UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
| |
| ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 30, 201131, 2013
or
|
| |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-13881
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) |
Registrant’s Telephone Number, Including Area Code (301) 380-3000
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
| Title of Each Class | | Name of Each Exchange on Which Registered |
Class A Common Stock, $0.01 par value (333,866,753294,823,291 shares outstanding as of January 27, 2012)February 7, 2014) | | New York Stock ExchangeNasdaq Global Select Market
Chicago Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website,Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. |
| | | | | | |
Large accelerated filer x | | Accelerated filer o | | Non-accelerated filer o | | Smaller reporting company o |
| | | | (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The aggregate market value of shares of common stock held by non-affiliates at June 17, 2011,30, 2013, was $9,196,335,1959,242,186,286
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 20122014 Annual Meeting of Shareholders are incorporated by reference into
Part III of this report.
MARRIOTT INTERNATIONAL, INC.
FORM 10-K TABLE OF CONTENTS
FISCAL YEAR ENDED DECEMBER 30, 201131, 2013
|
| | |
| | | Page No. |
| Part I. | | |
| | | |
| Item 1. | Business | |
| Item 1A. | Risk Factors | |
| Item 1B. | Unresolved Staff Comments | |
| Item 2. | Properties | |
| Item 3. | Legal Proceedings | |
| Item 4. | Mine Safety Disclosures | |
| | | |
| Part II. | | |
| | | |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | |
| Item 6. | Selected Financial Data | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 8. | Financial Statements and Supplementary Data | |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
| Item 9A. | Controls and Procedures | |
| Item 9B. | Other Information | |
| | | |
| Part III. | | |
| | | |
| Item 10. | Directors, Executive Officers and Corporate Governance | |
| Item 11. | Executive Compensation | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
| Item 14. | Principal Accounting Fees and Services | |
| | | |
| Part IV. | | |
| | | |
| Item 15. | Exhibits, Financial Statement Schedules | |
| | Signatures | |
Throughout this report, we refer to Marriott International, Inc., together with its subsidiaries, as “we,” “us,” or “the Company.” Unless otherwise specified, each reference to a particular year means the fiscal year ended on the date shown in the table below, ratherbelow:
|
| | | | | | |
| Fiscal Year | | Fiscal Year-End Date | | Fiscal Year | | Fiscal Year-End Date |
| 2013 | | December 31, 2013 | | 2008 | | January 2, 2009 |
| 2012 | | December 28, 2012 | | 2007 | | December 28, 2007 |
| 2011 | | December 30, 2011 | | 2006 | | December 29, 2006 |
| 2010 | | December 31, 2010 | | 2005 | | December 30, 2005 |
| 2009 | | January 1, 2010 | | 2004 | | December 31, 2004 |
Beginning with our 2013 fiscal year, we changed our financial reporting cycle to a calendar year-end reporting cycle and an end-of-month quarterly reporting cycle. Accordingly, our 2013 fiscal year began on December 29, 2012 and ended on December 31, 2013. Historically, our fiscal year was a 52-53 week fiscal year that ended on the Friday nearest to December 31. As a result, our 2013 fiscal year had 4 more days than the 2012 and 2011 fiscal years. We have not restated and do not plan to restate historical results.Beginning in 2014, our fiscal years will be the same as the corresponding calendar year:
|
| | | | | | |
| Fiscal Year | | Fiscal Year-End Date | | Fiscal Year | | Fiscal Year-End Date |
| 2011 | | December 30, 2011 | | 2006 | | December 29, 2006 |
| 2010 | | December 31, 2010 | | 2005 | | December 30, 2005 |
| 2009 | | January 1, 2010 | | 2004 | | December 31, 2004 |
| 2008 | | January 2, 2009 | | 2003 | | January 2, 2004 |
| 2007 | | December 28, 2007 | | 2002 | | January 3, 2003 |
In addition, in order to make this report easier to read, we also refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” (iv) our properties, brands or markets in the United States and Canada as “North America” or “North American,” and (v) our properties, brands or markets outside of the United States and Canada as “International.” References throughout to numbered "Footnotes" refer to the numbered Notes to our Financial Statements that we include in the Financial Statements section of this report.
PART I
Item 1. Business.
We are a worldwide operator, franchisor, and licensor of hotels corporate housing properties, and timeshare properties under numerous brand names at different price and service points. Consistent with our focus on management, franchising, and licensing, we own very few of our lodging properties. We also operate, market, and develop residential properties and provide services to home/condominium owner associations.
