Financial Information

PART II

Item 8. Financial Statements and Supplementary Data.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. COMMITMENTS AND CONTINGENCIES

Guarantees

We issue guarantees to certain lenders and hotel owners, chiefly to obtain long-term management contracts. The guarantees generally have a stated maximum funding amount and a term of three to ten years. The terms of guarantees to lenders generally require us to fund if cash flows from hotel operations are inadequate to cover annual debt service or to repay the loan at maturity. The terms of the guarantees to hotel owners generally require us to fund if the hotels do not attain specified levels of operating profit. Guarantee fundings to lenders and hotel owners are generally recoverable out of future hotel cash flows and/or proceeds from the sale of hotels. We also enter into project completion guarantees with certain lenders in conjunction with hotels that we or our joint venture partners are building.

We present the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for our debt service, operating profit, and other guarantees for which we are the primary obligor at year-end 2017 in the following table:

Our liability at year-end 2017 for guarantees for which we are the primary obligor is reflected in our Balance Sheets as $3 million of “Accrued expenses and other” and $127 million of “Other noncurrent liabilities.”

Our guarantees listed in the preceding table include $6 million of debt service guarantees, $40 million of operating profit guarantees, and $2 million of other guarantees that will not be in effect until the underlying properties open and we begin to operate the properties or certain other events occur.

In conjunction with financing obtained for specific projects or properties owned by us or joint ventures in which we are a party, we may provide industry standard indemnifications to the lender for loss, liability, or damage occurring as a result of the actions of the other joint venture owner or our own actions.

Contingent Purchase Obligations

Times Square EDITION. We granted the lenders the right, upon an uncured event of default by the hotel owner under, and an acceleration of, the mortgage loan, to require us to purchase the hotel component of the property for $315 million during a period of 2 years after opening, which the lenders may extend for up to 3 years to complete foreclosure if the loan has been accelerated and certain other conditions are met. We accounted for this contingent purchase obligation as a guarantee, and our recorded liability at year-end 2017 was $2 million.

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 underlying fee simple interest in the land for an additional $200 million in cash. We accounted for the put option as a guarantee, and our recorded liability at year-end 2017 was $57 million.

We concluded that the entity that owns the Sheraton Grand Chicago hotel is a variable interest entity. We did not consolidate the entity because we do not have the power to direct the activities that most significantly impact the entity’s economic performance. Our maximum exposure to loss related to the entity is equal to the difference between the purchase price and the fair value of the hotel at the time that the put option is exercised, plus the maximum funding amount of an operating profit guarantee that we provided for the hotel.

Commitments

At year-end 2017, we had the following commitments outstanding, which are not recorded on our Balance Sheets:

• We have a right and, under certain circumstances, an obligation to acquire our joint venture partner’s remaining interests in two joint ventures over the next four years at a price based on the performance of the ventures. In conjunction with this contingent obligation, we advanced $20 million (€15 million) in deposits, $13 million (€11 million) of which are remaining. The amounts on deposit are refundable to the extent that we do not acquire our joint venture partner’s remaining interests.
   
  
• A commitment to invest $25 million of equity for a non-controlling interest in a joint venture that plans to develop a North American Full-Service hotel, which we expect to fund in 2018.
   
  
• A commitment to invest up to $10 million of equity for a non-controlling interest in a partnership that evaluates investment opportunities in travel-related emerging technology companies, which we expect to fund in 2018.
   
  
• Various loan commitments totaling $26 million, of which we expect to fund $15 million in 2018 and $10 million thereafter. We do not expect to fund the remaining commitment.
   
  
• Various commitments to purchase information technology hardware, software, accounting, finance, and maintenance services in the normal course of business, primarily for programs and services for which we are reimbursed by third-party owners, totaling $366 million. We expect to purchase goods and services subject to these commitments as follows: $188 million in 2018, $125 million in 2019, $49 million in 2020, and $4 million thereafter.
   
  
• Several commitments aggregating $49 million, which we do not expect to fund.

Letters of Credit

At year-end 2017, we had $162 million of letters of credit outstanding (all outside the Credit Facility, as defined in Footnote 11 “Long-Term Debt”), most of which were for our self-insurance programs. Surety bonds issued as of year-end 2017, totaled $155 million, most of which state governments requested in connection with our self-insurance programs.

Other Contingencies

In connection with the Starwood Combination, we continue to assess various regulatory compliance matters at several foreign Legacy-Starwood locations, including compliance with the U.S. Foreign Corrupt Practices Act. The results of this assessment may give rise to contingencies that could require us to accrue expenses. While any such amounts are not currently estimable, we continue to evaluate potential contingencies as we gather more information.