filings.toolsItem 8. Financial Statements and Supplementary Data.
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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, 2021, 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, management has concluded that, applying the COSO criteria, as of December 31, 2021, the Company’s internal control over financial reporting was effective to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, a copy of which appears on the following page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Marriott International, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Marriott International, Inc.’s internal control over financial reporting as of December 31, 2021, 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, Marriott International, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2021, and the related notes, and our report dated February 15, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| /s/ Ernst & Young LLP |
Tysons, Virginia
February 15, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Marriott International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Marriott International, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, 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 15, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Accounting for the Loyalty Program | ||||||||
| Description of the Matter | During 2021 the Company recognized $1,966 million of revenues previously deferred as of December 31, 2020 and had deferred revenue of $6,471 million as of December 31, 2021 associated with the Marriott Bonvoy guest loyalty program (the “Loyalty Program”). As discussed in Note 2 to the financial statements, the Company recognizes revenue for performance obligations relating to Loyalty Program points and free night certificates as they are redeemed and the related performance obligations are satisfied. The Company recognizes a portion of revenue for the Licensed IP performance obligation under the sales-based royalty criteria, with the remaining portion recognized on a straight-line basis over the contract term. Revenue is recognized utilizing complex models based upon the estimated standalone selling price per point and per free night certificate, which includes judgment in making the estimates of variable consideration and breakage of points. | |||||||
| Auditing Loyalty Program results is complex due to: (1) the complexity of models and high volume of data used to monitor and account for Loyalty Program results, and (2) the complexity and judgment of estimating the standalone selling price per Loyalty Program point, including both the estimate of variable consideration under the Company’s co-brand credit card agreements which has significant estimation uncertainty associated with projecting future cardholder spending and redemption activity, and the estimated breakage of Loyalty Program points which requires the use of specialists. | ||||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for the Loyalty Program. For example, we tested controls over the accounting methods and model used in reporting results of the Loyalty Program, management’s review of the assumptions and data inputs utilized in estimating the standalone selling price per Loyalty Program point, as well as the development of the estimated breakage. | |||||||
| To test the recognition of revenues and costs associated with the Loyalty Program, we performed audit procedures that included, among others, testing the clerical accuracy and consistency with US GAAP of the accounting model developed by the Company to recognize revenue and costs associated with the Loyalty Program, and testing significant inputs into the accounting model, including the estimated standalone selling price and recognition of points earned and redeemed during the period. We involved our actuarial professionals to assist in our testing procedures with respect to the estimate of the breakage of Loyalty Program points. We evaluated management’s methodology for estimating the breakage of Loyalty Program points, and we tested underlying data and actuarial assumptions used in estimating the breakage. We evaluated the reasonableness of management’s assumptions, including projections of cash flows, used to estimate variable consideration under the Company’s co-brand credit cards. | ||||||||
| Accounting for General and Administrative Expenses and Reimbursed Expenses | ||||||||
| Description of the Matter | During 2021 the Company recognized $823 million of general and administrative expenses and $10,322 million of reimbursed expenses. As discussed in Note 2 to the financial statements, the Company incurs certain expenses that are for the benefit of, and reimbursable from, hotel owners and franchisees. Such amounts are recorded in the period in which the expense is incurred and include judgment with respect to the allocation of certain costs between general and administrative expenses, which are non-reimbursable, and reimbursed expenses. | |||||||
| Auditing the classification of general and administrative expenses and reimbursed expenses is complex due to: (1) judgment associated with testing management’s conclusions regarding the allocation of costs between reimbursable and non-reimbursable expenses, (2) the complexity associated with allocating above-property expenses to hotel owners and franchisees due to the high volume of data used to monitor and account for reimbursed expenses and (3) incentives within management’s compensation structure designed to achieve certain financial targets that exclude the impact of reimbursed expenses. | ||||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for reimbursed expenses, general and administrative expenses, and the process for allocating expenses. For example, we tested management’s controls over the review of the allocation of certain costs to determine if they were reasonably classified. | |||||||
| To test the recognition of reimbursed expenses for appropriate classification, we performed audit procedures that included, among others, (1) testing a sample of transactions that were classified within reimbursed expenses in order to evaluate the appropriate accounting treatment and financial statement classification pursuant to the terms of the management and franchise agreements, (2) performed analytical procedures over total reimbursed expenses and general and administrative expenses in order to identify any trends or indicators of material errors in the classification of expenses, (3) tested manual journal entries made to reimbursed expenses and general and administrative expenses and (4) evaluated the methodology of cost allocations, including any material changes to allocations during the period. | ||||||||
| /s/ Ernst & Young LLP |
We have served as the Company’s auditor since 2002.
Tysons, Virginia
February 15, 2022
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Fiscal Years 2021, 2020, and 2019
($ in millions, except per share amounts)
| 2021 | 2020 | 2019 | |||||||||||||||
| REVENUES | |||||||||||||||||
| Base management fees | $ | 669 | $ | 443 | $ | 1,180 | |||||||||||
| Franchise fees | 1,790 | 1,153 | 2,006 | ||||||||||||||
| Incentive management fees | 235 | 87 | 637 | ||||||||||||||
| Gross fee revenues | 2,694 | 1,683 | 3,823 | ||||||||||||||
| Contract investment amortization | (75) | (132) | (62) | ||||||||||||||
| Net fee revenues | 2,619 | 1,551 | 3,761 | ||||||||||||||
| Owned, leased, and other revenue | 796 | 568 | 1,612 | ||||||||||||||
| Cost reimbursement revenue (1) | 10,442 | 8,452 | 15,599 | ||||||||||||||
| 13,857 | 10,571 | 20,972 | |||||||||||||||
| OPERATING COSTS AND EXPENSES | |||||||||||||||||
| Owned, leased, and other-direct | 734 | 677 | 1,316 | ||||||||||||||
| Depreciation, amortization, and other | 220 | 346 | 341 | ||||||||||||||
| General, administrative, and other | 823 | 762 | 938 | ||||||||||||||
| Restructuring and merger-related charges | 8 | 267 | 138 | ||||||||||||||
| Reimbursed expenses (1) | 10,322 | 8,435 | 16,439 | ||||||||||||||
| 12,107 | 10,487 | 19,172 | |||||||||||||||
| OPERATING INCOME | 1,750 | 84 | 1,800 | ||||||||||||||
| Gains and other income, net | 10 | 9 | 154 | ||||||||||||||
| Loss on extinguishment of debt | (164) | — | — | ||||||||||||||
| Interest expense | (420) | (445) | (394) | ||||||||||||||
| Interest income | 28 | 27 | 26 | ||||||||||||||
| Equity in (losses) earnings (1) | (24) | (141) | 13 | ||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 1,180 | (466) | 1,599 | ||||||||||||||
| (Provision) benefit for income taxes | (81) | 199 | (326) | ||||||||||||||
| NET INCOME (LOSS) | $ | 1,099 | $ | (267) | $ | 1,273 | |||||||||||
| EARNINGS (LOSS) PER SHARE | |||||||||||||||||
| Earnings (loss) per share - basic | $ | 3.36 | $ | (0.82) | $ | 3.83 | |||||||||||
| Earnings (loss) per share - diluted | $ | 3.34 | $ | (0.82) | $ | 3.80 |
(1)See Note 15 for disclosure of related party amounts.
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Fiscal Years 2021, 2020, and 2019
($ in millions)
| 2021 | 2020 | 2019 | |||||||||||||||
| Net income (loss) | $ | 1,099 | $ | (267) | $ | 1,273 | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Foreign currency translation adjustments | (212) | 229 | 35 | ||||||||||||||
| Derivative instrument adjustments and other, net of tax | 5 | (3) | (5) | ||||||||||||||
| Total other comprehensive (loss) income, net of tax | (207) | 226 | 30 | ||||||||||||||
| Comprehensive income (loss) | $ | 892 | $ | (41) | $ | 1,303 |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
Fiscal Years-Ended 2021 and 2020
($ in millions)
| December 31, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and equivalents | $ | 1,393 | $ | 877 | |||||||
| Accounts and notes receivable, net | 1,982 | 1,768 | |||||||||
| Prepaid expenses and other | 251 | 180 | |||||||||
| 3,626 | 2,825 | ||||||||||
| Property and equipment, net | 1,503 | 1,514 | |||||||||
| Intangible assets | |||||||||||
| Brands | 5,979 | 6,059 | |||||||||
| Contract acquisition costs and other | 2,947 | 2,930 | |||||||||
| Goodwill | 9,073 | 9,175 | |||||||||
| 17,999 | 18,164 | ||||||||||
| Equity method investments | 387 | 422 | |||||||||
| Notes receivable, net | 144 | 159 | |||||||||
| Deferred tax assets | 228 | 249 | |||||||||
| Operating lease assets | 1,062 | 752 | |||||||||
| Other noncurrent assets | 604 | 616 | |||||||||
| $ | 25,553 | $ | 24,701 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Current portion of long-term debt | $ | 805 | $ | 1,173 | |||||||
| Accounts payable | 726 | 527 | |||||||||
| Accrued payroll and benefits | 1,187 | 831 | |||||||||
| Liability for guest loyalty program | 2,522 | 1,769 | |||||||||
| Accrued expenses and other | 1,167 | 1,452 | |||||||||
| 6,407 | 5,752 | ||||||||||
| Long-term debt | 9,333 | 9,203 | |||||||||
| Liability for guest loyalty program | 3,949 | 4,502 | |||||||||
| Deferred tax liabilities | 169 | 83 | |||||||||
| Deferred revenue | 1,181 | 1,542 | |||||||||
| Operating lease liabilities | 1,098 | 823 | |||||||||
| Other noncurrent liabilities | 2,002 | 2,366 | |||||||||
| Stockholders’ equity | |||||||||||
| Class A Common Stock | 5 | 5 | |||||||||
| Additional paid-in-capital | 5,892 | 5,851 | |||||||||
| Retained earnings | 10,305 | 9,206 | |||||||||
| Treasury stock, at cost | (14,446) | (14,497) | |||||||||
| Accumulated other comprehensive loss | (342) | (135) | |||||||||
| 1,414 | 430 | ||||||||||
| $ | 25,553 | $ | 24,701 |
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years 2021, 2020, and 2019
($ in millions)
| 2021 | 2020 | 2019 | |||||||||||||||
| OPERATING ACTIVITIES | |||||||||||||||||
| Net income (loss) | $ | 1,099 | $ | (267) | $ | 1,273 | |||||||||||
| Adjustments to reconcile to cash provided by operating activities: | |||||||||||||||||
| Depreciation, amortization, and other | 295 | 478 | 403 | ||||||||||||||
| Stock-based compensation | 182 | 201 | 187 | ||||||||||||||
| Income taxes | (281) | (478) | (200) | ||||||||||||||
| Liability for guest loyalty program | (28) | 535 | 257 | ||||||||||||||
