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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No. 1-13881
_________________________________________________ 
MAR-20200930_G1.JPG
MARRIOTT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
 _______________________________________
Delaware 52-2055918
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
10400 Fernwood Road Bethesda Maryland 20817
(Address of principal executive offices)
(Zip Code)
(301) 380-3000
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Class A Common Stock, $0.01 par value MAR
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   ý   Accelerated filer  
¨
Non-accelerated filer   ¨ Smaller Reporting Company  
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 324,331,716 shares of Class A Common Stock, par value $0.01 per share, outstanding at October 30, 2020.



MARRIOTT INTERNATIONAL, INC.
FORM 10-Q TABLE OF CONTENTS
 


2

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
($ in millions, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
  September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
REVENUES
Base management fees $ 87  $ 291  $ 341  $ 882 
Franchise fees 279  530  876  1,505 
Incentive management fees 31  134  43  462 
Gross fee revenues 397  955  1,260  2,849 
Contract investment amortization (48) (16) (94) (45)
Net fee revenues 349  939  1,166  2,804 
Owned, leased, and other revenue 116  393  445  1,186 
Cost reimbursement revenue 1,789  3,952  6,788  11,611 
2,254  5,284  8,399  15,601 
OPERATING COSTS AND EXPENSES
Owned, leased, and other-direct 134  326  527  982 
Depreciation, amortization, and other 53  52  275  162 
General, administrative, and other 131  220  579  671 
Restructuring and merger-related charges 191 
Reimbursed expenses 1,683  4,070  6,801  12,069 
2,002  4,677  8,187  14,075 
OPERATING INCOME 252  607  212  1,526 
Gains and other income, net 10  16 
Interest expense (113) (100) (333) (299)
Interest income 20  20 
Equity in (losses) earnings (20) (54) 10 
INCOME (LOSS) BEFORE INCOME TAXES 127  527  (152) 1,273 
(Provision) benefit for income taxes (27) (140) 49  (279)
NET INCOME (LOSS) $ 100  $ 387  $ (103) $ 994 
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share - basic $ 0.31  $ 1.17  $ (0.32) $ 2.97 
Earnings (loss) per share - diluted $ 0.31  $ 1.16  $ (0.32) $ 2.95 
See Notes to Condensed Consolidated Financial Statements.
3

MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($ in millions)
(Unaudited)

Three Months Ended Nine Months Ended
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Net income (loss) $ 100  $ 387  $ (103) $ 994 
Other comprehensive income (loss):
Foreign currency translation adjustments 163  (182) (87) (111)
Derivative instrument adjustments and other, net of tax (1) (2)
Total other comprehensive income (loss), net of tax 162  (178) (85) (113)
Comprehensive income (loss) $ 262  $ 209  $ (188) $ 881 
See Notes to Condensed Consolidated Financial Statements.

4

MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(Unaudited)
September 30,
2020
December 31,
2019
ASSETS
Current assets
Cash and equivalents $ 1,577  $ 225 
Accounts and notes receivable, net 1,791  2,395 
Prepaid expenses and other 164  252 
Assets held for sale 255 
3,540  3,127 
Property and equipment, net 1,790  1,904 
Intangible assets
Brands 5,947  5,954 
Contract acquisition costs and other 2,607  2,687 
Goodwill 9,035  9,048 
17,589  17,689 
Equity method investments 517  577 
Notes receivable, net 154  117 
Deferred tax assets 202  154 
Operating lease assets 757  888 
Other noncurrent assets 599  595 
$ 25,148  $ 25,051 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt $ 1,316  $ 977 
Accounts payable 486  720 
Accrued payroll and benefits 1,030  1,339 
Liability for guest loyalty program 1,724  2,258 
Accrued expenses and other 1,450  1,383 
6,006  6,677 
Long-term debt 9,679  9,963 
Liability for guest loyalty program 4,433  3,460 
Deferred tax liabilities 146  290 
Deferred revenue 1,615  840 
Operating lease liabilities 817  882 
Other noncurrent liabilities 2,223  2,236 
Shareholders’ equity
Class A Common Stock
Additional paid-in-capital 5,798  5,800 
Retained earnings 9,370  9,644 
Treasury stock, at cost (14,498) (14,385)
Accumulated other comprehensive loss (446) (361)
229  703 
$ 25,148  $ 25,051 

See Notes to Condensed Consolidated Financial Statements.
5

MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited)

Nine Months Ended
  September 30, 2020 September 30, 2019
OPERATING ACTIVITIES
Net (loss) income $ (103) $ 994 
Adjustments to reconcile to cash provided by operating activities:
Depreciation, amortization, and other 369  207 
Share-based compensation 143  138 
Income taxes (289) (98)
Liability for guest loyalty program 439  163 
Contract acquisition costs (103) (140)
Restructuring and merger-related charges (40) 137 
Working capital changes 127  (404)
Gain on asset dispositions —  (15)
Deferred revenue changes and other 1,080  208 
Net cash provided by operating activities 1,623  1,190 
INVESTING ACTIVITIES
Capital expenditures (97) (235)
Dispositions 260 
Loan advances (36) (23)
Loan collections 49 
Other (22) (38)
Net cash provided by (used in) investing activities 111  (243)
FINANCING ACTIVITIES
Commercial paper/Credit Facility, net (2,260) 1,177 
Issuance of long-term debt 3,556  852 
Repayment of long-term debt (1,278) (621)
Issuance of Class A Common Stock — 
Dividends paid (156) (455)
Purchase of treasury stock (150) (1,828)
Share-based compensation withholding taxes (100) (132)
Other (9) (7)
Net cash used in financing activities (397) (1,007)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 1,337  (60)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period (1)
253  360 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1)
$ 1,590  $ 300 
(1)The 2020 amounts include beginning restricted cash of $28 million at December 31, 2019, and ending restricted cash of $13 million at September 30, 2020, which we present in the “Prepaid expenses and other” and “Other noncurrent assets” captions of our Balance Sheets.
See Notes to Condensed Consolidated Financial Statements.
6

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The condensed 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 (i) our Condensed Consolidated Financial Statements as our “Financial Statements,” (ii) our Condensed Consolidated Statements of Income as our “Income Statements,” (iii) our Condensed Consolidated Balance Sheets as our “Balance Sheets,” (iv) our Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (v) our properties, brands, or markets in the United States (“U.S.”) and Canada as “North America” or “North American,” and (vi) our properties, brands, or markets in our Caribbean and Latin America region, Europe, Middle East and Africa segment, and Asia Pacific segment, as “International.” In addition, references throughout to numbered “Notes” refer to these Notes to Condensed Consolidated Financial Statements, unless otherwise stated.
These Financial Statements have not been audited. We have condensed or omitted certain information and disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements in this report should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”). Certain terms not otherwise defined in this Form 10-Q have the meanings specified in our 2019 Form 10-K.
Preparation of financial statements that conform with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. The uncertainty created by the coronavirus and efforts to contain it (“COVID-19”) has made such estimates more difficult and subjective. Accordingly, ultimate results could differ from those estimates.
The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of September 30, 2020 and December 31, 2019, the results of our operations for the three and nine months ended September 30, 2020 and September 30, 2019, and cash flows for the nine months ended September 30, 2020 and September 30, 2019. Interim results may not be indicative of fiscal year performance because of seasonal and short-term variations, as well as the impact of COVID-19. We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements.

