscal years:
| | | | 2015 | | 2014 | | 2013 | 2018 | | 2017 | | 2016 |
| Share-based compensation expense (in millions) | $ | 103 |
| | $ | 98 |
| | $ | 101 |
| $ | 170 |
| | $ | 172 |
| | $ | 204 |
|
| Weighted average grant-date fair value (per RSU) | $ | 78 |
| | $ | 52 |
| | $ | 38 |
| $ | 132 |
| | $ | 85 |
| | $ | 66 |
|
| Aggregate intrinsic value of converted and distributed RSUs (in millions) | $ | 195 |
| | $ | 144 |
| | $ | 125 |
| |
| Aggregate intrinsic value of distributed RSUs (in millions) | | $ | 294 |
| | $ | 322 |
| | $ | 190 |
|
The following table presents the 2015 changes in our outstanding RSU grantsRSUs, including PSUs, during 2018 and the associated weighted average grant-date fair values:
|
| | | | | | |
| | Number of RSUs (in millions) | | Weighted Average Grant-Date Fair Value (per RSU) |
| Outstanding at year-end 2014 | 6.0 |
| | $ | 42 |
|
Granted during 2015 (1) | 1.4 |
| | 78 |
|
| Distributed during 2015 | (2.4 | ) | | 39 |
|
| Forfeited during 2015 | (0.1 | ) | | 52 |
|
| Outstanding at year-end 2015 | 4.9 |
| | $ | 53 |
|
| |
(1)
| Includes 0.1 million PSUs granted to named executive officers. |
SARs
We may grant SARs to officers and key employees (“Employee SARs”) at exercise prices or strike prices equal to the market price of our common stock on the grant date. Employee SARs expire ten years after the grant date and both vest and may be exercised in cumulative installments of one quarter at the end of each of the first four years following the grant date. We may grant SARs to directors (“Director SARs”) at exercise prices or strike prices equal to the market price of our common stock on the grant date. Director SARs generally expire ten years after the date of grant and vest upon grant; however, they are generally not exercisable until one year after grant. On exercise of SARs, holders receive the number of shares of our common stock equal to the number of SARs that are being exercised multiplied by the quotient of (a) the stock price on the date of exercise minus the exercise price, divided by (b) the stock price on the date of exercise.
We recognized compensation expense for Employee SARs and Director SARs of $7 million in 2015, $8 million in 2014, and $12 million in 2013. We had deferred compensation costs related to SARs of approximately $3 million in 2015 and $3 million in 2014. Upon the exercise of SARs, we issue shares from treasury shares.
The following table presents the 2015 changes in our outstanding SARs and the associated weighted average exercise prices:
|
| | | | | | |
| | Number of SARs (in millions) | | Weighted Average Exercise Price |
| Outstanding at year-end 2014 | 5.8 |
| | $ | 33 |
|
| Granted during 2015 | 0.3 |
| | 83 |
|
| Exercised during 2015 | (0.5 | ) | | 34 |
|
| Forfeited during 2015 | — |
| | 76 |
|
| Outstanding at year-end 2015 | 5.6 |
| | $ | 36 |
|
The following tables show the number of Employee SARs and Director SARs we granted in the last three fiscal years, the associated weighted average exercise prices, and the associated weighted average grant-date fair values:
|
| | | | | | | | | | | |
| Employee SARs | 2015 | | 2014 | | 2013 |
| Employee SARs granted (in millions) | 0.3 |
| | 0.3 |
| | 0.7 |
|
| Weighted average exercise price (per SAR) | $ | 83 |
| | $ | 53 |
| | $ | 39 |
|
| Weighted average grant-date fair value (per SAR) | $ | 26 |
| | $ | 17 |
| | $ | 13 |
|
| Director SARs | 2015 | | 2014 | | 2013 |
| Director SARs granted | 2,773 |
| | 3,277 |
| | 5,903 |
|
| Weighted average exercise price (per SAR) | $ | 80 |
| | $ | 59 |
| | $ | 44 |
|
| Weighted average grant-date fair value (per SAR) | $ | 29 |
| | $ | 22 |
| | $ | 15 |
|
Outstanding SARs had total intrinsic values of $232 million at year-end 2015 and $264 million at year-end 2014. Exercisable SARs had total intrinsic values of $209 million at year-end 2015 and $197 million at year-end 2014. SARs exercised during 2015 had total intrinsic values of $23 million and SARs exercised in 2014 had total intrinsic values of $33 million.
We used the following assumptions to determine the fair value of the SARs and stock options we granted to employees and non-employee directors in 2015, 2014, and 2013:
|
| | | | | | | | |
| | 2015 | | 2014 | | 2013 |
| Expected volatility | 30 | % | | 29 - 30% |
| | 30 - 31% |
|
| Dividend yield | 1.04 | % | | 1.14 | % | | 1.17 | % |
| Risk-free rate | 1.9 - 2.3% |
| | 2.2 - 2.8% |
| | 1.8 - 1.9% |
|
| Expected term (in years) | 6 - 10 |
| | 6 - 10 |
| | 8 - 10 |
|
In making these assumptions, we base expected volatility on the historical movement of the Company’s stock price. We base risk-free rates on the corresponding U.S. Treasury spot rates for the expected duration at the date of grant, which we convert to a continuously compounded rate. The dividend yield assumption takes into consideration both historical levels and expectations of future dividend payout. The weighted average expected terms for SARs are an output of our valuation model which utilizes historical data in estimating the period of time that the SARs are expected to remain unexercised. We calculate the expected terms for SARs for separate groups of retirement eligible and non-retirement eligible employees and non-employee directors. Our valuation model also uses historical data to estimate exercise behaviors, which includes determining the likelihood that employees will exercise their SARs before expiration at a certain multiple of stock price to exercise price. In recent years, non-employee directors have generally exercised grants in their last year of exercisability.
Deferred Stock Units
We also issue deferred stock units to non-employee directors. These non-employee directors deferred stock units vest within one year and are distributed upon election.
The following table presents the share-based compensation expense, the number of deferred stock units we granted, the weighted average grant-date fair value, and the aggregate intrinsic value for the last three fiscal years for non-employee director deferred stock units:
|
| | | | | | | | | | | |
| | 2015 | | 2014 | | 2013 |
| Share-based compensation expense (in millions) | $ | 1.1 |
| | $ | 1.2 |
| | $ | 1.4 |
|
| Non-employee director deferred stock units granted | 15,000 |
| | 21,000 |
| | 31,000 |
|
| Weighted average grant-date fair value (per share) | $ | 80 |
| | $ | 59 |
| | $ | 44 |
|
| Aggregate intrinsic value of shares distributed (in millions) | $ | 1.8 |
| | $ | 0.8 |
| | $ | 0.7 |
|
We had 261,000 outstanding non-employee deferred stock units at year-end 2015, and 268,000 outstanding at year-end 2014. The weighted average grant-date fair value of those outstanding deferred stock units was $33 for 2015 and $30 for 2014. |
| | | | | | |
| | Number of RSUs (in millions) | | Weighted Average Grant-Date Fair Value (per RSU) |
| Outstanding at year-end 2017 | 5.6 |
| | $ | 71 |
|
| Granted | 1.5 |
| | 132 |
|
| Distributed | (2.1 | ) | | 69 |
|
| Forfeited | (0.2 | ) | | 93 |
|
| Outstanding at year-end 2018 | 4.8 |
| | $ | 90 |
|
Other Information
At year-end 2015,2018, we had 2431 million remaining shares authorized under the Stock Plan, including 6 million shares under the Stock Option ProgramMarriott and the SAR Program.Starwood stock plans.
6. INCOME TAXES
The components of our earnings before income taxes for the last three fiscal years consisted of:
| | | ($ in millions) | 2015 | | 2014 | | 2013 | 2018 | | 2017 | | 2016 |
| U.S. | $ | 896 |
| | $ | 808 |
| | $ | 630 |
| $ | 1,311 |
| | $ | 2,153 |
| | $ | 888 |
|
| Non-U.S. | 359 |
| | 280 |
| | 267 |
| 1,034 |
| | 829 |
| | 351 |
|
| | $ | 1,255 |
| | $ | 1,088 |
| | $ | 897 |
| $ | 2,345 |
| | $ | 2,982 |
| | $ | 1,239 |
|
Our provision for income taxes for the last three fiscal years consists of:
| | | ($ in millions) | ($ in millions) | 2015 | | 2014 | | 2013 | ($ in millions) | 2018 | | 2017 | | 2016 |
| Current | -U.S. Federal | $ | (167 | ) | | $ | (224 | ) | | $ | (139 | ) | -U.S. Federal | $ | (169 | ) | | $ | (1,253 | ) | | $ | (203 | ) |
| | -U.S. State | (40 | ) | | (43 | ) | | (17 | ) | -U.S. State | (94 | ) | | (152 | ) | | (41 | ) |
| | -Non-U.S. | (50 | ) | | (47 | ) | | (44 | ) | -Non-U.S. | (284 | ) | | (178 | ) | | (56 | ) |
| | | (257 | ) | | (314 | ) | | (200 | ) | | (547 | ) | | (1,583 | ) | | (300 | ) |
| | | | | | | | | | | | | |
| Deferred | -U.S. Federal | (131 | ) | | (21 | ) | | (68 | ) | -U.S. Federal | 10 |
| | 61 |
| | (80 | ) |
| | -U.S. State | (7 | ) | | (5 | ) | | (10 | ) | -U.S. State | (6 | ) | | (33 | ) | | (17 | ) |
| | -Non-U.S. | (1 | ) | | 5 |
| | 7 |
| -Non-U.S. | 105 |
| | 32 |
| | (34 | ) |
| | | (139 | ) | | (21 | ) | | (71 | ) | | 109 |
| | 60 |
| | (131 | ) |
| | | $ | (396 | ) | | $ | (335 | ) | | $ | (271 | ) | | $ | (438 | ) | | $ | (1,523 | ) | | $ | (431 | ) |
Our current tax provision does not reflect the following benefits attributableincluded an excess tax benefit of $42 million in 2018 and $72 million in 2017 related to us for the vesting or exercise of employee share-based awards: $34awards. Our tax provision did not reflect excess tax benefits of $32 million in 2015, $89 million in 2014, and $66 million in 2013. The preceding table includes2016, as this period occurred before our adoption of ASU 2016-09. In our Statements of Cash Flows, we presented excess tax creditsbenefits as financing cash flows before our adoption of $4 million in 2015, $4 million in 2014, and $3 million in 2013. We had tax applicable to other comprehensive income of $2 million in 2015, $5 million in 2014, and $2 million in 2013.
We have made no provision for U.S. income taxes or additional non-U.S. taxes on the cumulative unremitted earnings of non-U.S. subsidiaries ($1,109 million as of year-end 2015). We consider the earnings for substantially all non-U.S. subsidiaries to be indefinitely reinvested. These earnings could become subject to additional taxes if the non-U.S. subsidiaries dividend or loan those earnings to a U.S. affiliate or if we sell our interests in the non-U.S. subsidiaries. We cannot practically estimate the amount of additional taxes that might be payable on the unremitted earnings.ASU 2016-09.
Unrecognized Tax Benefits
The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 20132016 to the end of 2015:2018:
|
| | | |
| ($ in millions) | Amount |
| Unrecognized tax benefit at beginning of 2013 | $ | 29 |
|
| Change attributable to tax positions taken during the current period | 8 |
|
| Decrease attributable to settlements with taxing authorities | (2 | ) |
| Decrease attributable to lapse of statute of limitations | (1 | ) |
| Unrecognized tax benefit at year-end 2013 | 34 |
|
| Change attributable to tax positions taken during the current period | 3 |
|
| Decrease attributable to settlements with taxing authorities | (27 | ) |
| Decrease attributable to lapse of statute of limitations | — |
|
| Unrecognized tax benefit at year-end 2014 | 10 |
|
| Change attributable to tax positions taken during the current period | 15 |
|
| Decrease attributable to settlements with taxing authorities | — |
|
| Decrease attributable to lapse of statute of limitations | (1 | ) |
| Unrecognized tax benefit at year-end 2015 | $ | 24 |
|
These unrecognized tax benefits reflect the following year-over-year changes: (1) a $14 million increase in 2015, largely attributable to a U.S. federal tax issue regarding transfer pricing; (2) a $24 million decrease in 2014, largely attributable to the favorable settlements reached with taxing authorities on both federal and international positions taken in prior years; and (3) a
$5 million increase in 2013, primarily due to a U.S. federal tax issue, offset by a settlement with international taxing authorities. |
| | | |
| ($ 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 |
|
Our unrecognized tax benefit balances included $15$497 million at year-end 2015, $72018, $385 million at year-end 2014,2017, and $12$288 million at year-end 20132016 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 million of U.S. federal issues that are currently in appeals and $33 million of state and non-U.S. audits we expect to resolve in 2019. We
recognize accrued interest and penalties for our unrecognized tax benefits as a component of tax expense. Related interest totaled $3 million in 2018, $24 million in 2017, and $8 million in 2016.