| Contract acquisition costs | (210) | (142) | (195) | ||||||||||||||
| Restructuring and merger-related charges | (10) | 200 | 86 | ||||||||||||||
| Working capital changes | 110 | (28) | (273) | ||||||||||||||
| (Gain) loss on asset dispositions | (3) | 3 | (147) | ||||||||||||||
| Loss on extinguishment of debt | 164 | — | — | ||||||||||||||
| Deferred revenue changes and other | (141) | 1,137 | 294 | ||||||||||||||
| Net cash provided by operating activities | 1,177 | 1,639 | 1,685 | ||||||||||||||
| INVESTING ACTIVITIES | |||||||||||||||||
| Capital and technology expenditures | (183) | (135) | (653) | ||||||||||||||
| Dispositions | 12 | 260 | 395 | ||||||||||||||
| Loan advances | (13) | (41) | (30) | ||||||||||||||
| Loan collections | 40 | 8 | 51 | ||||||||||||||
| Other | (43) | (57) | (47) | ||||||||||||||
| Net cash (used in) provided by investing activities | (187) | 35 | (284) | ||||||||||||||
| FINANCING ACTIVITIES | |||||||||||||||||
| Commercial paper/Credit Facility, net | 150 | (2,290) | 951 | ||||||||||||||
| Issuance of long-term debt | 1,793 | 3,561 | 1,397 | ||||||||||||||
| Repayment of long-term debt | (2,174) | (1,887) | (835) | ||||||||||||||
| Issuance of Class A Common Stock | 2 | — | 7 | ||||||||||||||
| Debt extinguishment costs | (155) | — | — | ||||||||||||||
| Dividends paid | — | (156) | (612) | ||||||||||||||
| Purchase of treasury stock | — | (150) | (2,260) | ||||||||||||||
| Stock-based compensation withholding taxes | (90) | (103) | (148) | ||||||||||||||
| Other | 11 | (8) | (8) | ||||||||||||||
| Net cash used in financing activities | (463) | (1,033) | (1,508) | ||||||||||||||
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 527 | 641 | (107) | ||||||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period (1) | 894 | 253 | 360 | ||||||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1) | $ | 1,421 | $ | 894 | $ | 253 | |||||||||||
(1)The 2021 amounts include beginning restricted cash of $17 million at December 31, 2020 and ending restricted cash of $28 million at December 31, 2021, 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 STOCKHOLDERS’ EQUITY
Fiscal Years 2021, 2020, and 2019
(in millions, except per share amounts)
| Common Shares Outstanding | Total | Class A Common Stock | Additional Paid-in- Capital | Retained Earnings | Treasury Stock, at Cost | Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||
| 339.1 | Balance at December 31, 2018 | $ | 2,225 | $ | 5 | $ | 5,814 | $ | 8,982 | $ | (12,185) | $ | (391) | ||||||||||||||||||||||||||||
| — | Adoption of ASU 2016-02 | 1 | — | — | 1 | — | — | ||||||||||||||||||||||||||||||||||
| — | Net income | 1,273 | — | — | 1,273 | — | — | ||||||||||||||||||||||||||||||||||
| — | Other comprehensive income | 30 | — | — | — | — | 30 | ||||||||||||||||||||||||||||||||||
| — | Dividends ($1.85 per share) | (612) | — | — | (612) | — | — | ||||||||||||||||||||||||||||||||||
| 2.2 | Stock-based compensation plans | 46 | — | (14) | — | 60 | — | ||||||||||||||||||||||||||||||||||
| (17.3) | Purchase of treasury stock | (2,260) | — | — | — | (2,260) | — | ||||||||||||||||||||||||||||||||||
| 324.0 | Balance at December 31, 2019 | 703 | 5 | 5,800 | 9,644 | (14,385) | (361) | ||||||||||||||||||||||||||||||||||
| — | Adoption of ASU 2016-13 | (15) | — | — | (15) | — | — | ||||||||||||||||||||||||||||||||||
| — | Net loss | (267) | — | — | (267) | — | — | ||||||||||||||||||||||||||||||||||
| — | Other comprehensive income | 226 | — | — | — | — | 226 | ||||||||||||||||||||||||||||||||||
| — | Dividends ($0.48 per share) | (156) | — | — | (156) | — | — | ||||||||||||||||||||||||||||||||||
| 1.4 | Stock-based compensation plans | 89 | — | 51 | — | 38 | — | ||||||||||||||||||||||||||||||||||
| (1.0) | Purchase of treasury stock | (150) | — | — | — | (150) | — | ||||||||||||||||||||||||||||||||||
| 324.4 | Balance at December 31, 2020 | 430 | 5 | 5,851 | 9,206 | (14,497) | (135) | ||||||||||||||||||||||||||||||||||
| — | Net income | 1,099 | — | — | 1,099 | — | — | ||||||||||||||||||||||||||||||||||
| — | Other comprehensive loss | (207) | — | — | — | — | (207) | ||||||||||||||||||||||||||||||||||
| 1.9 | Stock-based compensation plans | 92 | — | 41 | — | 51 | — | ||||||||||||||||||||||||||||||||||
| 326.3 | (1) | Balance at December 31, 2021 | $ | 1,414 | $ | 5 | $ | 5,892 | $ | 10,305 | $ | (14,446) | $ | (342) |
(1)Our restated certificate of incorporation authorizes 800 million shares of our common stock, with a par value of $0.01 per share and 10 million shares of preferred stock, without par value. At year-end 2021, we had 326.3 million of these authorized shares of our common stock and no preferred stock outstanding.
See Notes to Consolidated Financial Statements.
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements present the results of operations, financial position, and cash flows of Marriott International, Inc. and subsidiaries (referred to in this report as “we,” “us,” “Marriott,” or the “Company”). In order to make this report easier to read, we also refer throughout to (1) our Consolidated Financial Statements as our “Financial Statements,” (2) our Consolidated Statements of Income (Loss) as our “Income Statements,” (3) our Consolidated Balance Sheets as our “Balance Sheets,” (4) our Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (5) our properties, brands, or markets in the United States and Canada as “U.S. & Canada,” and (6) our properties, brands, or markets in our Caribbean and Latin America, Europe, Middle East and Africa, Greater China, and Asia Pacific excluding China regions, as “International.” In addition, references throughout to numbered “Notes” refer to these Notes to Consolidated Financial Statements, unless otherwise stated.
Preparation of financial statements that conform with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. The uncertainty created by the coronavirus pandemic and efforts to contain it (“COVID-19”) has made such estimates more difficult and subjective. Accordingly, ultimate results could differ from those estimates.
The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position at fiscal year-end 2021 and fiscal year-end 2020 and the results of our operations and cash flows for fiscal years 2021, 2020, and 2019. We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Base Management and Incentive Management Fees: For our managed hotels, we have performance obligations to provide hotel management services and a license to our 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 incentive management fees, which are generally based on a measure of hotel profitability. Both the base and incentive management fees are variable consideration, as the transaction price is based on a percentage of revenue or profit, as defined in each contract. We recognize base management fees on a monthly basis over the term of the agreement as those amounts become payable. We recognize incentive management fees on a monthly basis over the term of the agreement based on each property’s financial results, as long as we do not expect a significant reversal due to projected future hotel performance or cash flows in future periods.
Franchise Fee and Royalty Fee Revenue: For our franchised hotels, we have a performance obligation to provide franchisees and operators a license to our intellectual property for use of certain of our brand names. As compensation for such services, we are typically entitled to initial application fees and ongoing royalty fees. Our ongoing royalty fees represent variable consideration, as the transaction price is based on a percentage of certain revenues of the hotels, as defined in each contract. We recognize royalty fees on a monthly basis over the term of the agreement as those amounts become payable. Initial application and relicensing fees are fixed consideration payable upon submission of a franchise application or renewal and are recognized on a straight-line basis over the initial or renewal term of the franchise agreements.
Owned and Leased Hotel Revenue: At our owned and leased hotels, we have performance obligations to provide accommodations and other ancillary services to hotel guests. As compensation for such goods and services, we are typically entitled to a fixed nightly fee for an agreed upon period and additional fixed fees for any ancillary services purchased. These fees are generally payable at the time the hotel guest checks out of the hotel. We generally satisfy the performance obligations over time, and we recognize the revenue from room sales and from other ancillary guest services on a daily basis, as the rooms are occupied and we have rendered the services.
Cost Reimbursements: Under our management and franchise agreements, we are entitled to be reimbursed for certain costs we incur on behalf of the managed, franchised, and licensed properties, with no added mark-up. These costs primarily consist of payroll and related expenses at managed properties where we are the employer of the employees at the properties and include certain operational and administrative costs as provided for in our contracts with the owners. We are entitled to reimbursement in the period we incur the related reimbursable costs, which we recognize within the “Cost reimbursement revenue” caption of our Income Statements.
Under our 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 long term, and accordingly, when we recover the costs that we incur for these programs and services from our hotel owners, we do not seek a mark-up. The amounts we charge for these programs and services are generally a combination of fixed fees and variable fees based on sales or other metrics and are payable on a monthly basis. We generally recognize revenue within the “Cost reimbursement revenue” caption of our Income Statements when the amounts may be billed to hotel owners, and we recognize expenses within the “Reimbursed expenses” caption as they are incurred. This pattern of recognition results in timing differences between the costs incurred for centralized programs and services and the related reimbursement from hotel owners in our operating and net income. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively. In addition, we present in the “Reimbursed expenses” caption of our Income Statements spending funded by the proceeds ($664 million, $425 million after-tax) from the 2017 sale of our interest in Avendra LLC, which we committed would be used for the benefit of hotels in our system. Such spending totaled $56 million ($42 million after-tax) in 2021, $62 million ($46 million after-tax) in 2020, and $118 million ($87 million after-tax) in 2019.
Other Revenue: Includes Global Design fees, which we describe below, termination fees, and other property and brand revenues. We generally recognize termination fees when collection is probable and other revenue as services are rendered. Amounts received in advance are deferred as liabilities.
We provide certain hotel design and construction review (“Global Design”) services to our managed and franchised hotel owners, generally during the period prior to a hotel’s opening or during the period a hotel is converting to a Marriott brand (the “pre-opening period”). As compensation for such services, we may be entitled to receive a one-time fixed fee that is payable during the pre-opening period of the hotel. As these services are not a distinct performance obligation, we recognize the fees on a straight-line basis over the initial term of the management or franchise agreement within the “Owned, leased, and other revenue” caption of our Income Statements.
Practical Expedients and Exemptions: We do not disclose the amount of variable consideration that we expect to recognize in future periods in the following circumstances:
(1) if we recognize the revenue based on the amount invoiced or services performed;
(2) for sales-based or usage-based royalty promised in exchange for a license of intellectual property; or
(3) if the consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of the consideration relate specifically to our efforts to transfer, or to a specific outcome from transferring the service.