New Accounting Standards Adopted
Accounting Standards Update (“ASU”) No. 2016-13 - “Financial Instruments-Credit Losses” (Topic 326).
ASU 2016-13 requires the use of an impairment methodology that reflects an estimate of expected credit losses, measured over the contractual life of an instrument, based on information about past events, current conditions, and forecasts of future economic conditions. We adopted ASU 2016-13 in the 2020 first quarter using the modified retrospective transition method. Upon adoption, we increased our allowance for credit losses in the “Accounts and notes receivable, net” caption of our Balance Sheets by $19 million, from $82 million at December 31, 2019 to $101 million at January 1, 2020. We also recorded a $4 million decrease in the “Deferred tax liabilities” caption of our Balance Sheets and a $15 million cumulative-effect adjustment to retained earnings on our Balance Sheets.
Additionally, we recorded a provision for credit losses of $122 million in the 2020 first three quarters, primarily due to the negative economic impact caused by COVID-19 and our estimate of future economic conditions. The allowance for credit losses was $199 million at September 30, 2020.
7

NOTE 2. 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. In the 2020 first three quarters, we recorded $305 million of restructuring charges for above-property, property-level, and owned and leased properties employee termination benefits, of which we present $46 million in the “Restructuring and merger-related charges” caption and $259 million in the “Reimbursed expenses” caption of our Income Statements. Our North America segment recorded $215 million of the total restructuring charges in the 2020 first three quarters.
In the 2020 first three quarters, we recorded $109 million of global above-property restructuring charges, primarily for employee termination benefits, of which we present $37 million in the “Restructuring and merger-related charges” caption and $72 million in the “Reimbursed expenses” caption of our Income Statements. Our global above-property restructuring activities are currently expected to result in approximately $115 million to $125 million of charges, including amounts already expensed. We expect to substantially complete the programs relating to our above-property organization by year-end 2020.
In the 2020 first three quarters, we recorded $196 million of property-level and owned and leased properties restructuring charges for employee termination benefits, of which we present $9 million in the “Restructuring and merger-related charges” caption and $187 million in the “Reimbursed expenses” caption of our Income Statements. We anticipate additional property-level and owned and leased properties restructuring charges in future quarters.
The following table presents our restructuring reserve activity during the period:
($ in millions) Employee termination costs
Balance at December 31, 2019 $ — 
Charges 305 
Cash payments (82)
Other (6)
Balance at September 30, 2020, classified in “Accrued expense and other” $ 217 
NOTE 3. DISPOSITIONS
In the 2020 first quarter, we sold a North America property for $268 million. We will continue to operate the hotel under a long-term management agreement.
NOTE 4. EARNINGS PER SHARE
The table below presents the reconciliation of the earnings and number of shares used in our calculations of basic and diluted earnings per share:
Three Months Ended Nine Months Ended
(in millions, except per share amounts) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Computation of Basic Earnings Per Share
Net income (loss) $ 100  $ 387  $ (103) $ 994 
Shares for basic earnings (loss) per share 325.9  329.9  325.7  334.4 
Basic earnings (loss) per share $ 0.31  $ 1.17  $ (0.32) $ 2.97 
Computation of Diluted Earnings (Loss) Per Share
Net income (loss) $ 100  $ 387  $ (103) $ 994 
Shares for basic earnings (loss) per share 325.9  329.9  325.7  334.4 
Effect of dilutive securities
Share-based compensation (1)
0.9  2.6  —  2.8 
Shares for diluted earnings (loss) per share 326.8  332.5  325.7  337.2 
Diluted earnings (loss) per share $ 0.31  $ 1.16  $ (0.32) $ 2.95 
(1) For the calculation of diluted loss per share for the nine months ended September 30, 2020, we excluded share-based compensation securities of 1.2 million because the effect was anti-dilutive.
8

NOTE 5. SHARE-BASED COMPENSATION
We granted 3.4 million restricted stock units (“RSUs”) during the 2020 first three quarters to certain officers and key employees, and those units vest generally over four years in equal annual installments commencing one year after the grant date. We also granted 0.1 million performance-based RSUs (“PSUs”) in the 2020 first three quarters to certain executive officers, which are earned, subject to continued employment and the satisfaction of certain performance conditions based on achievement of pre-established targets for gross room openings, active Marriott Bonvoy™ loyalty member growth, and adjusted operating income growth over, or at the end of, a three-year performance period. RSUs, including PSUs, granted in the 2020 first three quarters had a weighted average grant-date fair value of $101 per unit.
We recorded share-based compensation expense for RSUs and PSUs of $49 million in the 2020 third quarter and $44 million in the 2019 third quarter, $134 million in the 2020 first three quarters, and $130 million in the 2019 first three quarters. Deferred compensation costs for unvested awards for RSUs and PSUs totaled $372 million at September 30, 2020 and $176 million at December 31, 2019.
NOTE 6. INCOME TAXES
Our effective tax rate was 21.6 percent for the 2020 third quarter compared to 26.4 percent for the 2019 third quarter. The decrease in our effective tax rate was primarily due to the reduction of the accrual for the ICO fine described in Note 7, which had no tax impact.
Our effective tax rate was a benefit of 32.0 percent for the 2020 first three quarters compared to a provision of 21.9 percent for the 2019 first three quarters. The change in our effective tax rate was primarily due to a more favorable impact from stock based compensation, which was partially offset by an unfavorable impact from uncertain tax positions.
We paid cash for income taxes, net of refunds, of $240 million in the 2020 first three quarters and $376 million in the 2019 first three quarters.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Guarantees
We present the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for our debt service, operating profit, and other guarantees (excluding contingent purchase obligations) for which we are the primary obligor at September 30, 2020 in the following table:
($ in millions)
Guarantee Type
Maximum Potential Amount of Future Fundings Recorded Liability for Guarantees
Debt service $ 53  $
Operating profit 183  107 
Other 18 
$ 254  $ 117 

Our maximum potential guarantees listed in the preceding table include $79 million of guarantees that will not be in effect until the underlying properties open and we begin to operate the properties or certain other events occur.
Contingent Purchase Obligation
Sheraton Grand Chicago. We granted the owner a one-time right, exercisable in 2022, to require us to purchase the leasehold interest in the land and the hotel for $300 million in cash (the “put option”). If the owner exercises the put option, we have the option to purchase, at the same time the put transaction closes, the fee simple interest in the underlying land for an additional $200 million in cash. We accounted for the put option as a guarantee, and our recorded liability at September 30, 2020 was $57 million.
9