We were organized as a corporation in Delaware in 1997 and became a public company in 1998 when we were “spun off” as a separate entity by the company formerly named “Marriott International, Inc.”
On November 21, 2011 ("the spin-off date"), we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our wholly owned subsidiary Marriott Vacations Worldwide Corporation ("MVW"). Under license agreements with us, MVW is both the exclusive developer and operator of timeshare, fractional, and related products under the Marriott brand and the exclusive developer of fractional and related products under The Ritz-Carlton brand. We receive license fees under these licensing agreements.
Prior to the spin-off date, we developed, operated, marketed, and sold timeshare interval, fractional ownership, and residential properties as part of our former Timeshare segment. Because of our significant continuing involvement in MVW operations after the spin-off date (by virtue of the license and other agreements between us and MVW), our former Timeshare segment's historical financial results prior to the spin-off date will continue to be included in our historical financial results as a component of continuing operations. Following the spin-off, license fees associated with the timeshare business are included in "other unallocated corporate." See Footnote No. 17, "Spin-off," of the Notes to our Financial Statements included in this annual report for additional information on the spin-off.
At year-end 2011, our operations are grouped into four business segments: North American Full-Service Lodging, North American Limited-Service Lodging, International Lodging, and Luxury Lodging. The following table shows the percentage of 2011 total revenue from each of our lodging segments, as well as from unallocated corporate and our former Timeshare segment:
|
| | | |
Segment | | Percentage of 2011
Total Revenues
|
North American Full-Service Lodging Segment | | 44 | % |
North American Limited-Service Lodging Segment | | 19 | % |
International Lodging Segment | | 10 | % |
Luxury Lodging Segment | | 14 | % |
Former Timeshare Segment (1)
| | 12 | % |
Other unallocated corporate | | 1 | % |
(1) Reflects revenue through the spin-off date
| | |
Our North American Full-Service and North American Limited-Service segments include properties located in the United States and Canada, our Luxury segment includes worldwide properties, and our International segment includes full-service and limited-service properties located outside the United States and Canada. Unless otherwise indicated, our references to Marriott Hotels & Resorts throughout this report include Marriott Conference Centers and JW Marriott, references to Renaissance Hotels include Renaissance ClubSport, and references to Fairfield Inn & Suites include Fairfield Inn®.
Financial information by segment and geographic area for 2011, 2010, and 2009 appears in Footnote No. 16, “Business Segments,” of the Notes to our Financial Statements included in this annual report.
Lodging
We operate, franchise, or license 3,7183,916 lodging properties worldwide, with 643,196675,623 rooms as of year-end 20112013 inclusive of 3240 home and condominium products (3,8384,228 units) for which we manage the related owners’ associations. In addition, we provided 2,166 furnished corporate housing rental units, which are not included in the totals. We believe that our portfolio of lodging brands is the broadest of any lodging company in the world. Our brands are listed in the following table:
|
| |
• Marriott Hotels® | • TownePlace Suites by Marriott® (“TownePlace Suites® Hotels & Resorts”) | • AC Hotels by Marriott |
• JW Marriott® | • Marriott Vacation ClubExecutive Apartments® |
• Renaissance® Hotels | • The Ritz-Carlton Destination Club® |
• Autograph CollectionGaylord Hotels® | • Bulgari Hotels & Resorts |
• The Ritz-Carlton ResidencesAutograph Collection®Hotels | • EDITION® |
• Moxy Hotels SM * | • AC Hotels by Marriott SM |
• Courtyard by Marriott® (“Courtyard”Courtyard®”) | • Grand Residences by Marriott Vacation Club® |
• Fairfield Inn & Suites by Marriott® (“Fairfield Inn & Suites”Suites®”) | • The Ritz-Carlton Destination Club® |
• SpringHill Suites by Marriott® (“SpringHill Suites”Suites®”) | • The Ritz-Carlton Residences® |
• Residence Inn by Marriott® (“Residence Inn”Inn®”) | • Grand Residences by Marriott SM |
| |
• TownePlace Suites by Marriott® (“TownePlace Suites”)
| |
• Marriott ExecuStay®
| |
• Marriott Executive Apartments®
| |
• The Ritz-Carlton®
| |
• Bulgari Hotels & Resorts®
| |
• EDITION®
* At year-end 2013, no Moxy properties were yet open. | |
Our operations are grouped into four business segments: North American Full-Service, North American Limited-Service, International, and Luxury. Financial information by segment and geographic area for 2013, 2012, and 2011 appears in Footnote No. 14, “Business Segments.”
