Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
A discussion regarding our financial condition and results of operations for year-end 2022 compared to year-end 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on February 14, 2023 (“2022 Form 10-K”).
BUSINESS AND OVERVIEW
Overview
We are a worldwide operator, franchisor, and licensor of hotel, residential, timeshare, and other lodging properties in 139 countries and territories under more than 30 brand names. 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: (1) U.S. & Canada and (2) International. In January 2024, we modified our segment structure as a result of a change in the way
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management intends to evaluate results and allocate resources within the Company. Beginning with the 2024 first quarter, we will report the following four operating segments: (1) U.S. & Canada, (2) Europe, Middle East, and Africa, (3) Asia Pacific excluding China, and (4) Greater China. Our Caribbean and Latin America operating segment will not meet the applicable criteria for separate disclosure as a reportable business segment, and as such, we will include its results in “Unallocated corporate and other.”
Terms of our management agreements vary, but our management fees generally consist of base management fees and incentive management fees. Base management fees are typically calculated as a percentage of property-level revenue. Incentive management fees are typically calculated as a percentage of a hotel profitability measure, and, in many cases (particularly in our U.S. & Canada, Europe, and Caribbean & Latin America regions), are subject to a specified owner return. Under our franchise agreements, franchise fees are typically calculated as a percentage of property-level revenue or a portion thereof. Additionally, we earn franchise fees for the use of our intellectual property, including primarily co-branded credit card fees, as well as timeshare and yacht fees, residential branding fees, franchise application and relicensing fees, and certain other licensing fees, which we refer to as “non-RevPAR related franchise fees.”
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, 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. RevPAR, occupancy, and ADR statistics are on a systemwide basis for comparable properties, unless otherwise stated. Comparisons to 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, 2022 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. For 2023 compared to 2022, we had 5,375 comparable U.S. & Canada properties and 1,704 comparable International properties.
Business Trends
We saw strong global RevPAR improvement throughout 2023 compared to 2022. In 2023, worldwide RevPAR increased 14.9 percent compared to 2022, reflecting ADR growth of 5.8 percent and occupancy improvement of 5.5 percentage points. The increase in RevPAR was driven by improvement in all customer segments.
In the U.S. & Canada, RevPAR improved 8.9 percent in 2023 compared to 2022, driven by ADR growth of 4.7 percent and occupancy improvement of 2.7 percentage points. As we returned to more normalized year over year RevPAR comparisons during the year, RevPAR growth began to stabilize in the 2023 last three quarters.
In our International segment, RevPAR improved 32.6 percent in 2023 compared to 2022, driven by ADR growth of 9.7 percent and occupancy improvement of 11.7 percentage points. The improvement in RevPAR compared to 2022 was driven by strengthening demand, particularly in Greater China and Asia Pacific excluding China, which were impacted by COVID-19 and government-imposed travel restrictions for much or all of 2022.
Starwood Data Security Incident
On September 23, 2016, we completed the acquisition of Starwood Hotels & Resorts Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), through a series of transactions, after which Starwood became an indirect wholly-owned subsidiary of the Company. On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). We discontinued use of t he Starwood reservations database for business operations at the end of 2018 .
We are currently unable to reasonably estimate the range of total possible financial impact to the Company from the Data Security Incident in excess of the expenses already recorded. 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
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losses (including monetary payments to regulators and/or litigants) related to the Data Security Incident. In addition, certain expenses by their nature (such as, for example, expenses related to enhancing our cybersecurity program) are not covered by our insurance program. We expect to incur ongoing legal and other expenses associated with the Data Security Incident in future periods, and we believe it is reasonably possible that we may incur additional monetary payments to regulators and/or litigants in excess of the amounts already recorded and costs in connection with compliance with any settlements or resolutions of matters. See Note 7 for additional information related to legal proceedings and governmental investigations related to the Data Security Incident.