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 the 2020 third quarter, we recorded a $35 million net reversal of expenses and $4 million of accrued insurance recoveries, and in the 2019 third quarter, we recorded $6 million of expenses and $9 million of accrued insurance recoveries, related to the Data Security Incident. In the 2020 first three quarters, we recorded a $17 million net reversal of expenses and $24 million of accrued insurance recoveries, and in the 2019 first three quarters, we recorded $198 million of expenses and $77 million of accrued insurance recoveries, related to the Data Security Incident. We received insurance recoveries of $1 million in the 2020 third quarter, $6 million in the 2019 third quarter, $45 million in the 2020 first three quarters, and $58 million in the 2019 first three quarters. The net reversal of expenses for the 2020 third quarter and year-to-date is primarily due to the reduction of the accrual for the ICO fine further described below. We recognize insurance recoveries when they are probable of receipt and present them in our Income Statements in the same caption as the related 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 against us and certain of our current officers and directors on December 1, 2018, 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 MDL proceeding also includes two shareholder derivative complaints that were filed on February 26, 2019 and March 15, 2019, respectively, against the Company, certain of its officers and certain current and former members of our Board of 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. A separate shareholder derivative complaint was filed in the Delaware Court of Chancery on December 3, 2019 against the Company and certain of its officers and certain current and former members of our Board of Directors, alleging claims and seeking relief generally similar to the claims made and relief sought in the other two derivative cases. This case will not be consolidated with the MDL proceeding. We dispute the allegations in the lawsuits described above and are vigorously defending against such claims. We have filed motions to dismiss in each of these cases, some of which have been denied, but the cases generally remain at an early stage. There has been some consolidation of the Canadian cases, with five cases now pending across five provinces, and we expect there could be further consolidation in the future. In April 2019, we received a letter purportedly on behalf of a shareholder of the Company (also one of the named plaintiffs in the putative securities class action described above) demanding that our Board of Directors take action against the Company’s current and certain former officers and directors to recover damages for alleged breaches of fiduciary duties and related claims
10

arising from the Data Security Incident. The Board of Directors has constituted a demand review committee to investigate the claims made in the demand letter, and the committee has retained independent counsel to assist with the investigation. The committee’s investigation is ongoing. In addition, on August 18, 2020, a purported representative action was brought against us in the High Court of Justice for England and Wales on behalf of an alleged claimant class of English and Welsh residents alleging breaches of the General Data Protection Regulation and/or the U.K. Data Protection Act 2018 (the “U.K. DPA”) in connection with the Data Security Incident. We dispute all of the allegations in this purported action and will vigorously defend against any such claims. On November 5, 2020, the court issued an order with the consent of all parties staying this action pending resolution of another case raising similar issues, but not involving the Company, that is pending before the U.K. Supreme Court.
In addition, numerous U.S. federal, U.S. state and foreign governmental authorities 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, these matters generally remain open. In July 2019, the ICO issued a formal notice of intent under the U.K. DPA proposing a fine in the amount of £99 million against the Company in relation to the Data Security Incident. We submitted written responses to the ICO vigorously defending our position and have engaged with the ICO regarding the Data Security Incident and proposed fine. We mutually agreed with the ICO to an extension of the regulatory process until October 30, 2020, and on October 30, 2020 the ICO issued a final decision under the U.K. DPA. The decision includes a fine of £18.4 million. The Company does not intend to appeal the ICO’s decision, but has made no admission of liability in relation to the decision or the underlying allegations. Our accrual for this loss contingency, which we present in the “Accrued expenses and other” caption of our Balance Sheets, was $65 million at December 31, 2019, and $23 million at September 30, 2020.
While we believe it is reasonably possible that we may incur additional losses associated with the above described proceedings and investigations related to the Data Security Incident, it is not possible to estimate the amount of loss or range of loss, if any, in excess of the amounts already incurred that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the current stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues.
NOTE 8. LEASES
The following table presents our future minimum lease payments as of September 30, 2020:
($ in millions) Operating Leases Finance Leases
2020, remaining
$ 50  $
2021 176  13 
2022 171  13 
2023 120  14 
2024 111  14 
Thereafter 602  151 
Total minimum lease payments $ 1,230  $ 208 
Less: Amount representing interest (266) (55)
Present value of minimum lease payments
$ 964  $ 153 
Current (1)
147 
Noncurrent (2)
817  147 
$ 964  $ 153 
(1)Operating leases recorded in the “Accrued expenses and other” and finance leases recorded in the “Current portion of long-term debt” captions of our Balance Sheets.
11

(2)Operating leases recorded in the “Operating lease liabilities” and finance leases recorded in the “Long-term debt” captions of our Balance Sheets.
As of September 30, 2020, we had entered into an agreement that we expect to account for as an operating lease with a 20-year term for our new headquarters office, which is not reflected in our Balance Sheets or in the table above as the lease has not commenced.
We recorded impairment charges for right-of-use assets and property and equipment, including leasehold improvements, of $105 million in the 2020 first three quarters in the “Depreciation, amortization, and other” caption of our Income Statements relating to the impact of COVID-19 on several North America leased hotels. We determined that we may not be able to fully recover the carrying amount of these North America 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.