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, we have settled all issues for tax years through 2013. We participate in the IRS Compliance Assurance Program, which accelerates IRS examination of key transactions with the goal of resolving any issues before the taxpayer files its return. As a result, our2013 for Marriott and through 2009 for Starwood. Our Marriott 2014 tax year audit is complete, pending the resolution of one issue. Ourand 2015 tax year auditaudits are substantially complete, and our Marriott 2016 through 2018 tax year audits are currently ongoing. Starwood is currently ongoing.under audit by the IRS for years 2010 through 2016. Various foreign, state, and local income tax returns are also under examination by the applicable taxing authorities. We believe it is reasonably possible that we will resolve a transfer pricing issue for 2014 and 2015 during the next 12 months for which we have an unrecognized tax balance of $15 million.
Deferred Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we actually pay or recover the taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.
We had the following total deferred tax assets and liabilities at year-end 2015 and year-end 2014:
|
| | | | | | | |
| ($ in millions) | At Year-End 2015 | | At Year-End 2014 |
| Deferred tax assets | $ | 672 |
| | $ | 819 |
|
| Deferred tax liabilities | (16 | ) | | (16 | ) |
| Net deferred taxes | $ | 656 |
| | $ | 803 |
|
The following table presents the tax effect of each type of temporary difference and carry-forward that gave rise to a significant portionportions of our deferred tax assets and liabilities as of year-end 20152018 and year-end 2014:2017:
| | | ($ in millions) | At Year-End 2015 | | At Year-End 2014 | At Year-End 2018 | | At Year-End 2017 |
| Deferred Tax Assets | | | | |
| Employee benefits | $ | 348 |
| | $ | 347 |
| $ | 261 |
| | $ | 264 |
|
| Net operating loss carry-forwards | 205 |
| | 257 |
| 494 |
| | 376 |
|
| Accrued expenses and other reserves | | 160 |
| | 161 |
|
| Receivables, net | | 12 |
| | 21 |
|
| Tax credits | 111 |
| | 182 |
| 24 |
| | 27 |
|
| Reserves | 63 |
| | 57 |
| |
| Frequent guest program | 68 |
| | 47 |
| |
| Loyalty Program | | 133 |
| | 31 |
|
| Deferred income | | 56 |
| | 17 |
|
| Self-insurance | 21 |
| | 24 |
| — |
| | 12 |
|
| Deferred income | 21 |
| | 20 |
| |
| Other | | 13 |
| | 2 |
|
| Deferred tax assets | | 1,153 |
| | 911 |
|
| Valuation allowance | | (428 | ) | | (309 | ) |
| Deferred tax assets after valuation allowance | | 725 |
| | 602 |
|
| Deferred Tax Liabilities | | | | |
| Joint venture interests | (49 | ) | | (34 | ) | (59 | ) | | (33 | ) |
| Other, net | 31 |
| | 48 |
| |
| Deferred taxes | 819 |
| | 948 |
| |
| Less: valuation allowance | (163 | ) | | (145 | ) | |
| Property and equipment | | (85 | ) | | (62 | ) |
| Intangibles | | (876 | ) | | (1,019 | ) |
| Self-insurance | | (19 | ) | | — |
|
| Deferred tax liabilities | | (1,039 | ) | | (1,114 | ) |
| Net deferred taxes | $ | 656 |
| | $ | 803 |
| $ | (314 | ) | | $ | (512 | ) |
Our valuation allowance is attributable to non-U.S. and U.S. state net operating loss carry forwards. During 2018, our valuation allowance increased primarily due to net operating losses in Luxembourg.
At year-end 2015,2018, we had approximately $34$11 million of tax credits that will expire through 2025 and $77$13 million of tax credits that do not expire. We recorded $5$10 million of net operating loss benefits in 20152018 and $10$6 million in 2014.2017. At year-end 2015,2018, we had approximately $961$2,595 million of primarily state and foreign net operating losses, of which $413$1,712 million will expire through 2035.2038.
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:
| | | | 2015 | | 2014 | | 2013 | 2018 | | 2017 | | 2016 |
| U.S. statutory tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % | 21.0 | % | | 35.0 | % | | 35.0 | % |
| U.S. state income taxes, net of U.S. federal tax benefit | 2.9 |
| | 2.7 |
| | 2.6 |
| 2.5 |
| | 3.1 |
| | 3.0 |
|
| Nondeductible expenses | 0.2 |
| | 0.2 |
| | 0.5 |
| |
| Non-U.S. income | (5.2 | ) | | (4.8 | ) | | (5.7 | ) | (1.0 | ) | | (7.3 | ) | | (6.1 | ) |
| Change in valuation allowance | 1.2 |
| | (0.4 | ) | | 0.3 |
| 2.6 |
| | 2.0 |
| | 0.3 |
|
| Tax credits | (0.3 | ) | | (0.3 | ) | | (0.4 | ) | |
| Change in uncertain tax positions | | 1.0 |
| | 2.2 |
| | 1.4 |
|
| Change in U.S. tax rate | | (1.7 | ) | | (5.5 | ) | | 0.0 |
|
| Transition Tax on foreign earnings | | 0.1 |
| | 22.8 |
| | 0.0 |
|
| Tax on asset dispositions | | (2.9 | ) | | (0.2 | ) | | 0.0 |
|
| Excess tax benefits related to equity awards | | (1.8 | ) | | (2.4 | ) | | 0.0 |
|
| Other, net | (2.3 | ) | | (1.6 | ) | | (2.1 | ) | (1.1 | ) | | 1.4 |
| | 1.2 |
|
| Effective rate | 31.5 | % | | 30.8 | % | | 30.2 | % | 18.7 | % | | 51.1 | % | | 34.8 | % |
The non-U.S. income tax benefit presented in the table above includes tax-exempt income in Hong Kong, a tax rate incentive in Singapore, a deemed interest deduction in Switzerland, and tax-exempt income earned from certain operations in Luxembourg, which collectively represented 3.4% in 2018, 6.2% in 2017, and 7.4% in 2016. We included the impact of these items in the foreign tax rate differential 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, Hong Kong, and Luxembourg totaled $432 million in 2018, $576 million in 2017, and $271 million in 2016.
The non-U.S. income tax benefit also includes 1.4% of U.S. income tax expense on non-U.S. operations. 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 $218$678 million in 2015, $1722018, $636 million in 2014,2017, and $77$293 million in 2013.2016.
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 $29 million for state tax liability on unremitted accumulated earnings. We have made no additional provision for U.S. income taxes or additional non-U.S. taxes on the remaining unremitted accumulated earnings of our non-U.S. subsidiaries. It is not practical at this time to determine the income tax liability related to any remaining undistributed earnings or additional basis difference not subject to the Transition Tax.
Other provisions. The 2017 Tax Act also included a new provision designed to tax GILTI. We adopted the period cost method and recorded a current provision for GILTI tax related to current-year operations in our annual effective tax rate.
7. COMMITMENTS AND CONTINGENCIES
Guarantees
We issue guarantees to certain lenders and hotel owners, chiefly to obtain long-term management contracts. The guarantees generally have a stated maximum funding amount and a term of fourthree to ten years. The terms of guarantees to lenders generally require us to fund if cash flows from hotel operations are inadequate to cover annual debt service or to repay the loan at maturity. The terms of the guarantees to hotel owners generally require us to fund if the hotels do not attain specified levels of operating profit. Guarantee fundings to lenders and hotel owners are generally recoverable as loans repayable to us out of future hotel cash flows and/or proceeds from the sale of hotels. We also enter into project completion guarantees with certain lenders in conjunction with hotels that we or our joint venture partners are building.
We present the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for our debt service, operating profit, and other guarantees (excluding contingent purchase obligations) for which we are the primary obligor at year-end 20152018 in the following table:
| | ($ in millions) Guarantee Type | Maximum Potential Amount of Future Fundings | | Liability for Guarantees | Maximum Potential Amount of Future Fundings | | Recorded Liability for Guarantees |
| Debt service | $ | 113 |
| | $ | 23 |
| $ | 125 |
| | $ | 17 |
|
| Operating profit | 103 |
| | 43 |
| 212 |
| | 100 |
|
| Other | 12 |
| | 1 |
| 9 |
| | 2 |
|
| Total guarantees where we are the primary obligor | $ | 228 |
| | $ | 67 |
| |
| | | $ | 346 |
| | $ | 119 |
|
Our liability at year-end 20152018 for guarantees for which we are the primary obligor is reflected in our Balance Sheets as $4$23 million of “Accrued expenses and other” and $63$96 million of “Other noncurrent liabilities.”
Our guarantees listed in the preceding table include $11$3 million of debt service guarantees, $42$32 million of operating profit guarantees, and $1$2 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.
The table above does not include a “contingent purchase obligation,” which is not currently in effect, that we entered into in the 2014 first quarter to provide credit support to lenders for a construction loan. We entered into that agreement in conjunction with signing a management agreement for The Times Square EDITION hotel in New York City (currently projected to open in 2017), and the hotel’s ownership group obtaining acquisition financing and entering into agreements concerning future construction financing for the mixed use project (which includes both the hotel and adjacent retail space). Under the agreement, we granted the lenders the right, upon an uncured event of default by the hotel owner under, and an acceleration of, the mortgage loan, to require us to purchase the hotel component of the property for $315 million during the first two years after opening. Because we would acquire the building upon exercise of the put option, we have not included the amount in the table above. The lenders may extend this period for up to three years to complete foreclosure if the loan has been accelerated and certain other conditions are met. We do not currently expect that the lenders will require us to purchase the hotel component. We have no ownership interest in this hotel.
The preceding table also does not include the following guarantees:
$62 million of guarantees for Senior Living Services lease obligations of $46 million (expiring in 2019) and lifecare bonds of $16 million (estimated to expire in 2019), for which we are secondarily liable. Sunrise Senior Living, Inc. (“Sunrise”) is the primary obligor on both the leases and $3 million of the lifecare bonds; HCP, Inc., as successor by merger to CNL Retirement Properties, Inc. (“CNL”), is the primary obligor on $13 million of the lifecare bonds. Before we sold the Senior Living Services business in 2003, these were our guarantees of obligations of our then consolidated Senior Living Services subsidiaries. Sunrise and CNL have indemnified us for any fundings we may be called upon to make under these guarantees. Our liability for these guarantees had a carrying value of $3 million at year-end 2015. In conjunction with our consent to the 2011 extension of certain lease obligations until 2018, Sunrise provided us with $1 million of cash collateral and an $85 million letter of credit issued by Key Bank to secure our continued exposure under the lease guarantees during the extension term and certain other obligations of Sunrise. The letter of credit balance was $55 million at year-end 2015, which decreased as a result of lease payments made and lifecare bonds redeemed. During the extension term, Sunrise agreed to make an annual payment to us from the cash flow of the continuing lease facilities, subject to a $1 million annual minimum. In the 2013 first quarter, Sunrise merged with Health Care REIT, Inc. (“HCN”), and Sunrise’s management business was acquired by an entity formed by affiliates of Kohlberg Kravis Roberts & Co. LP, Beecken Petty O’Keefe & Co., Coastwood Senior Housing Partners LLC, and HCN. In April of 2014, HCN and Revera Inc., a private provider of senior living services, acquired Sunrise’s management business.
Lease obligations, for which we became secondarily liable when we acquired the Renaissance Hotel Group N.V. in 1997, consisting of annual rent payments of approximately $4 million and total remaining rent payments through the initial term of approximately $19 million. The majority of these obligations expire by the end of 2020. CTF Holdings Ltd. (“CTF”) had originally provided €35 million in cash collateral in the event that we are required to fund under such guarantees, approximately $3 million (€2 million) of which remained at year-end 2015. Our exposure for the remaining rent payments through the initial term will decline to the extent that CTF obtains releases from the landlords or these hotels exit our system. Since the time we assumed these guarantees, we have not funded any amounts, and we do not expect to fund any amounts under these guarantees in the future.
A guarantee relating to the timeshare business, which was outstanding at the time of the 2011 Timeshare spin-off and for which we became secondarily liable as part of the spin-off. The guarantee relates to a Marriott Vacations Worldwide Corporation (“MVW”) payment obligation, for which we had an exposure of $5 million (7 million Singapore Dollars) at year-end. MVW has indemnified us for this obligation, which we expect will expire in 2022. We have not funded any amounts under this obligation, and do not expect to do so in the future. Our liability for this obligation had a carrying value of $1 million at year-end 2015.
A guarantee for a lease, originally entered into in 2000, for which we became secondarily liable in 2012 as a result of our sale of the ExecuStay corporate housing business to Oakwood Worldwide (“Oakwood”). Oakwood has indemnified us for the obligations under this guarantee. Our total exposure at year-end 2015 for this guarantee was $6 million in future rent payments through the end of the lease in 2019. Our liability for this guarantee had a carrying value of $1 million at year-end 2015.
In addition to the guarantees described in the preceding paragraphs, in conjunction with financing obtained for specific projects or properties owned by us or joint ventures in which we are a party, 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 owner or our own actions.
