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Dynamic quotes 
OFFON

MARRIOTT INTERNATIONAL, INC.

(MAR)
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MARRIOTT INTERNATIONAL : MD/ Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/03/2021 | 12:52pm EDT
Cautionary Statement
All statements in this report are made as of the date this Form 10-Q is filed
with the U.S. Securities and Exchange Commission (the "SEC"). We undertake no
obligation to publicly update or revise these statements, whether as a result of
new information, future events or otherwise. We make forward-looking statements
in Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this report based on the beliefs and assumptions of
our management and on information available to us through the date this Form
10-Q is filed with the SEC. Forward-looking statements include information
related to the possible effects on our business of the coronavirus pandemic and
efforts to contain it ("COVID-19"), including the performance of the Company's
hotels; Revenue per Available Room ("RevPAR"), occupancy and other demand and
recovery trends and expectations; the nature and impact of contingency plans,
restructuring plans and cost reduction plans; rooms growth; our expectations
regarding the receipt of certain credits and refunds under certain U.S. federal
legislation; our expectations regarding our ability to meet our liquidity
requirements; our expectations regarding COVID-19's impact on our cash from
operations; our capital expenditures and other investment spending expectations;
other statements throughout this report that are preceded by, followed by, or
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "foresees," or similar expressions; and similar statements
concerning anticipated future events and expectations that are not historical
facts.
We caution you that these statements are not guarantees of future performance
and are subject to numerous evolving risks and uncertainties that we may not be
able to accurately predict or assess, including the risks and uncertainties we
describe below and other factors we describe from time to time in our periodic
filings with the SEC. Risks that could affect our results of operations,
liquidity and capital resources, and other aspects of our business discussed in
this Form 10-Q include the duration and scope of COVID-19, including the
availability and distribution of effective vaccines or treatments; the
pandemic's short and longer-term impact on the demand for travel, transient and
group business, and levels of consumer confidence; actions governments,
businesses and individuals have taken or may take in response to the pandemic,
including limiting, banning, or cautioning against travel and/or in-person
gatherings or imposing occupancy or other restrictions on lodging or other
facilities; the impact of the pandemic and actions taken in response to the
pandemic on global and regional economies, travel, and economic activity,
including the duration and magnitude of the pandemic's impact on unemployment
rates and consumer discretionary spending; the ability of our owners and
franchisees to successfully navigate the impacts of COVID-19; the pace of
recovery when the pandemic subsides and any dislocations in recovery as a result
of resurgences of the pandemic; general economic uncertainty in key global
markets and a worsening of global economic conditions or low levels of economic
growth; the effects of steps we and our property owners and franchisees have
taken and may continue to take to reduce operating costs and/or enhance certain
health and cleanliness protocols at our hotels; the impacts of our employee
furloughs and reduced work week schedules, our voluntary transition program and
our other restructuring activities; competitive conditions in the lodging
industry and in the labor market; relationships with customers and property
owners; the availability of capital to finance hotel growth and refurbishment;
the extent to which we experience adverse effects from data security incidents;
and changes in tax laws in countries in which we earn significant income.
As discussed in this Form 10-Q, COVID-19 is materially impacting our operations
and financial results. COVID-19, and the volatile regional and global economic
conditions stemming from it, and additional or unforeseen effects from the
COVID-19 pandemic, could also give rise to or aggravate the other risk factors
that we identify within Part II, Item 1A of this report, which in turn could
materially adversely affect our business, liquidity, financial condition, and
results of operations. Further, COVID-19 may also affect our operating and
financial results in a manner that is not presently known to us or that we
currently do not consider to present significant risks to our operations.
BUSINESS AND OVERVIEW
We are a worldwide operator, franchisor, and licensor of hotel, residential, and
timeshare properties under numerous brand names at different price and service
points. Consistent with our focus on management, franchising,
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and licensing, we own very few of our lodging properties. We discuss our
operations in the following reportable business segments: U.S. & Canada and
International.
We earn base management fees and, under many agreements, incentive management
fees from the properties that we manage, and we earn franchise fees on the
properties that others operate under franchise agreements with us. In most
markets, base management and franchise fees typically consist of a percentage of
property-level revenue, or certain property-level revenue in the case of
franchise fees, while incentive management fees typically consist of a
percentage of net house profit after a specified owner return. For our hotels in
the Middle East and Africa, Asia Pacific excluding China, and Greater China
regions, incentive management fees typically consist of a percentage of gross
operating profit without adjustment for a specified owner return. Net house
profit is calculated as gross operating profit (also referred to as "house
profit") less non-controllable expenses such as property insurance, real estate
taxes, and capital spending reserves. Additionally, we earn franchise fees for
use of our intellectual property, including fees from our co-brand credit card,
timeshare, and residential programs.
Starwood Data Security Incident