12

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 the end of the 2020 third quarter and year-end 2019:
At Period End
($ in millions) September 30,
2020
December 31,
2019
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  $ 349 
Series M Notes, interest rate of 3.4%, face amount of $350, matured October 15, 2020
(effective interest rate of 3.6%)
—  349 
Series N Notes, interest rate of 3.1%, face amount of $400, maturing October 15, 2021
(effective interest rate of 3.4%)
399  398 
Series O Notes, interest rate of 2.9%, face amount of $450, maturing March 1, 2021
(effective interest rate of 3.1%)
450  449 
Series P Notes, interest rate of 3.8%, face amount of $350, maturing October 1, 2025
(effective interest rate of 4.0%)
346  346 
Series Q Notes, interest rate of 2.3%, face amount of $399, maturing January 15, 2022
(effective interest rate of 2.5%)
398  747 
Series R Notes, interest rate of 3.1%, face amount of $750, maturing June 15, 2026
(effective interest rate of 3.3%)
745  744 
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%)
330  332 
Series W Notes, interest rate of 4.5%, face amount of $278, maturing October 1, 2034
(effective interest rate of 4.1%)
291  291 
Series X Notes, interest rate of 4.0%, face amount of $450, maturing April 15, 2028
(effective interest rate of 4.2%)
444  444 
Series Y Notes, floating rate, face amount of $550, maturing December 1, 2020
(effective interest rate of 0.8% at September 30, 2020)
550  549 
Series Z Notes, interest rate of 4.2%, face amount of $350, maturing December 1, 2023
(effective interest rate of 4.4%)
348  347 
Series AA Notes, interest rate of 4.7%, face amount of $300, maturing December 1, 2028
(effective interest rate of 4.8%)
297  297 
Series BB Notes, floating rate, face amount of $300, maturing March 8, 2021
(effective interest rate of 0.9% at September 30, 2020)
300  299 
Series CC Notes, interest rate of 3.6%, face amount of $550, maturing April 15, 2024
(effective interest rate of 3.9%)
590  564 
Series DD Notes, interest rate of 2.1%, face amount of $224, maturing October 3, 2022
(effective interest rate of 1.2%)
229  543 
Series EE Notes, interest rate of 5.8%, face amount of $1,600, maturing May 1, 2025
(effective interest rate of 6.0%)
1,582  — 
Series FF Notes, interest rate of 4.6%, face amount of $1,000, maturing June 15, 2030
(effective interest rate of 4.8%)
985  — 
Series GG Notes, interest rate of 3.5%, face amount of $1,000, maturing October 15, 2032
(effective interest rate of 3.7%)
984  — 
Commercial paper 30  3,197 
Credit Facility 900  — 
Finance lease obligations 153  157 
Other 180  247 
$ 10,995  $ 10,940 
Less current portion (1,316) (977)
$ 9,679  $ 9,963 
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We paid cash for interest, net of amounts capitalized, of $234 million in the 2020 first three quarters and $247 million in the 2019 first three quarters.
We are party to a multicurrency revolving credit agreement (as amended, the “Credit Facility”) that provides for up to $4.5 billion of aggregate effective borrowings to support our commercial paper program and general corporate needs, including working capital, capital expenditures, letters of credit, and acquisitions. 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 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 the 2020 first three quarters, we made borrowings of $4.5 billion and repayments of $3.6 billion, reducing the total outstanding borrowings under the Credit Facility to $0.9 billion as of September 30, 2020.
In April 2020, we entered into an amendment to the Credit Facility. The amendment waives the quarterly-tested leverage covenant in the Credit Facility through and including the first quarter of 2021 (which waiver period may end sooner at our election), adjusts the required leverage levels for the covenant when it is re-imposed at the end of the waiver period, and imposes a new monthly-tested liquidity covenant for the duration of the waiver period. The amendment also makes certain other amendments to the terms of the Credit Facility, including increasing the interest and fees payable on the Credit Facility for the duration of the period during which the waiver of the leverage covenant remains in effect, tightening certain existing covenants, and imposing additional covenants for the duration of the waiver period. These covenant changes include tightening the lien covenant and the covenant on dividends, share repurchases and distributions, and imposing new covenants limiting asset sales, investments and discretionary capital expenditures.
In April 2020, we issued $1.6 billion aggregate principal amount of 5.750 percent Series EE Notes due May 1, 2025 (the “Series EE Notes”). We will pay interest on the Series EE Notes in May and November of each year, commencing in November 2020. We received net proceeds of approximately $1.581 billion from the offering of the Series EE Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes.
In June 2020, we issued $1.0 billion aggregate principal amount of 4.625 percent Series FF Notes due June 15, 2030 (the “Series FF Notes”). We will pay interest on the Series FF Notes in June and December of each year, commencing in December 2020. We received net proceeds of approximately $985 million from the offering of the Series FF Notes, after deducting the underwriting discount and estimated expenses. We used the majority of these proceeds to repurchase Senior Notes with near term maturities, as further described below.
In June 2020, we completed a tender offer (the “Tender Offer”) and retired $853 million aggregate principal amount of our Senior Notes consisting of:
$351 million of our 2.3% Series Q Notes maturing January 15, 2022;
$176 million of our 3.3% Series L Notes maturing September 15, 2022; and
$326 million of our 2.1% Series DD Notes maturing October 3, 2022.
We used proceeds from our Series FF Notes offering to complete the repurchase of such notes, including the payment of accrued interest and other costs incurred.
In July 2020, we redeemed all $350 million aggregate principal amount of our Series M Notes due in October 2020.
14

In August 2020, we issued $1.0 billion aggregate principal amount of 3.500 percent Series GG Notes due October 15, 2032 (the “Series GG Notes”). We will pay interest on the Series GG Notes in April and October of each year, commencing in April 2021. We received net proceeds of approximately $984 million from the offering of the Series GG Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes, including the repayment of a portion of our outstanding borrowings under the Credit Facility.
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. We present the carrying values and the fair values of noncurrent financial assets and liabilities that qualify as financial instruments, determined under current guidance for disclosures on the fair value of financial instruments, in the following table:
  September 30, 2020 December 31, 2019
($ in millions) Carrying Amount Fair Value Carrying Amount Fair Value
Senior, mezzanine, and other loans $ 154  $ 136  $ 117  $ 112 
Total noncurrent financial assets $ 154  $ 136  $ 117  $ 112 
Senior Notes $ (8,432) $ (8,814) $ (6,441) $ (6,712)
Commercial paper / Credit Facility (930) (930) (3,197) (3,197)
Other long-term debt (170) (172) (174) (179)
Other noncurrent liabilities (160) (160) (196) (196)
Total noncurrent financial liabilities $ (9,692) $ (10,076) $ (10,008) $ (10,284)
The carrying value of our Credit Facility borrowings approximate fair value because they bear interest at a market rate. See Note 13. Fair Value of Financial Instruments and the “Fair Value Measurements” caption of Note 2. Summary of Significant Accounting Policies of our 2019 Form 10-K for more information on the input levels we use in determining fair value.
NOTE 11. ACCUMULATED OTHER COMPREHENSIVE LOSS AND SHAREHOLDERS’ EQUITY
The following tables detail the accumulated other comprehensive loss activity for the 2020 first three quarters and 2019 first three quarters:
($ in millions) Foreign Currency Translation Adjustments Derivative Instrument and Other Adjustments Accumulated Other Comprehensive Loss
Balance at year-end 2019 $ (368) $ $ (361)
Other comprehensive (loss) income before reclassifications (1)
(87) 12  (75)
Reclassification adjustments —  (10) (10)
Net other comprehensive (loss) income
(87) (85)
Balance at September 30, 2020 $ (455) $ $ (446)
($ 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 (loss) before reclassifications (1)
(111) (105)
Reclassification adjustments —  (8) (8)
Net other comprehensive (loss) income
(111) (2) (113)
Balance at September 30, 2019 $ (514) $ 10  $ (504)
(1)Other comprehensive (loss) income before reclassifications for foreign currency translation adjustments includes intra-entity foreign currency transactions that are of a long-term investment nature, which resulted in losses of $21 million for the 2020 first three quarters and gains of $20 million for the 2019 first three quarters.
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The following tables detail the changes in common shares outstanding and shareholders’ (deficit) equity for the 2020 first three quarters and 2019 first three quarters:
(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
324.0  Balance at year-end 2019 $ 703  $ $ 5,800  $ 9,644  $ (14,385) $ (361)
—  Adoption of ASU 2016-13 (15) —  —  (15) —  — 
—  Net income 31  —  —  31  —  — 
—  Other comprehensive loss (378) —  —  —  —  (378)
— 
Dividends ($0.48 per share)
(156) —  —  (156) —  — 
1.2  Share-based compensation plans (55) —  (89) —  34  — 
(1.0) Purchase of treasury stock (150) —  —  —  (150) — 
324.2  Balance at March 31, 2020 (20) 5,711  9,504  (14,501) (739)
—  Net loss (234) —  —  (234) —  — 
—  Other comprehensive income 131  —  —  —  —  131 
0.1  Share-based compensation plans 44  —  42  —  — 
324.3  Balance at June 30, 2020 (79) 5,753  9,270  (14,499) (608)
—  Net income 100  —  —  100  —  — 
—  Other comprehensive income 162  —  —  —  —  162 
—  Share-based compensation plans 46  —  45  —  — 
324.3  Balance at September 30, 2020 $ 229  $ $ 5,798  $ 9,370  $ (14,498) $ (446)
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 year-end 2018 (as adjusted) $ 2,225  $ $ 5,814  $ 8,982  $ (12,185) $ (391)
—  Adoption of ASU 2016-02 —  —  —  — 
—  Net income 375  —  —  375  —  — 
—  Other comprehensive income 31  —  —  —  —  31 
— 
Dividends ($0.41 per share)
(139) —  —  (139) —  — 
1.7  Share-based compensation plans (62) —  (108) —  46  — 
(6.7) Purchase of treasury stock (828) —  —  —  (828) — 
334.1  Balance at March 31, 2019 1,603  5,706  9,219  (12,967) (360)
—  Net income 232  —  —  232  —  — 
—  Other comprehensive income 34  —  —  —  —  34 
— 
Dividends ($0.48 per share)
(159) —  —  (159) —  — 
0.2  Share-based compensation plans 30  —  23  —  — 
(3.7) Purchase of treasury stock (500) —  —  —  (500) — 
330.6  Balance at June 30, 2019 1,240  5,729  9,292  (13,460) (326)
—  Net income 387  —  —  387  —  — 
—  Other comprehensive loss (178) —  —  —  —  (178)
— 
Dividends ($0.48 per share)
(157) —  —  (157) —  — 
0.1  Share-based compensation plans 46  —  44  —  — 
(3.8) Purchase of treasury stock (500) —  —  —  (500) — 
326.9  Balance at September 30, 2019 $ 838  $ $ 5,773  $ 9,522  $ (13,958) $ (504)
16