CommitmentsContingent Purchase Obligation
In additionSheraton Grand Chicago. 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 land for an additional $200 million in cash. We accounted for the put option as a guarantee, and our recorded liability at year-end 2018 was $57 million.
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 guaranteesentity 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 note inprovided for the preceding paragraphs, athotel.
Commitments
At year-end 2015,2018, we had the following commitments outstanding, which are not recorded on our Balance Sheets:
A commitment to invest up to $7 million of equity for a non-controlling interest in a partnership that plans to purchase North American full-service and limited-service properties, or purchase or develop hotel-anchored mixed-use real estate projects. We do not expect to fund this commitment, which expires in 2016.
A commitment to invest up to $22 million of equity for non-controlling interests in a partnership that plans to purchase or develop limited-service properties in Asia. We expect to fund $3 million of this commitmentin 2016. We do not expect to fund the remaining $19 million of this commitment prior to the end of the commitment period in 2016.
A commitment, with no expiration date, to invest up to $11 million in a joint venture for development of a new property. We do not expect to fund this commitment.
We havehad a right and, under certain circumstances, an obligation to acquire our joint venture partner’s remaining interests in two joint ventures over the next six years at a price based on the performance of the ventures. In conjunction with this contingent obligation,the 2019 first quarter, we advanced $20 million (€15 million) in deposits, $13 million (€11 million) of which is remaining. The amounts on deposit are refundableaccelerated our option to the extent we do not acquire our joint venture partner’s remaining interests. We expect to account for the transaction primarily as an acquisition of brand and contract assets.
A loan commitmentInvestment commitments totaling up to $11 million of $75 million relatedequity for non-controlling interests in real estate and travel technology-related entities. We expect to the construction of a North American Full-Service property. We fundedinvest up to $3 million in 20152019 and $6 million thereafter. We do not expect to fund $25the remaining commitments.
Various loan commitments totaling $14 million, in 2016 and $47 million in 2017.
A $5 million loan commitment thatof which we extended to the operating tenant of a property to cover the cost of renovation shortfalls. We expect to fund this commitment$5 million in 2016.2019 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 $173$286 million. We expect to purchase goods and services subject to these commitments as follows: $71$153 million in 2016, $522019, $78 million in 2017, $472020, $38 million in 2018,2021, and $3$17 million thereafter.
Several commitments aggregating $29$33 million, with no expiration date and which we do not expect to fund.
Letters of Credit
At year-end 2015,2018, we had $82$136 million of letters of credit outstanding (all outside the Credit Facility, as defined in Footnote No. 10, “Long-Term Debt”)10. Long-Term Debt), the majoritymost of which were for our self-insurance programs.Surety bonds issued as of year-end 2015,2018 totaled $159$152 million, the majoritymost of which federal, state and local governments requested in connection with our self-insurance programs.
Legal ProceedingsData Security Incident
Description of Event
On January 19, 2010, several former Marriott employees (the “plaintiffs”November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”) filed a. 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 Starwood reservations database, effective as of the end of 2018.
Expenses and Insurance Recoveries
In 2018, we recorded $28 million of expenses related to the Data Security Incident, partially offset by $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 costs to investigate the Data Security Incident and customer care costs. 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, up to the amount of loss.
Litigation, Claims, and Government Investigations
To date, approximately 100 putative class action complaintlawsuits have been filed by consumers and others against us in U.S. federal, U.S. state and the Stock Plan (the “defendants”), alleging that certain equity awards of deferred bonus stock grantedCanadian courts related to the Data Security Incident. The plaintiffs in these cases, who 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 and other currentrelated relief. On February 6, 2019, the U.S. Judicial Panel on Multidistrict Litigation (MDL) issued an order consolidating the U.S. cases filed to that date and former employees for fiscal years 1963 through 1989 are subjecttransferring them all to vesting requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that are in certain circumstances more rapid than those set forth in the awards. The action was brought in the United StatesU.S. District Court for the District of Maryland (Greenbelt Division),Maryland. A putative class action lawsuit was filed against us and Dennis Walter Bond Sr.certain of our current officers and Michael P. Steigman were the remaining named plaintiffs. Class certification was denied, anddirectors on January 16, 2015, the court granted Marriott’s motion for summary judgment and dismissed the case. Plaintiffs appealed toDecember 1, 2018 in the U.S. District Court of Appeals for the Fourth Circuit, and we cross-appealed on statuteEastern District of limitation grounds. Oral arguments were held beforeNew York alleging violations of the Fourth Circuit on October 28, 2015, and on January 29, 2016, the Fourth Circuit unanimously granted Marriott’s motion for summary judgment on the grounds that the action was untimely and affirmed the judgment in Marriott’s favor.
In March 2012, the Korea Fair Trade Commission (“KFTC”) obtained documents from two of our managed hotels in Seoul, Koreafederal securities laws in connection with statements regarding our cybersecurity systems and controls. The complaint seeks certification of a class of affected persons and unspecified monetary damages, costs and attorneys’ fees. This case is also covered by the MDL order. A shareholder derivative complaint was also filed against the Company and each of the 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, mismanagement and violations of the federal securities laws. This case has not yet been consolidated as part of the MDL proceeding. We dispute the allegations in the complaints described above and intend to defend vigorously against such claims.
In addition, numerous U.S. federal, U.S. state and foreign governmental authorities are investigating, or otherwise seeking 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”) as lead supervisory authority in the European Economic Area, and regulatory authorities in other jurisdictions, including Germany. Following the Data Security Incident, the ICO notified us that it had opened an investigation whichinto the Company’s online privacy policy and related practices. This investigation is separate from the ICO’s investigation related to the Data Security Incident.
While we believe it is focused on pricing of hotel services within the Seoul region. Since then, the KFTC has conducted additional fact-gathering at those two hotels and also has collected information from another Marriott managed hotel located in Seoul. We understand that the KFTC also has sought documents from numerous other hotels in Seoul and other parts of Koreareasonably possible that we domay incur losses associated with the above described proceedings and investigations, it is not operate, own,possible to estimate the amount of loss or franchise. We have not received a complaintrange of loss, if any, that might result from adverse judgments, settlements, fines, penalties or other legal process. We are cooperating with this investigation.
Between November 18, 2015resolution of these proceedings and December 18, 2015, seven lawsuits challenginginvestigations based on the Starwood Combination were filed inearly stage of these proceedings and investigations, the Circuit Court for Baltimore City, Maryland on behalfabsence of purported shareholders of Starwood, naming various combinations of Starwood’s directors, Starwood, Marriott, and others,specific allegations as defendants. On February 4, 2016,to alleged damages, the parties filed a stipulation and proposed order in which the plaintiffs in all actions agreeduncertainty as to the dismissal, without prejudice,certification of all counts against Marriotta class or classes and Marriott’s subsidiaries. On February 11, 2016, pursuant to the parties’ stipulation,size of any certified class, if applicable, and the Court issued an order dismissing, without prejudice, all claimslack of resolution of significant factual and all counts against Marriott. legal issues.
8. LEASES
The following table presents our future minimum lease obligations under operating leasesfor which we are the primary obligor as of year-end 2015:2018:
| | | ($ in millions) | Minimum Lease Payments | Operating Leases | | Capital Leases |
| 2016 | $ | 126 |
| |
| 2017 | 123 |
| |
| 2018 | 112 |
| |
| 2019 | 87 |
| $ | 171 |
| | $ | 13 |
|
| 2020 | 67 |
| 170 |
| | 13 |
|
| 2021 | | 145 |
| | 13 |
|
| 2022 | | 153 |
| | 13 |
|
| 2023 | | 139 |
| | 13 |
|
| Thereafter | 447 |
| 1,295 |
| | 165 |
|
| Total minimum lease payments where we are the primary obligor | $ | 962 |
| $ | 2,073 |
| | $ | 230 |
|
| Less: Amount representing interest | | | | 67 |
|
| Present value of minimum lease payments | | | | $ | 163 |
|
Most leases have initial terms of up to 20 years, and contain one or more renewal options,renewals at our option, generally for five- or 10-year periods. Theseperiods, and generally contain fixed and variable components. The variable components of leases generally provide for minimum rentals plus additional rentalsof land or building facilities are primarily based on the operating performance of the leased property. The total minimum lease payments above includes $186 million of obligations of our consolidated subsidiaries that are non-recourse to us.
The following table details the composition of rent expense for operating leases for the last three years: | | | ($ in millions) | 2015 | | 2014 | | 2013 | 2018 | | 2017 | | 2016 |
| Minimum rentals | $ | 138 |
| | $ | 143 |
| | $ | 159 |
| $ | 192 |
| | $ | 194 |
| | $ | 150 |
|
| Additional rentals | 65 |
| | 64 |
| | 56 |
| 83 |
| | 85 |
| | 67 |
|
| | $ | 203 |
| | $ | 207 |
| | $ | 215 |
| $ | 275 |
| | $ | 279 |
| | $ | 217 |
|
9. SELF-INSURANCE RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table summarizes the activity in our self-insurance reserve for losses and loss adjustment expenses as of year-end 20152018 and 2014:2017: | | | ($ in millions) | 2015 | | 2014 | 2018 | | 2017 |
| Balance at beginning of year | $ | 384 |
| | $ | 362 |
| $ | 487 |
| | $ | 493 |
|
| Less: reinsurance recoverable | (4 | ) | | (5 | ) | |
| Less: Reinsurance recoverable | | (3 | ) | | (3 | ) |
| Net balance at beginning of year | 380 |
| | 357 |
| 484 |
| | 490 |
|
| Incurred related to: | | | | | | |
| Current year | 141 |
| | 126 |
| 151 |
| | 160 |
|
| Prior years | (11 | ) | | (2 | ) | (37 | ) | | (59 | ) |
| Total incurred | 130 |
| | 124 |
| 114 |
| | 101 |
|
| Paid related to: | | | | | | |
| Current year | (27 | ) | | (24 | ) | (32 | ) | | (30 | ) |
| Prior years | (70 | ) | | (77 | ) | (96 | ) | | (77 | ) |
| Total paid | (97 | ) | | (101 | ) | (128 | ) | | (107 | ) |
| Net balance at end of year | 413 |
| | 380 |
| 470 |
| | 484 |
|
| Add: reinsurance recoverable | 3 |
| | 4 |
| |
| Add: Reinsurance recoverable | | 7 |
| | 3 |
|
| Balance at end of year | $ | 416 |
| | $ | 384 |
| $ | 477 |
| | $ | 487 |
|
| | | | | | | |
| Current portion classified in “Accrued expenses and other” | $ | 115 |
| | $ | 120 |
| $ | 126 |
| | $ | 112 |
|
| Noncurrent portion classified in “Other noncurrent liabilities” | 301 |
| | 264 |
| 351 |
| | 375 |
|
| | $ | 416 |
| | $ | 384 |
| $ | 477 |
| | $ | 487 |
|
Our provision for incurred losses for the current year increased by $15 million over 2014, primarily due to an increase in medical benefit costs and growth in business activity. We decreased our provision for incurred losses for prior years by $11$37 million in 20152018 and by $2$59 million in 2014 as a result2017 because of changes in estimates from insured events from prior years due to changes in underwriting experience and frequency and severity trends.