System Growth and Pipeline
Our system grew from 8,288 properties (1,525,407 rooms) at year-end 2022 to 8,785 properties (1,597,380 rooms) at year-end 2023. The increase compared to year-end 2022 reflected gross additions of 558 properties (81,281 rooms), including 149 properties (17,300 rooms) from the City Express brand acquisition, and deletions of 63 properties (9,430 rooms). Our 2023 gross room additions included approximately 60,500 rooms located outside U.S. & Canada and roughly 16,300 rooms converted from competitor brands.
At year-end 2023, we had nearly 3,400 hotels and roughly 573,000 rooms in our development pipeline, which includes over 21,000 rooms approved for development but not yet under signed contracts. More than 232,000 rooms in the pipeline, or 41 percent, were under construction at year-end 2023, including approximately 37,000 rooms from the exclusive, long-term strategic licensing agreement with MGM Resorts International that we announced in July 2023. Over half of the rooms in our development pipeline are outside U.S. & Canada.
In 2023, we signed a record number of management, franchise and license agreements for approximately 164,000 organic rooms, of which nearly 65,000 rooms are conversions and approximately 91,000 rooms are located in the U.S. and Canada, in each case, including 37,000 rooms under our agreement with MGM Resorts International discussed above. Contracts signed in 2023 reflected the Company’s strength in the luxury tier, with 58 luxury hotel agreements signed. In 2023, we also entered the Midscale segment through the City Express brand acquisition discussed above, and announced our plans for further Midscale expansion with the launch of two new brands, Four Points Express by Sheraton and StudioRes.
In 2024, we expect net rooms growth of 5.5 to 6.0 percent, including an anticipated 2.3 percent increase as a result of the expected addition of rooms to our system under our agreement with MGM Resorts International discussed above. The first of such MGM properties joined our system in January 2024, and the remaining properties are expected to join by the end of the 2024 first quarter.
Properties and Rooms
At year-end 2023, we operated, franchised, and licensed the following properties and rooms:
Managed Franchised/Licensed Owned/Leased Residential Total
Properties Rooms Properties Rooms Properties Rooms Properties Rooms Properties Rooms
U.S. & Canada 624 215,246 5,259 752,630 13 4,339 69 7,416 5,965 979,631
International 1,422 360,717 1,210 218,830 37 8,776 57 6,532 2,726 594,855
Timeshare — — 93 22,745 — — — — 93 22,745
Yacht — — 1 149 — — — — 1 149
Total 2,046 575,963 6,563 994,354 50 13,115 126 13,948 8,785 1,597,380
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Lodging Statistics
The following table presents RevPAR, occupancy, and ADR statistics for comparable properties for 2023, and 2023 compared to 2022. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties.
RevPAR Occupancy Average Daily Rate
2023 vs. 2022 2023 vs. 2022 2023 vs. 2022
Comparable Company-Operated Properties
U.S. & Canada
$ 171.81 10.2 % 68.9 % 3.7 % pts. $ 249.25 4.3 %
Greater China $ 88.18 80.3 % 68.9 % 22.4 % pts. $ 128.03 21.7 %
Asia Pacific excluding China $ 117.33 41.9 % 69.5 % 11.5 % pts. $ 168.86 18.4 %
Caribbean & Latin America $ 168.44 13.8 % 64.0 % 4.4 % pts. $ 263.19 6.0 %
Europe $ 183.67 21.2 % 70.7 % 7.7 % pts. $ 259.65 8.0 %
Middle East & Africa $ 128.99 12.5 % 67.6 % 3.2 % pts. $ 190.71 7.2 %
International - All (1)
$ 120.78 35.6 % 68.8 % 13.1 % pts. $ 175.62 9.7 %
Worldwide (2)
$ 142.69 21.2 % 68.8 % 9.1 % pts. $ 207.27 5.1 %
Comparable Systemwide Properties
U.S. & Canada
$ 128.25 8.9 % 69.8 % 2.7 % pts. $ 183.83 4.7 %
Greater China $ 82.77 78.6 % 67.9 % 22.2 % pts. $ 121.91 20.2 %
Asia Pacific excluding China $ 117.89 43.2 % 69.4 % 10.9 % pts. $ 169.93 20.7 %
Caribbean & Latin America $ 142.85 13.9 % 64.7 % 4.2 % pts. $ 220.73 6.5 %
Europe $ 142.88 21.8 % 68.7 % 8.3 % pts. $ 207.86 7.2 %
Middle East & Africa $ 120.67 14.7 % 66.6 % 2.9 % pts. $ 181.18 9.7 %
International - All (1)
$ 116.81 32.6 % 67.9 % 11.7 % pts. $ 172.05 9.7 %
Worldwide (2)
$ 124.70 14.9 % 69.2 % 5.5 % pts. $ 180.24 5.8 %
(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
The discussion below presents an analysis of our consolidated results of operations for 2023 compared to 2022. Also see the “Business Trends” section above for further discussion.