On November 30, 2018, we announced a data security incident involving
unauthorized access to the Starwood reservations database (the "Data Security
Incident"). The Starwood reservations database is no longer used for business
operations.
We are currently unable to estimate the range of total possible financial impact
to the Company from the Data Security Incident in excess of the expenses already
incurred. However, we do not believe this incident will impact our long-term
financial health. Although our insurance program includes coverage designed to
limit our exposure to losses such as those related to the Data Security
Incident, that insurance may not be sufficient or available to cover all of our
expenses or other losses (including fines and penalties) related to the Data
Security Incident. We expect to incur significant expenses associated with the
Data Security Incident in future periods, primarily related to legal proceedings
and regulatory investigations (including possible additional fines and
penalties), increased expenses and capital investments for information
technology and information security and data privacy, and increased expenses for
compliance activities and to meet increased legal and regulatory requirements.
See Note 6 for additional information related to expenses incurred in the 2021
second quarter and 2021 first half, insurance recoveries, and legal proceedings
and governmental investigations related to the Data Security Incident.
Performance Measures
We believe Revenue per Available Room ("RevPAR"), which we calculate by dividing
room sales for comparable properties by room nights available for the period, is
a meaningful indicator of our performance because it measures the
period-over-period change in room revenues for comparable properties. RevPAR may
not be comparable to similarly titled measures, such as revenues, and should not
be viewed as necessarily correlating with our fee revenue. We also believe
occupancy and average daily rate ("ADR"), which are components of calculating
RevPAR, are meaningful indicators of our performance. Occupancy, which we
calculate by dividing occupied rooms by total rooms available (including rooms
in hotels temporarily closed due to issues related to COVID-19), measures the
utilization of a property's available capacity. ADR, which we calculate by
dividing property room revenue by total rooms sold, measures average room price
and is useful in assessing pricing levels. Comparisons to the prior periods are
on a constant U.S. dollar basis. We calculate constant dollar statistics by
applying exchange rates for the current period to the prior comparable period.
We define our comparable properties as our properties that were open and
operating under one of our brands since the beginning of the last full calendar
year (since January 1, 2020 for the current period) and have not, in either the
current or previous year: (1) undergone significant room or public space
renovations or expansions, (2) been converted between company-operated and
franchised, or (3) sustained substantial property damage or business
interruption, with the exception of properties closed or otherwise experiencing
interruptions related to COVID-19, which we continue to classify as comparable.
The RevPAR comparisons between 2021 and 2019, which we discuss under the "Impact
of COVID-19" caption below, reflect properties that are defined as comparable as
of June 30, 2021, even if in 2019 they were not open and operating for the full
year or did not meet all the other criteria listed above.
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Impact of COVID-19
COVID-19 continues to have a material impact on our business and industry.
However, the recovery of both global demand and ADR accelerated in the 2021
second quarter, led primarily by robust leisure demand. While business transient
and group demand remain well below pre-pandemic levels in most markets, they
have shown increasing signs of improvement. We expect business transient and
group demand could pick up significantly in the fall of 2021 assuming more
workers return to their offices on a hybrid basis. With the expected improvement
in business travel in the fall, we are optimistic about the continued global
recovery. Although the recovery of global lodging demand is underway, COVID-19
will continue to have a material negative impact on our future results for a
period of time that we are currently unable to predict.
Worldwide comparable systemwide RevPAR improved dramatically in the 2021 second
quarter compared to the 2020 second quarter, when COVID-19 had the most
significant impact on our quarterly results. In the 2021 first half, RevPAR
improved 11.1 percent compared to the 2020 first half, reflecting the
combination of year-over-year RevPAR growth in the 2021 second quarter and
year-over-year RevPAR declines in the 2021 first quarter as most regions, with
the exception of Greater China, had a solid start in 2020 and COVID-19 only
began to have a significant impact worldwide late in the 2020 first quarter.
Compared to pre-pandemic levels for the same periods in 2019, comparable
systemwide RevPAR declined 39.5 percent and 47.7 percent in our U.S. & Canada
segment, 55.6 percent and 59.9 percent in our International segment, and 43.8
percent and 51.0 percent worldwide in the 2021 second quarter and first half,
respectively. Worldwide comparable systemwide occupancy continued to rise each
month during the 2021 first half, reaching a high of 55.2 percent in June, while
comparable constant dollar ADR was down only 13.3 percent in June 2021 compared
to June 2019. Our Greater China region continues to lead the recovery, with
comparable systemwide RevPAR declines of 16.9 percent and 27.1 percent in the
2021 second quarter and first half, respectively, compared to the same periods
in 2019. In the 2021 second quarter, Mainland China RevPAR recovered to
pre-pandemic levels for the same period in 2019, driven by strong domestic
leisure, business, and group travel. In the U.S. & Canada, demand grew in the
2021 second quarter, driven by increasingly strong leisure demand at our luxury
and resort hotels and in tertiary markets, although urban destinations, where we
have a large presence, continue to lag the recovery. In other parts of the
world, RevPAR continues to vary greatly by geographic market, and demand is
heavily impacted by the number of COVID-19 cases, vaccination rates, and the