We provide detail on our long-term debt balances, net of discounts, premiums, and debt issuance costs, in the following table at year-end 20152018 and 2014:2017:
| | | ($ in millions) | At Year-End 2015 | | At Year-End 2014 | At Year-End 2018 | | At Year-End 2017 |
| Senior Notes: | | | | | | |
Series G Notes, interest rate of 5.8%, face amount of $316, matured November 10, 2015
(effective interest rate of 6.6%) | $ | — |
| | $ | 314 |
| |
Series H Notes, interest rate of 6.2%, face amount of $289, maturing June 15, 2016
(effective interest rate of 6.3%) | 289 |
| | 289 |
| |
Series I Notes, interest rate of 6.4%, face amount of $293, maturing June 15, 2017
(effective interest rate of 6.5%) | 293 |
| | 293 |
| |
Series K Notes, interest rate of 3.0%, face amount of $600, maturing March 1, 2019
(effective interest rate of 4.4%) | 595 |
| | 594 |
| $ | 600 |
| | $ | 598 |
|
Series L Notes, interest rate of 3.3%, face amount of $350, maturing September 15, 2022
(effective interest rate of 3.4%) | 348 |
| | 347 |
| 349 |
| | 348 |
|
Series M Notes, interest rate of 3.4%, face amount of $350, maturing October 15, 2020
(effective interest rate of 3.6%) | 347 |
| | 346 |
| 349 |
| | 348 |
|
Series N Notes, interest rate of 3.1%, face amount of $400, maturing October 15, 2021
(effective interest rate of 3.4%) | 395 |
| | 394 |
| 397 |
| | 397 |
|
Series O Notes, interest rate of 2.9%, face amount of $450, maturing March 1, 2021
(effective interest rate of 3.1%) | 446 |
| | — |
| 448 |
| | 447 |
|
Series P Notes, interest rate of 3.8%, face amount of $350, maturing October 1, 2025
(effective interest rate of 4.0%) | 343 |
| | — |
| 345 |
| | 345 |
|
| Commercial paper, average interest rate of 0.6% at December 31, 2015 | 938 |
| | 1,072 |
| |
| $2,000 Credit Facility | — |
| | — |
| |
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 R Notes, interest rate of 3.1%, face amount of $750, maturing June 15, 2026
(effective interest rate of 3.3%) | | 743 |
| | 743 |
|
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 V Notes, interest rate of 3.8%, face amount of $318, maturing March 15, 2025
(effective interest rate of 2.8%) | | 335 |
| | 337 |
|
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 X Notes, interest rate of 4.0%, face amount of $450, maturing April 15, 2028
(effective interest rate of 4.2%) | | 443 |
| | — |
|
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 Z Notes, interest rate of 4.2%, face amount of $350, maturing December 1, 2023
(effective interest rate of 4.4%) | | 347 |
| | — |
|
Series AA Notes, interest rate of 4.7%, face amount of $300, maturing December 1, 2028
(effective interest rate of 4.8%) | | 297 |
| | — |
|
| | | | | |
| Commercial paper | | 2,245 |
| | 2,371 |
|
| Credit Facility | | — |
| | — |
|
| Capital lease obligations | | 163 |
| | 171 |
|
| Other | 113 |
| | 122 |
| 223 |
| | 279 |
|
| | $ | 4,107 |
| | $ | 3,771 |
| |
| | | | | $ | 9,347 |
| | $ | 8,238 |
|
| Less: Current portion of long-term debt | (300 | ) | | (324 | ) | (833 | ) | | (398 | ) |
| | $ | 3,807 |
| | $ | 3,447 |
| $ | 8,514 |
| | $ | 7,840 |
|
All of our long-term debt is recourse to us but unsecured. We paid cash for interest, netAll 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 amounts capitalized, of $114 million in 2015, $79 million in 2014, and $83 million in 2013.
In the 2015 third quarter, we issued $800 million aggregate principal amount of 2.875 percent Series O Notes due 2021 (the “Series O Notes”) and 3.750 percent Series P Notes due 2025 (the “Series P Notes” and together with the Series O Notes, the “Notes”). We received net proceeds of approximately $790 million from the offering of the Notes, after deducting the underwriting discount and expenses. We expect to use these proceeds for general corporate purposes, which may include working capital, capital expenditures, acquisitions, stock repurchases, or repayment of commercial paper or other borrowings as they become due. We will pay interest on the Series O Notes on March 1 and September 1 of each year, commencing on March 1, 2016, and we will pay interest on the Series P Notes on April 1 and October 1 of each year, commencing on April 1, 2016.
In the 2014 fourth quarter, we issued $400 million aggregate principal amount of 3.1 percent Series N Notes due 2021 (the “Series N Notes”). We received net proceeds of approximately $394 million from the offering, after deducting the underwriting discount and expenses. We will pay interest on the Series N Notes on April 15 and October 15 of each year, commencing on April 15, 2015.
We issued the Notes under an indenture, dated as of November 16, 1998, withbetween us and The Bank of New York Mellon as successor to JPMorgan Chase(formerly The Bank N.A. (formerly known as The Chase Manhattan Bank)of New York), as trustee. WeWith the exception of the floating rate Series Y Notes, we may redeem some or all of each series of the Senior Notes prior tobefore maturity under the terms provided in the applicable form of Senior Note.
We are party to a multicurrency revolving credit agreement (the “Credit Facility”) that provides for $2,000 millionup to $4 billion of aggregate effective borrowings to support our commercial paper program and general corporate needs, including working capital, capital expenditures, share repurchases, letters of credit, and acquisitions. The availability of the Credit Facility also supports our commercial paper program. In addition, we may use borrowings under the Credit Facility, or commercial paper supported by the Credit Facility, to finance all or part of the cash component of the consideration to Starwood shareholders in connection with the Starwood Combination and certain fees and expenses incurred in connection with the combination. 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 any 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 July 18,June 10, 2021. See the “Cash Requirements and Our Credit Facility” caption earlier in this report in the “Liquidity and Capital Resources” section of Item 7 above for further information on our Credit Facility and available borrowing capacity at December 31, 2018.
In the 2018 fourth quarter, we issued $550 million aggregate principal amount of three-month LIBOR plus 0.600 percent Series Y Notes due December 1, 2020 (the “Series Y Notes”), $350 million aggregate principal amount of 4.150 percent Series Z Notes due December 1, 2023 (the “Series Z Notes”), and $300 million aggregate principal amount of 4.650 percent Series AA Notes due December 1, 2028 (the “Series AA Notes”). We will pay interest on the Series Y Notes on March 1, June 1, September 1, and December 1 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.We received net proceeds of approximately $1,190 million from the offering of the Series Y Notes, the Series Z Notes, and the Series AA 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 $443 million from the offering of the Series X Notes, after deducting the underwriting discount and estimated expenses.
The proceeds from our 2018 senior note issuances were made available for general corporate purposes, which may include working capital, capital expenditures, acquisitions, stock repurchases, or repayment of outstanding commercial paper or other borrowings.
The following table presents future principal payments, net of discounts, premiums, and debt issuance costs, for our debt as of year-end 2015:2018:
|
| | | |
Debt Principal Payments (net of unamortized discounts) ($ in millions) | Amount |
| 2016 | $ | 300 |
|
| 2017 | 302 |
|
| 2018 | 947 |
|
| 2019 | 605 |
|
| 2020 | 357 |
|
| Thereafter | 1,596 |
|
| Balance at year-end 2015 | $ | 4,107 |
|
|
| | | |
Debt Principal Payments ($ in millions) | Amount |
| 2019 | $ | 833 |
|
| 2020 | 912 |
|
| 2021 | 3,108 |
|
| 2022 | 1,114 |
|
| 2023 | 695 |
|
| Thereafter | 2,685 |
|
| Balance at year-end 2018 | $ | 9,347 |
|
We paid cash for interest, net of amounts capitalized, of $290 million in 2018, $234 million in 2017, and $165 million in 2016.
11. PENSION AND OTHER POSTRETIREMENT BENEFITS
We sponsor numerous funded and unfunded domestic and international defined benefit pension plans. All defined benefit plans covering U.S. employees are frozen, meaning that employees do not accrue additional benefits. Certain plans covering non-U.S. employees remain active. We also sponsor the Starwood Retiree Welfare Program, which provides health care and life insurance benefits for certain eligible retired employees.
The following tables show changes in plan assets and accumulated benefit obligations and the funded status of our defined benefit pension and other postretirement benefit plans at year-end 2018 and 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits |
| ($ 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 acquired intangible assets at year-end 20152018 and 2014: 2017: |
| | | | | | | |
| ($ in millions) | At Year-End 2015 | | At Year-End 2014 |
| Definite-lived Intangible Assets | | | |
| Contract acquisition costs and other | $ | 1,702 |
| | $ | 1,735 |
|
| Accumulated amortization | (380 | ) | | (461 | ) |
| | 1,322 |
| | 1,274 |
|
| Indefinite-lived Intangible Assets | | | |
| Brands | 129 |
| | 77 |
|
| Total Intangible Assets | $ | 1,451 |
| | $ | 1,351 |
|
| | | | |
|
| | | | | | | |
| ($ in millions) | At Year-End 2018 | | At Year-End 2017 |
| Definite-lived Intangible Assets | | | |
| Costs incurred to obtain contracts with customers | $ | 1,347 |
| | $ | 1,137 |
|
| Contracts acquired in business combinations and other | 1,983 |
| | 2,052 |
|
| | 3,330 |
| | 3,189 |
|
| Accumulated amortization | (674 | ) | | (499 | ) |
| | 2,656 |
| | 2,690 |
|
| Indefinite-lived Intangible Brand Assets | 5,724 |
| | 5,854 |
|
| | $ | 8,380 |
| | $ | 8,544 |
|
We capitalize both direct and incremental costs that we incur to acquireobtain 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. Our
For acquired definite-lived intangible assets, we recorded amortization expense totaled $65of $111 million in 2015, $642018, $116 million in 2014,2017, and $68$31 million in 2013. We2016 in the “Depreciation, amortization, and other” caption of our Income Statements. For these assets, we estimate that our aggregate amortization expense will be $111 million for each of the next five fiscal years will be as follows: $67 million for 2016; $67 million for 2017; $67 million for 2018; $67 million for 2019; and $67 million for 2020.years.
The following table details the carrying amount of our goodwill at year-end 20152018 and 2014:
|
| | | | | | | | | | | | | | | |
| ($ in millions) | North American Full-Service Segment | | North American Limited-Service Segment | | International | | Total Goodwill |
| Year-end 2014 balance: | | | | | | | |
| Goodwill | $ | 392 |
| | $ | 125 |
| | $ | 431 |
| | $ | 948 |
|
| Accumulated impairment losses | — |
| | (54 | ) | | — |
| | (54 | ) |
| | 392 |
| | 71 |
| | 431 |
| | 894 |
|
| | | | | | | | |
| Additions | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | 19 |
|
| Adjustments | — |
| | — |
| | 57 |
| | 57 |
|
| Foreign currency translation | (2 | ) | | — |
| | (25 | ) | | (27 | ) |
| | | | | | | | |
| Year-end 2015 balance: | | | | | | | |
| Goodwill | $ | 409 |
| | $ | 125 |
| | $ | 463 |
| | $ | 997 |
|
| Accumulated impairment losses | — |
| | (54 | ) | | — |
| | (54 | ) |
| | $ | 409 |
| | $ | 71 |
| | $ | 463 |
| | $ | 943 |
|
|
| | | | | | | | | | | | | | | | | | | |
| ($ 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 |
|
The table reflects goodwill added as a result of our acquisitions of Delta Hotels and Resorts in 2015 and Protea Hotels in 2014. See Footnote No. 3, “Acquisitions and Dispositions” for more information.
12.13. PROPERTY AND EQUIPMENT
The following table presents the composition of our property and equipment balances at year-end 20152018 and 2014:2017:
| | | ($ in millions) | At Year-End 2015 | | At Year-End 2014 | At Year-End 2018 | | At Year-End 2017 |
| Land | $ | 299 |
| | $ | 457 |
| $ | 591 |
| | $ | 601 |
|
| Buildings and leasehold improvements | 729 |
| | 781 |
| 1,275 |
| | 1,052 |
|
| Furniture and equipment | 768 |
| | 775 |
| 1,439 |
| | 1,121 |
|
| Construction in progress | 130 |
| | 365 |
| 168 |
| | 116 |
|
| | 1,926 |
| | 2,378 |
| 3,473 |
| | 2,890 |
|
| Accumulated depreciation | (897 | ) | | (918 | ) | (1,517 | ) | | (1,097 | ) |
| | $ | 1,029 |
| | $ | 1,460 |
| $ | 1,956 |
| | $ | 1,793 |
|
We record property and equipment at cost, including interest and real estate taxes we incur during development and construction. Interest we capitalized as a cost of property and equipment totaled $9 million in 2015, $33 million in 2014, and $31 million in 2013. 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 (three(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 $132$256 million in 2015, $1352018, $231 million in 2014,2017, and $107$157 million in 20132016 (of which $58$147 million in 2015, $512018, $126 million in 2014,2017, and $48$76 million in 2013 we2016 was included in reimbursed costs). Fixed assets attributed to operations located outside the United StatesU.S. were $229$533 million in 20152018 and $291$705 million in 2014.2017.
See Footnote No. 3, “Acquisitions and Dispositions” for information on impairment charges we recorded in the “Depreciation, amortization, and other” and “Gains and other income, net” captions of our Income Statements.
13.14. NOTES RECEIVABLE
The following table presents the composition of our notes receivable balances (net of reserves and unamortized discounts) at year-end 2015 and 2014:
|
| | | | | | | |
| ($ in millions) | At Year-End 2015 | | At Year-End 2014 |
| Senior, mezzanine, and other loans | $ | 221 |
| | $ | 242 |
|
| Less current portion | (6 | ) | | (27 | ) |
| | $ | 215 |
| | $ | 215 |
|
We classify notes receivable due within one year as current assets in the caption “Accounts and notes receivable, net” in our Balance Sheets. We did not have any past due notes receivable amounts at the end of either 2015 or 2014. In 2015, we issued a $58 million mezzanine loan (net of a $6 million discount) to an owner in conjunction with entering into a franchise agreement for a North American Limited-Service property. In 2014, we provided an $85 million mezzanine loan (net of a $15 million discount) to an owner in conjunction with entering into a franchise agreement for an International property. The unamortized discounts for our notes receivable were $31 million at year-end 2015 and $25 million at year-end 2014.