NOTE 12. CONTRACTS WITH CUSTOMERS
Our current and noncurrent Loyalty Program liability increased by $439 million, to $6,157 million at September 30, 2020, from $5,718 million at December 31, 2019, primarily reflecting an increase in points earned by members, partially offset by $823 million of revenue recognized in the 2020 first three quarters, that was deferred as of December 31, 2019. The current portion of our Loyalty Program liability decreased compared to December 31, 2019 due to lower estimated redemptions in the short-term as a result of COVID-19.
In May 2020, we signed amendments to the existing agreements for our U.S.-issued co-brand credit cards associated with our Loyalty Program. These amendments provided the Company with $920 million of cash from the prepayment of certain future revenues, the early payment of a previously committed signing bonus, and the pre-purchase of Marriott Bonvoy points and other consideration. We recorded the amount of cash received primarily in the deferred revenue caption, and the remainder in the liability for guest loyalty program captions, on our Balance Sheet. We recognize revenue related to the license of our intellectual property as the credit cards are used and revenue related to the points and free night certificates as the points and free night certificates are redeemed. See the “Loyalty Program” caption of Note 2 of our 2019 Form 10-K for more information on our performance obligations.
NOTE 13. BUSINESS SEGMENTS
Beginning in the 2020 first quarter, we modified our segment structure due to a change in the way management evaluates results and allocates resources within the Company, resulting in the following operating segments: North America; Asia Pacific; Europe, Middle East and Africa (“EMEA”); and Caribbean and Latin America (“CALA”). Our CALA operating segment does not meet the applicable accounting criteria for separate disclosure as a reportable business segment. 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 above-property restructuring charges. We assign gains and losses, equity in earnings or losses from our joint ventures, 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, 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 as well as results of our CALA operating segment.
Our President and Chief Executive Officer, who is 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 tables present our revenues disaggregated by segment and major revenue stream for the 2020 third quarter, 2019 third quarter, 2020 first three quarters, and 2019 first three quarters:
Three Months Ended September 30, 2020
($ in millions) North America Asia Pacific EMEA Total
Gross fee revenues $ 201  $ 55  $ 27  $ 283 
Contract investment amortization (43) (1) (3) (47)
Net fee revenues 158  54  24  236 
Owned, leased, and other revenue 36  22  26  84 
Cost reimbursement revenue
1,392  81  112  1,585 
Total reportable segment revenue $ 1,586  $ 157  $ 162  $ 1,905 
Unallocated corporate and other
349 
Total revenue
$ 2,254 
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Three Months Ended September 30, 2019
($ in millions) North America Asia Pacific EMEA Total
Gross fee revenues $ 570  $ 114  $ 113  $ 797 
Contract investment amortization (13) (1) (2) (16)
Net fee revenues 557  113  111  781 
Owned, leased, and other revenue 171  39  142  352 
Cost reimbursement revenue
3,440  133  247  3,820 
Total reportable segment revenue $ 4,168  $ 285  $ 500  $ 4,953 
Unallocated corporate and other
331 
Total revenue
$ 5,284 
Nine Months Ended September 30, 2020
($ in millions) North America Asia Pacific EMEA Total
Gross fee revenues $ 720  $ 112  $ 81  $ 913 
Contract investment amortization (76) (6) (9) (91)
Net fee revenues 644  106  72  822 
Owned, leased, and other revenue 155  60  126  341 
Cost reimbursement revenue
5,686  246  395  6,327 
Total reportable segment revenue $ 6,485  $ 412  $ 593  $ 7,490 
Unallocated corporate and other
909 
Total revenue
$ 8,399 
Nine Months Ended September 30, 2019
($ in millions) North America Asia Pacific EMEA Total
Gross fee revenues $ 1,711  $ 344  $ 306  $ 2,361 
Contract investment amortization (35) (2) (6) (43)
Net fee revenues 1,676  342  300  2,318 
Owned, leased, and other revenue 534  130  408  1,072 
Cost reimbursement revenue
10,336  393  721  11,450 
Total reportable segment revenue $ 12,546  $ 865  $ 1,429  $ 14,840 
Unallocated corporate and other
761 
Total revenue
$ 15,601 
Segment Profits and Losses
Three Months Ended Nine Months Ended
($ in millions) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
North America $ 66  $ 493  $ 188  $ 1,575 
Asia Pacific 32  81  (19) 276 
EMEA (21) 98  (154) 251 
Unallocated corporate and other
157  (53) 146  (550)
Interest expense, net of interest income (107) (92) (313) (279)
(Provision) benefit for income taxes (27) (140) 49  (279)
Net income (loss) $ 100  $ 387  $ (103) $ 994 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 expected effects on our business of COVID-19, including the performance of the Company’s hotels; RevPAR and occupancy trends and expectations; the nature and impact of contingency plans, restructuring plans and cost reduction plans; rooms growth; our liquidity expectations; 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,” 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 location and extent of resurgences of the virus and the availability of effective treatments or vaccines; its short and longer-term impact on the demand for travel, transient and group business, and levels of consumer confidence; actions governments, businesses and individuals have taken or may take in response to the pandemic, including limiting or banning travel and/or in-person gatherings or imposing occupancy or other restrictions on lodging or other facilities; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies, travel, and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; the ability of our owners and franchisees to successfully navigate the impacts of COVID-19; the pace of recovery when the pandemic subsides or effective treatments or vaccines become available; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the effects of steps we and our property owners and franchisees 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 implemented during portions of 2020, our voluntary transition program and our other restructuring activities; competitive conditions in the lodging industry; relationships with clients 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. In addition, see the “Item 1A. Risk Factors” caption in the “Part II-OTHER INFORMATION” section of this report.
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 under the “Item 1A. Risk Factors” caption in the “Part II-OTHER INFORMATION” section of this report, which in turn could materially adversely affect our business, financial condition, liquidity, results of operations (including revenues and profitability) and/or stock price. 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 30 brands at the end of the 2020 third quarter. Under our asset-light business model, we typically manage or franchise hotels, rather than own them. We discuss our operations in the following reportable business segments: North
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America; Asia Pacific; and Europe, Middle East and Africa (“EMEA”). Our Caribbean and Latin America (“CALA”) operating segment does not meet the criteria for separate disclosure as a reportable segment.
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 and in the Asia Pacific region, incentive management fees typically consist of a percentage of gross operating profit without adjustment for a specified owner return. Net house profit is calculated as gross operating profit (also referred to as “house profit”) 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.