nature and degree of government restrictions.
We continue to take measures to mitigate the negative financial and operational
impacts of COVID-19 for our hotel owners and our own business. At the corporate
level, we remain focused on limiting our corporate general and administrative
costs and are being disciplined with respect to our capital expenditures and
other investment spending. As previously announced, share repurchases and cash
dividends have been suspended until business conditions further improve and
until permitted under our Credit Facility. We are also continuing to adapt our
business contingency plans in response to the global situation and develop
restructuring plans to achieve cost savings specific to certain of our
company-operated properties. See Note 2 for more information about our
restructuring activities. At the property level, certain associates remain on
temporary furloughs or reduced work week schedules. In addition, we continue to
work with owners and franchisees to minimize their cash outlays while also
focusing on guest experience as demand continues to rise. The steps we continue
to take include adjusting renovation requirements for certain properties;
deferring certain hotel initiatives and accountability for brand standard audits
for hotel owners and franchisees; supporting owners and franchisees who are
working with their lenders to utilize furniture, fixtures, and equipment (FF&E)
reserves to meet working capital needs; and waiving required FF&E funding
through 2021. We also continue to tightly control the reimbursed expenses we
incur on behalf of our owners and franchisees to provide centralized programs
and services, such as the Loyalty Program, reservations, marketing and sales,
which we generally collect through cost reimbursement revenue on the basis of
hotel revenue or program usage.
We have seen industry labor shortages causing challenges in hiring or re-hiring
for certain property-level positions primarily in certain U.S. markets where
demand has rebounded quickly, and in response we have enhanced our recruitment
and retention efforts.
We continue to evaluate the availability of stimulus tax credits under the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), the Taxpayer
Certainty and Disaster Tax Relief Act of 2020 enacted as
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part of the Consolidated Appropriations Act, 2021 ("Relief Act"), the American
Rescue Plan Act of 2021 ("ARPA"), and other legislation. As of July 23, 2021, we
have received Employee Retention Tax Credit ("ERTC") refunds from the U.S.Treasury totaling $132 million, including $119 million in 2020 and $13 million
in the 2021 first half. In 2020 and in the 2021 first half, we passed through
$94 million and $13 million, respectively, of these refunds to the related
hotels that we manage on behalf of owners. Based on ERTC refund applications
that we have submitted as of July 23, 2021, we expect to receive an additional
$34 million from the U.S.Treasury in the remainder of 2021 or in 2022, the
majority of which we expect will inure to the benefit of our hotel owners.
Additionally, we expect to receive from the U.S.Treasury, in 2021 or 2022,
payments and credits totaling $36 million pursuant to ARPA, which provides for
refundable tax credits to employers as reimbursement for the cost of health
coverage continuation provided to eligible former associates and furloughed or
part-time associates (and their eligible enrolled dependents) in accordance with
requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") for the period of April 1, 2021 to September 30, 2021. Finally, in the
2021 first half, we received subsidies totaling $22 million from German
government COVID-19 assistance programs for certain of our leased hotels and
equity method investments in Germany.
The impact of COVID-19 on the Company remains fluid, as does our corporate and
property-level response. We expect to continue to assess the situation and may
implement additional measures to adapt our operations and plans to address the
implications of COVID-19 on our business. The overall operational and financial
impact is highly dependent on the breadth and duration of COVID-19 and could be
affected by other factors we are not currently able to predict.
System Growth and Pipeline
At the end of the 2021 second quarter, our system had 7,797 properties
(1,451,609 rooms), compared to 7,642 properties (1,423,044 rooms) at year-end
2020 and 7,484 properties (1,400,693 rooms) at the end of the 2020 second
quarter. The increase compared to year-end 2020 reflects gross additions of 283
properties (48,476 rooms) and deletions of 128 properties (19,867 rooms),
including 88 properties from a primarily select-service portfolio which left our
system in the 2021 first quarter. Approximately 26 percent of our 2021 first
half gross room additions were conversions. We expect full-year 2021 total gross
rooms growth of approximately 6.0 percent and net rooms growth to be towards the
higher end of 3.0 to 3.5 percent.
At the end of the 2021 second quarter, we had nearly 478,000 rooms in our
development pipeline, which includes more than 212,000 hotel rooms under
construction and roughly 19,000 hotel rooms approved for development but not yet
under signed contracts. Over half of the rooms in our development pipeline are
outside U.S. & Canada.
Properties and Rooms
At June 30, 2021, we operated, franchised, and licensed the following properties
and rooms:
                            Managed                        Franchised/Licensed                      Owned/Leased                             Total
                  Properties           Rooms        Properties                Rooms        Properties              Rooms         Properties            Rooms
U.S. & Canada        702              228,086        4,872                   697,603            26                6,483           5,600               932,172
International      1,313              332,680          753                   154,711            39                9,288           2,105               496,679
Timeshare              -                    -           92                    22,758             -                    -              92                22,758
Total              2,015              560,766        5,717                   875,072            65               15,771           7,797             1,451,609