The following table presents the expected future principal payments, (netnet of reserves and unamortized discounts)discounts, as well as interest rates for our notes receivable as of year-end 2015:2018:
|
| | | |
Notes Receivable Principal Payments (net of reserves and unamortized discounts) and Interest Rates ($ in millions) | Amount |
| 2016 | $ | 6 |
|
| 2017 | 3 |
|
| 2018 | 60 |
|
| 2019 | 5 |
|
| 2020 | 2 |
|
| Thereafter | 145 |
|
| Balance at year-end 2015 | $ | 221 |
|
| Weighted average interest rate at year-end 2015 | 7.8 | % |
| Range of stated interest rates at year-end 2015 | 0 - 15% |
|
|
| | | |
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% |
|
Senior, Mezzanine, and Other Loans
Generally, all of the loans we make have similar characteristics in that they are loans to owners and operators of hotels and hospitality properties. We reflect interest income for “Senior, mezzanine, and other loans” in the “Interest income” caption in our Income Statements. At year-end 2015,2018, our recorded investment in impaired “Senior,senior, mezzanine, and other loans”loans was $72 million. We$45 million, and we had a $55$25 million notes receivable reserve representing an allowance for credit losses, leaving $17$20 million of exposure to our investment in impaired loans, for which we had no related allowance for credit losses.loans. At year-end 2014,2017, our recorded investment in impaired “Senior,senior, mezzanine, and other loans”loans was $63$95 million, and we had a $50$72 million notes receivable reserve representing an allowance for credit losses, leaving $13$23 million of exposure to our investment in impaired loans, for which we had no related allowance for credit losses.loans. Our average investment in impaired “Senior,senior, mezzanine, and other loans”loans totaled $67$70 million during 2015, $812018, $84 million during 2014,2017, and $96$73 million during 2013.2016.
The following table summarizes the activity for our “Senior, mezzanine, and other loans” notes receivable reserve for 2013, 2014, and 2015: |
| | | |
| ($ in millions) | Notes Receivable Reserve |
| Balance at year-end 2012 | $ | 79 |
|
| Reversals | (2 | ) |
| Transfers and other | 13 |
|
| Balance at year-end 2013 | 90 |
|
| Write-offs | (45 | ) |
| Transfers and other | 5 |
|
| Balance at year-end 2014 | 50 |
|
| Transfers and other | 5 |
|
| Balance at year-end 2015 | $ | 55 |
|
14.15. 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 2015 | | At Year-End 2014 | At Year-End 2018 | | At Year-End 2017 |
| ($ in millions) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Senior, mezzanine, and other loans | $ | 215 |
| | $ | 209 |
| | $ | 215 |
| | $ | 214 |
| $ | 125 |
| | $ | 116 |
| | $ | 142 |
| | $ | 130 |
|
| Marketable securities | 37 |
| | 37 |
| | 44 |
| | 44 |
| |
| Total noncurrent financial assets | $ | 252 |
| | $ | 246 |
| | $ | 259 |
| | $ | 258 |
| $ | 125 |
| | $ | 116 |
| | $ | 142 |
| | $ | 130 |
|
| | | | | | | | | | | | | | | |
| Senior notes | $ | (2,766 | ) | | $ | (2,826 | ) | | $ | (2,262 | ) | | $ | (2,370 | ) | |
| Senior Notes | | $ | (5,928 | ) | | $ | (5,794 | ) | | $ | (5,087 | ) | | $ | (5,126 | ) |
| Commercial paper | (938 | ) | | (938 | ) | | (1,072 | ) | | (1,072 | ) | (2,245 | ) | | (2,245 | ) | | (2,371 | ) | | (2,371 | ) |
| Other long-term debt | (99 | ) | | (108 | ) | | (108 | ) | | (122 | ) | (184 | ) | | (182 | ) | | (217 | ) | | (221 | ) |
| Other noncurrent liabilities | (63 | ) | | (63 | ) | | (57 | ) | | (57 | ) | (153 | ) | | (153 | ) | | (178 | ) | | (178 | ) |
| Total noncurrent financial liabilities | $ | (3,866 | ) | | $ | (3,935 | ) | | $ | (3,499 | ) | | $ | (3,621 | ) | $ | (8,510 | ) | | $ | (8,374 | ) | | $ | (7,853 | ) | | $ | (7,896 | ) |
We estimate the fair value of our senior, mezzanine, and other loans including the current portion, by discounting cash flows using risk-adjusted rates, both of which are Level 3 inputs.
We carry our marketable securities at fair value. Our marketable securities include debt securities of the U.S. Government, its sponsored agencies and other U.S. corporations invested for our self-insurance programs, as well as shares of publicly traded companies, which we value using directly observable Level 1 inputs. The carrying value of these marketable securities at year-end 2015 was $37 million.
In the 2015 second quarter, the sale of an entity that owns three hotels that we manage triggered the mandatory redemption feature of our preferred equity ownership interest in that entity. We received $121 million in cash and realized a gain of $41 million for the redemption, which we recorded in the “Gains and other income, net” caption of our Income Statements. At the date of redemption, it had an amortized cost of $80 million, including accrued interest. We continue to manage the hotels under long-term agreements. At year-end 2014, we accounted for this investment as a debt security and classified it as a current asset in our Balance Sheet. Based on qualitative and quantitative analyses, at year-end 2014, we concluded that the entity in which we invested was a variable interest entity because it was capitalized primarily with debt. We did not consolidate the entity because we did not have the power to direct the activities that most significantly impact the entity’s economic performance.
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 notesSenior Notes using quoted market prices, which are directly observable Level 1 inputs. As noted in Footnote No. 10, “Long-Term10. Long-Term Debt,” even though our commercial paper borrowings generally have short-term maturities of 30 days or less, we classify outstanding commercial paper borrowings as long-term based on our ability and intent to refinance them on a long-term basis. As we are a frequent issuer of commercial paper, we use pricing from recent transactions as Level 2 inputs in estimating fair value.At year-end 20152018 and year-end 2014,2017, we determined that the carrying value of our commercial paper approximated its fair value due to the short maturity. Our other long-termnoncurrent liabilities largely consist of guarantees. As we note in the “Guarantees”“Guarantees” caption of Footnote No. 2, “Summary2. Summary of Significant Accounting Policies,” we measure our liability for guarantees at fair value on a nonrecurring basis, thatwhich is when we issue or modify a guarantee using Level 3 internally developed inputs.At year-end 20152018 and year-end 2014,2017, we determined that the carrying values of our guarantee liabilities approximated their fair values based on Level 3 inputs.
See the “Fair“Fair Value Measurements”Measurements” caption of Footnote No. 2, “Summary2. Summary of Significant Accounting Policies”Policies for more information on the input levels we use in determining fair value.
15.16. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOMELOSS
The following table details the accumulated other comprehensive (loss) incomeloss activity for 2015, 2014,2018, 2017, and 2013:2016:
|
| | | | | | | | | | | | | | | |
| ($ in millions) | Foreign Currency Translation Adjustments | | Derivative Instrument Adjustments | | Available-For-Sale Securities Unrealized Adjustments (1) | | Accumulated Other Comprehensive Loss |
| Balance at year-end 2012 | $ | (32 | ) | | $ | (19 | ) | | $ | 7 |
| | $ | (44 | ) |
Other comprehensive income before reclassifications (2) | 1 |
| | — |
| | 5 |
| | 6 |
|
| Amounts reclassified from accumulated other comprehensive loss | — |
| | — |
| | (6 | ) | | (6 | ) |
| Net other comprehensive income (loss) | 1 |
| | — |
| | (1 | ) | | — |
|
| Balance at year-end 2013 | $ | (31 | ) | | $ | (19 | ) | | $ | 6 |
| | $ | (44 | ) |
Other comprehensive (loss) income before reclassifications (2) | (41 | ) | | 8 |
| | 5 |
| | (28 | ) |
| Amounts reclassified from accumulated other comprehensive loss | — |
| | 2 |
| | — |
| | 2 |
|
| Net other comprehensive (loss) income | (41 | ) | | 10 |
| | 5 |
| | (26 | ) |
| Balance at year-end 2014 | $ | (72 | ) | | $ | (9 | ) | | $ | 11 |
| | $ | (70 | ) |
Other comprehensive (loss) income before reclassifications (2) | (123 | ) | | 10 |
| | (7 | ) | | (120 | ) |
| Amounts reclassified from accumulated other comprehensive loss | 3 |
| | (9 | ) | | — |
| | (6 | ) |
| Net other comprehensive (loss) income | (120 | ) | | 1 |
| | (7 | ) | | (126 | ) |
| Balance at year-end 2015 | $ | (192 | ) | | $ | (8 | ) | | $ | 4 |
| | $ | (196 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| ($ 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) | We present the portions of other comprehensive (loss) income before reclassifications that relate to unrealized gains (losses) on available-for-sale securities net of deferred taxes of $4 million for 2015, $3 million for 2014, and $2 million for 2013. |
| |
(2)
| 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 $48$14 million for 2015 and $282018, $(147) million for 20142017, and a loss of $20$69 million for 2013.2016. |
The following table details the effect on net income of amounts we reclassified out of accumulated other comprehensive loss for 2015: |
| | | | | | |
| ($ in millions) | | Reclassification of Gains (Losses) from Accumulated Other Comprehensive Loss | | |
| Accumulated Other Comprehensive Loss Components | | 2015 | | Income Statement Line Affected |
| Foreign Currency Translation Adjustments | | | | |
| Property disposition | | $ | (3 | ) | | Gains and other income, net |
| | | (3 | ) | | Income before income taxes |
| | | — |
| | Provision for income taxes |
| | | $ | (3 | ) | | Net income |
| Derivative Instrument Adjustments | | | | |
| Cash flow hedges | | $ | 10 |
| | Base management and franchise fees |
| Net investment hedge - property disposition | | 3 |
| | Gains and other income, net |
| Interest rate contracts | | (5 | ) | | Interest expense |
| | | 8 |
| | Income before income taxes |
| | | 2 |
| | Provision for income taxes |
| | | $ | 10 |
| | Net income |
16.17. BUSINESS SEGMENTS
We are a diversified global lodging company. During the 2014 first quarter, we modified the information that our President and Chief Executive Officer, who is our “chief operating decision maker” (“CODM”), reviews to be consistentcompany with our continent structure. This structure aligns our business around geographic regions and is designed to enable us to operate more efficiently and to accelerate our worldwide growth. As a result of modifying our reporting information, we revised our operating segments to eliminate our former Luxury segment, which we allocated between our existing North American Full-Service operating segment, andoperations in the following four new operating segments: Asia Pacific, Caribbean and Latin America, Europe, and Middle East and Africa.
Although our North American Full-Service and North American Limited-Service segments meet the applicable accounting criteria to be reportable business segments, our four International operating segments do not meet the criteria for separate disclosure as reportable business segments. Accordingly, we combine our four operating segments into an “all other” category which we refer to as “International” and have revised our business segment information for earlier periods to conform to our new business segment presentation.
Our three reportable business segments include the following principal brands:segments:
North American Full-Service, which includes The Ritz-Carlton, EDITION, JW Marriott, Autograph Collection Hotels, Renaissance Hotels, Marriott Hotels, Delta Hotelsour Luxury and Resorts, and Gaylord HotelsPremium brands located in the United StatesU.S. and Canada;
North American Limited-Service, which includes AC Hotels by Marriott, Courtyard, Residence Inn, SpringHill Suites, Fairfield Inn & Suites, and TownePlace Suites properties,our Select brands located in the United StatesU.S. and Canada; and
InternationalAsia Pacific, which includes all brand tiers in our Asia Pacific region.
The Ritz-Carlton, Bulgari Hotels & Resorts, EDITION, JW Marriott, Autograph Collection Hotels, Renaissance Hotels, Marriott Hotels, Marriott Executive Apartments, AC Hotels by Marriott, Courtyard, Residence Inn, Fairfield Inn & Suites, Protea Hotels,following operating segments do not meet the applicable accounting criteria for separate disclosure as reportable business segments: Caribbean and Moxy Hotels located outsideLatin America, Europe, and Middle East and Africa. We present these operating segments together as “Other International” in the United States and Canada.
tables below.We evaluate the performance of our operating segments using “segment profits” which is based largely on the results of the segment without allocating corporate expenses, income taxes, or indirect general, administrative, and other expenses. We allocateassign gains and losses, equity in earnings or losses from our joint ventures, and direct general, administrative, and other expenses to each of our segments. “Other unallocated“Unallocated corporate” represents a portion of our revenues, including license fees we receive from our credit card programs and fees from vacation ownership licensing agreements, general, administrative, and other expenses, equity in earnings or losses, and other gains or losses that we do not allocate to our segments. ItBeginning in the 2018 first quarter, “Unallocated corporate” also includes license feesrevenues and expenses for our Loyalty Program, and we receive fromreflected 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 credit card programssegments for the period between the Merger Date and license fees from MVW.the end of the 2016 third quarter.
Our CODMPresident and Chief Executive Officer, who is our “chief operating decision maker” (“CODM”), monitors assets for the consolidated company, but does not use assets by operating segment when assessing performance or making operating segment resource allocations.