Company-Operated Lodging Properties
At year-end 2011,2013, we operated 1,0531,057 properties (277,526(283,029 rooms) under long-term management agreements with property owners, 4335 properties (10,358(8,542 rooms) under long-term lease agreements with property owners (management and lease agreements together, “the Operating Agreements”), and 69 properties (1,155(1,960 rooms) as owned. The figures noted for properties operated under long-term management agreements include 3240 home and condominium products (3,8384,228 units) for which we manage the related owners’ associations.
Terms of our management agreements vary, but typically, we earn a management fee which comprisesthat is typically composed of a base management fee, which is a percentage of the revenues of the hotel, and an incentive management fee, which is based on the profits of the hotel. Our management agreements also typically include reimbursement of costs of operations (both direct and indirect). Such agreements are generally for initial periods of 20 to 30 years, with options for us to renew for up to 50 or more
additional years. Our lease agreements also vary, but may include fixed annual rentals plus additional rentals based on a percentage of annual revenues in excess of a fixed amount. Many of theour Operating Agreements are subordinated to mortgages or other liens securing indebtedness of the owners. Additionally, manyMany of our Operating Agreements also permit the owners to terminate the agreement if we do not meet certain performance metrics are not met and financial returns fail to meet defined levels for a period of time and we have not cured such deficiencies. In certain circumstances, some of our management agreements allow owners to convert company-operated properties to franchised properties.properties under our brands.
For lodging facilities that we operate, we generally are responsible for hiring, training, and supervising the managers and employees required to operate the facilities and for purchasing supplies, costs of bothand owners are required to reimburse us for which we generally are reimbursed by the owners.those costs. We provide centralized reservation services and national advertising, marketing, and promotional services, as well as various accounting and data processing services. Weservices, and owners are also generally reimbursed by ownersrequired to reimburse us for the cost of providing these services.those costs.
Franchised, Licensed, and Unconsolidated Joint Venture Lodging Properties
We have franchising, licensing, and joint venture programs that permit theother hotel owners and operators and Marriott Vacations Worldwide Corporation ("MVW") to use of many of our lodging brand names and systems by other hotel owners and operators as well as by MVW.systems. Under theour franchising program, we generally receive an initial application fee and continuing royalty fees, which typically range from four percent to six percent of room revenues for all brands, plus two percent to three percent of food and beverage revenues for certain full-service hotels. We are a partner in unconsolidated joint ventures that manage and/or franchise hotels, and wehotels. Some of these unconsolidated joint ventures also provide services to franchised hotels. We recognize our share of thethese joint ventures' net income or loss. Franchisees and joint ventures contribute to our national marketing and advertising programs and pay fees for use of our centralized reservation systems. Under license agreements with us, MVW is both the exclusive developer and operator of timeshare, fractional, and related products under the Marriott brand and the exclusive developer of fractional and related products under The Ritz-Carlton brand. We receive license fees under licensing agreements with MVW consisting of a fixed annual fee of $50 million plus two percent of the gross sales price paid to MVW for initial developer sales of interests in vacation ownership units and residential real estate units and one percent of the gross sales price paid to MVW for resales of interests in vacation ownership units and residential real estate units, in each case that are identified with or use the Marriott or Ritz-Carlton marks.
At year-end 2011,2013, we had 2,4672,673 franchised properties (332,636(360,451 rooms), 8580 unconsolidated joint venture properties (8,721(8,839 rooms), and 6462 licensed timeshare, fractional, and related properties (12,800(12,802 units).
Residential
We selluse or license our trademarks for the sale of residential real estate, typically in conjunction with luxury hotel development (Ritz-Carlton-Residential) and receive branding fees for sales of such branded residential real estate by others. Residences developed in conjunction with hotels are typically constructed and sold by hotelthird-party owners with limited amounts, if any, of our capital at risk. We have used or licensed our The Ritz-Carlton, EDITION, Autograph Collection Hotels, JW Marriott, and Marriott Hotels brand names and trademarks for residential real estate sales. While the worldwide residential market is very large, we believe the luxurious nature of our residential properties, the quality and exclusivity associated with our brands, and the hospitality services that we provide, all serve to make our residential properties distinctive.
Seasonality
In general, business at company-operated and franchised properties fluctuates only moderately with the seasons and is relatively stable and includes only moderate seasonal fluctuations.stable. Business at some resort properties may be seasonal depending on location.