Lodging Statistics
The following tables present RevPAR, occupancy, and ADR statistics for
comparable properties. Systemwide statistics include data from our franchised
properties, in addition to our company-operated properties.
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                                                           Three Months 

Ended June 30, 2021 and Change vs. Three Months Ended June 30, 2020

                                                RevPAR                                          Occupancy                                   Average Daily Rate
                                    2021                  vs. 2020                  2021                     vs. 2020                  2021               vs. 2020
Comparable Company-Operated
Properties
U.S. & Canada                  $      85.36                    554.9  %                 45.0  %              36.4  % pts.          $  189.49                    25.1  %
Greater China                  $      78.73                    117.0  %                 63.9  %              28.6  % pts.          $  123.20                    19.9  %
Asia Pacific excluding China   $      32.64                    164.1  %                 29.6  %              16.6  % pts.          $  110.13                    15.9  %

Caribbean & Latin America      $      74.09                  1,105.4  %                 41.7  %              35.4  % pts.          $  177.58                    83.1  %
Europe                         $      39.27                  1,030.5  %                 23.8  %              20.8  % pts.          $  165.29                    40.9  %
Middle East & Africa           $      66.28                    211.1  %                 45.1  %              28.0  % pts.          $  146.92                    18.3  %
International - All (1)        $      56.09                    203.1  %                 41.8  %              24.3  % pts.          $  134.07                    27.3  %
Worldwide (2)                  $      69.73                    336.9  %                 43.3  %              29.9  % pts.          $  160.92                    35.1  %
Comparable Systemwide
Properties
U.S. & Canada                  $      78.83                    274.6  %                 56.1  %              36.7  % pts.          $  140.63                    29.3  %
Greater China                  $      75.03                    114.3  %                 62.4  %              27.5  % pts.          $  120.14                    20.1  %
Asia Pacific excluding China   $      33.57                    147.6  %                 30.3  %              16.4  % pts.          $  110.98                    13.7  %

Caribbean & Latin America      $      60.45                  1,068.5  %                 39.7  %              33.5  % pts.          $  152.35                    80.6  %
Europe                         $      34.30                    732.1  %                 23.2  %              19.7  % pts.          $  147.73                    25.7  %
Middle East & Africa           $      60.89                    219.1  %                 43.7  %              27.5  % pts.          $  139.21                    18.7  %
International - All (1)        $      49.94                    223.2  %                 38.4  %              23.3  % pts.          $  130.09                    26.7  %
Worldwide (2)                  $      70.29                    262.6  %                 50.8  %              32.8  % pts.          $  138.28                    28.9  %



                                                            Six Months

Ended June 30, 2021 and Change vs. Six Months Ended June 30, 2020

                                               RevPAR                                         Occupancy                                   Average Daily Rate
                                    2021                vs. 2020                  2021                     vs. 2020                  2021               vs. 2020
Comparable Company-Operated
Properties

U.S. & Canada                  $     68.98                     0.5  %                 37.1  %               4.4  % pts.          $  186.13                   (11.4) %
Greater China                  $     67.09                   100.5  %                 56.0  %              26.1  % pts.          $  119.81                     6.9  %
Asia Pacific excluding China   $     34.84                   (28.5) %                 31.6  %              (1.5) % pts.          $  110.14                   (25.2) %

Caribbean & Latin America      $     63.16                     1.6  %                 36.6  %               5.4  % pts.          $  172.56                   (13.5) %
Europe                         $     28.41                   (37.4) %                 18.6  %              (6.3) % pts.          $  152.83                   (16.0) %
Middle East & Africa           $     65.27                    15.7  %                 43.4  %               5.6  % pts.          $  150.33                     0.9  %

International - All (1)        $     50.15                     9.2  %                 38.4  %               7.2  % pts.          $  130.64                   (11.3) %
Worldwide (2)                  $     58.93                     4.3  %                 37.8  %               5.9  % pts.          $  156.04                   (12.0) %
Comparable Systemwide
Properties
U.S. & Canada                  $     63.86                    14.2  %                 48.2  %              10.4  % pts.          $  132.44                   (10.5) %
Greater China                  $     64.34                    97.1  %                 55.0  %              25.4  % pts.          $  116.89                     6.2  %
Asia Pacific excluding China   $     35.99                   (25.8) %                 32.5  %              (0.8) % pts.          $  110.75                   (24.1) %

Caribbean & Latin America      $     49.66                    (1.1) %                 34.2  %               4.9  % pts.          $  145.19                   (15.3) %
Europe                         $     24.86                   (38.4) %                 18.2  %              (6.6) % pts.          $  136.64                   (16.0) %
Middle East & Africa           $     59.81                    15.9  %                 42.2  %               5.3  % pts.          $  141.76                     1.5  %

International - All (1)        $     44.17                     1.8  %                 35.1  %               4.9  % pts.          $  125.93                   (12.4) %
Worldwide (2)                  $     58.05                    11.1  %                 44.3  %               8.8  % pts.          $  130.92                   (10.9) %