Fee Revenues
($ in millions)
2023 2022 Change 2023 vs. 2022
Base management fees $ 1,238 $ 1,044 $ 194 19 %
Franchise fees 2,831 2,505 326 13 %
Incentive management fees 755 529 226 43 %
Gross fee revenues 4,824 4,078 746 18 %
Contract investment amortization (88) (89) 1 1 %
Net fee revenues $ 4,736 $ 3,989 $ 747 19 %
The increase in base management fees primarily reflected higher RevPAR and unit growth.
The increase in franchise fees primarily reflected higher RevPAR, unit growth ($99 million), and higher non-RevPAR related franchise fees ($50 million). Non-RevPAR related franchise fees of $832 million in 2023 increased primarily due to higher co-branded credit card fees ($55 million).
The increase in incentive management fees primarily reflected higher profits at many managed hotels. In 2023, we earned incentive management fees from 68 percent of our managed properties worldwide, compared to 61 percent in 2022. We earned incentive management fees from 31 percent of our U.S. & Canada managed properties and 85 percent of our International managed properties in 2023, compared to 29 percent in U.S. & Canada and 76 percent in International in 2022. In addition, 65 percent of our total incentive management fees in 2023 came from our International managed properties versus 58 percent in 2022.
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Owned, Leased, and Other
($ in millions)
2023 2022 Change 2023 vs. 2022
Owned, leased, and other revenue $ 1,564 $ 1,367 $ 197 14 %
Owned, leased, and other - direct expenses 1,165 1,074 91 8 %
Owned, leased, and other, net $ 399 $ 293 $ 106 36 %
Owned, leased, and other revenue, net of direct expenses, increased primarily due to stronger results at our owned and leased properties, $46 million of higher termination fees, primarily related to one development project in U.S. & Canada, and an estimated monetary payment of $31 million recorded in 2022 related to a portfolio of 12 leased hotels in the U.S. & Canada, partially offset by $29 million of subsidies received in 2022 for certain of our leased hotels under German government COVID-19 assistance programs.
Cost Reimbursements
($ in millions)
2023 2022 Change 2023 vs. 2022
Cost reimbursement revenue $ 17,413 $ 15,417 $ 1,996 13 %
Reimbursed expenses 17,424 15,141 2,283 15 %
Cost reimbursements, net $ (11) $ 276 $ (287) (104) %
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 property owners and franchisees. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively. See Note 2 for more information about the accounting for cost reimbursements, including our Loyalty Program.
The decrease in cost reimbursements, net primarily reflected Loyalty Program activity, primarily due to lower program revenues and higher program expenses, higher expenses related to our insurance program, and higher marketing expenses.
Other Operating Expenses
($ in millions)
2023 2022 Change 2023 vs. 2022
Depreciation, amortization, and other $ 189 $ 193 $ (4) (2) %
General, administrative, and other 1,011 891 120 13 %
Merger-related charges and other 60 12 48 400 %
General, administrative, and other expenses increased primarily due to higher administrative and compensation costs and higher litigation accruals.
Merger-related charges and other expenses increased primarily due to the Data Security Incident discussed in Note 7.
Non-Operating Income (Expense)
($ in millions)
2023 2022 Change 2023 vs. 2022
Gains and other income, net $ 40 $ 11 $ 29 264 %
Interest expense (565) (403) (162) (40) %
Interest income 30 26 4 15 %
Equity in earnings
9 18 (9) (50) %
Gains and other income, net increased primarily due to a gain on the sale of a hotel in the Caribbean & Latin America region ($24 million).