Relationship with Major Customer
We operate a number of properties under long-term management agreements that are owned or leased by Host Hotels & Resorts, Inc. (“Host”). In addition, Host is a partner in several partnerships that own properties operated by us under long-term management agreements. See Footnote No. 23,19, “Relationship with Major Customer,” of the Notes to our Financial Statements included in this annual report for more information.
Intellectual Property
We operate in a highly competitive industry and our brand names, trademarks, service marks, trade names, and logos are very important to the sales and marketing of our properties and services. We believe that our brand names and other intellectual property have come to represent the highest standards of quality, caring, service, and value to our customers and the traveling public. Accordingly, we register and protect our intellectual property where we deem appropriate and otherwise protect against its unauthorized use.
Summary of Properties by Brand
At year-end 2011,2013, we operated, franchised, or licensed the following properties by brand (excluding 2,166 corporate housing rental units):brand:
| | | | Company-Operated | | Franchised / Licensed | | Other (3) | Company-Operated | | Franchised / Licensed | | Other (3) |
| Brand | Properties | | Rooms | | Properties | | Rooms | | Properties | | Rooms | Properties | | Rooms | | Properties | | Rooms | | Properties | | Rooms |
| U.S. Locations | | | | | | | | | | | | | | | | | | | | | | |
| Marriott Hotels & Resorts | 138 |
| | 71,751 |
| | 184 |
| | 56,075 |
| | — |
| | — |
| |
| Marriott Hotels | | 130 |
| | 67,762 |
| | 182 |
| | 55,534 |
| | — |
| | — |
|
| Marriott Conference Centers | 10 |
| | 2,915 |
| | — |
| | — |
| | — |
| | — |
| 10 |
| | 2,915 |
| | — |
| | — |
| | — |
| | — |
|
| JW Marriott | 14 |
| | 9,226 |
| | 7 |
| | 2,914 |
| | — |
| | — |
| 15 |
| | 9,735 |
| | 7 |
| | 2,914 |
| | — |
| | — |
|
| Renaissance Hotels | 38 |
| | 17,426 |
| | 40 |
| | 11,454 |
| | — |
| | — |
| 33 |
| | 15,035 |
| | 41 |
| | 11,805 |
| | — |
| | — |
|
| Renaissance ClubSport | — |
| | — |
| | 2 |
| | 349 |
| | — |
| | — |
| |
| Renaissance ClubSport® | | — |
| | — |
| | 2 |
| | 349 |
| | — |
| | — |
|
| Gaylord Hotels | | 5 |
| | 8,098 |
| | — |
| | — |
| | — |
| | — |
|
| Autograph Collection | — |
| | — |
| | 17 |
| | 5,207 |
| | — |
| | — |
| — |
| | — |
| | 32 |
| | 8,410 |
| | — |
| | — |
|
| The Ritz-Carlton | 39 |
| | 11,587 |
| | — |
| | — |
| | — |
| | — |
| 37 |
| | 11,040 |
| | — |
| | — |
| | — |
| | — |
|
The Ritz-Carlton-Residential(1) | 29 |
| | 3,509 |
| | — |
| | — |
| | — |
| | — |
| 30 |
| | 3,598 |
| | — |
| | — |
| | — |
| | — |
|
| EDITION | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Courtyard | 282 |
| | 44,250 |
| | 523 |
| | 69,163 |
| | — |
| | — |
| 274 |
| | 43,200 |
| | 562 |
| | 74,493 |
| | — |
| | — |
|
| Fairfield Inn & Suites | 3 |
| | 1,055 |
| | 664 |
| | 59,337 |
| | — |
| | — |
| 4 |
| | 1,197 |
| | 687 |
| | 61,724 |
| | — |
| | — |
|
| SpringHill Suites | 34 |
| | 5,311 |
| | 251 |
| | 28,155 |
| | — |
| | — |
| 29 |
| | 4,582 |