(1)Includes Greater China, Asia Pacific excluding China, Caribbean & Latin
America, Europe, and Middle East & Africa.
(2)Includes U.S. & Canada and International - All.
CONSOLIDATED RESULTS
Our results in the 2021 second quarter and 2021 first half continued to be
impacted by COVID-19. See the "Impact of COVID-19" section above for more
information about the impact to our business during the 2021 second quarter and
2021 first half, and the discussion below for additional analysis of our
consolidated results of operations for the 2021 second quarter compared to the
2020 second quarter and for the 2021 first half compared to the 2020 first half.
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Fee Revenues
                                                   Three Months Ended                                                             Six Months Ended
                                                 June 30,                     Change                     June 30,          June 30,                      Change
($ in millions)           June 30, 2021            2020                    2021 vs. 2020                   2021              2020                    2021 vs. 2020
Base management fees    $          156          $     40$        116             290  %       $    262$    254          $          8                3  %
Franchise fees                     431               182                   249             137  %            737               597                   140               23  %
Incentive management
fees                                55                12                    43             358  %             88                12                    76              633  %
Gross fee revenues                 642               234                   408             174  %          1,087               863                   224               26  %
Contract investment
amortization                       (18)              (21)                   (3)            (14) %            (35)              (46)                  (11)             (24) %
Net fee revenues        $          624          $    213$        411             193  %       $  1,052$    817$        235               29  %


The increases in base management and franchise fees in the 2021 second quarter
and 2021 first half primarily reflected higher RevPAR due to the ongoing
recovery in lodging demand from the impacts of COVID-19, higher co-brand credit
card fees ($43 million and $32 million, respectively), and unit growth ($24
million and $38 million, respectively).
The increases in incentive management fees in the 2021 second quarter and the
2021 first half primarily reflected higher profits at certain managed hotels due
to the ongoing recovery in lodging demand from the impacts of COVID-19.
Owned, Leased, and Other
                                                  Three Months Ended                                                            Six Months Ended
                                                June 30,                     Change                     June 30,          June 30,                     Change
($ in millions)          June 30, 2021            2020                    2021 vs. 2020                   2021              2020                    2021 vs. 2020
Owned, leased, and
other revenue          $          187          $     49$        138             282  %       $    295$    329$        (34)            (10) %
Owned, leased, and
other - direct
expenses                          168               121                    47              39  %            303               393                   (90)            (23) %
Owned, leased, and
other, net             $           19          $    (72)         $         91             126  %       $     (8)$    (64)         $         56              88  %


Owned, leased, and other revenue, net of direct expenses increased in the 2021
second quarter and the 2021 first half primarily due to net stronger results
driven by the ongoing recovery in lodging demand from the impacts of COVID-19,
$18 million of subsidies under German government COVID-19 assistance programs
for certain of our leased hotels received in the 2021 second quarter, as well as
higher termination fees of $11 million and $19 million, respectively.
Cost Reimbursements
                                                    Three Months Ended                                                         Six Months Ended
                             June 30,          June 30,                     Change                     June 30,          June 30,                     Change
($ in millions)                2021              2020                    2021 vs. 2020                   2021              2020                   

2021 vs. 2020 Cost reimbursement revenue $ 2,338$ 1,202$ 1,136

              95  %       $  4,118$  4,999$       (881)            (18) %
Reimbursed expenses            2,255             1,241                 1,014              82  %          4,088             5,118                (1,030)            (20) %

Cost reimbursements, net $ 83$ (39)$ 122

             313  %       $     30$   (119)$        149             125  %


Cost reimbursements, net (cost reimbursement revenue, net of reimbursed
expenses) varies due to timing differences between the costs we incur for
centralized programs and services and the related reimbursements we receive from
hotel owners and franchisees, primarily driven by our Loyalty Program. Over the
long term, our centralized programs and services are not designed to impact our
economics, either positively or negatively.
The increase in cost reimbursements, net in the 2021 second quarter primarily
reflects higher revenues for our centralized programs and services. The increase
in cost reimbursements, net in the 2021 first half primarily reflects lower
expenses for our centralized programs and services.
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Other Operating Expenses
                                                      Three Months Ended                                                              Six Months Ended
                                                                                   Change                     June 30,          June 30,                     Change
($ in millions)           June 30, 2021          June 30, 2020                  2021 vs. 2020                   2021              2020                    2021 vs. 2020
Depreciation,
amortization, and other  $      50             $           72          $        (22)            (31) %       $    102$    222$       (120)            (54) %
General, administrative,
and other                      187                        178                     9               5  %            398               448                   (50)            (11) %
Restructuring and
merger-related charges           3                          6                    (3)            (50) %              4                 4                     -               -  %