We are required to collect certain taxes and fees from customers on behalf of governmental agencies and remit these to the applicable governmental agencies on a periodic basis. We do not include these taxes in determining the transaction price.
Loyalty Program: Loyalty Program members earn points based on the money they spend at our hotels; the exchange of timeshare ownership interests; purchases of timeshare interval, fractional ownership, and residential products; and through participation in travel experiences and affiliated partners’ programs, such as those offered by credit card, car rental, airline, and other companies. Members can redeem points for stays at most of our hotels, airline tickets, airline frequent flyer program miles, rental cars, merchandise, and a variety of other awards. Points cannot be redeemed for cash.
Under our Loyalty Program, we have a performance obligation to provide or arrange for the provision of goods or services for free or at a discount to Loyalty Program members in exchange for the redemption of points earned from past activities. We operate our Loyalty Program as a cross-brand marketing program to participating properties. Our management and franchise agreements require that properties reimburse us for a portion of the costs of operating the Loyalty Program, including costs for marketing, promotion, communication with, and performing member services for Loyalty Program members, with no added mark-up. We generally receive monthly cash contributions from managed, franchised, owned, and leased hotels based on a portion of qualified spend by Loyalty Program members (when the points are earned). We recognize these contributions into revenue as we provide the related service (when the points are redeemed). The amount of revenue we recognize upon point redemption is based on a blend of historical funding rates and is impacted by our estimate of the “breakage” for points that members will never redeem. We estimate breakage based on our historical experience and expectations of future member behavior. We recognize revenue net of the redemption cost within our “Cost reimbursement revenue” caption on our Income Statements, as our performance obligation is to facilitate the transaction between the Loyalty Program member and the managed or franchised property or program partner. Our redemption cost, which is generally based on redemption rates that can increase in periods in which occupancy at the property exceeds a certain threshold, could be higher or lower than our revenue recognized in any given period. We recognize all other Loyalty Program costs as incurred in our “Reimbursed expenses” caption.
We have multi-year agreements for our co-brand credit cards associated with our Loyalty Program. Under these agreements, we have performance obligations to provide a license to the intellectual property associated with our brands and marketing lists (“Licensed IP”) to the financial institutions that issue the credit cards, to arrange for the redemption of Loyalty Program points as discussed in the preceding paragraph, and to arrange for the redemption of free night certificates provided to cardholders. We receive fees from these agreements, including fixed amounts that are primarily payable at contract inception, and variable amounts that are paid to us monthly over the term of the agreements, based on: (1) the number of free night certificates issued or 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 cardholders will redeem 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. 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 decreased by $340 million, to $1,527 million at December 31, 2021 from $1,867 million at December 31, 2020, primarily as a result of $334 million of revenue recognized in 2021 that was deferred as of December 31, 2020, as well as the reclassification from deferred revenue to the liability for guest loyalty program, which we discuss below. The decrease was partially offset by deferred cash received for free night certificates related to the co-brand credit cards and gift cards, as well as an increase in franchise application and relicensing fees. Our current deferred revenue, which we present in the “Accrued expenses and other” caption of our Balance Sheets, was $346 million at year-end 2021 and $325 million at year-end 2020.
Our current and noncurrent liability for guest loyalty program increased by $200 million, to $6,471 million at December 31, 2021, from $6,271 million at December 31, 2020, primarily reflecting an increase in points earned by members. This includes a $228 million reclassification from deferred revenue to the liability for guest loyalty program as a result of points that were earned during the period by members using our U.S.-issued co-brand credit cards, which were prepaid by the financial institutions in 2020. The increase was partially offset by $1,966 million of revenue recognized in 2021, that was deferred as of December 31, 2020. The current portion of our liability for guest loyalty program increased compared to December 31, 2020, due to higher estimated redemptions in the short-term. At each reporting period, we evaluate the estimates used in the recognition of Loyalty Program revenues, including estimates of the breakage of points that members will never redeem and the amount of funding we expect to receive over the life of the agreements with various third parties. In 2021, the updated estimates resulted in a net increase in revenue, and a corresponding reduction in the liability for guest loyalty program of approximately $58 million.
Costs Incurred to Obtain and Fulfill Contracts with Customers
We incur certain costs to obtain and fulfill contracts with customers, which we capitalize and amortize on a straight-line basis over the initial, non-cancellable term of the contract. We classify incremental costs of obtaining a contract with a customer in the “Contract acquisition costs and other” caption of our Balance Sheets, the related amortization in the “Contract investment amortization” caption of our Income Statements, and the cash flow impact in the “Contract acquisition costs” caption of our Statements of Cash Flows. We assess the assets for impairment when events or changes in circumstances indicate that we may not be able to recover the carrying value. We recognize an impairment loss for the amount by which the carrying value exceeds the expected net future cash flows. We classify certain direct costs to fulfill a contract with a customer in the “Other noncurrent assets” and “Prepaid expenses and other” captions of our Balance Sheets, and the related amortization in the “Owned, leased, and other - direct expenses” caption of our Income Statements. We had capitalized costs to fulfill contracts with customers of $368 million at December 31, 2021 and $366 million at December 31, 2020. See Note 10 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.
Retirement Savings Plan
We contribute to tax-qualified retirement plans for the benefit of U.S. employees who meet certain eligibility requirements and choose to participate in the plans. Participating employees specify the percentage or amount of salary they wish to contribute from their compensation, and the Company typically makes discretionary and certain other matching or supplemental contributions. We recognized compensation costs from Company contributions of $80 million in 2021, $75 million in 2020, and $128 million in 2019.
Non-U.S. Operations
The U.S. dollar is the functional currency of our consolidated and unconsolidated entities operating in the U.S. The functional currency of our consolidated and unconsolidated entities operating outside of the U.S. is generally the principal currency of the economic environment in which the entity primarily generates and expends cash. We translate the financial statements of consolidated entities whose functional currency is not the U.S. dollar into U.S. dollars, and we do the same, as needed, for unconsolidated entities whose functional currency is not the U.S. dollar. We translate assets and liabilities at the exchange rate in effect as of the financial statement date and translate income statement accounts using the weighted average exchange rate for the period. We include translation adjustments from currency exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of stockholders’ equity. We report gains and losses from currency exchange rate changes for intercompany receivables and payables that are not of a long-term investment nature, as well as for third-party transactions, currently in operating costs and expenses.
Stock-Based Compensation
Our stock-based compensation awards primarily consist of restricted stock units (“RSUs”). We measure compensation costs for our stock-based payment transactions at fair value based on the average of the high and low stock price on the grant date (discounted for the lack of marketability and dividends), and we recognize those costs in our Financial Statements over the vesting period during which the employee provides service in exchange for the award.
Advertising Costs
We expense costs to produce advertising as they are incurred and to communicate advertising as the communication occurs and record such amounts in reimbursed expenses to the extent undertaken on behalf of our owners and franchisees. We recognized advertising costs of $470 million in 2021, $276 million in 2020, and $851 million in 2019.
Income Taxes
We record the amounts of taxes payable or refundable for the current year, as well as deferred tax liabilities and assets for the future tax consequences of events we have recognized in our Financial Statements or tax returns, using judgment in assessing future profitability and the likely future tax consequences of those events. We base our estimates of deferred tax assets and liabilities on current tax laws, rates and interpretations, and, in certain cases, business plans and other expectations about future outcomes. We develop our estimates of future profitability based on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. We account for U.S. tax on Global Intangible Low-Taxed Income in the period incurred.
We generally recognize the effect of the tax law changes in the period of enactment. Changes in existing tax laws and rates, their related interpretations, and the uncertainty generated by the current economic environment may affect the amounts of our deferred tax liabilities or the valuations of our deferred tax assets over time. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates.
For tax positions we have taken or expect to take in a tax return, we apply a more likely than not threshold (that is, a likelihood of more than 50 percent), under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, to continue to recognize the benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold. We recognize accrued interest and penalties for our unrecognized tax benefits as a component of tax expense. See Note 6 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 record an allowance for credit losses measured over the contractual life of the instrument based on an assessment of historical collection activity and current and forecasted future economic conditions by region. Our allowance for credit losses was $187 million at December 31, 2021 and $207 million at December 31, 2020. The decrease during 2021 was primarily due to the write-off of amounts deemed uncollectible, partially offset by the provision for credit losses. Our provision for credit losses totaled $22 million in 2021 and $136 million in 2020.
Assets Held for Sale
We consider properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we expect the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and we cease depreciation.
Goodwill
We test goodwill for potential impairment at least annually in the fourth quarter, or more frequently if an event or other circumstance indicates that we may not be able to recover the carrying amount of the net assets of the reporting unit. In evaluating goodwill for impairment, we may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Factors we consider when making this determination include, but are not limited to, assessing general economic conditions, hospitality industry trends, and overall financial performance of the reporting unit. If we bypass the qualitative assessment, or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.
We calculate the estimated fair value of a reporting unit using a combination of the income and market approaches. For the income approach, we use internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends;
expected future investments to grow new units; and estimated discount rates. For the market approach, we use internal analyses based primarily on market comparables. We base these assumptions on our historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our expectations.
We have had no goodwill impairment charges for the last three fiscal years.
Intangibles and Long-Lived Assets
We assess indefinite-lived intangible assets for continued indefinite use and for potential impairment annually, or more frequently if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. Like goodwill, we may first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible is less than its carrying amount. If the carrying value of the asset exceeds the fair value, we recognize an impairment loss in the amount of that excess.
We test definite-lived intangibles and long-lived asset groups for recoverability when changes in circumstances indicate that we may not be able to recover the carrying value; for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, or significant negative industry or economic trends. We also test recoverability when management has committed to a plan to sell or otherwise dispose of an asset group and we expect to complete the plan within a year. We evaluate recoverability of an asset group by comparing its carrying value, including right-of-use assets, to the future net undiscounted cash flows that we expect the asset group will generate. If the comparison indicates that we will not be able to recover the carrying value of an asset group, we recognize an impairment loss for the amount by which the carrying value exceeds the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life.
We calculate the estimated fair value of an intangible asset or asset group using the income approach or the market approach. We utilize the same assumptions and methodology for the income approach that we describe in the “Goodwill” caption. For the market approach, we use internal analyses based primarily on market comparables and assumptions about market capitalization rates, growth rates, and inflation. See Note 8 for additional information.
Investments
We hold equity interests in ventures established to develop or acquire and own hotel properties or that otherwise support our hospitality operations. We account for these investments as either an equity method investment, a financial asset, or a controlled subsidiary. We apply the equity method of accounting if we have significant influence over the entity, typically when we hold 20 percent or more of the voting common stock (or equivalent) of an investee but do not have a controlling financial interest. In certain circumstances, such as with investments in limited liability companies or limited partnerships, we apply the equity method of accounting when we own as little as three to five percent. We account for financial assets at fair value if it is readily determinable, or using the fair value alternative method, whereby investments are measured at cost less impairment, adjusted for observable price changes. We consolidate entities that we control.