| | 277 |
| | 31,306 |
| | — |
| | — |
|
| Residence Inn | 134 |
| | 19,364 |
| | 463 |
| | 52,712 |
| | — |
| | — |
| 122 |
| | 17,653 |
| | 507 |
| | 58,403 |
| | — |
| | — |
|
| TownePlace Suites | 29 |
| | 3,086 |
| | 171 |
| | 16,962 |
| | — |
| | — |
| 22 |
| | 2,440 |
| | 200 |
| | 19,599 |
| | — |
| | — |
|
Timeshare (2) | — |
| | — |
| | 50 |
| | 10,496 |
| | — |
| | — |
| — |
| | — |
| | 47 |
| | 10,506 |
| | — |
| | — |
|
| Total U.S. Locations | 750 |
| | 189,480 |
| | 2,372 |
| | 312,824 |
| | — |
| | — |
| 711 |
| | 187,255 |
| | 2,544 |
| | 335,043 |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Non-U.S. Locations | | | | | | | | | | | | | | | | | | | | | | |
| Marriott Hotels & Resorts | 135 |
| | 40,701 |
| | 35 |
| | 10,327 |
| | — |
| | — |
| |
| Marriott Hotels | | 137 |
| | 40,456 |
| | 37 |
| | 10,757 |
| | — |
| | — |
|
| JW Marriott | 29 |
| | 10,891 |
| | 3 |
| | 795 |
| | — |
| | — |
| 37 |
| | 13,812 |
| | 4 |
| | 1,016 |
| | — |
| | — |
|
| Renaissance Hotels | 54 |
| | 17,971 |
| | 20 |
| | 5,766 |
| | — |
| | — |
| 55 |
| | 17,991 |
| | 22 |
| | 6,720 |
| | — |
| | — |
|
| Autograph Collection | — |
| | — |
| | 5 |
| | 548 |
| | 5 |
| | 350 |
| 2 |
| | 395 |
| | 17 |
| | 2,310 |
| | 5 |
| | 348 |
|
| The Ritz-Carlton | 39 |
| | 11,996 |
| | — |
| | — |
| | — |
| | — |
| 47 |
| | 13,950 |
| | — |
| | — |
| | — |
| | — |
|
The Ritz-Carlton-Residential (1) | 3 |
| | 329 |
| | — |
| | — |
| | — |
| | — |
| 9 |
| | 575 |
| | 1 |
| | 55 |
| | — |
| | — |
|
| The Ritz-Carlton Serviced Apartments | 4 |
| | 579 |
| | — |
| | — |
| | — |
| | — |
| 4 |
| | 579 |
| | — |
| | — |
| | — |
| | — |
|
| EDITION | 1 |
| | 78 |
| | — |
| | — |
| | — |
| | — |
| 2 |
| | 251 |
| | — |
| | — |
| | — |
| | — |
|
| Bulgari Hotels & Resorts | 2 |
| | 117 |
| | — |
| | — |
| | — |
| | — |
| 2 |
| | 117 |
| | 1 |
| | 85 |
| | — |
| | — |
|
| Marriott Executive Apartments | 22 |
| | 3,601 |
| | 1 |
| | 99 |
| | — |
| | — |
| 27 |
| | 4,295 |
| | — |
| | — |
| | — |
| | — |
|
| AC Hotels by Marriott | — |
| | — |
| | — |
| | — |
| | 80 |
| | 8,371 |
| — |
| | — |
| | — |
| | — |
| | 75 |
| | 8,491 |
|
| Courtyard | 59 |
| | 12,784 |
| | 49 |
| | 8,522 |
| | — |
| | — |
| 61 |
| | 12,958 |
| | 56 |
| | 9,898 |
| | — |
| | — |
|
| Fairfield Inn & Suites | — |
| | — |
| | 13 |
| | 1,568 |
| | — |
| | — |
| 1 |
| | 148 |
| | 16 |
| | 1,896 |
| | — |
| | — |
|
| SpringHill Suites | — |
| | — |
| | 2 |
| | 299 |
| | — |
| | — |
| — |
| | — |
| | 2 |
| | 299 |
| | — |
| | — |
|
| Residence Inn | 4 |
| | 512 |
| | 16 |
| | 2,279 |
| | — |
| | — |
| 6 |
| | 749 |
| | 18 |
| | 2,600 |
| | — |
| | — |
|
| TownePlace Suites | — |
| | — |
| | 1 |
| | 105 |
| | — |
| | — |
| — |
| | — |
| | 2 |
| | 278 |
| | — |
| | — |
|
Timeshare (2) | — |
| | — |
| | 14 |
| | 2,304 |
| | — |
| | — |
| — |
| | — |
| | 15 |
| | 2,296 |
| | — |
| | — |
|
| Total Non-U.S. Locations | 352 |
| | 99,559 |
| | 159 |
| | 32,612 |
| | 85 |
| | 8,721 |
| 390 |
| | 106,276 |
| | 191 |
| | 38,210 |
| | 80 |
| | 8,839 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | 1,102 |
| | 289,039 |
| | 2,531 |
| | 345,436 |
| | 85 |