Interest expense increased primarily due to higher commercial paper borrowings and interest rates ($71 million), higher debt balances driven by Senior Notes issuances, net of maturities ($70 million), and higher interest rates on floating rate debt, including the effect of interest rate swaps ($19 million).
Equity in earnings decreased primarily due to gains recorded in the prior year on the sale of properties held by equity method investees ($23 million).
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Income Taxes
($ in millions)
2023 2022 Change 2023 vs. 2022
Provision for income taxes
$ (295) $ (756) $ 461 61 %
Our tax provision decreased in 2023, compared to our tax provision in 2022, primarily due to intellectual property restructuring transactions completed during 2023 resulting in non-U.S. tax benefits ($228 million), the release of a tax valuation allowance as the Company concluded it is more likely than not to recognize non U.S. tax benefits ($223 million), and the current year release of tax reserves ($103 million), which was mostly due to the completion of a prior year tax audit. The decrease was partially offset by the increase in operating income ($61 million).
BUSINESS SEGMENTS
The following discussion presents an analysis of the operating results of our reportable business segments. Also see the “Business Trends” section above for further discussion.
($ in millions)
2023 2022 Change 2023 vs. 2022
U.S. & Canada
Segment revenues $ 17,696 $ 15,753 $ 1,943 12 %
Segment profit 2,724 2,446 278 11 %
International
Segment revenues 4,455 3,486 969 28 %
Segment profit 1,121 794 327 41 %
Properties Rooms
December 31, 2023 December 31, 2022 vs. December 31, 2022 December 31, 2023 December 31, 2022 vs. December 31, 2022
U.S. & Canada
5,965 5,846 119 2 % 979,631 964,412 15,219 2 %
International
2,726 2,348 378 16 % 594,855 538,101 56,754 11 %
U.S. & Canada
U.S. & Canada segment profit increased primarily due to the following:
• $313 million of higher gross fee revenues, primarily reflecting higher RevPAR driven by increases in both ADR and occupancy, unit growth, and higher profits at certain managed hotels; and
• $73 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting $57 million of higher termination fees, primarily related to one development project, and a $31 million estimated monetary payment recorded in 2022 related to a portfolio of 12 leased hotels;
partially offset by:
• $77 million of lower cost reimbursement revenue, net of reimbursed expenses.
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International
International segment profit increased primarily due to the following:
• $373 million of higher gross fee revenues, primarily reflecting higher profits at certain managed hotels, higher RevPAR driven by increases in both occupancy and ADR in all regions, and unit growth, partially offset by net unfavorable foreign exchange rates;
• $24 million of higher gains and other income, net, primarily reflecting a gain on the sale of a hotel in the Caribbean & Latin America region ($24 million); and
• $3 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at our owned and leased properties ($43 million), partially offset by subsidies received in 2022 for certain of our leased hotels under German government COVID-19 assistance programs ($29 million);
partially offset by:
• $32 million of lower cost reimbursement revenue, net of reimbursed expenses; and
• $55 million of higher general, administrative, and other expenses, primarily reflecting higher litigation accruals and higher compensation costs.
LIQUIDITY AND CAPITAL RESOURCES
Our Credit Facility
We are party to a $4.5 billion multicurrency revolving credit agreement (the “Credit Facility”). Available borrowings under the Credit Facility support our commercial paper program and general corporate needs. Borrowings under the Credit Facility generally bear interest at SOFR (the Secured Overnight Financing 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 (which generally have short-term maturities of 45 days or less) as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis. The Credit Facility expires on December 14, 2027.
The Credit Facility contains certain covenants, including a single financial covenant that limits our maximum leverage (consisting of the ratio of Adjusted Total Debt to EBITDA, each as defined in the Credit Facility) to not more than 4.5 to 1.0. 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 and public debt instruments, including the leverage covenant under the Credit Facility, and do not expect the covenants will restrict our ability to meet our anticipated borrowing and liquidity needs.