In July 2019, the ICO issued a formal notice of intent under the U.K. Data Protection Act 2018 (the “U.K. DPA”) proposing a fine in the amount of £99 million against the Company in relation to the Data Security Incident. We mutually agreed with the ICO to an extension of the regulatory process until October 30, 2020, and on October 30, 2020 the ICO issued a final decision under the U.K. DPA. The decision includes a fine of £18.4 million. The Company does not intend to appeal the ICO’s decision, but has made no admission of liability in relation to the decision or the underlying allegations. In the 2019 second quarter, we recorded an accrual for this loss contingency in the full amount of the fine initially proposed by the ICO in July 2019, which we recorded in the “Accrued expenses and other” caption of our Balance Sheets and in the “Restructuring and merger-related charges” caption of our Income Statements, and we subsequently reduced the accrual to $65 million at December 31, 2019, based on the ongoing proceeding, and further reduced the accrual to $23 million at September 30, 2020 based on the ICO’s issuance of the final decision. See Note 7 for additional information.
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. As we expected, the cost of such insurance again increased for our current policy period, and the cost of such insurance could continue to increase for future policy periods. We expect to incur significant expenses associated with the Data Security Incident in future periods, primarily related to legal proceedings and regulatory investigations (including possible additional fines and penalties), increased expenses and capital investments for information technology and information security and data privacy, and increased expenses for compliance activities and to meet increased legal and regulatory requirements. See Note 7 for information related to expenses incurred in the 2020 third quarter and 2020 first three quarters, 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),
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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 year period are on a constant U.S. dollar basis. We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period.
We define our comparable properties as our properties that were open and operating under one of our brands since the beginning of the last full calendar year (since January 1, 2019 for the current period) and have not, in either the current or previous year: (i) undergone significant room or public space renovations or expansions, (ii) been converted between company-operated and franchised, or (iii) sustained substantial property damage or business interruption, with the exception of properties closed or otherwise experiencing interruptions related to COVID-19, which we continue to classify as comparable.
Impact of COVID-19
COVID-19, which first impacted our business in Greater China beginning in January 2020, continues to have a material impact on our business, our company, and our industry. This impact started in Greater China, moved quickly into the rest of Asia Pacific and the European markets, and spread globally by March 2020. As the pandemic accelerated around the world, worldwide comparable systemwide constant dollar RevPAR fell sharply. As a result, our fee revenue and revenue from owned and leased properties declined significantly during the 2020 first three quarters, and we expect year-over-year declines to continue for the remainder of 2020. We expect that prior levels of business will not return until at least after 2021.
Although conditions remain volatile around the world, global occupancy levels and RevPAR continued to improve through the 2020 third quarter compared to the extremely low levels reached in April 2020. However, the pace of recovery generally began to plateau towards the end of the third quarter in most regions, and this flattening of demand has continued into the first few weeks of the fourth quarter. Worldwide comparable systemwide constant dollar RevPAR declined 23 percent in the 2020 first quarter, 84 percent in the 2020 second quarter, and 66 percent in the 2020 third quarter (with declines of 70 percent in July, 63 percent in August, and 64 percent in September), compared to the same periods in 2019. Worldwide, approximately 6 percent of our hotels were closed as of November 4, 2020, compared to 25 percent as of May 8, 2020. However, this progress is uneven. Recent increases in COVID-19 cases in many parts of the world have constrained the speed of recovery and could continue to have a dampening impact on demand. Demand is still being primarily driven by leisure travelers, and we have not seen meaningful demand return from business and group travelers.
Of our geographic regions, Greater China experienced the greatest improvement in demand compared to the 2020 second quarter, driven by domestic leisure travel, while demand in the rest of Asia Pacific has generally improved at a much slower pace. In our Europe, Middle East, and Africa region, leisure demand drove RevPAR improvements in the 2020 third quarter compared to the 2020 second quarter, though increases in COVID-19 cases in Europe and resulting increases in government restrictions began anew in September 2020, which may negatively impact the recovery in the 2020 fourth quarter. In North America, demand continued to improve through the 2020 third quarter, primarily driven by leisure travel and by travelers within driving range of their destinations, though the pace of improvement has moderated more recently.
We continue to take substantial measures to mitigate the negative financial and operational impacts for our hotel owners and our own business. Business contingency plans have been implemented around the world, and we continue to adjust these in response to the global situation. At the corporate level, our actions to date have substantially reduced the current monthly run rate of corporate general and administrative costs compared to the monthly costs initially budgeted for 2020, excluding our provision for credit losses. We reduced spending on capital expenditures and other investments, and as previously announced, we suspended share repurchases and cash dividends.
We have taken a number of steps to adapt our organization in response to the decline in lodging demand caused by COVID-19 and our expectation that it will be some time before lodging demand and RevPAR levels recover. We implemented temporary furloughs and reduced work week schedules for above-property associates, most of which ended in September 2020. As part of the realignment of our above-property organization, we
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implemented a voluntary transition program for certain associates, and we eliminated a significant number of above-property positions. We have implemented and are continuing to develop restructuring plans to achieve cost savings specific to each of our company-operated properties. See Note 2 for more information about our restructuring activities.
At the property level, we continue to work with owners and franchisees to lower their cash outlays. The steps we have taken to date include deferring renovations, certain hotel initiatives and brand standard audits for hotel owners and franchisees; reducing the amount of certain charges for systemwide programs and services; offering a delay in payment terms for certain charges in the 2020 second quarter; and supporting owners and franchisees who are working with their lenders to utilize furniture, fixtures, and equipment (FF&E) reserves to meet working capital needs. We have significantly lowered the reimbursed expenses we incur on behalf of our owners and franchisees to provide centralized programs and services such as the Loyalty Program, reservations, marketing and sales, which we generally collect through cost reimbursement revenue on the basis of hotel revenue or program usage. In the 2020 fourth quarter, we received an Employee Retention Tax Credit refund from the U.S. Treasury of $119 million under the Coronavirus Aid, Relief, and Economic Security Act, nearly 80 percent of which relates to hotels that we manage on behalf of owners. Accordingly, we expect to pass $94 million of this credit through to the hotels in the 2020 fourth quarter.