When we acquire an investment that qualifies for the equity method of accounting, we determine the acquisition date fair value of the identifiable assets and liabilities. If our carrying amount exceeds our proportional share in the equity of the investee, we amortize the difference on a straight-line basis over the underlying assets’ estimated useful lives when calculating equity method earnings attributable to us, excluding the difference attributable to land, which we do not amortize.
We evaluate an investment for impairment when circumstances indicate that we may not be able to recover the carrying value. When evaluating our ventures, we consider loan defaults, significant underperformance relative to historical or projected operating performance, or significant negative industry or economic trends. Additionally, a venture’s commitment to a plan to sell some or all of its assets could cause us to evaluate the recoverability of the venture’s individual long-lived assets and possibly the venture itself. We impair investments we account for using the equity method of accounting when we determine that there has been an “other-than-temporary” decline in the venture’s estimated fair value compared to its carrying value. We perform qualitative assessments for investments we account for using the fair value alternative method and we record any associated impairment when the fair value is less than the carrying value.
Under the accounting guidance for the consolidation of variable interest entities, we analyze our variable interests, including equity investments, loans, and guarantees, to determine if an entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability, and relevant financial agreements. We also use our qualitative analysis to determine if we must consolidate a variable interest entity as its primary beneficiary.
Fair Value Measurements
We have various financial instruments we must measure at fair value on a recurring basis, including certain marketable securities and derivatives. See Note 12 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 inputs include unobservable inputs that reflect our assumptions about what factors market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Derivative Instruments
We record derivatives at fair value. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument in our Financial Statements. A derivative qualifies for hedge accounting if, at inception, we expect the derivative will be highly effective in offsetting the underlying hedged cash flows or fair value and we fulfill the hedge documentation standards at the time we enter into the derivative contract. We designate a hedge as a cash flow hedge, fair value hedge, or a hedge of the net investment in non-U.S. operations based on the exposure we are hedging. For the effective portion of qualifying cash flow hedges, we record changes in fair value in accumulated other comprehensive income (“AOCI”). We release the derivative’s gain or loss from AOCI to match the timing of the underlying hedged items’ effect on earnings. The change in fair value of qualifying fair value hedges as well as changes in fair value of the underlying hedged items to the hedged risks are recorded concurrently in earnings.
We review the effectiveness of our hedging instruments quarterly 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 AOCI 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 AOCI.
Changes in interest rates, currency exchange rates, and equity securities expose us to market risk. We manage our exposure to these risks by monitoring available financing alternatives, as well as through development and application of credit granting policies. We also use derivative instruments 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 or renovation 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.
At inception and throughout the term of the loan agreement, we individually assess loans for impairment. We consider current and forecasted future economic conditions in addition to our historical experience. We use internally generated cash flow projections to determine the likelihood that the loans will be repaid under the terms of the loan agreements. 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.
Leases
We determine if an arrangement is a lease or contains a lease at the inception of the contract. We evaluate leases for classification as operating or financing upon lease commencement. Our leases generally contain fixed and variable components. The variable components of our leases are primarily based on operating performance of the leased property. Our lease agreements may also include non-lease components, such as common area maintenance, which we combine with the lease component to account for both as a single lease component.
Lease liabilities, which represent our obligation to make lease payments arising from the lease, and corresponding right-of-use assets, which represent our right to use an underlying asset for the lease term, are recognized at the commencement date of the lease based on the present value of fixed future payments over the lease term. We calculate the present value of future payments using the discount rate implicit in the lease, if available, or our incremental borrowing rate.
For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term and lease expense relating to variable payments is expensed as incurred. For finance leases, the amortization of the asset is recognized over the shorter of the lease term or useful life of the underlying asset.
Guarantees
We measure and record our liability for the fair value of a guarantee on a nonrecurring basis, that is when we issue or modify a guarantee, using Level 3 internally developed inputs, as described above in this footnote under the caption “Fair Value Measurements.” We base our calculation of the estimated fair value of a guarantee on the income approach or the market approach, depending on the type of guarantee. For the income approach, we use internally developed discounted cash flow and Monte Carlo simulation models that include the following assumptions, among others: projections of revenues and expenses and related cash flows based on assumed growth rates and demand trends; historical volatility of projected performance; the guaranteed obligations; and applicable discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. For the market approach, we use internal analyses based primarily on market comparable data and our assumptions about market capitalization rates, credit spreads, growth rates, and inflation.
The offsetting entry for the guarantee liability depends on the circumstances in which the guarantee was issued. Funding under the guarantee reduces the recorded liability. In most cases, when we do not forecast any funding, we amortize the liability into income on a straight-line basis over the remaining term of the guarantee. On a quarterly basis, we evaluate all material estimated liabilities based on the operating results and the terms of the guarantee. If we conclude that it is probable that we will be required to fund a greater amount than previously estimated, we record a loss except to the extent that the applicable contracts provide that the advance can be recovered as a loan.
Self-Insurance Programs
We self-insure for certain levels of liability, workers’ compensation, property insurance and employee medical coverage. We accrue estimated costs of these self-insurance programs at the present value of projected settlements for known and incurred but not reported claims. We use a discount rate of two percent to determine the present value of the projected settlements, which we consider to be reasonable given our history of settled claims, including payment patterns and the fixed nature of the individual settlements. We classify the current portion of our self-insurance reserve in the “Accrued expenses and other” caption and the noncurrent portion in the “Other noncurrent liabilities” caption of our Balance Sheets. The current portion of our self-insurance reserve was $124 million at December 31, 2021 and $121 million at December 31, 2020. The noncurrent portion of our self-insurance reserve was $290 million at December 31, 2021 and $341 million at December 31, 2020.
Legal Contingencies
We are subject to various legal proceedings and claims, the outcomes of which are uncertain. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss. In making such determinations we evaluate, among other things, the probability of an unfavorable outcome and, when we believe it probable that a liability has been incurred, our ability to make a reasonable estimate of the loss. We review these accruals each reporting period and make revisions based on changes in facts and circumstances.
Business Combinations
We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. We recognize as goodwill the amount by which the purchase price of an acquired entity exceeds the net of the fair values assigned to the assets acquired and liabilities assumed. In determining the fair values of assets acquired and liabilities assumed, we use various recognized valuation methods including the income and market approaches. Further, we make assumptions within certain valuation techniques, including discount rates, royalty rates, and the amount and timing of future cash flows. We record the net assets and results of operations of an acquired entity in our Financial Statements from the acquisition date. We initially perform these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under our supervision, where appropriate, and make revisions as estimates and assumptions are finalized. We expense acquisition-related costs as we incur them.
Asset Acquisitions
Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. We allocate the cost of the acquisition, including direct and incremental transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition.
NOTE 3. RESTRUCTURING CHARGES
Beginning in the 2020 second quarter, we initiated several regional restructuring plans to achieve cost savings in response to the decline in lodging demand caused by COVID-19. We substantially completed our above-property programs as of December 31, 2020 and our property-level programs as of September 30, 2021.
The following table presents our restructuring liability activity during the period:
| ($ in millions) | Employee termination benefits | ||||||||||||||||
| Balance at December 31, 2020 | $ | 143 | |||||||||||||||
| Charges | — | ||||||||||||||||
| Cash payments | (122) | ||||||||||||||||
| Other | (6) | ||||||||||||||||
| Balance at December 31, 2021, classified in “Accrued expenses and other” | $ | 15 |
NOTE 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, the latter of which uses the treasury stock method in order to calculate the dilutive effect of the Company’s potential common stock:
| (in millions, except per share amounts) | 2021 | 2020 | 2019 | ||||||||||||||
| Computation of Basic Earnings Per Share | |||||||||||||||||
| Net income (loss) | $ | 1,099 | $ | (267) | $ | 1,273 | |||||||||||
| Shares for basic earnings per share | 327.2 | 325.8 | 332.7 | ||||||||||||||
| Basic earnings (loss) per share | $ | 3.36 | $ | (0.82) | $ | 3.83 | |||||||||||
| Computation of Diluted Earnings Per Share | |||||||||||||||||
| Net income (loss) | $ | 1,099 | $ | (267) | $ | 1,273 | |||||||||||
| Shares for basic earnings per share | 327.2 | 325.8 | 332.7 | ||||||||||||||
| Effect of dilutive securities | |||||||||||||||||
| Stock-based compensation(1) | 2.1 | — | 2.8 | ||||||||||||||
| Shares for diluted earnings per share | 329.3 | 325.8 | 335.5 | ||||||||||||||
| Diluted earnings (loss) per share | $ | 3.34 | $ | (0.82) | $ | 3.80 |
(1) For the calculation of diluted loss per share for 2020, we excluded share-based compensation securities of 1.4 million because the effect was anti-dilutive.
NOTE 5. STOCK-BASED COMPENSATION
RSUs and PSUs
We granted RSUs in 2021 to certain officers and employees, and those units vest generally over four years in equal annual installments commencing one year after the grant date. We also granted performance-based RSUs (“PSUs”) in 2021 to certain executives, which are earned, subject to continued employment and the satisfaction of certain performance and market conditions based on the degree of achievement of pre-established targets for 2023 adjusted EBITDA performance and relative total stockholder return over the 2021 to 2023 performance period.
In the 2020 third quarter, as part of our effort to encourage associate retention in response to the severe impact of COVID-19 on our industry and the Company, we accelerated the issuance of RSU awards to certain officers and employees that ordinarily would have been made in the 2021 first quarter, and those units generally vest over four years and five months, with one quarter of the units vesting one year and five months after the grant date and the remaining units vesting in equal annual installments thereafter. We did not accelerate the issuance of awards for our most senior executives.
We had deferred compensation costs for unvested awards for RSUs, including PSUs, of approximately $189 million at year-end 2021 and $301 million at year-end 2020. The weighted average remaining term for RSUs outstanding at year-end 2021 was 2.2 years.
The following table provides additional information on RSUs, including PSUs, for the last three fiscal years:
| 2021 | 2020 | 2019 | |||||||||||||||
| Stock-based compensation expense (in millions) | $ | 171 | $ | 188 | $ | 177 | |||||||||||
| Weighted average grant-date fair value (per unit) | $ | 141 | $ | 101 | $ | 117 | |||||||||||
| Aggregate intrinsic value of distributed RSUs (in millions) | $ | 205 | $ | 234 | $ | 276 |
The following table presents the changes in our outstanding RSUs, including PSUs, during 2021 and the associated weighted average grant-date fair values:
| Number of RSUs (in millions) | Weighted Average Grant-Date Fair Value (per unit) | ||||||||||
| Outstanding at year-end 2020 | 5.8 | $ | 107 | ||||||||
| Granted | 0.5 | $ | 141 | ||||||||
| Distributed | (1.7) | $ | 113 | ||||||||
| Forfeited | (0.2) | $ | 106 | ||||||||
| Outstanding at year-end 2021 | 4.4 | $ | 109 |
Other Information
At year-end 2021, we had 25 million remaining shares authorized under the Marriott and Starwood Hotels & Resorts Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”) stock plans.