Segment Revenues
The following tables present our revenues disaggregated by major revenue stream as of year-end 2018, year-end 2017, and year-end 2016:
|
| | | | | | | | | | | |
| ($ in millions) | 2015 | | 2014 | | 2013 |
| North American Full-Service Segment | $ | 8,825 |
| | $ | 8,323 |
| | $ | 7,978 |
|
| North American Limited-Service Segment | 3,193 |
| | 2,962 |
| | 2,583 |
|
| International | 2,200 |
| | 2,255 |
| | 1,957 |
|
Total segment revenues (1) | 14,218 |
| | 13,540 |
| | 12,518 |
|
| Other unallocated corporate | 268 |
| | 256 |
| | 266 |
|
| Total consolidated revenues | $ | 14,486 |
| | $ | 13,796 |
| | $ | 12,784 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 2018 |
| ($ in millions) | North American Full-Service | | North American Limited-Service | | Asia Pacific | | Other International | | Total |
| Gross fee revenues | $ | 1,255 |
| | $ | 903 |
| | $ | 479 |
| | $ | 518 |
| | $ | 3,155 |
|
| Contract investment amortization | (33 | ) | | (12 | ) | | (2 | ) | | (11 | ) | | (58 | ) |
| Net fee revenues | 1,222 |
| | 891 |
| | 477 |
| | 507 |
| | 3,097 |
|
| Owned, leased, and other revenue | 593 |
| | 128 |
| | 182 |
| | 668 |
| | 1,571 |
|
| Cost reimbursement revenue | 11,257 |
| | 2,198 |
| | 459 |
| | 1,091 |
| | 15,005 |
|
| Total segment revenue | $ | 13,072 |
| | $ | 3,217 |
| | $ | 1,118 |
| | $ | 2,266 |
| | $ | 19,673 |
|
| Unallocated corporate | | | | | | | | | 1,085 |
|
| Total revenue | | | | | | | | | $ | 20,758 |
|
| |
| Revenues attributed to operations located outside the United States were $2,761 million in 2015, $2,518 million in 2014, and $2,149 million in 2013. |
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 |
| ($ 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 $4,246 million in 2018, $3,830 million in 2017, and $3,187 million in 2016.
Segment Profits
|
| | | | | | | | | | | |
| ($ in millions) | 2015 | | 2014 | | 2013 |
| North American Full-Service Segment | $ | 561 |
| | $ | 524 |
| | $ | 490 |
|
| North American Limited-Service Segment | 651 |
| | 574 |
| | 479 |
|
| International | 292 |
| | 295 |
| | 228 |
|
Total segment profits (1) | 1,504 |
| | 1,393 |
| | 1,197 |
|
| Other unallocated corporate | (111 | ) | | (220 | ) | | (203 | ) |
| Interest expense and interest income | (138 | ) | | (85 | ) | | (97 | ) |
| Income taxes | (396 | ) | | (335 | ) | | (271 | ) |
| | $ | 859 |
| | $ | 753 |
| | $ | 626 |
|
|
| | | | | | | | | | | |
| ($ 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 |
|
| |
(1)Segment profits attributed to operations located outside the U.S. were $1,155 million in 2018, $837 million in 2017, and $446 million in 2016. The 2018 segment profits consisted of segment profits of $456 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. | Segment profits attributed to operations located outside the United States were $329 million in 2015, $327 million in 2014, and $269 million in 2013. The 2015 segment profits consisted of segment profits of $98 million from Asia Pacific, $94 million from Europe, $63 million from the Caribbean and Latin America, $37 million from Canada, and $37 million from the Middle East and Africa.
|
Depreciation, Amortization, and AmortizationOther
|
| | | | | | | | | | | |
| ($ in millions) | 2015 | | 2014 | | 2013 |
| North American Full-Service Segment | $ | 55 |
| | $ | 52 |
| | $ | 57 |
|
| North American Limited-Service Segment | 21 |
| | 22 |
| | 21 |
|
| International | 40 |
| | 42 |
| | 42 |
|
| Total segment depreciation and amortization | 116 |
| | 116 |
| | 120 |
|
Other unallocated corporate (1) | 23 |
| | 32 |
| | 7 |
|
| | $ | 139 |
| | $ | 148 |
| | $ | 127 |
|
|
| | | | | | | | | | | |
| ($ 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 |
|
| |
(1)
| Includes impairment charges of $12 million in 2015 and$25 million in 2014 on EDITION hotels and residences. See Footnote No. 3, “Acquisitions and Dispositions” for more information.
|
Capital Expenditures
|
| | | | | | | | | | | |
| ($ in millions) | 2015 | | 2014 | | 2013 |
| North American Full-Service Segment | $ | 120 |
| | $ | 251 |
| | $ | 145 |
|
| North American Limited-Service Segment | 7 |
| | 5 |
| | 8 |
|
| International | 86 |
| | 87 |
| | 93 |
|
| Total segment capital expenditures | 213 |
| | 343 |
| | 246 |
|
| Other unallocated corporate | 92 |
| | 68 |
| | 50 |
|
| | $ | 305 |
| | $ | 411 |
| | $ | 296 |
|
|
| | | | | | | | | | | |
| ($ 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 |
|
17.18. RELATED PARTY TRANSACTIONS
Equity Method Investments
We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive fees. We also have equity method investments in entities that provide management and/or franchise services to hotels and receive fees. In addition, in some cases we provide loans, preferred equity, or guarantees to these entities. Undistributed earnings attributable to our equity method investments represented approximately $2 million of our consolidated retained earnings at year-end 2015.
The following tables present financial data resulting from transactions with these related parties:
Income Statement Data
| | | ($ in millions) | 2015 | | 2014 | | 2013 | 2018 | | 2017 | | 2016 |
| Base management fees | $ | 15 |
| | $ | 17 |
| | $ | 17 |
| $ | 25 |
| | $ | 28 |
| | $ | 18 |
|
| Incentive management fees | 3 |
| | 6 |
| | 1 |
| 12 |
| | 15 |
| | 10 |
|
| Contract investment amortization | | (2 | ) | | (2 | ) | | (2 | ) |
| Owned, leased, and other revenue | 1 |
| | 1 |
| | 1 |
| — |
| | 2 |
| | — |
|
| Cost reimbursements | 197 |
| | 226 |
| | 236 |
| |
| Total revenue | $ | 216 |
| | $ | 250 |
| | $ | 255 |
| |
| Reimbursed costs | $ | (197 | ) | | $ | (226 | ) | | $ | (236 | ) | |
| Cost reimbursement revenue | | 332 |
| | 356 |
| | 222 |
|
| Depreciation, amortization, and other | (2 | ) | | (2 | ) | | (2 | ) | (2 | ) | | (3 | ) | | (1 | ) |
| General, administrative, and other | (1 | ) | | (2 | ) | | (3 | ) | — |
| | (1 | ) | | — |
|
| Reimbursed expenses | | (337 | ) | | (356 | ) | | (222 | ) |
| Gains and other income, net | | 51 |
| | 658 |
| | 1 |
|
| Interest income | 5 |
| | 5 |
| | 4 |
| — |
| | 4 |
| | 5 |
|
| Equity in earnings (losses) | 16 |
| | 6 |
| | (5 | ) | |
| Equity in earnings | | 103 |
| | 40 |
| | 9 |
|
Balance Sheet Data
| | | ($ in millions) | At Year-End 2015 | | At Year-End 2014 | At Year-End 2018 | | At Year-End 2017 |
| Current assets | | | | | | |
| Accounts and notes receivable, net | $ | 29 |
| | $ | 26 |
| $ | 31 |
| | $ | 42 |
|
| Other | 1 |
| | 1 |
| |
| Prepaid expenses and other | | 1 |
| | — |
|
| Intangible assets | | | | | | |
| Contract acquisition costs and other | 30 |
| | 20 |
| 32 |
| | 39 |
|
| Equity and cost method investments | 159 |
| | 210 |
| |
| Deferred taxes, net | (4 | ) | | 13 |
| |
| Equity method investments | | 732 |
| | 734 |
|
| Other noncurrent assets | 17 |
| | 19 |
| 10 |
| | 17 |
|
| Current liabilities |
| |
| | | |
| Accounts payable | (10 | ) | | (10 | ) | (4 | ) | | (11 | ) |
| Accrued expenses and other | (12 | ) | | (20 | ) | (16 | ) | | (17 | ) |
| Deferred tax liabilities | | (20 | ) | | (41 | ) |
| Other noncurrent liabilities | (3 | ) | | (3 | ) | (11 | ) | | (4 | ) |
Undistributed earnings attributable to our equity method investments represented approximately $70 million of our consolidated retained earnings at year-end 2018.
Summarized Financial Information for Investees
The following tables present summarized financial information for the entities in which we have equity method investments: |
| | | | | | | | | | | |
| ($ 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 |
|
| |
(1) | 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 is as follows:was $732 million at year-end 2018 and $734 million at year-end 2017. This value exceeded our share of the book value of the investees' net assets by $419 million at year-end 2018 and $441 at year-end 2017, primarily due to the value that we assigned to land, contracts, and buildings owned by the investees.
|
| | | | | | | | | | | |
| ($ in millions) | 2015 | | 2014 | | 2013 |
| Sales | $ | 615 |
| | $ | 752 |
| | $ | 727 |
|
| Net income | $ | 44 |
| | $ | 38 |
| | $ | 11 |
|
|
| | | | | | | |
| ($ in millions) | At Year-End 2015 | | At Year-End 2014 |
| Assets (primarily composed of hotel real estate managed by us) | $ | 1,218 |
| | $ | 1,499 |
|
| Liabilities | $ | 1,110 |
| | $ | 1,287 |
|
Other Related Parties
We received management fees of approximately $13 million in 2015, $122018, $13 million in 2014,2017, and $11$13 million in 2013,2016, 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.
18.19. RELATIONSHIP WITH MAJOR CUSTOMER
Host Hotels & Resorts, Inc., formerly known as Host Marriott Corporation, and its affiliates (“Host”) owned or leased 5874 lodging properties at year-end 2015, 61 lodging properties2018 and 81 at year-end 2014, and 66 lodging properties at year-end 20132017 that we operated under long-term agreements.or franchised. Over the last three years, we recognized revenues, including cost reimbursements
reimbursement revenue, of $1,888$2,542 million in 2015, $1,9272018, $2,671 million in 2014,2017, and $2,016$2,015 million in 20132016 from those lodging properties, and included those revenues in all three of our North American Full-Service and North American Limited-Service 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 nine10 such properties at year-end 2015, nine2018 and 11 such properties at year-end 2014, and ten such properties at year-end 2013.2017. We recognized revenues, including cost reimbursementsreimbursement revenue, of $103$123 million in 2015, $1062018, $114 million in 2014,2017, and $87$100 million in 20132016 from those lodging properties, and included those revenues in our North American Full-Service reportable business segment and International segments.our Europe operating segment.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA – UNAUDITED
| | | ($ in millions, except per share data) | 2015 | 2018 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year |
| Revenues | $ | 3,513 |
| | $ | 3,689 |
| | $ | 3,578 |
| | $ | 3,706 |
| | $ | 14,486 |
| $ | 5,009 |
| | $ | 5,409 |
| | $ | 5,051 |
| | $ | 5,289 |
| | $ | 20,758 |
|
| Operating income | $ | 332 |
| | $ | 369 |
| | $ | 339 |
| | $ | 310 |
| | $ | 1,350 |
| $ | 530 |
| | $ | 818 |
| | $ | 596 |
| | $ | 422 |
| | $ | 2,366 |
|
| Net income | $ | 207 |
| | $ | 240 |
| | $ | 210 |
| | $ | 202 |
| | $ | 859 |
| $ | 420 |
| | $ | 667 |
| | $ | 503 |
| | $ | 317 |
| | $ | 1,907 |
|
| Diluted earnings per share | $ | 0.73 |
| | $ | 0.87 |
| | $ | 0.78 |
| | $ | 0.77 |
| | $ | 3.15 |
| |
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) | 2014 | 2017 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year |
| Revenues | $ | 3,293 |
| | $ | 3,484 |
| | $ | 3,460 |
| | $ | 3,559 |
| | $ | 13,796 |
| $ | 4,912 |
| | $ | 5,211 |
| | $ | 5,078 |
| | $ | 5,251 |
| | $ | 20,452 |
|
| Operating income | $ | 254 |
| | $ | 316 |
| | $ | 298 |
| | $ | 291 |
| | $ | 1,159 |
| $ | 546 |
| | $ | 744 |
| | $ | 790 |
| | $ | 424 |
| | $ | 2,504 |
|
| Net income | $ | 172 |
| | $ | 192 |
| | $ | 192 |
| | $ | 197 |
| | $ | 753 |
| $ | 371 |
| | $ | 489 |
| | $ | 485 |
| | $ | 114 |
| | $ | 1,459 |
|
| Diluted earnings per share | $ | 0.57 |
| | $ | 0.64 |
| | $ | 0.65 |
| | $ | 0.68 |
| | $ | 2.54 |
| |
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) | 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 $99 million increase to net income for the 2018 first three quarters combined. We concluded that the errors were and continue to be immaterial to those financial statements. We revised each prior period presented in the 2018 quarterly financial data table above to reflect the correction of the immaterial errors because recording the out of period adjustments would have been material to the 2018 fourth quarter. The table below presents the effects of our adjustments.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 |
| | First Quarter | | Second Quarter | | Third Quarter |
| ($ 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 |
|
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| |
| Item 9A. | Controls and Procedures. |
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, we 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”)). 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 Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the material weakness in internal control over financial reporting described below. In light of the material weakness, management performed additional procedures to validate the accuracy and operating to provide reasonable assurance that we record, process, summarizecompleteness 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 report the information we are required to disclosedetailed testing.