The impact of COVID-19 on the Company remains dynamic, as does our corporate and property-level response, and we expect to continue to assess and may implement additional measures to adapt our operations and plans as we evaluate the implications of COVID-19 on our business. We expect the impact of COVID-19 to be material until at least beyond 2021. The overall operational and financial impact is highly dependent on the breadth and duration of COVID-19, including the location and extent of resurgences of the virus and the availability of effective treatments or vaccines, and could be affected by other factors we are not currently able to predict.
System Growth and Pipeline
At the end of the 2020 third quarter, our system had 7,579 properties (1,413,654 rooms), compared to 7,349 properties (1,380,921 rooms) at year-end 2019 and 7,205 properties (1,361,912 rooms) at the end of the 2019 third quarter. COVID-19 will likely result in significantly lower new room additions than we had budgeted for 2020 and has negatively impacted the number of new contract signings. We currently expect net rooms growth of 2.5 to 3 percent for full year 2020.
At the end of the 2020 third quarter, we had more than 496,000 rooms in our development pipeline, which includes hotel rooms under construction, hotel rooms under signed contracts, and roughly 25,000 hotel rooms approved for development but not yet under signed contracts. Approximately 228,000 rooms in our development pipeline were under construction at the end of the 2020 third quarter. Over half of the rooms in our development pipeline are outside North America.
Properties and Rooms
At September 30, 2020, we operated, franchised, and licensed the following properties and rooms:
  Managed Franchised/Licensed Owned/Leased Total
Properties Rooms Properties Rooms Properties Rooms Properties Rooms
North America 808  243,078  4,667  670,721  26  6,483  5,501  920,282 
Asia Pacific 675  193,989  136  35,857  407  813  230,253 
EMEA 492  109,695  396  71,483  25  5,738  913  186,916 
CALA 117  23,013  131  27,419  13  3,016  261  53,448 
Timeshare —  —  91  22,755  —  —  91  22,755 
Total 2,092  569,775  5,421  828,235  66  15,644  7,579  1,413,654 
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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.
Three Months Ended September 30, 2020 and Change vs. Three Months Ended September 30, 2019
RevPAR Occupancy Average Daily Rate
2020 vs. 2019 2020 vs. 2019 2020 vs. 2019
Comparable Company-Operated Properties
North America $ 33.78  (78.0) % 22.9  % (55.3) % pts. $ 147.65  (24.9) %
Asia Pacific $ 47.18  (52.4) % 45.0  % (28.7) % pts. $ 104.83  (22.1) %
CALA $ 22.15  (78.2) % 16.7  % (44.8) % pts. $ 132.54  (19.9) %
Europe $ 33.34  (81.9) % 18.0  % (62.5) % pts. $ 185.36  (19.1) %
Middle East & Africa $ 34.17  (61.6) % 25.8  % (40.0) % pts. $ 132.30  (2.0) %
EMEA (1)
$ 33.70  (76.4) % 21.4  % (52.7) % pts. $ 157.39  (18.3) %
International - All (2)
$ 39.97  (65.7) % 33.6  % (39.3) % pts. $ 118.96  (25.5) %
Worldwide (3)
$ 37.09  (72.2) % 28.6  % (46.7) % pts. $ 129.61  (26.9) %
Comparable Systemwide Properties
North America $ 42.85  (65.4) % 37.0  % (40.3) % pts. $ 115.82  (27.6) %
Asia Pacific $ 46.80  (53.8) % 42.9  % (30.5) % pts. $ 109.17  (21.0) %
CALA $ 15.61  (82.0) % 14.7  % (45.0) % pts. $ 106.24  (26.8) %
Europe $ 34.36  (78.6) % 20.8  % (58.7) % pts. $ 165.11  (18.0) %
Middle East & Africa $ 31.93  (62.4) % 25.3  % (40.7) % pts. $ 126.03  (2.1) %
EMEA (1)
$ 33.60  (75.4) % 22.2  % (53.1) % pts. $ 151.10  (16.7) %
International - All (2)
$ 37.42  (67.4) % 30.7  % (41.9) % pts. $ 122.06  (22.8) %
Worldwide (3)
$ 41.24  (65.9) % 35.1  % (40.8) % pts. $ 117.44  (26.4) %
Nine Months Ended September 30, 2020 and Change vs. Nine Months Ended September 30, 2019
RevPAR Occupancy Average Daily Rate
2020 vs. 2019 2020 vs. 2019 2020 vs. 2019
Comparable Company-Operated Properties
North America $ 54.93  (64.8) % 29.8  % (46.8) % pts. $ 184.08  (9.7) %
Asia Pacific $ 42.30  (56.8) % 36.4  % (34.1) % pts. $ 116.34  (16.2) %
CALA $ 53.66  (57.8) % 25.7  % (38.0) % pts. $ 208.81  4.4  %
Europe $ 39.95  (73.9) % 22.9  % (51.7) % pts. $ 174.44  (15.1) %
Middle East & Africa $ 48.31  (50.5) % 34.2  % (32.0) % pts. $ 141.20  (4.2) %
EMEA (1)
$ 43.62  (66.1) % 27.9  % (43.0) % pts. $ 156.53  (13.8) %
International - All (2)
$ 43.71  (61.0) % 32.2  % (37.9) % pts. $ 135.63  (15.2) %
Worldwide (3)
$ 48.91  (63.1) % 31.1  % (42.0) % pts. $ 157.20  (13.3) %
Comparable Systemwide Properties
North America $ 51.16  (57.7) % 37.8  % (37.0) % pts. $ 135.36  (16.3) %
Asia Pacific $ 42.60  (57.1) % 35.7  % (34.7) % pts. $ 119.45  (15.3) %
CALA $ 41.44  (60.9) % 24.2  % (37.7) % pts. $ 171.10  —  %
Europe $ 37.10  (72.0) % 23.9  % (49.3) % pts. $ 155.31  (14.2) %
Middle East & Africa $ 45.63  (51.0) % 33.6  % (32.4) % pts. $ 135.90  (3.6) %
EMEA (1)
$ 39.80  (66.9) % 27.0  % (44.0) % pts. $ 147.66  (12.8) %
International - All (2)
$ 41.27  (62.1) % 30.6  % (39.0) % pts. $ 134.98  (13.8) %
Worldwide (3)
$ 48.23  (59.0) % 35.7  % (37.6) % pts. $ 135.27  (15.6) %
(1)Includes Europe and Middle East & Africa.
(2)Includes Asia Pacific, CALA, and EMEA.
(3)Includes North America and International - All.
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CONSOLIDATED RESULTS
Our results declined in the 2020 third quarter and the 2020 first three quarters compared to 2019, primarily due to the impact of COVID-19. See the “Impact of COVID-19” section above for more information about the impact to our business during the 2020 first three quarters and to date, and the discussion below for additional analysis of our consolidated results of operations for the 2020 third quarter compared to the 2019 third quarter and for the 2020 first three quarters compared to the 2019 first three quarters.
Fee Revenues
Three Months Ended Nine Months Ended
($ in millions) September 30, 2020 September 30, 2019 Change 2020 vs. 2019 September 30, 2020 September 30, 2019 Change 2020 vs. 2019
Base management fees $ 87  $ 291  $ (204) (70) % $ 341  $ 882  $ (541) (61) %
Franchise fees 279  530  (251) (47) % 876  1,505  (629) (42) %
Incentive management fees 31  134  (103) (77) % 43  462  (419) (91) %
Gross fee revenues 397  955  (558) (58) % 1,260  2,849  (1,589) (56) %
Contract investment amortization (48) (16) 32  200  % (94) (45) 49  109  %
Net fee revenues $ 349  $ 939  $ (590) (63) % $ 1,166  $ 2,804  $ (1,638) (58) %
The decreases in base management and franchise fees primarily reflected lower RevPAR and lower co-brand credit card fees of $22 million in the 2020 third quarter and $64 million in the 2020 first three quarters due to COVID-19.
The decreases in incentive management fees were primarily due to COVID-19. In the 2020 first quarter, we did not recognize incentive management fees. In the 2020 second and third quarters, we recognized incentive management fees from certain hotels, primarily in Asia Pacific, for which we estimate that a reversal of such fees is not probable.
Contract investment amortization increased primarily due to higher impairments of investments in management and franchise contracts ($30 million in the 2020 third quarter and $42 million in the 2020 first three quarters).
Owned, Leased, and Other
Three Months Ended Nine Months Ended
($ in millions) September 30, 2020 September 30, 2019 Change 2020 vs. 2019 September 30, 2020 September 30, 2019 Change 2020 vs. 2019
Owned, leased, and other revenue $ 116  $ 393  $ (277) (70) % $ 445  $ 1,186  $ (741) (62) %
Owned, leased, and other - direct expenses 134  326  (192) (59) % 527  982  (455) (46) %
$ (18) $ 67  $ (85) (127) % $ (82) $ 204  $ (286) (140) %
Owned, leased, and other revenue, net of direct expenses decreased primarily due to lower demand at and the temporary closure of certain of our owned and leased hotels due to COVID-19, as well as lower owned and leased profits attributable to hotels sold in the 2019 fourth and 2020 first quarters ($16 million for the 2020 first three quarters).