NOTE 6. INCOME TAXES
The components of our earnings (losses) before income taxes for the last three fiscal years consisted of:
| ($ in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| U.S. | $ | 890 | $ | (320) | $ | 549 | |||||||||||
| Non-U.S. | 290 | (146) | 1,050 | ||||||||||||||
| $ | 1,180 | $ | (466) | $ | 1,599 |
Our (provision) benefit for income taxes for the last three fiscal years consisted of:
| ($ in millions) | 2021 | 2020 | 2019 | |||||||||||||||||
| Current | -U.S. Federal | $ | 99 | $ | 9 | $ | (272) | |||||||||||||
| -U.S. State | 24 | (41) | (57) | |||||||||||||||||
| -Non-U.S. | (86) | (78) | (161) | |||||||||||||||||
| 37 | (110) | (490) | ||||||||||||||||||
| Deferred | -U.S. Federal | (122) | 180 | 141 | ||||||||||||||||
| -U.S. State | (37) | 81 | 39 | |||||||||||||||||
| -Non-U.S. | 41 | 48 | (16) | |||||||||||||||||
| (118) | 309 | 164 | ||||||||||||||||||
| $ | (81) | $ | 199 | $ | (326) |
Unrecognized Tax Benefits
The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 2019 to the end of 2021:
| ($ in millions) | Amount | ||||
| Unrecognized tax benefit at beginning of 2019 | $ | 623 | |||
| Change attributable to tax positions taken in prior years | (13) | ||||
| Change attributable to tax positions taken during the current period | 13 | ||||
| Decrease attributable to settlements with taxing authorities | (54) | ||||
| Unrecognized tax benefit at year-end 2019 | 569 | ||||
| Change attributable to tax positions taken in prior years | (66) | ||||
| Change attributable to tax positions taken during the current period | 4 | ||||
| Decrease attributable to settlements with taxing authorities | (43) | ||||
| Unrecognized tax benefit at year-end 2020 | 464 | ||||
| Change attributable to tax positions taken in prior years | (134) | ||||
| Change attributable to tax positions taken during the current period | — | ||||
| Decrease attributable to settlements with taxing authorities | (48) | ||||
| Unrecognized tax benefit at year-end 2021 | $ | 282 |
Our unrecognized tax benefit balances included $266 million at year-end 2021, $410 million at year-end 2020, and $498 million at year-end 2019 of tax positions that, if recognized, would impact our effective tax rate. It is reasonably possible that within the next 12 months we will reach resolution of income tax examinations in one or more jurisdictions. The actual amount of any change to our unrecognized tax benefits could vary depending on the timing and nature of the settlement. Therefore, an estimate of the change cannot be provided. We recognize accrued interest and penalties for our unrecognized tax benefits as a component of tax expenses. Related interest (benefit) expense totaled $(21) million in 2021, $(15) million in 2020, and $28 million in 2019. We accrued interest and penalties related to our unrecognized tax benefits of approximately $45 million at year-end 2021 and $85 million at year-end 2020.
We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. The U.S. Internal Revenue Service (“IRS”) has examined our federal income tax returns, and as of year-end 2021, we have settled all issues for Marriott for tax years through 2015 and for tax year 2018. For Starwood, we have settled all tax years through 2016, the year the acquisition was completed. Our Marriott 2016, 2017, and 2019 through 2021 tax year audits are currently ongoing. Various foreign, state, and local income tax returns are also under examination by the applicable taxing authorities.
Deferred Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we pay or recover the taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.
The following table presents the tax effect of each type of temporary difference and carry-forward that gave rise to significant portions of our deferred tax assets and liabilities as of year-end 2021 and year-end 2020:
| ($ in millions) | At Year-End 2021 | At Year-End 2020 | |||||||||
| Deferred Tax Assets | |||||||||||
| Employee benefits | $ | 235 | $ | 262 | |||||||
| Net operating loss carry-forwards | 771 | 818 | |||||||||
| Accrued expenses and other reserves | 191 | 214 | |||||||||
| Receivables, net | 11 | 12 | |||||||||
| Tax credits | 53 | 49 | |||||||||
| Loyalty Program | 181 | 367 | |||||||||
| Deferred income | 98 | 69 | |||||||||
| Lease liabilities | 336 | 252 | |||||||||
| Interest Limitation | 163 | — | |||||||||
| Other | 34 | 82 | |||||||||
| Deferred tax assets | 2,073 | 2,125 | |||||||||
| Valuation allowance | (984) | (1,009) | |||||||||
| Deferred tax assets after valuation allowance | 1,089 | 1,116 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Equity method investments | (40) | (29) | |||||||||
| Property and equipment | (9) | (42) | |||||||||
| Intangibles | (666) | (663) | |||||||||
| Right-of-use assets | (290) | (197) | |||||||||
| Self-insurance | (25) | (19) | |||||||||
| Deferred tax liabilities | (1,030) | (950) | |||||||||
| Net deferred taxes | $ | 59 | $ | 166 |
Our valuation allowance is primarily attributable to non-U.S. net operating loss carry-forwards.
At year-end 2021, we had approximately $36 million of tax credits that will expire through 2031 and $18 million of tax credits that do not expire. We recorded $51 million of net operating loss benefits in 2021 and $44 million in 2020. At year-end 2021, we had approximately $3,778 million of primarily state and foreign net operating losses, of which $1,738 million will expire through 2041.
We made no provision for U.S. income taxes or additional non-U.S. taxes on certain undistributed earnings of non-U.S. subsidiaries. These earnings could become subject to additional taxes if the non-U.S. subsidiaries dividend or loan those earnings to an affiliate or if we sell our interests in the non-U.S. subsidiaries. We cannot practically estimate the amount of additional taxes that might be payable on the undistributed earnings.
Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate
The following table reconciles the U.S. statutory tax rate to our effective income tax rate for the last three fiscal years:
| 2021 | 2020 | 2019 | |||||||||||||||
| U.S. statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| U.S. state income taxes, net of U.S. federal tax benefit | 2.7 | 3.8 | 1.6 | ||||||||||||||
| Non-U.S. income | (0.5) | 12.5 | (3.3) | ||||||||||||||
| Change in valuation allowance | (0.7) | (20.0) | 3.4 | ||||||||||||||
| Change in uncertain tax positions | (12.0) | 12.2 | 1.9 | ||||||||||||||
| Permanent items | (0.5) | 9.4 | 1.3 | ||||||||||||||
| Tax on asset dispositions | (0.7) | 0.0 | (0.7) | ||||||||||||||
| Excess tax benefits related to equity awards | (2.8) | 6.4 | (3.2) | ||||||||||||||
| U.S. tax on foreign earnings | 0.4 | (3.0) | 0.1 | ||||||||||||||
| Other, net | (0.1) | 0.6 | (1.7) | ||||||||||||||
| Effective rate | 6.8 | % | 42.9 | % | 20.4 | % |
The non-U.S. income tax benefit presented in the table above includes tax-exempt income in Hong Kong and Singapore, and a deemed interest deduction in Switzerland, which collectively represented 3.2% in 2021, 12.9% in 2020, and 8.8% in 2019. We included the impact of these items in the non-U.S. income line above because we consider them to be equivalent to a reduction of the statutory tax rates in these jurisdictions. Pre-tax income in Switzerland, Singapore, and Hong Kong totaled $255 million in 2021, $314 million in 2020, and $709 million in 2019.
The non-U.S. income tax benefit also includes U.S. income tax expense on non-U.S. operations, which represents (0.5)% in 2021, 0.8% in 2020, and 2.0% in 2019. 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 $362 million in 2021, $279 million in 2020, and $526 million in 2019.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Guarantees
We issue guarantees to certain lenders and hotel owners, chiefly to obtain long-term management and franchise contracts. The guarantees generally have a stated maximum funding amount and a term of three to ten years. The terms of guarantees to lenders generally require us to fund if cash flows from hotel operations are inadequate to cover annual debt service or to repay the loan at maturity. The terms of the guarantees to hotel owners generally require us to fund if the hotels do not attain specified levels of operating profit. Guarantee fundings to lenders and hotel owners are generally recoverable out of future hotel cash flows and/or proceeds from the sale or refinancing of hotels.
We present the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for our debt service, operating profit, and other guarantees (excluding contingent purchase obligations) for which we are the primary obligor at year-end 2021 in the following table:
| ($ in millions) Guarantee Type | Maximum Potential Amount of Future Fundings | Recorded Liability for Guarantees | |||||||||
| Debt service | $ | 20 | $ | 5 | |||||||
| Operating profit | 189 | 118 | |||||||||
| Other | 18 | 4 | |||||||||
| $ | 227 | $ | 127 |
Our liability at year-end 2021 for guarantees for which we are the primary obligor is reflected in our Balance Sheets as $17 million of “Accrued expenses and other” and $110 million of “Other noncurrent liabilities.”
Our maximum potential guarantees listed in the preceding table include $42 million of operating profit guarantees and $3 million of other guarantees that will not be in effect until the underlying properties open and we begin to operate the properties or certain other events occur.
In conjunction with financing obtained for specific projects or properties owned by us or entities in which we have an investment, we may provide industry standard indemnifications to the lender for loss, liability, or damage occurring as a result of the actions of the entity or our own actions.
Contingent Purchase Obligation
Sheraton Grand Chicago. In 2017, we granted the owner a one-time right to require us to purchase the leasehold interest in the land and the hotel for $300 million in cash (the “put option”). In the 2021 third quarter, we entered into an amendment with the owner to move the exercise period of the put option from the 2022 first half to the 2024 first half. If the owner exercises the put option, the closing is expected to occur in the 2024 fourth quarter, and we have the option to purchase, at the same time the put transaction closes, the fee simple interest in the underlying land for an additional $200 million in cash. We account for the put option as a guarantee, and our recorded liability was $300 million at year-end 2021 and 2020.
We concluded that the entity that owns the Sheraton Grand Chicago hotel is a variable interest entity. We did not consolidate the entity because we do not have the power to direct the activities that most significantly impact the entity’s economic performance. Our maximum exposure to loss related to the entity is equal to the difference between the purchase price and the fair value of the hotel at the time that the put option is exercised, plus the maximum funding amount of an operating profit guarantee that we provided for the hotel.