Depreciation, amortization, and other expenses decreased in the 2021 second
quarter and the 2021 first half primarily due to prior year operating lease
impairment charges.
General, administrative, and other expenses increased in the 2021 second quarter
primarily due to higher compensation costs compared to our 2020 cost reduction
measures, which included reducing executive compensation, implementing reduced
work weeks for many of our corporate associates, and furloughing a substantial
number of associates. The 2021 second quarter increase was partially offset by a
lower provision for credit losses ($30 million). The decrease in the 2021 first
half primarily reflected a lower provision for credit losses ($80 million),
partially offset by higher compensation costs compared to our 2020 cost
reduction measures discussed above.
Non-Operating Income (Expense)
                                                 Three Months Ended                                                                Six Months Ended
                       June 30,                                             Change                                                                              Change
($ in millions)          2021             June 30, 2020                 2021 vs. 2020                 June 30, 2021           June 30, 2020                 2021 vs. 2020
Gains and other
income, net           $      5          $            5          $         -               -  %       $      6               $            1          $         5             500  %
Interest expense          (109)                   (127)                 (18)            (14) %           (216)                        (220)                  (4)             (2) %
Interest income              7                       8                   (1)            (13) %             14                           14                    -               -  %
Equity in losses            (8)                    (30)                 (22)            (73) %            (20)                         (34)                 (14)            (41) %


Interest expense decreased, primarily due to lower Credit Facility and
commercial paper average borrowings and interest rates, partially offset by
higher interest on Senior Note issuances, net of maturities.
Equity in losses decreased in both the 2021 second quarter and the 2021 first
half, primarily due to the ongoing recovery in lodging demand from the impacts
of COVID-19.
Income Taxes
                                                             Three Months Ended                                                                    Six Months Ended
                                                                                          Change                                                                                Change
($ in millions)                  June 30, 2021          June 30, 2020                  2021 vs. 2020                  June 30, 2021           June 30, 2020                  2021 vs. 2020
Benefit for income taxes        $      41             $           64          $        (23)            (36) %       $           57          $           76          $        (19)            (25) %


Our tax benefit decreased in the 2021 second quarter, compared to our tax
benefit in the 2020 second quarter, primarily due to the increase in operating
income ($138 million), partially offset by the current year release of tax
reserves due to the favorable resolution of Legacy-Starwood tax audits ($118
million).
Our tax benefit decreased in the 2021 first half, compared to our tax benefit in
the 2020 first half, primarily due to the increase in operating income ($98
million) and a lower tax benefit from impairment charges ($32 million). The
decrease was partially offset by the current year release of tax reserves due to
the favorable resolution of Legacy-Starwood tax audits ($118 million).
BUSINESS SEGMENTS
Our segment results in the 2021 second quarter and 2021 first half continued to
be impacted by COVID-19. See the "Impact of COVID-19" section above for more
information about the impact to our business during the
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2021 second quarter and 2021 first half and the discussion below for additional
analysis of the operating results of our reportable business segments.
                                                        Three Months Ended                                                         Six Months Ended
                                June 30,          June 30,                      Change                     June 30,          June 30,                     Change
($ in millions)                   2021              2020                    2021 vs. 2020                    2021              2020                    2021 vs. 2020
U.S. & Canada
Segment revenues               $  2,328$  1,079$      1,249              116  %       $  4,049$  4,899$       (850)            (17) %
Segment profit (loss)               344               (36)                  380            1,056  %            487               122                   365             299  %
International
Segment revenues                    522               194                   328              169  %            913               826                    87              11  %
Segment profit (loss)                79              (163)                  242              148  %             56              (190)                  246             129  %


                                                            Properties                                                                               Rooms
                              June 30, 2021             June 30, 2020             vs. June 30, 2020                June 30, 2021             June 30, 2020               vs. June 30, 2020
U.S. & Canada                          5,600               5,418                   182              3  %                  932,172             910,439                   21,733              2  %
International                          2,105               1,975                   130              7  %                  496,679             467,499                   29,180              6  %