Material Weakness in the reports that we file or submitInternal Control Over Financial Reporting
A material weakness (as defined in Rule 12b-2 under the Exchange Act withinAct) 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 time periods specifiedcompany’s annual or interim financial statements will not be prevented or detected on a timely basis.
In the 2018 fourth quarter, we identified the following deficiencies in the rulesdesign of internal control over financial reporting for our Loyalty Program.
| |
| 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. |
| |
| 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 formsreimbursed 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 SEC, and to provide reasonable assurance that we accumulate and communicate such information to our management, including our Chief Executive Officer and Chief Financial Officer,material weakness are remediated as appropriate to allow timely decisions about required disclosure.soon as possible.
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 the effectiveness of 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 20152018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| |
| 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 shareholders in connection withfor our 20162019 Annual Meeting of Shareholders.
|
| |
| Item 10. Directors, Executive Officers, and Corporate Governance. | We incorporate this information by reference to “Our Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Audit Committee,” “Transactions with Related Persons,” and “Selection of Director Nominees” sections of our Proxy Statement. We have included information regarding our executive officers and our Code of Ethics below. |
| | |
| 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. |
| | |
| 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. |
| | |
| Item 13. Certain Relationships and Related Transactions, and Director Independence. | We incorporate this information by reference to the “Transactions with Related Persons,”Persons” and “Director Independence” sections of our Proxy Statement. |
| | |
| Item 14. Principal Accounting 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. |
EXECUTIVE OFFICERS OF THE REGISTRANT
We include below certain information on our executive officers. This information is as of February 1, 2016,2019, except where indicated.
|
| | | | | |
| Name and Title | | Age | | Business Experience |
J.W. Marriott, Jr. Executive Chairman and Chairman of the Board | | 8386 |
| | J.W. Marriott, Jr. was elected Executive Chairman effective March 31, 2012, having decided to relinquishrelinquished his position as Chief Executive Officer. He served as Chief Executive Officer of the Company and its predecessors since 1972. He joined Marriott Corporation (now known as Host Hotels & Resorts, Inc.) in 1956, became President and a Director in 1964.1964, 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. He is a member of the National Business CouncilFoundation 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 banking and finance from the University of Utah. |
| | | | | |
Arne M. Sorenson President and Chief Executive Officer | | 5760 |
| | Arne M. Sorenson becameis President and Chief Executive Officer of the Company on March 31, 2012 and was appointed to the Board of Directors in February 2011.Marriott. Mr. Sorenson joinedbecame the third CEO in the Company’s history in 2012. Before that, he served as Marriott’s President and Chief Operating Officer. He has held a number of positions since joining Marriott in 1996, asincluding Executive Vice President, Chief Financial Officer, President of Continental European Lodging, and Senior Vice President of Business Development,Development. He was named Executive Vice Presidentelected 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 Chief Financial Officer in 1998, assumedInfrastructure Committees. He serves on the additional titleBoard of President, Continental European Lodging, in 2003Trustees for The Brookings Institution, the Board of Directors for the Warrior-Scholar Project, and was appointed Marriott’s President and Chief Operating Officer in 2009.as a member of the Luther College Board of Regents. Before joininghe joined Marriott, heMr. Sorenson was a Partner inwith the law firm of Latham & Watkins in Washington, D.C. Mr. Sorenson serves as the ChairHe holds a Bachelor of the Board of Directors for Brand USA, on the Board of Regents ofArts degree from Luther College onin Decorah, Iowa and a J.D. from the BoardUniversity of Trustees of Brookings, and as Vice Chair of the President of the United States’ Export Council.Minnesota Law School. |
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Bao Giang Val Bauduin Controller and Chief
Accounting Officer | | 3942 |
| | Val Bauduin became ourMarriott’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), Accenture HospitalityGlobal Finance Shared Services, and the Corporate Finance Business Partners. Prior toBefore joining Marriott, Mr. Bauduin was a Partner and U.S. Hospitality leader of Deloitte & Touche LLP from 2011 to 2014, where he has served as a Travel, Hospitality & Leisure industry expert for Deloitte teams globally. Prior to that, Mr. Bauduin was a Senior Manager of Deloitte from 2005 to 2011. He has a strong international background, and has built and led cross-functional (tax, valuation and IT) international professional service teams engaged at diverse client organizations, including several large and well-known public hospitality clients. 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 in Finance 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 Continental Europe, the United Kingdom, and Ireland, in January 2019. 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. Other key positions held by Mr. Brown include Chief Operations Officer for The 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 currently serves on the Board of Directors for the International Franchise 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 Executive Vice President and Global Chief Development Officer | | 5053 |
| | Anthony G. Capuano became Marriott’s Executive Vice President and Global Chief Development Officer in 2009. He is responsible for the global development of all Marriott lodging brands and supervises 20 offices outside of North America as well as multiple offices across North America. 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 servicefull-service development efforts in the Western U.S. and Canada. In early 2008, his responsibilities expanded to include all of North America and the Caribbean and Latin America. 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 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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Name and Title | | Age | | Business Experience |
David Grissen
Group President | | 5861 |
| | David Grissen became Group President effective February 2014, assuming additional responsibility for The Ritz-Carlton and Global Operations Services. He became the Group President for Thethe Americas in 2012, with responsibility for all business activities including operations, salesOperations, Sales and marketing, revenue management, human resources, engineering, rooms operations, foodMarketing, Revenue Management, Human Resources, Engineering, Rooms Operations, Food and beverage, retail, spa, information technologyBeverage, Retail, Spa, Information Technology and development. Prior toDevelopment. Before this, he served as President, Americas from 2010; Executive Vice President of the Eastern Region from 2005; Senior Vice President of the Mid-Atlantic Region and Senior Vice President of Finance and Business Development from 2000. Mr. Grissen is chair of the Americas’ Hotel Development Committee and a member of the Lodging Strategy Group and Corporate Growth Committee. He is a member of the Board of Directors of Regis Corporation and also Vice Chairman of the Board of Directors for Back on My Feet, an organization that helps individuals experiencing homelessness.Corporation. Mr. Grissen holds a bachelor’sBachelor of Arts degree from Michigan State University and a master’s degreeearned his Master of Business Administration from Loyola University in Chicago. |
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Alex Kyriakidis President & Managing Director Middle East & Africa |
| 6366 |
|
| Alex Kyriakidis joined Marriott in January 2012 asbecame President and& Managing Director, Middle East and& Africa with responsibility(MEA), for Marriott in 2012. He is responsible for all business activities for the Middle EastMEA, including Development, Brands, Sales, Marketing, Finance, Human Resources, Legal, and Africa Region (MEA), including operations, sales and marketing, finance and hotel development.Operations. Before joining Marriott in 2012, Mr. Kyriakidis served for 10 years as Global Managing Director - Travel, Hospitality and& Leisure for Deloitte LLP. In this role, Mr. Kyriakidis led the Global Travel, Hospitality and& Leisure Industry team, where he was responsible for a team of 4,500 professionals that generated $700 million in revenues. Mr. Kyriakidisprofessionals. He has 40dozens of years of experience providing strategic, financial, M&A, operational, asset management and integration services to the travel, hospitality and leisure sectors. Hesectors and has served clients in 25 countries, predominantly in the Europe, MEAEMEA and Asia Asia/Pacific regions. HeMr. 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. Mr. KyriakidisHe holds a bachelorBachelor of scienceScience degree in computer science and mathematics from Leeds University in the United Kingdom. |
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Stephanie Linnartz Executive Vice President and Global Chief Marketing and Commercial Officer | | 4750 |
| | Stephanie Linnartz became the Global Chief Marketing and Commercial Officer in March 2013 and was named an executive officer in February 2014. She has responsibility for the Company’s brand management, marketing, eCommerce,digital, sales, reservations, revenue management, consumer insight, and information technology functions. Prior toBefore assuming her current position, Ms. Linnartz served as 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. She holds a masterbachelor’s degree in Political Science and Government from the College of business administrationthe Holy Cross and earned her Master of Business Administration from the College of William and Mary. |
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Amy C. McPherson
President & Managing Director
Europe
| | 54 |
| | Amy C. McPherson was appointed President and Managing Director of Europe, a division that encompasses Continental Europe, the United Kingdom, and Ireland, in July 2009. Ms. McPherson joined Marriott in 1986 and most recently served as Executive Vice President of Global Sales and Marketing responsible for the Company’s global and field sales, marketing, Marriott Rewards program, revenue management and eCommerce from 2005 until she was named to her current position. Other key positions held by Ms. McPherson include Senior Vice President of Business Transformation and Integration, and Vice President of Finance and Business Development. Before joining Marriott, she worked for Air Products & Chemicals in Allentown, PA. |
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| Name and Title | | Age | | Business Experience |
Kathleen K. Oberg Executive Vice President and Chief Financial Officer | | 5558 |
| | Kathleen ("Leeny"(“Leeny”) K. Oberg was appointed Executive Vice President andas Marriott’s Chief Financial Officer, of Marriott, effective January 1, 2016. Previously, Ms. Oberg most recently served, from 2013 to December 2015, aswas the Chief Financial Officer for The Ritz-Carlton Hotel Company, L.L.C., an operator of luxury hotelssince 2013, where she contributed significantly to the brand’s performance, growth, and resorts worldwide, and a subsidiary of Marriott.organizational effectiveness. Prior to assuming that role, Ms. Oberg served in a range of financial leadership positions with Marriott. From 2008 to 2013, she served as Marriott’swas the Company’s Senior Vice President, Corporate and Development Finance, from 2008 to 2013, leadingwhere she led a team providing a broad range of corporate financethat valued new hotel development projects and valuation support to senior management. Ms. Oberg was a key member ofmerger and acquisition opportunities, prepared the leadership team that structuredCompany’s long-range plans and executedannual budgets, and made recommendations for the spin-off of Marriott’s timeshare business in 2011.Company’s financial and capital allocation strategy. From 2006 to 2008, sheMs. Oberg served in London as Senior Vice President, International Project Finance and Asset Management for Europe and the Middle East and Africa, and served as the region’s senior finance executive. Ms. Oberg originallyfirst joined Marriott in 1999 inas part of its Investor Relations and served as one of the company’s primary contacts with institutional investors and analysts. In 2004, she was promoted to Vice President of Project Finance and servedgroup in this role for two years before moving to London.1999. Before joining Marriott, Ms. Oberg has also held numerousa variety of financial leadership positions with such organizations as Sodexo (previously SodexhoSodexo 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 Finance/Commerce, with concentrations in Finance and Management Information Systems from the University of Virginia, McIntyreMcIntire School of BusinessCommerce and received her MBAMaster of Business Administration from Stanford University Graduate School of Business. |
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Rena Hozore Reiss Executive Vice President and General Counsel
| | 59 |
| | 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 development efforts in the America’s 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. 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 | | 5760 |
| | David A. Rodriguez was appointed Executive Vice President and Global Chief Human Resources Officer in 2006. Dr. Rodriguez joined Marriott as Senior Vice President-Staffing & Development in 1998 and was appointed Executive Vice President Human Resources for Marriott Lodging in 2003. Before joining Marriott in 1998, he held several 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 psychology from New York University andUniversity. He is an elected fellow of the National Academy of Human Resources. |
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Edward A. Ryan
Executive Vice PresidentResources, a vice chair and
General Counsel
| | 62 |
| | Edward A. Ryan was named Executive Vice President member of the executive committees of the Human Resources Policy Association and General Counsel in November 2006. He joined Marriott in 1996 as Assistant General Counsel, was promoted to Senior Vice Presidentthe American Health Policy Institute, and Associate General Counsel in 1999, when he had responsibility for all new management agreements and real estate development worldwide for full-service and limited-service hotels; in 2005 he also assumed responsibility for all corporate transactions and corporate governance. Before joining Marriott, Mr. Ryan was a Partner atgovernor on the law firmboard of Hogan & Hartson (now Hogan Lovells) in Washington, D.C.the Health Transformation Alliance. |
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Craig S. Smith President & Managing Director Asia Pacific | | 5356 |
| | Craig S. Smith became President and Managing Director of Asia Pacific in June 2015, assuming the responsibility for the strategic leadership of all operational and development functions spanning 15 countries and 11 brands.the region. Mr. Smith began his career with Marriott in February 1988. Prior toBefore his current position, Mr. Smith served as President of Marriott’s Caribbean and Latin American region from 2011 to 2015. Before moving to the Caribbean and Latin American region in 2011, 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,Asia Pacific, and Australia. He is fluent in Spanish and conversant in Portuguese. Mr. Smith earned his MBAMaster 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
We haveThe Company has long maintained and enforced a Code of Ethics that applies to all Marriott associates, including our Executive Chairman of the Board, Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer, and to each member of our Board of Directors. Ourthe Board. The Code of Ethics is encompassed in our Business Conduct Guide, which you can findis available in the Investor Relations section of our website (Marriott.com/(www.marriott.com/investor) by clicking on “Corporate Governance”“Governance” and then “Governance Documents.“Documents & Charters.” We willintend to post on the Investor Relations section of ourthat 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 theour Board of Directors, within four business days following the date of suchthe amendment or waiver.