Commitments
At year-end 2021, we had various purchase commitments for goods and services in the normal course of business, primarily for programs and services for which we are reimbursed by third-party owners, totaling $409 million. We expect to purchase goods and services subject to these commitments as follows: $227 million in 2022, $71 million in 2023, $88 million in 2024, and $23 million thereafter.
Letters of Credit
At year-end 2021, we had $148 million of letters of credit outstanding (all outside the Credit Facility, as defined in Note 9), most of which were for our self-insurance programs. Surety bonds issued as of year-end 2021 totaled $162 million, most of which state governments requested in connection with our self-insurance programs.
Starwood Data Security Incident
Description of Event
On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). Working with leading security experts, we determined that there was unauthorized access to the Starwood network since 2014 and that an unauthorized party had copied information from the Starwood reservations database and taken steps towards removing it. The Starwood reservations database is no longer used for business operations.
Expenses and Insurance Recoveries
In 2021, we recorded $24 million of expenses and $19 million of accrued insurance recoveries related to the Data Security Incident; in 2020, we recorded an $11 million net reversal of expenses and $29 million of accrued insurance recoveries related to the Data Security Incident; and in 2019, we recorded $148 million of expenses and $84 million of accrued insurance recoveries related to the Data Security Incident. We received insurance recoveries of $23 million in 2021 and $47 million in 2020. We recognize insurance recoveries when they are probable of receipt and present them in our Income Statements in the same caption as the related expense, up to the amount of total expense incurred in prior and current periods. We present expenses and insurance recoveries related to the Data Security Incident in either the “Reimbursed expenses” or “Restructuring and merger-related charges” captions of our Income Statements.
Litigation, Claims, and Government Investigations
Following our announcement of the Data Security Incident, approximately 100 lawsuits were filed by consumers and others against us in U.S. federal, U.S. state and Canadian courts related to the incident. All but one of the U.S. cases were consolidated and transferred to the U.S. District Court for the District of Maryland, pursuant to orders of the U.S. Judicial Panel
on Multidistrict Litigation (the “MDL”). The plaintiffs in the U.S. and Canadian cases, who generally purport to represent various classes of consumers, generally claim to have been harmed by alleged actions and/or omissions by the Company in connection with the Data Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief. Among the U.S. cases consolidated in the MDL proceeding is a putative class action lawsuit that was filed on December 1, 2018 against the Company and certain of our current and former officers and directors, alleging violations of the federal securities laws in connection with statements regarding our cybersecurity systems and controls, and seeking certification of a class of affected persons, unspecified monetary damages, costs and attorneys’ fees, and other related relief (the “Securities Case”). The MDL proceeding also included two shareholder derivative complaints that were filed on February 26, 2019 and March 15, 2019, respectively, against the Company and certain of our current and former officers and directors, alleging, among other claims, breach of fiduciary duty, corporate waste, unjust enrichment, mismanagement and violations of the federal securities laws, and seeking unspecified monetary damages and restitution, changes to the Company’s corporate governance and internal procedures, costs and attorneys’ fees, and other related relief (the “MDL Derivative Cases”). A separate shareholder derivative complaint was filed in the Delaware Court of Chancery on December 3, 2019 against the Company and certain of our current and former officers and directors, alleging claims and seeking relief generally similar to the claims made and relief sought in the other two derivative cases. This case was not consolidated with the MDL proceeding. We filed motions to dismiss in connection with all of the U.S. cases. Our motions to dismiss the Securities Case and the MDL Derivative Cases were granted in June 2021. The plaintiff in the Securities Case has appealed the dismissal and that appeal is still pending. The plaintiffs in the MDL Derivative Cases have not appealed. Motions to dismiss in the other MDL cases have been denied in part or in whole and these cases remain at varying stages. Our motion to dismiss the Delaware derivative case was granted in October 2021 and no appeal was filed. A putative class action lawsuit brought on behalf of financial institutions has been voluntarily dismissed. The Canadian cases have effectively been consolidated into a single case in the province of Ontario. We dispute the allegations in the lawsuits described above and are vigorously defending against such claims. In April 2019, we received a letter purportedly on behalf of a stockholder of the Company (also one of the named plaintiffs in the Securities Case described above) demanding that our Board of Directors take action against certain of the Company’s current and former officers and directors to recover damages for alleged breaches of fiduciary duties and related claims arising from the Data Security Incident. In October 2021, we received a letter purportedly on behalf of another stockholder of the Company (also one of the named plaintiffs in one of the dismissed MDL Derivative Cases described above) demanding that our Board of Directors take action against certain of the Company’s current and former officers and directors to recover damages for alleged breaches of fiduciary duties and other claims related to the Data Security Incident or associated disclosures. The Board of Directors has constituted a demand review committee to investigate the claims made in these demand letters, and the committee has retained independent counsel to assist with the investigations. The committee has completed its investigation and reported its findings and recommendations to our Board of Directors, which thereafter resolved, in February 2022, to reject the demands in their entirety. In addition, on August 18, 2020, a purported representative action was brought against us in the High Court of Justice for England and Wales on behalf of an alleged claimant class of English and Welsh residents alleging breaches of the General Data Protection Regulation and/or the U.K. Data Protection Act 2018 (the “U.K. DPA”) in connection with the Data Security Incident. We dispute all of the allegations in this purported action and will vigorously defend against any such claims. On November 5, 2020, the court issued an order with the consent of all parties staying this action pending resolution of another case raising similar issues, but not involving the Company. That other case was decided by the U.K. Supreme Court on November 10, 2021 and we are assessing next steps in light of the decision.
In addition, numerous U.S. federal, U.S. state and foreign governmental authorities made inquiries, opened investigations, or requested information and/or documents related to the Data Security Incident and related matters, 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 (the “ICO”) as lead supervisory authority in the European Economic Area, and regulatory authorities in various other jurisdictions. With the exception of the ICO proceeding, which was resolved in October 2020, these matters generally remain open. We are in discussions with the U.S. state Attorneys General, the U.S. Federal Trade Commission, and certain regulatory authorities in other jurisdictions to resolve their investigations and requests.
While we believe it is reasonably possible that we may incur additional losses associated with the above described proceedings and investigations related to the Data Security Incident, it is not possible to estimate the amount of loss or range of loss, if any, in excess of the amounts already incurred that might result from adverse judgments, settlements, fines, penalties or other resolution of these proceedings and investigations based on the current stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues.
NOTE 8. LEASES
We enter into operating and finance leases primarily for hotels, offices, and equipment. Most leases have initial terms of up to 20 years, and contain one or more renewals at our option, generally for five- or 10-year periods. We have generally not included these renewal periods in the lease term as it is not reasonably certain that we will exercise the renewal option.
The following table details the composition of lease expense for 2021, 2020, and 2019:
| ($ in millions) | 2021 | 2020 | 2019 | |||||||||||
| Operating lease cost | $ | 149 | $ | 157 | $ | 185 | ||||||||
| Variable lease cost | 51 | 60 | 113 |
We recorded impairment charges of $116 million in 2020 and $99 million in 2019 in the “Depreciation, amortization, and other” caption of our Income Statements to reduce the carrying amount of certain U.S. & Canada hotel leases right-of-use assets and property and equipment, including leasehold improvements. The impairment charges recorded in 2020 were due to the impact of COVID-19. We determined that we may not be able to fully recover the carrying amount of these U.S. & Canada hotel leases after evaluating the assets for recovery due to declines in market performance and future cash flow projections. We estimated the fair value using an income approach reflecting internally developed Level 3 discounted cash flows that included, among other things, our expectations of future cash flows based on historical experience and projected growth rates, usage estimates and demand trends. Additionally, during the year ended 2019, we recorded an expense of $34 million in the “Restructuring and merger-related charges” caption of our Income Statements due to the impairment of a Legacy-Starwood office building accounted for as a finance lease.
The following table presents our future minimum lease payments at year-end 2021:
| ($ in millions) | Operating Leases | Finance Leases | |||||||||
| 2022 | $ | 191 | $ | 13 | |||||||
| 2023 | 150 | 14 | |||||||||
| 2024 | 141 | 14 | |||||||||
| 2025 | 133 | 14 | |||||||||
| 2026 | 109 | 15 | |||||||||
| Thereafter | 942 | 122 | |||||||||
| Total minimum lease payments | $ | 1,666 | $ | 192 | |||||||
| Less: Amount representing interest | 418 | 46 | |||||||||
| Present value of minimum lease payments | $ | 1,248 | $ | 146 | |||||||
The following table presents the composition of our current and noncurrent lease liability at year-end 2021 and 2020:
| ($ in millions) | December 31, 2021 | December 31, 2020 | |||||||||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | ||||||||||||||||||||
| Current (1) | $ | 150 | $ | 7 | $ | 147 | $ | 7 | |||||||||||||||
| Noncurrent (2) | 1,098 | 139 | 823 | 146 | |||||||||||||||||||
| $ | 1,248 | $ | 146 | $ | 970 | $ | 153 |
(1)Operating leases are recorded in the “Accrued expenses and other” and finance leases are recorded in the “Current portion of long-term debt” captions of our Balance Sheets.
(2)Operating leases are recorded in the “Operating lease liabilities” and finance leases are recorded in the “Long-term debt” captions of our Balance Sheets.