U.S. & Canada
Second Quarter
U.S. & Canada quarterly segment profit, compared to the prior year quarterly
segment loss, primarily reflected:
•$260 million of higher gross fee revenues, primarily reflecting higher
comparable systemwide RevPAR driven by increases in both occupancy and ADR due
to the ongoing recovery in lodging demand from the impacts of COVID-19 and unit
growth;
•$68 million of higher cost reimbursement revenue, net of reimbursed expenses;
•$27 million of higher owned, leased, and other revenue, net of direct expenses,
primarily reflecting net stronger results at owned and leased properties due to
the ongoing recovery in lodging demand from the impacts of COVID-19; and
•$18 million of lower depreciation, amortization, and other expenses, primarily
reflecting 2020 second quarter operating lease impairment charges.
First Half
U.S. & Canada 2021 first half segment profit increased primarily due to:
•$112 million of lower depreciation, amortization, and other expenses, primarily
reflecting 2020 first half operating lease impairment charges;
•$104 million of higher gross fee revenues, primarily reflecting higher
comparable systemwide RevPAR driven by an increase in occupancy and higher
profits at certain managed hotels due to the ongoing recovery in lodging demand
from the impacts of COVID-19 and unit growth;
•$76 million of higher cost reimbursement revenue, net of reimbursed expenses;
and
•$46 million of lower general, administrative, and other expenses, primarily
reflecting lower provision for credit losses and reserves for guarantee funding.
International
Second Quarter
International quarterly segment profit, compared to the prior year quarterly
segment loss, primarily reflected:
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•$97 million of higher gross fee revenues, primarily reflecting higher
comparable systemwide RevPAR driven by increases in all regions in both ADR and
occupancy and higher profits at certain managed hotels due to the ongoing
recovery in lodging demand from the impacts of COVID-19;
•$62 million of higher owned, leased, and other revenue, net of direct expenses,
primarily reflecting net stronger results due to the ongoing recovery in lodging
demand from the impacts of COVID-19 and subsidies under German government
COVID-19 assistance programs for certain of our leased hotels;
•$44 million of higher cost reimbursement revenue, net of reimbursed expenses;
and
•$16 million of higher equity in earnings, primarily due to the ongoing recovery
in lodging demand from the impacts of COVID-19.
First Half
International 2021 first half segment profit, compared to the 2020 first half
segment loss, primarily reflected:
•$82 million of higher gross fee revenues, due to higher profits at certain
managed hotels and higher comparable systemwide RevPAR in Greater China driven
by increases in both ADR and occupancy due to the ongoing recovery in lodging
demand from the impacts of COVID-19;
•$55 million of higher cost reimbursement revenue, net of reimbursed expenses;
•$46 million of lower general, administrative, and other expenses, primarily
reflecting lower provision for credit losses; and
•$41 million of higher owned, leased, and other revenue, net of direct expenses,
primarily reflecting higher termination fees and subsidies under German
government COVID-19 assistance programs for certain of our leased hotels.
STOCK-BASED COMPENSATION
See Note 4 for more information.
LIQUIDITY AND CAPITAL RESOURCES
Our long-term financial objectives include diversifying our financing sources,
optimizing the mix and maturity of our long-term debt, and reducing our working
capital. At the end of the 2021 second quarter, our long-term debt had a
weighted average interest rate of 3.7 percent and a weighted average maturity of
approximately 6.3 years. Including the effect of interest rate swaps, the ratio
of our fixed-rate long-term debt to our total long-term debt was 0.9 to 1.0 at
the end of the 2021 second quarter.
In response to the negative impact COVID-19 had on our cash from operations in
2020 and in the 2021 first half, which we expect to continue to be negatively
impacted, we remain focused on preserving our financial flexibility and managing
our debt maturities. We remain focused on tightly controlling our corporate
general and administrative costs, reimbursed expenses we incur on behalf of our
owners and franchisees, and our capital expenditures and other investment
spending. Share repurchases and dividends remain suspended until business
conditions further improve and until permitted under our Credit Facility. In the
2021 first half, we issued $1.1 billion aggregate principal amount of senior
notes with a 10-year maturity, which we discuss further under the "Sources of
Liquidity - Senior Notes Issuances" section below.
We monitor the status of the capital markets and regularly evaluate the effect
that changes in capital market conditions may have on our ability to fund our
liquidity needs. We currently believe the Credit Facility, our cash on hand, and
our access to capital markets remain adequate to meet our liquidity
requirements.
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Sources of Liquidity
Our Credit Facility
Our Credit Facility provides for up to $4.5 billion of aggregate borrowings for
general corporate needs, including 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 as long-term based on our
ability and intent to refinance the outstanding borrowings on a long-term basis.
The Credit Facility expires on June 28, 2024. As of June 30, 2021, we had total
outstanding borrowings under the Credit Facility of $0.4 billion and remaining
borrowing capacity of $4.1 billion.
The Credit Facility contains certain covenants, including a financial covenant
that limits our maximum Leverage Ratio (as defined in the Credit Facility, and
generally consisting of the ratio of Adjusted Total Debt to EBITDA, each as
defined in the Credit Facility, and subject to additional adjustments as
described therein). On April 13, 2020, we entered into an amendment to the
Credit Facility (the "First Credit Facility Amendment") under which the covenant
governing the permitted Leverage Ratio is waived through and including the first
quarter of 2021 (the "Covenant Waiver Period"), and the required leverage levels
for such covenant are adjusted once re-imposed at the end of the Covenant Waiver
Period (starting at 5.50 to 1.00 when the leverage test is first re-imposed and
gradually stepping down to 4.00 to 1.00 over the succeeding seven fiscal
quarters, as further described in the Credit Facility). The First Credit
Facility Amendment also imposes a monthly-tested minimum liquidity covenant for
the duration of the Covenant Waiver Period and makes certain other amendments to
the terms of the Credit Facility, including increasing the interest and fees
payable on the Credit Facility for the duration of the Covenant Waiver Period,
tightening certain existing covenants and imposing additional covenants for the
duration of the Covenant Waiver Period, including restricting dividends and
share repurchases.
On January 26, 2021, we entered into two more amendments to the Credit Facility
(the "New Credit Facility Amendments," and together with the First Credit