PART IV
| |
| 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 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 shareholder 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 (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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| 2.1 | | Agreement and Plan of Merger, dated as of November 15, 2015, by and among Marriott International, Inc.,the Company, Starwood, Hotels & Resorts Worldwide, Inc., and certain of their subsidiaries.
| | November 16, 2015 (File No. 001-13881). |
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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. | | August 22, 2006 (File No. 001-13881). |
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| 3.2 | | Amended and Restated Bylaws. | | June 18, 2014 February 14, 2017 (File No. 001-13881).
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| 4.1 | | Form of Common Stock Certificate. | | December 8, 2005 (File No. 333-130212). |
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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 | | Form of 6.200% Series H Note due 2016. | | Exhibit No. 4.2 to our Form 8-K filed June 14, 2006 (File No. 001-13881). |
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4.4 | | Form of 6.375% Series I Note due 2017. | | Exhibit No. 4.2 to our Form 8-K filed June 25, 2007 (File No. 001-13881). |
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4.5 | | Form of 3.000% Series K Note No. R-1 due 2019. | | Exhibit No. 4.1 to our Form 8-K filed February 27, 2012 (File No. 001-13881). |
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4.6 | | Form of 3.000% Series K Note No. R-2 due 2019. | | Exhibit No. 4 to our Form 8-K filed March 14, 2012 (File No. 001-13881). |
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4.7 | | Form of 3.250% Series L Note due 2022. | | Exhibit No. 4.1 to our Form 8-K filed September 10, 2012 (File No. 001-13881). |
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4.8 | | Form of 3.375% Series M Note due 2020. | | Exhibit No. 4.1 to our Form 8-K filed September 27, 2013 (File No. 001-13881). |
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4.9 | | Form of 3.125% Series N Note due 2021. | | Exhibit No. 4.1 to our Form 8-K filed October 9, 2014 (File No. 001-13881). |
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| Exhibit No. | | Description | | Incorporation by Reference (where (where a report is indicated below, that
document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
4.10 | | Form of 2.875% Series O Note due 2021. | | Exhibit No. 4.1 to our Form 8-K filed September 14, 2015 (File No. 001-13881). |
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4.11 | | Form of 3.750% Series P Note due 2025.
| | Exhibit No. 4.2 to our Form 8-K filed September 14, 2015 (File No. 001-13881). |
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10.110.1.1 | | U.S. $2,000,000,000 Third$4,000,000,000 Fourth Amended and Restated Credit Agreement dated as of July 18, 2013June 10, 2016 with Bank of America, N.A. as administrative agent and certain banks. | | |
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*10.210.1.2 | | Marriott International, Inc. StockFirst Amendment as of December 7, 2018 to the Fourth Amended and Cash Incentive Plan,Restated Credit Agreement dated as Amended Through February 13, 2014.of June 10, 2016 with Bank of America, N.A. as administrative agent and certain banks. | | Exhibit A to our Definitive Proxy Statement filed April 4, 2014 (File No. 001-13881). |
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*10.2.1 | | Amendment dated August 7, 2014 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10 to our Form 10-Q filed October 29, 2014 (File No. 001-13881). |
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*10.3 | | Marriott International, Inc. Executive Deferred Compensation Plan, Amended and Restated as of January 1, 2009. | | Exhibit No. 99 to our Form 8-K filed August 6, 2009 (File No. 001-13881). |
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*10.4 | | Form of Employee Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10.4 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
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*10.5 | | Form of Employee Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Off-Cycle Grants). | | Exhibit No. 10.5 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
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*10.6 | | Form of Employee Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Annual Grants). | | Exhibit No. 10.6 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
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*10.7 | | Form of Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10.5 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
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*10.8 | | Form of Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan, as Amended as of May 1, 2009. | | Exhibit No. 10.2 to our Form 10-Q filed July 17, 2009 (File No. 001-13881). |
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*10.9 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10.6 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
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*10.10 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Off-Cycle Grants). | | Exhibit No. 10.9 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
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*10.11 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Annual Grants). | | Exhibit No. 10.10 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
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*10.12 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Annual Grants), as Amended as of May 1, 2009. | | Exhibit No. 10.3 to our Form 10-Q filed July 17, 2009 (File No. 001-13881). |
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*10.12.1 | | Form of MI Shares Agreement (EBITDA version) under the Marriott International, Inc. Stock and Cash Incentive Plan, as amended and restated as of May 1, 2009 and amended as of May 7, 2010. | | Exhibit No. 10.1 to our Form 8-K filed February 13, 2012 (File No. 001-13881). |
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*10.13 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10.7 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
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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)
|
*10.14 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Off-Cycle Grants). | | Exhibit No. 10.12 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
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*10.15 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Annual Grants). | | Exhibit No. 10.13 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
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*10.16 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (For Non-Employee Directors). | | Exhibit No. 10.8 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
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*10.17 | | Form of Performance Share Award Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Filed with this report. |
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*10.18 | | Summary of Marriott International, Inc. Director Compensation. | | Filed with this report. |
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*10.19 | | Marriott International, Inc. Executive Officer Incentive Plan and Executive Officer Individual Performance Plan. | | Exhibit No. 10.10 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
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10.20 | | License, Services and Development Agreement entered into on November 17, 2011, among Marriott International, Inc.,the Company, Marriott Worldwide Corporation, Marriott Vacations Worldwide Corporation, and the other signatories thereto. | | |
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10.2110.2.2 | | 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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10.2210.3.2 | | 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 Marriott International, Inc.,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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10.2310.4.2 | | 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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| 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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| 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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12*10.7.3 | | Statement of Computation of Ratio of EarningsAmendment dated September 23, 2016 to Fixed Charges.the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| *10.7.4 | | Amendment dated May 5, 2017 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| *10.7.5 | | Amendment dated February 15, 2019 to the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| *10.8.1 | | Marriott International, Inc. Executive Deferred Compensation Plan, Amended and Restated as of January 1, 2009. | | |
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| *10.8.2 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective January 1, 2010. | | |
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| *10.8.3 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective April 1, 2010. | | |
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| *10.8.4 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective October 25, 2011. | | |
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| *10.8.5 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective November 19, 2011. | | |
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| *10.8.6 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective January 1, 2013. | | |
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| *10.8.7 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective September 23, 2016 (409A). | | |
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| *10.8.8 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective September 23, 2016 (Starwood deferral elections). | | |
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| *10.8.9 | | Amendment to the Marriott International, Inc. Executive Deferred Compensation Plan, effective January 1, 2019. | | |
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| *10.9.1 | | Form of Employee Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| *10.9.2 | | Form of Senior Executive Supplemental Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| *10.10.1 | | 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) |
| *10.10.2 | | Form of Retention Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (pre-February 2018). | | |
| | | | |
| *10.10.3 | | Form of Executive Restricted Stock Unit/MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (February 2018). | | |
| | | | |
| *10.10.4 | | Form of Retention Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (February 2018). | | |
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| *10.11.1 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (pre-February 2018). | | |
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| *10.11.2 | | Form of Senior Executive Supplemental Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | |
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| *10.11.3 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (For Non-Employee Directors). | | |
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| *10.11.4 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (February 2018). | | |
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| *10.12.1 | | Form of Performance Share Unit Award Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (pre-February 2018). | | |
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| *10.12.2 | | 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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| *10.13 | | Summary of Marriott International, Inc. Director Compensation. | | |
| | |
| *10.14 | | Marriott International, Inc. Executive Officer Annual Cash Incentive Program. | | |
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| *10.15.1 | | Starwood 1999 Long-Term Incentive Compensation Plan. | | |
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| *10.15.2 | | First Amendment to the Starwood 1999 Long-Term Incentive Compensation Plan, dated as of August 1, 2001. | | |
| | | | |
| *10.15.3 | | Second Amendment to the Starwood 1999 Long-Term Incentive Compensation Plan. | | |
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| *10.16.1 | | Starwood 2002 Long-Term Incentive Compensation Plan. | | |
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| *10.16.2 | | 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 | | First Amendment to the Starwood 2004 Long-Term Incentive Compensation Plan. | | |
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| *10.18.1 | | Starwood 2013 Long-Term Incentive Compensation Plan. | | |
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| *10.18.2 | | Amendment dated May 5, 2017 to the Starwood 2013 Long-Term Incentive Compensation Plan. | | |
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| *10.19 | | 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. | | |
| | | | |
| *10.20 | | 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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| *10.21 | | 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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| †10.22 | | 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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| 10.23 | | 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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| 32 | | Section 1350 Certifications. | | |
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| 101.INS | | XBRL Instance Document. | | Submitted electronically with this report. |
| | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. | | Submitted electronically with this report. |
| | | |
| 101.CAL | | XBRL Taxonomy Calculation Linkbase Document. | | Submitted electronically with this report. |
| | | |
|
| | | | |
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)
|
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase. | | Submitted electronically with this report. |
| | | |
| 101.LAB | | XBRL Taxonomy Label Linkbase Document. | | Submitted electronically with this report. |
| | | |
| 101.PRE | | XBRL Taxonomy Presentation Linkbase Document. | | Submitted electronically with this report. |
| |
| * | 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 been filed with the Securities and Exchange Commission. |
We have submitted electronically 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, 2015,2018, December 31, 2014,2017, and December 31, 2013;2016; (ii) the Consolidated Balance Sheets at December 31, 2015,2018, and December 31, 2014;2017; (iii) the Consolidated Statements of Cash Flows for the year-ended December 31, 2015,2018, December 31, 2014,2017, and December 31, 2013;2016; (iv) the Consolidated Statements of Comprehensive Income for the year-ended December 31, 2015,2018, December 31, 2014,2017, and December 31, 2013;2016; (v) the Consolidated Statements of Shareholders’ (Deficit) Equity for the year-ended December 31, 2015,2018, December 31, 2014,2017, and December 31, 2013;2016; and (vi) Notes to Consolidated Financial Statements.
| |
| Item 16. | Form 10-K Summary. |
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act, of 1934, we have duly caused this Form 10-K to be signed on our behalf by the undersigned, thereunto duly authorized, on this 18th 1st day of February 2016.March 2019.
MARRIOTT INTERNATIONAL, INC.
|
| | |
| By: | | /s/Arne M. Sorenson |
| | | Arne M. Sorenson |
| | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act, of 1934, this Form 10-K has been signed by the following persons on our behalf in the capacities indicated and on the date indicated above.
|
| | |
| PRINCIPAL EXECUTIVE OFFICER: | | |
| | | |
| /s/Arne M. Sorenson | | President, Chief Executive Officer and Director |
| Arne M. Sorenson | | |
| | | |
| PRINCIPAL FINANCIAL OFFICER: |
|
|
| | | |
| /s/Kathleen K. Oberg |
| Executive Vice President and Chief Financial Officer |
| Kathleen K. Oberg | |
| | | |
| PRINCIPAL ACCOUNTING OFFICER: | | |
| | | |
| /s/Bao Giang Val Bauduin | | Controller and Chief Accounting Officer |
| Bao Giang Val Bauduin | |
| | | |
| DIRECTORS: | | |
| | | |
| /s/J.W. Marriott, Jr. | | /s/ Debra L. LeeLawrence 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, Director | | Debra L. Lee, Director |
| | | |
/s/ Mary K. BushBruce W. Duncan | | /s/Aylwin B. Lewis |
| Bruce W. Duncan, Director | | Aylwin B. Lewis, Director |
| | |
| /s/Deborah Marriott Harrison | | /s/George Muñoz |
Mary K. Bush,Deborah Marriott Harrison, Director | | George Muñoz, Director |
| | | |
/s/ Deborah Marriott HarrisonFrederick A. Henderson | | /s/Steven S Reinemund |
Deborah Marriott Harrison,Frederick A. Henderson, Director | | Steven S Reinemund, Director |
| | | |
/s/ Frederick A. HendersonEric Hippeau | | /s/ W. Mitt Romney |
Frederick A. Henderson, Director | | W. Mitt Romney, Director |
| | |
/s/ Lawrence W. Kellner | | /s/ Susan C. Schwab |
Lawrence W. Kellner,Eric Hippeau, Director | | Susan C. Schwab, Director |
| | |