The following table presents additional information about our lease obligations at year-end 2021 and 2020:
| 2021 | 2020 | |||||||||||||||||||||||||
| Operating leases | Finance leases | Operating leases | Finance leases | |||||||||||||||||||||||
| Weighted Average Remaining Lease Term (in years) | 14 | 12 | 10 | 13 | ||||||||||||||||||||||
| Weighted Average Discount Rate | 4.2 | % | 4.4 | % | 4.6 | % | 4.4 | % |
The following table presents supplemental cash flow information for 2021 and 2020:
| ($ in millions) | 2021 | 2020 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash outflows for operating leases | $ | 181 | $ | 162 | |||||||
| Lease assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | 463 | 35 | |||||||||
NOTE 9. LONG-TERM DEBT
We provide detail on our long-term debt balances, net of discounts, premiums, and debt issuance costs, in the following table at year-end 2021 and 2020:
| ($ in millions) | At Year-End 2021 | At Year-End 2020 | |||||||||
| Senior Notes: | |||||||||||
| Series L Notes, interest rate of 3.3%, face amount of $173, maturing September 15, 2022 (effective interest rate of 3.4%) | $ | 173 | $ | 173 | |||||||
| Series N Notes, interest rate of 3.1%, face amount of $400, redeemed August 9, 2021 (effective interest rate of 3.4%) | — | 399 | |||||||||
| Series O Notes, interest rate of 2.9%, face amount of $450, matured March 1, 2021 (effective interest rate of 3.1%) | — | 450 | |||||||||
| Series P Notes, interest rate of 3.8%, face amount of $350, maturing October 1, 2025 (effective interest rate of 4.0%) | 347 | 346 | |||||||||
| Series Q Notes, interest rate of 2.3%, face amount of $399, matured January 15, 2022 (effective interest rate of 2.5%) | 399 | 398 | |||||||||
| Series R Notes, interest rate of 3.1%, face amount of $750, maturing June 15, 2026 (effective interest rate of 3.3%) | 746 | 745 | |||||||||
| 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%) | 327 | 330 | |||||||||
| Series W Notes, interest rate of 4.5%, face amount of $278, maturing October 1, 2034 (effective interest rate of 4.1%) | 290 | 290 | |||||||||
| Series X Notes, interest rate of 4.0%, face amount of $450, maturing April 15, 2028 (effective interest rate of 4.2%) | 445 | 445 | |||||||||
| Series Z Notes, interest rate of 4.2%, face amount of $350, maturing December 1, 2023 (effective interest rate of 4.4%) | 349 | 348 | |||||||||
| Series AA Notes, interest rate of 4.7%, face amount of $300, maturing December 1, 2028 (effective interest rate of 4.8%) | 297 | 297 | |||||||||
| Series BB Notes, floating rate, face amount of $300, matured March 8, 2021 | — | 300 | |||||||||
| Series CC Notes, interest rate of 3.6%, face amount of $550, maturing April 15, 2024 (effective interest rate of 3.9%) | 566 | 586 | |||||||||
| Series DD Notes, interest rate of 2.1%, face amount of $224, maturing October 3, 2022 (effective interest rate of 1.2%) | 226 | 228 | |||||||||
| Series EE Notes, interest rate of 5.8%, face amount of $600, maturing May 1, 2025 (effective interest rate of 6.0%) | 595 | 1,583 | |||||||||
| Series FF Notes, interest rate of 4.6%, face amount of $1,000, maturing June 15, 2030 (effective interest rate of 4.8%) | 987 | 986 | |||||||||
| Series GG Notes, interest rate of 3.5%, face amount of $1,000, maturing October 15, 2032 (effective interest rate of 3.7%) | 986 | 985 | |||||||||
| Series HH Notes, interest rate of 2.9%, face amount of $1,100, maturing April 15, 2031 (effective interest rate of 3.0%) | 1,090 | — | |||||||||
| Series II Notes, interest rate of 2.8%, face amount of $700, maturing October 15, 2033 (effective interest rate of 2.8%) | 693 | — | |||||||||
| Credit Facility | 1,050 | 900 | |||||||||
| Finance lease obligations | 146 | 153 | |||||||||
| Other | 135 | 143 | |||||||||
| $ | 10,138 | $ | 10,376 | ||||||||
| Less current portion | (805) | (1,173) | |||||||||
| $ | 9,333 | $ | 9,203 |
All our long-term debt is recourse to us but unsecured. All the Senior Notes shown in the table above are our unsecured and unsubordinated obligations, which rank equally with our other Senior Notes and all other unsecured and unsubordinated indebtedness that we have issued or will issue from time to time, and are governed by the terms of an indenture, dated as of November 16, 1998, between us and The Bank of New York Mellon (formerly The Bank of New York), as trustee. We may redeem some or all of each series of the Senior Notes before maturity under the terms provided in the applicable form of Senior Note.
In January 2022, we made a $404 million cash payment of principal and interest to retire, at maturity, all of our outstanding Series Q Notes.
In September 2021, we completed a tender offer (the “Tender Offer”) and purchased and retired $1 billion aggregate principal amount of our 5.750 percent Series EE Notes maturing May 1, 2025. We used the net proceeds from our Series II Notes offering described below and cash on hand to complete the repurchase of such Series EE Notes, including the payment of accrued interest and other costs incurred. As a result of the Tender Offer, in the 2021 third quarter, we recorded a loss of $164 million in the “Loss on extinguishment of debt” caption of our Income Statements.
In September 2021, we issued $700 million aggregate principal amount of 2.750 percent Series II Notes due October 15, 2033 (the “Series II Notes”). We will pay interest on the Series II Notes in April and October of each year, commencing in April 2022. We received net proceeds of approximately $693 million from the offering of the Series II Notes, after deducting the underwriting discount and estimated expenses. We used the net proceeds to fund the Tender Offer, as further described above.
In August 2021, we redeemed all $400 million aggregate principal amount of our Series N Notes due in October 2021.
In March 2021, we issued $1.1 billion aggregate principal amount of 2.850 percent Series HH Notes due April 15, 2031 (the “Series HH Notes”). We pay interest on the Series HH Notes in April and October of each year. We received net proceeds of approximately $1.089 billion from the offering of the Series HH Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes, including the repayment of a portion of our outstanding borrowings under the Credit Facility.
We are party to a multicurrency revolving credit agreement (as amended, the “Credit Facility”) that provides for up to $4.5 billion of aggregate borrowings for general corporate needs, including working capital, capital expenditures, letters of credit, acquisitions, and to support our commercial paper program if and when we resume issuing commercial paper. Borrowings under the Credit Facility generally bear interest at LIBOR (the London Interbank Offered Rate) plus a spread, based on our public debt rating. We also pay quarterly fees on the Credit Facility at a rate based on our public debt rating. We classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings (if any) as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis. The Credit Facility expires on June 28, 2024. In 2021, we made borrowings of $1.7 billion and repayments of $1.5 billion. Our total outstanding borrowings under the Credit Facility were $1.1 billion as of year-end 2021.
We entered into amendments to the Credit Facility in April 2020 and January 2021 (the “Credit Facility Amendments”). The debt leverage covenant in the Credit Facility, which is tested each quarter and was waived pursuant to the Credit Facility Amendments through and including the fourth quarter of 2021, resumes beginning with the quarter ending March 31, 2022. The Credit Facility Amendments adjusted the required leverage levels for this covenant when it is re-imposed (starting at 5.50 to 1.00 for the test period ending on March 31, 2022 and gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal quarters, as further described in the Credit Facility). The Credit Facility Amendments also amended certain other terms of the Credit Facility, including reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency Rate.
The following table presents future principal payments, net of discounts, premiums, and debt issuance costs, for our debt at year-end 2021:
| Debt Principal Payments ($ in millions) | Amount | ||||
| 2022 | $ | 805 | |||
| 2023 | 683 | ||||
| 2024 | 1,624 | ||||
| 2025 | 1,311 | ||||
| 2026 | 756 | ||||
| Thereafter | 4,959 | ||||
| Balance at year-end 2021 | $ | 10,138 |
We paid cash for interest, net of amounts capitalized, of $391 million in 2021, $377 million in 2020, and $348 million in 2019.
NOTE 10. INTANGIBLE ASSETS AND GOODWILL
The following table details the composition of our intangible assets at year-end 2021 and 2020:
| ($ in millions) | At Year-End 2021 | At Year-End 2020 | |||||||||
| Definite-lived Intangible Assets | |||||||||||
| Costs incurred to obtain contracts with customers | $ | 1,875 | $ | 1,674 | |||||||
| Contracts acquired in business combinations and other | 2,187 | 2,257 | |||||||||
| 4,062 | 3,931 | ||||||||||
| Accumulated amortization | (1,052) | (937) | |||||||||
| 3,010 | 2,994 | ||||||||||
| Indefinite-lived Intangible Brand Assets | 5,916 | 5,995 | |||||||||
| $ | 8,926 | $ | 8,989 |
We capitalize direct costs that we incur to obtain management, franchise, and license agreements. We amortize these costs on a straight-line basis over the initial term of the agreements, ranging from 15 to 30 years. In 2020, we recorded impairment charges totaling $64 million in the “Contract investment amortization” caption of our Income Statements to reduce the carrying amount of certain capitalized costs incurred to obtain contracts with customers, primarily due to the impact of COVID-19, most of which we recorded in our U.S. & Canada business segment.
For contracts acquired in business combinations and other intangible assets, we recorded amortization expense of $165 million in 2021, $97 million in 2020, and $105 million in 2019 (of which $62 million in 2021 and none in 2020 and 2019 was included in the “Reimbursed expenses” caption of our Income Statements). For these assets, we estimate that our aggregate amortization expense will be $163 million in 2022, $147 million in 2023, $134 million in 2024, $122 million in 2025, and $110 million in 2026.
The following table details the carrying amount of our goodwill at year-end 2021 and 2020:
| ($ in millions) | U.S. & Canada | International | Total Goodwill | ||||||||||||||||||||||||||
| Balance at year-end 2020 | $ | 5,347 | $ | 3,828 | $ | 9,175 | |||||||||||||||||||||||
| Foreign currency translation | 1 | (103) | (102) | ||||||||||||||||||||||||||
| Balance at year-end 2021 | $ | 5,348 | $ | 3,725 | $ | 9,073 |
NOTE 11. PROPERTY AND EQUIPMENT
The following table presents the composition of our property and equipment balances at year-end 2021 and 2020:
| ($ in millions) | At Year-End 2021 | At Year-End 2020 | |||||||||
| Land | $ | 686 | $ | 688 | |||||||
| Buildings and leasehold improvements | 985 | 1,045 | |||||||||
| Furniture and equipment | 545 | 640 | |||||||||
| Construction in progress | 137 | 29 | |||||||||
| 2,353 | 2,402 | ||||||||||
| Accumulated depreciation | (850) | (888) | |||||||||
| $ | 1,503 | $ | 1,514 |
We record property and equipment at cost, including interest and real estate taxes we incur during development and construction. We capitalize the cost of improvements that extend the useful life of property and equipment when we incur them. These capitalized costs may include structural costs, equipment, fixtures, floor, and wall coverings. We expense all repair and maintenance costs when we incur them. We compute depreciation using the straight-line method over the estimated useful lives of the assets (generally three to 40 years), and we amortize leasehold improvements over the shorter of the asset life or lease term. Our gross depreciation expense totaled $138 million in 2021, $322 million in 2020, and $346 million in 2019 (of which $49 million in 2021, $109 million in 2020, and $121 million in 2019 was included in the “Reimbursed expenses” caption of our Income Statements). Fixed assets attributed to operations located outside the U.S. were $623 million at year-end 2021 and $679 million at year-end 2020. Our gross depreciation expense included impairment charges for property and equipment, including
leasehold improvements, and right-of-use assets on several U.S. & Canada leased hotels in 2020 and 2019, which we discussed in Note 8.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. We present the carrying values and the fair values of noncurrent financial assets and liabilities that qualify as financial instruments, determined under current guidance for disclosures on the fair value of financial instruments, in the following table:
| At Year-End 2021 | At Year-End 2020 | ||||||||||||||||||||||
| ($ in millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||
| Senior, mezzanine, and other loans | $ | 144 | $ | 131 | $ | 159 | $ | 142 | |||||||||||||||
| Total noncurrent financial assets | $ | 144 | $ | 131 | $ | 159 | $ | 142 | |||||||||||||||
| Senior Notes | $ | (8,009) | $ | (8,480) | $ | (8,031) | $ | (8,941) | |||||||||||||||
| Credit Facility | (1,050) | (1,050) | (900) | (900) | |||||||||||||||||||
| Other long-term debt | (135) | (140) | (126) | (128) | |||||||||||||||||||
| Other noncurrent liabilities | (414) | (414) | (426) | (426) | |||||||||||||||||||
| Total noncurrent financial liabilities | $ | (9,608) | $ | (10,084) | $ | (9,483) | $ | (10,395) |
We estimate the fair value of our senior, mezzanine, and other loans by discounting cash flows using risk-adjusted rates, both of which are Level 3 inputs.