Facility Amendment, the "Credit Facility Amendments"), which extend the Covenant
Waiver Period through and including the fourth quarter of 2021 (which waiver
period may end sooner at our election), revise the required leverage levels for
such covenant when it is re-imposed at the end of the Covenant Waiver Period
(starting at 5.50 to 1.00 when the leverage test is first re-imposed and
gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal
quarters, as further described in the Credit Facility), and increase the minimum
liquidity amount under the liquidity covenant that is tested monthly for the
duration of the Covenant Waiver Period. The New Credit Facility Amendments also
make certain other amendments to the terms of the Credit Facility, including
reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency
Rate.
Our outstanding public debt does not contain a corresponding financial covenant
or a requirement that we maintain certain financial ratios. We currently satisfy
the covenants in our Credit Facility, including the liquidity covenant under the
Credit Facility.
Senior Notes Issuances
On March 5, 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 will pay
interest on the Series HH Notes in April and October of each year, commencing in
October 2021. 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, as discussed in Note 8.
Senior Notes Redemption
On July 23, 2021, we announced that on August 9, 2021, we will redeem all of our
Series N Notes at a redemption price equal to the sum of 100% of the $400
million aggregate principal amount plus accrued and unpaid interest thereon.
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Commercial Paper
Due to changes to our credit ratings as a result of the impact of COVID-19 on
our business, we currently are not issuing commercial paper. As a result, we
have had to rely more on borrowings under the Credit Facility and issuance of
senior notes, which carry higher interest costs than commercial paper.
Uses of Cash
Cash, cash equivalents, and restricted cash totaled $679 million at June 30,
2021, a decrease of $215 million from year-end 2020, primarily reflecting Credit
Facility repayments, net of borrowings ($500 million), financing outflows for
employee stock-based compensation withholding taxes ($83 million), and capital
and technology expenditures ($70 million), partially offset by Senior Notes
issuances, net of repayments ($319 million) and net cash provided by operating
activities ($126 million).
Net cash provided by operating activities decreased by $1,379 million in the
2021 first half compared to the 2020 first half, primarily due to the prepaid
cash received under the amendments to our co-brand credit card agreements in the
2020 first half, cash outflows from working capital changes, and higher cash
paid for income taxes. Working capital changes primarily reflect higher accounts
receivable associated with the ongoing recovery in lodging demand. The decrease
in cash provided by operating activities was partially offset by the net income
recorded in the 2021 first half (adjusted for non-cash items).
Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of
the 2021 second quarter. We have significant borrowing capacity under our Credit
Facility should we need additional working capital.
Capital Expenditures and Other Investments
We made capital and technology expenditures of $70 million in the 2021 first
half and $79 million in the 2020 first half. We expect capital expenditures and
other investments will total approximately $575 million to $625 million for the
2021 full year, including capital and technology expenditures, loan advances,
contract acquisition costs, and other investing activities (including
approximately $220 million for maintenance capital spending and our new
headquarters).
Share Repurchases
We did not repurchase any shares of our common stock in the 2021 first half. As
of June 30, 2021, 17.4 million shares remained available for repurchase under
Board approved authorizations. We do not anticipate repurchasing additional
shares until business conditions further improve, and are prohibited from doing
so for the duration of the Covenant Waiver Period under our Credit Facility,
with certain exceptions.
Dividends
We did not declare any cash dividends in the 2021 first half. We do not
anticipate declaring cash dividends until business conditions further improve,
and are prohibited from doing so for the duration of the Covenant Waiver Period
under our Credit Facility.
Contractual Obligations and Off-Balance Sheet Arrangements
As of the end of the 2021 second quarter, there have been no significant changes
to our "Contractual Obligations" table, "Other Commitments" table, or "Letters
of Credit" paragraph in Part II, Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," of our 2020 Form 10-K, other
than the changes in debt described in the "Sources of Liquidity" section above.
See Note 8 for more information on our total debt.
At June 30, 2021, projected Deemed Repatriation Transition Tax payments under
the U.S. tax legislation enacted on December 22, 2017, commonly referred to as
the 2017 Tax Cuts and Jobs Act, totaled $349 million.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect reported amounts and
related disclosures. We have discussed those policies and estimates that we
believe are critical and require the use of complex judgment in their
application in our 2020 Form 10-K. We have made no material changes to our
critical accounting policies or the methodologies or assumptions that we apply
under them.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk has not materially changed since December 31, 2020.
See Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our
2020 Form 10-K for more information on our exposure to market risk.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We evaluated the effectiveness of our disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered
by this quarterly report under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer.
Management necessarily applied its judgment in assessing the costs and benefits
of those controls and procedures, which by their nature, can provide only
reasonable assurance about management's control objectives. You should note that
the design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and we cannot assure you that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. Based upon this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective and operating to provide reasonable
assurance that we record, process, summarize, and report the information we are
required to disclose in the reports that we file or submit under the Exchange
Act within the time periods specified in the rules and forms of the SEC, and to
provide reasonable assurance that we accumulate and communicate such information
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions about required disclosure.
Changes in Internal Control Over Financial Reporting
We made no changes in internal control over financial reporting during the 2021
second quarter that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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