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 believe the Credit Facility, and our access to capital markets, together with cash we expect to generate from operations, remain adequate to meet our liquidity requirements.
Commercial Paper
We issue commercial paper in the U.S. Because we do not have purchase commitments from buyers for our commercial paper, our ability to issue commercial paper is subject to market demand. We do not expect that fluctuations in the demand for commercial paper will affect our liquidity, given our borrowing capacity under the Credit Facility and access to capital markets.
Cash from Operations
Net cash provided by operating activities increased by $807 million in 2023 compared to 2022, primarily due to higher net income (adjusted for non-cash items), working capital changes driven by accounts receivable timing, and higher cash generated by our Loyalty Program, partially offset by higher cash paid for income taxes. Cash inflow from our Loyalty Program in 2020 included $920 million of cash received from the prepayment of certain future revenues under the 2020 amendments to our existing U.S.-issued co-branded credit card agreements, which reduced the amount of cash we received from these card issuers in subsequent years, until such reductions ended as of year-end 2023.
Our ratio of current assets to current liabilities was 0.4 to 1.0 at year-end 2023 and 0.5 to 1.0 at year-end 2022. We have significant borrowing capacity under our Credit Facility should we need additional working capital.
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Investing Activities Cash Flows
Capital Expenditures and Other Investments. We made capital and technology expenditures of $452 million in 2023 and $332 million in 2022. Capital and technology expenditures in 2023 increased by $120 million compared to 2022, primarily due to higher spending on our worldwide technology systems transformation, the overwhelming portion of which is expected to be reimbursed over time. We also had cash outflows of $101 million in 2023 due to the City Express brand acquisition, which we discuss in Note 3.
We expect capital expenditures and other investments will total approximately $1.0 billion to $1.2 billion for 2024, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities (including approximately $250 million for maintenance capital spending). Our anticipated capital and technology expenditures include $200 million of spending related to our option to purchase the land underlying the Sheraton Grand Chicago, which we discuss in Note 7.
Dispositions. Property and asset sales generated $71 million of cash proceeds in 2023 and $1 million in 2022.
Over time, we have sold lodging properties, both completed and under development, generally subject to long-term management agreements. The ability of third-party purchasers to raise the debt and equity capital necessary to acquire such properties depends in part on the perceived risks in the lodging industry and other constraints inherent in the capital markets. We monitor the status of the capital markets and regularly evaluate the potential impact of changes in capital market conditions on our business operations. We have made, and expect to continue making, selective and opportunistic investments to add units to our lodging business, which may include property acquisitions and renovations, new construction, loans, guarantees, and equity investments. Over time, we seek to minimize capital invested in our business through asset sales subject to long-term management or franchise agreements.
Loan Activity. From time to time, we make loans to owners of hotels that we operate or franchise. Loan advances, net of loan collections, amounted to $16 million in 2023, compared to net collections of $3 million in 2022. At year-end 2023, we had $169 million of loans outstanding, compared to $162 million outstanding at year-end 2022.
Financing Activities Cash Flows
Debt. Debt increased by $1,809 million in 2023, to $11,873 million at year-end 2023 from $10,064 million at year-end 2022, primarily due to the issuance of our Series LL Notes and Series MM Notes ($1,135 million) and Series KK Notes ($783 million), and higher outstanding commercial paper borrowings ($546 million), partially offset by the maturity of our Series Z Notes and Series U Notes ($350 million and $291 million, respectively). See Note 9 for additional information on Senior Notes issuances.
Our long-term financial objectives include maintaining diversified financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At year-end 2023, our long-term debt had a weighted average interest rate of 4.5 percent and a weighted average maturity of approximately 5.0 years. Including the effect of interest rate swaps, the ratio of our fixed-rate long-term debt to our total long-term debt was 0.8 to 1.0 at year-end 2023.
See the “Our Credit Facility” caption in this “Liquidity and Capital Resources” section for more information on our Credit Facility.