Cost Reimbursements
Three Months Ended Nine Months Ended
($ in millions) September 30, 2020 September 30, 2019 Change 2020 vs. 2019 September 30, 2020 September 30, 2019 Change 2020 vs. 2019
Cost reimbursement revenue $ 1,789  $ 3,952  $ (2,163) (55) % $ 6,788  $ 11,611  $ (4,823) (42) %
Reimbursed expenses 1,683  4,070  (2,387) (59) % 6,801  12,069  (5,268) (44) %
$ 106  $ (118) $ 224  190  % $ (13) $ (458) $ 445  97  %
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Cost reimbursement revenue, net of reimbursed expenses, varies due to timing differences between the costs we incur for centralized programs and services and the related reimbursements we receive from hotel owners and franchisees. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively.
The change in cost reimbursements (cost reimbursement revenue, net of reimbursed expenses) in the 2020 third quarter and the 2020 first three quarters primarily reflects the performance of the Loyalty Program, which had lower program expenses and redemptions. The change in the 2020 first three quarters was partially offset by lower revenues, net of expenses, for our reservations and marketing activities.
Other Operating Expenses
Three Months Ended Nine Months Ended
($ in millions) September 30, 2020 September 30, 2019 Change 2020 vs. 2019 September 30, 2020 September 30, 2019 Change 2020 vs. 2019
Depreciation, amortization, and other $ 53  $ 52  $ % $ 275  $ 162  $ 113  70  %
General, administrative, and other 131  220  (89) (40) % 579  671  (92) (14) %
Restructuring and merger-related charges (8) (89) % 191  (186) (97) %
Depreciation, amortization, and other expenses increased in the 2020 first three quarters primarily due to operating lease impairment charges recorded in the 2020 first and second quarters, which we discuss in Note 8.
General, administrative, and other expenses decreased primarily due to lower administrative costs due to our cost reduction measures. The decrease in the 2020 first three quarters was partially offset by a higher provision for credit losses and higher guarantee reserves primarily due to the negative current and expected economic impact of COVID-19 ($113 million).
Restructuring and merger-related charges decreased slightly in the 2020 third quarter with the reduction of the accrual for the ICO fine discussed in Note 7 ($39 million reversal of expense) being offset by $40 million of restructuring charges recorded in the 2020 third quarter.
Restructuring and merger-related charges decreased in the 2020 first three quarters primarily due to the ICO fine discussed in Note 7 ($165 million, representing the 2019 second quarter accrual and the 2020 third quarter reversal), the 2019 second quarter impairment charge of a legacy-Starwood office building ($34 million), and lower integration costs ($19 million). The decrease was partially offset by $46 million of restructuring charges recorded in the 2020 first three quarters.
Non-Operating Income (Expense)
Three Months Ended Nine Months Ended
($ in millions) September 30, 2020 September 30, 2019 Change 2020 vs. 2019 September 30, 2020 September 30, 2019 Change 2020 vs. 2019
Gains and other income, net $ $ 10  $ (8) (80) % $ $ 16  $ (13) (81) %
Interest expense (113) (100) 13  13  % (333) (299) 34  11  %
Interest income (2) (25) % 20  20  —  —  %
Equity in (losses) earnings (20) (22) (1,100) % (54) 10  (64) (640) %
Interest expense increased, primarily due to higher interest on Senior Note issuances, net of maturities ($34 million in the 2020 third quarter and $59 million in the 2020 first three quarters), partially offset by lower interest on commercial paper ($13 million in the 2020 third quarter and $14 million in the 2020 first three quarters).
Equity in earnings decreased, primarily due to losses as a result of COVID-19.
25

Income Taxes
Three Months Ended Nine Months Ended
($ in millions) September 30, 2020 September 30, 2019 Change 2020 vs. 2019 September 30, 2020