Marriott International, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020, with unaudited quarterly results. Marriott operates, franchises, and licenses hotels and related properties, primarily under an asset-light model. COVID-19 sharply curtailed global travel and materially affected results.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $10.571 billion | $20.972 billion |
| Operating income | $84 million | $1.800 billion |
| Operating margin | 0.8% | 8.6% |
| Net income (loss) | $(267) million | $1.273 billion |
| Diluted EPS | $(0.82) | $3.80 |
| Net cash from operations | $1.639 billion | $1.685 billion |
| Capital and technology expenditures | $135 million | $653 million |
| Cash, cash equivalents, and restricted cash | $894 million | $253 million |
| Total debt | $10.376 billion | $10.940 billion |
| Stockholders' equity | $430 million | $703 million |
Revenue includes cost-reimbursement revenue and matching reimbursed expenses, which are generally intended to have limited long-term effect on Marriott's economics. Gross fee revenue fell 56% to $1.683 billion; net fee revenue fell 59% to $1.551 billion. Owned, leased, and other activities generated a net loss of $109 million, versus net income of $296 million in 2019. The company recorded a $199 million income tax benefit, compared with a $326 million tax provision in 2019.
At year-end, current assets were $2.825 billion and current liabilities were $5.752 billion; the current ratio was 0.5 to 1.0. Long-term debt had a 3.7% weighted-average interest rate and approximately six-year weighted-average maturity. Net operating cash flow was supported by Loyalty Program cash flows, including a significant one-time payment under amended co-brand card agreements.
Material changes versus the prior period
- Worldwide comparable systemwide RevPAR declined 60.2% for 2020; occupancy fell 37.1 percentage points and ADR declined 18.5%. Fourth-quarter RevPAR was down 64% year over year.
- Annual revenue decreased about 50%; operating income fell to $84 million and Marriott reported a net loss. Fourth-quarter revenue was $2.172 billion, operating loss $128 million, and net loss $164 million, compared with 2019 fourth-quarter revenue of $5.371 billion and net income of $279 million.
- Segment profits fell to $198 million in U.S. & Canada and $1 million in Asia Pacific; EMEA recorded a $200 million loss, versus $318 million of profit in 2019.
- The system expanded to 7,642 properties and 1,423,044 rooms, from 7,349 properties and 1,380,921 rooms at year-end 2019. Marriott reported a pipeline of more than 498,000 rooms.
- Marriott raised $3.6 billion in senior notes, drew and repaid amounts under its $4.5 billion credit facility, and retired $853 million of notes. Year-end credit-facility borrowings were $900 million; commercial paper issuance was suspended.
Outlook, risks, and unusual items
- Management said recovery remained uncertain, with demand still primarily leisure-led and no meaningful return in business and group travel. It did not provide earnings or RevPAR guidance. Marriott expected 2021 gross rooms growth of approximately 6%, or 3.0%–3.5% net of deletions, and capital expenditures and other investments of approximately $575–$650 million.
- Management said it believed available liquidity was adequate. However, credit-facility amendments waived the leverage covenant through fourth-quarter 2021 and imposed monthly minimum-liquidity requirements and other restrictions. Dividends and share repurchases were suspended, subject to limited exceptions under the facility terms.
- Marriott received $920 million in 2020 through amendments to U.S. co-brand credit card agreements, including prepayment of certain future revenues. This provides near-term cash but reduces future receipts from those agreements.
- COVID-19-related cost measures included furloughs, reduced work weeks, position eliminations, and restructuring. Marriott recorded $366 million in restructuring charges, including amounts presented in reimbursed expenses, and anticipated further property-level charges.
- Marriott increased the Sheraton Grand Chicago put-option liability to $300 million after concluding exercise in 2022 was probable. If exercised, Marriott may also elect to buy the underlying land for an additional $200 million.
- The Starwood data-security incident remains subject to lawsuits and government investigations. The U.K. ICO finalized an £18.4 million fine; Marriott recorded a $17 million related accrual at year-end and said additional losses could not be estimated. A separate 2020 incident involved information for approximately 5.5 million guests.
- CEO Arne Sorenson died on February 15, 2021, after the reporting period. Stephanie Linnartz and Anthony Capuano were overseeing day-to-day operations as acting co-principal executive officers pending appointment of a permanent CEO.
- The financial-statement audit opinion was unqualified. The filing text contains conflicting statements about internal-control effectiveness: one auditor passage reports effective controls, while another says the auditor expressed an adverse opinion; the audit discussion also identifies a material weakness relating to Loyalty Program accounting for part of the year. Verify the actual auditor report and remediation status.
Important facts for investors to verify
- Whether travel, group, and business demand and RevPAR recover as assumed, and whether the development pipeline converts to opened hotels.
- Liquidity headroom and compliance with the amended credit-facility minimum-liquidity covenant; upcoming debt maturities and refinancing costs.
- The extent to which 2020 operating cash flow depended on the nonrecurring $920 million co-brand card payment, and the resulting effect on future cash receipts.
- Potential additional costs from restructuring, hotel-owner support, credit losses, guarantees, the Sheraton Grand Chicago option, and data-security litigation or investigations.
- The apparent inconsistency in the filing's internal-control audit disclosures and the status of the identified Loyalty Program accounting weakness.