We determine the fair value of our Senior Notes using quoted market prices, which are directly observable Level 1 inputs. When we have outstanding commercial paper, we use pricing from recent transactions as Level 2 inputs in estimating fair value. The carrying value of our Credit Facility borrowings approximate fair value because they bear interest at a market rate. We estimate the fair value of our other long-term debt, excluding leases, using expected future payments discounted at risk-adjusted rates, which are Level 3 inputs. Our other noncurrent liabilities consist of guarantees. As we note in the “Guarantees” caption of Note 2, we measure our liability for guarantees at fair value on a nonrecurring basis, which is when we issue or modify a guarantee using Level 3 internally developed inputs. At year-end 2021 and year-end 2020, we determined that the carrying values of our guarantee liabilities approximated their fair values based on Level 3 inputs.
See the “Fair Value Measurements” caption of Note 2 for more information on the input levels we use in determining fair value.
NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table details the accumulated other comprehensive loss activity for 2021, 2020, and 2019:
| ($ in millions) | Foreign Currency Translation Adjustments | Derivative Instrument and Other Adjustments | Accumulated Other Comprehensive Loss | ||||||||||||||
| Balance at year-end 2018 | $ | (403) | $ | 12 | $ | (391) | |||||||||||
| Other comprehensive income before reclassifications (1) | 35 | 2 | 37 | ||||||||||||||
| Reclassification adjustments | — | (7) | (7) | ||||||||||||||
| Net other comprehensive income (loss) | 35 | (5) | 30 | ||||||||||||||
| Balance at year-end 2019 | $ | (368) | $ | 7 | $ | (361) | |||||||||||
| Other comprehensive income before reclassifications (1) | 229 | 7 | 236 | ||||||||||||||
| Reclassification adjustments | — | (10) | (10) | ||||||||||||||
| Net other comprehensive income (loss) | 229 | (3) | 226 | ||||||||||||||
| Balance at year-end 2020 | $ | (139) | $ | 4 | $ | (135) | |||||||||||
| Other comprehensive (loss) income before reclassifications (1) | (212) | 5 | (207) | ||||||||||||||
| Reclassification adjustments | — | — | — | ||||||||||||||
| Net other comprehensive (loss) income | (212) | 5 | (207) | ||||||||||||||
| Balance at year-end 2021 | $ | (351) | $ | 9 | $ | (342) |
(1)Other comprehensive income (loss) before reclassifications for foreign currency translation adjustments includes intra-entity foreign currency transactions that are of a long-term investment nature, which resulted in gains (losses) of $40 million for 2021, $(44) million for 2020, and $6 million for 2019.
NOTE 14. BUSINESS SEGMENTS
Beginning in the 2021 first quarter, we modified our segment structure due to a change in the way our chief operating decision maker evaluates results and allocates resources within the Company, resulting in the following two operating segments, both of which meet the applicable accounting criteria for separate disclosure as a reportable business segment: United States and Canada (“U.S. & Canada”) and International. We revised the prior period amounts shown in the tables below to conform to our current presentation.
We evaluate the performance of our operating segments using “segment profits/loss” which is based largely on the results of the segment without allocating corporate expenses, income taxes, indirect general, administrative, and other expenses, merger-related costs, or most above-property restructuring charges. We assign gains and losses, equity in earnings or losses, direct general, administrative, and other expenses, and other restructuring charges to each of our segments. “Unallocated corporate and other” includes a portion of our revenues (including license fees we receive from our credit card programs and fees from vacation ownership licensing agreements), revenues and expenses for our Loyalty Program, general, administrative, and other expenses, restructuring and merger-related charges, equity in earnings or losses, and other gains or losses that we do not allocate to our segments.
Our chief operating decision maker monitors assets for the consolidated Company but does not use assets by operating segment when assessing performance or making operating segment resource allocations.
Segment Revenues
The following table presents our revenues disaggregated by segment and major revenue stream for the last three fiscal years:
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
| ($ in millions) | U.S. & Canada | International | Total | U.S. & Canada | International | Total | U.S. & Canada | International | Total | ||||||||||||||||||||||||||||||||
| Gross fee revenues | $ | 1,580 | $ | 568 | $ | 2,148 | $ | 914 | $ | 338 | $ | 1,252 | $ | 2,265 | $ | 1,032 | $ | 3,297 | |||||||||||||||||||||||
| Contract investment amortization | (55) | (20) | (75) | (108) | (24) | (132) | (48) | (14) | (62) | ||||||||||||||||||||||||||||||||
| Net fee revenues | 1,525 | 548 | 2,073 | 806 | 314 | 1,120 | 2,217 | 1,018 | 3,235 | ||||||||||||||||||||||||||||||||
| Owned, leased, and other revenue | 282 | 467 | 749 | 198 | 317 | 515 | 715 | 841 | 1,556 | ||||||||||||||||||||||||||||||||
| Cost reimbursement revenue | 8,549 | 1,239 | 9,788 | 6,901 | 966 | 7,867 | 13,901 | 1,685 | 15,586 | ||||||||||||||||||||||||||||||||
| Total reportable segment revenue | $ | 10,356 | $ | 2,254 | $ | 12,610 | $ | 7,905 | $ | 1,597 | $ | 9,502 | $ | 16,833 | $ | 3,544 | $ | 20,377 | |||||||||||||||||||||||
| Unallocated corporate and other | 1,247 | 1,069 | 595 | ||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 13,857 | $ | 10,571 | $ | 20,972 |
Revenues attributed to operations located outside the U.S. were $2,615 million in 2021, $1,910 million in 2020, and $4,400 million in 2019, including cost reimbursement revenue outside the U.S. of $1,553 million in 2021, $1,247 million in 2020, and $2,394 million in 2019.
Segment Profits and Losses
| ($ in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| U.S. & Canada (1) | $ | 1,394 | $ | 198 | $ | 2,000 | |||||||||||
| International (2) | 258 | (222) | 804 | ||||||||||||||
| Unallocated corporate and other | (80) | (24) | (837) | ||||||||||||||
| Interest expense, net of interest income | (392) | (418) | (368) | ||||||||||||||
| (Provision) benefit for income taxes | (81) | 199 | (326) | ||||||||||||||
| Net income (loss) | $ | 1,099 | $ | (267) | $ | 1,273 |
(1) Includes cost reimbursements, net of $51 million in 2021, $(80) million in 2020, and $(129) million in 2019.
(2) Includes cost reimbursements, net of $14 million in 2021, $(55) million in 2020, and $(18) million in 2019.
Segment profits (losses) attributed to operations located outside the U.S. were $297 million in 2021, $(198) million in 2020, and $982 million in 2019, including cost reimbursements, net (cost reimbursement revenue, net of reimbursed expenses) outside the U.S. of $14 million in 2021, $(62) million in 2020, and $(18) million in 2019.
Depreciation, Amortization, and Other
| ($ in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| U.S. & Canada | $ | 92 | $ | 209 | $ | 218 | |||||||||||
| International | 106 | 113 | 96 | ||||||||||||||
| Unallocated corporate and other | 22 | 24 | 27 | ||||||||||||||
| $ | 220 | $ | 346 | $ | 341 |
Capital Expenditures
| ($ in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| U.S. & Canada | $ | 13 | $ | 12 | $ | 287 | |||||||||||
| International | 12 | 17 | 166 | ||||||||||||||
| Unallocated corporate and other | 158 | 106 | 200 | ||||||||||||||
| $ | 183 | $ | 135 | $ | 653 |
NOTE 15. RELATED PARTY TRANSACTIONS
Equity Method Investments
We have equity method investments in entities that own or lease properties for which we provide management services and receive fees. In addition, in some cases we provide loans, preferred equity, or guarantees to these entities.
The following table presents Income Statement data resulting from transactions with these related parties. This table does not include our Financial Statement captions with insignificant related party activity.
| ($ in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| Cost reimbursement revenue | $ | 104 | $ | 107 | $ | 233 | |||||||||||
| Reimbursed expenses | (105) | (110) | (236) | ||||||||||||||
| Equity in (losses) earnings | (24) | (141) | 13 |
Summarized Financial Information for Investees
The following tables present summarized financial information for the entities in which we have equity method investments:
| ($ in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| Sales | $ | 283 | $ | 259 | $ | 815 | |||||||||||
| Net (loss) income | (37) | (212) | 80 |
| ($ in millions) | At Year-End 2021 | At Year-End 2020 | |||||||||
| Total Assets (primarily composed of hotel real estate managed by us) | $ | 1,229 | $ | 2,348 | |||||||
| Total Liabilities | 865 | 1,623 |
The carrying amount of our equity method investments was $387 million at year-end 2021 and $422 million at year-end 2020. This value exceeded our share of the book value of the investees’ net assets by $257 million at year-end 2021 and $294 million at year-end 2020, primarily due to the value that we assigned to land, contracts, and buildings owned by the investees.
In 2020, we recorded impairment charges of $77 million in the “Equity in (losses) earnings” caption of our Income Statements to reduce the carrying amount of certain investments, primarily due to the impact of COVID-19, most of which we recorded in our U.S. & Canada business segment.
Other Related Parties
We earned management fees of approximately $6 million in 2021, $3 million in 2020, and $12 million in 2019, plus reimbursement of certain expenses, from our operation of properties in which JWM Family Enterprises, L.P., which is beneficially owned and controlled by J.W. Marriott, Jr., Deborah Marriott Harrison, David S. Marriott, and other members of the Marriott family, indirectly holds varying percentages of ownership. We earned gross fee revenues of approximately $1 million in 2021, plus reimbursement of certain expenses, and no revenues in 2020 and 2019 from managed and franchised properties in which other members of the Marriott family hold varying interests.
NOTE 16. RELATIONSHIP WITH MAJOR CUSTOMER
Host Hotels & Resorts, Inc., formerly known as Host Marriott Corporation, and its affiliates (“Host”) owned or leased 56 lodging properties at year-end 2021 and 59 at year-end 2020 that we operated or franchised. Over the last three years, we recognized revenues, including cost reimbursement revenue, of $1,192 million in 2021, $1,037 million in 2020, and $2,406 million in 2019 from those lodging properties, and included those revenues in our U.S. & Canada and International reportable business segments.
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