Share Repurchases and Dividends. We repurchased 21.5 million shares of our common stock for $3.9 billion in 2023. Year-to-date through February 9, 2024, we repurchased 1.3 million shares for $300 million. For additional information, see “Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities” in Part II, Item 5.
Our Board declared the following quarterly cash dividends in 2023: (1) $0.40 per share declared on February 10, 2023 and paid on March 31, 2023 to stockholders of record on February 24, 2023; (2) $0.52 per share declared on May 12, 2023 and paid on June 30, 2023 to stockholders of record on May 26, 2023; (3) $0.52 per share declared on August 3, 2023 and paid on September 29, 2023 to stockholders of record on August 17, 2023; and (4) $0.52 per share declared on November 9, 2023 and paid on December 29, 2023 to stockholders of record on November 22, 2023. Our Board declared a cash dividend of $0.52 per share on February 8, 2024, payable on March 29, 2024 to stockholders of record on February 22, 2024.
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We expect to continue to return cash to stockholders through a combination of share repurchases and cash dividends.
Material Cash Requirements
Our material cash requirements include the following contractual obligations and off-balance sheet arrangements.
• At year-end 2023, we had $13,937 million of debt, including principal and future interest payments, of which $972 million is payable within the next 12 months from year-end 2023. See Note 9 for further information about our long-term debt.
• We enter into operating and finance leases primarily for hotels, offices, and equipment, which are discussed in Note 8.
• At December 31, 2023, 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 $243 million, of which $108 million is payable within the next 12 months from year-end 2023.
• The Company also had guarantees, a contingent purchase obligation, commitments, and letters of credit as of year-end 2023, which are discussed in Note 7. With the exception of the Sheraton Grand Chicago put option discussed in Note 7, the majority of our remaining guarantee commitments are not expected to be funded within the next 12 months from year-end 2023. In addition to the purchase obligations discussed in Note 7, in the normal course of business, we enter into purchase commitments and incur other obligations to manage the daily operating needs of the hotels that we manage. Since our contracts with owners require reimbursement for these amounts, these obligations are expected to have minimal impact on our net income and cash flow.
NEW ACCOUNTING STANDARDS
We do not expect that accounting standard updates issued to date and that are effective after December 31, 2023 will have a material effect on our Financial Statements.
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. Management considers an accounting policy and estimate to be critical if: (1) we must make assumptions that were uncertain when the estimate was made; and (2) changes in the estimate, or selection of a different estimate methodology could have a material effect on our consolidated results of operations or financial condition.
While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate or assumption was made. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments due to unforeseen events or otherwise could have a material impact on our financial position or results of operations.
See Note 2 for further information related to our critical accounting policies and estimates, which are as follows:
Loyalty Program , including how we estimate the breakage of hotel points, credit card points, and free night certificates, the volume of points and free night certificates that will be issued under our co-branded credit card agreements, the amount of consideration to which we will be entitled under our co-branded credit card agreements, and the stand-alone selling prices of goods and services provided under our co-branded credit card agreements. Changes in these estimates could result in material changes to our liability for guest loyalty program and Loyalty Program revenue. Based on the conditions existing at December 31, 2023 and holding other factors constant, a one percent decrease in our estimate of the breakage of points could result in an increase in the liability for guest loyalty program of approximately $50 million. The breakage impact may vary significantly depending on the specific Loyalty Program points for which the anticipated breakage changes.
Goodwill , including how we evaluate the fair value of reporting units and when we record an impairment loss on goodwill. During the 2023 fourth quarter, we conducted our annual goodwill impairment test, and no impairment charges were recorded. The estimated fair values of all our reporting units significantly exceeded their carrying amounts at the date of their most recent estimated fair value determination.
Intangibles and Long-Lived Assets , including how we evaluate the fair value of intangibles and long-lived assets and when we record impairment losses on intangibles and long-lived assets. During 2023, we evaluated our intangibles and long-lived asset groups for impairment and did not record any material impairment charges. The estimated fair values
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of all our indefinite-lived intangible assets significantly exceeded their carrying amounts at the date of their most recent estimated fair value determination.