| | 8,721 |
| 1,101 |
| | 293,531 |
| | 2,735 |
| | 373,253 |
| | 80 |
| | 8,839 |
|
| |
(1) | Represents projects where we manage the related owners’ association. We include residential products once they possess a certificate of occupancy. |
| |
(2) | Timeshare properties licensed by MVW under the Marriott Vacation Club, The Ritz-Carlton Destination Club, The Ritz-Carlton Residences, and Grand Residences by Marriott brand names. Includes products that are in active sales as well as those that are sold out. MVW's property and room counts are reported on a fiscal year basis for the MVW year ended January 3, 2014. |
| |
(3) | Properties are operated as part ofby unconsolidated joint ventures.ventures that hold management agreements and also provide services to franchised properties. |
Summary of Properties by Country
At year-end 2011,2013, we operated, franchised or licensed properties in the following 7372 countries and territories(excluding 2,166 corporate housing rental units).territories:
| | | Country | | Properties | | Rooms | | Properties | | Rooms |
| Americas | | |
| Argentina | | 1 | | 318 | |
| Aruba | | 4 | | 1,635 | | 5 | | 1,955 |
| Bahamas | | 1 | | 44 | | 1 | | 17 |
| Barbados | | 1 | | 118 | | 1 | | 118 |
| Brazil | | 4 | | 1,115 | | 5 | | 1,243 |
| British Virgin Islands | | 1 | | 58 | | 1 | | 58 |
| Canada | | 67 | | 13,698 | | 80 | | 15,749 |
| Cayman Islands | | 3 | | 772 | | 5 | | 772 |
| Chile | | 2 | | 485 | | 2 | | 485 |
| Colombia | | 2 | | 503 | | 3 | | 673 |
| Costa Rica | | 5 | | 1,039 | | 7 | | 1,222 |
| Curaçao | | 2 | | 484 | | 2 | | 484 |
| Dominican Republic | | 2 | | 445 | | 2 | | 445 |
| Ecuador | | 2 | | 401 | | 2 | | 401 |
| El Salvador | | 1 | | 133 | | 1 | | 133 |
| Honduras | | 1 | | 153 | | 1 | | 153 |
| Jamaica | | 1 | | 427 | |
| Mexico | | 19 | | 4,728 | | 23 | | 5,561 |
| Panama | | 3 | | 757 | | 5 | | 1,001 |
| Peru | | 1 | | 300 | | 2 | | 453 |
| Puerto Rico | | 6 | | 1,971 | | 9 | | 2,226 |
| Saint Kitts and Nevis | | 2 | | 541 | | 2 | | 541 |
| Suriname | | 1 | | 140 | | 1 | | 140 |
| Trinidad and Tobago | | 1 | | 119 | | 1 | | 119 |
| United States | | 3,122 | | 502,304 | | 3,255 | | 522,298 |
| U.S. Virgin Islands | | 5 | | 1,095 | | 5 | | 1,095 |
| Venezuela | | 3 | | 688 | | 3 | | 688 |
| Total Americas | | 3,263 | | 534,471 | | 3,424 | | 558,030 |
| United Kingdom and Ireland | | |
| Ireland | | 3 | | 610 | | 2 | | 454 |
| United Kingdom (England, Scotland, and Wales) | | 58 | | 11,269 | | 64 | | 12,191 |
| Total United Kingdom and Ireland | | 61 | | 11,879 | | 66 | | 12,645 |
| | | Middle East and Africa | | | | |
| Algeria | | 1 | | 204 | | 1 |
| | 204 |
| Bahrain | | 2 | | 457 | | 3 |
| | 537 |
| Egypt | | 7 | | 3,430 | | 8 |
| | 3,763 |
| Jordan | | 3 | | 644 | | 3 |
| | 644 |
| Kuwait | | 2 | | 577 | | 2 |
| | 577 |
| Oman | | 2 | | 495 | | 2 |
| | 495 |
| Pakistan | | 2 | | 508 | | 2 |
| | 508 |
| Qatar | | 6 | | 1,509 | | 6 |
| | 1,509 |
| Saudi Arabia | | 4 | | 1,244 | | 7 |
| | 1,800 |
| United Arab Emirates | | 8 | | 1,563 | | 10 |
| | 3,058 |
| Total Middle East and Africa | | 37 | | 10,631 | | 44 |
| | 13,095 |
| Asia | | | | |
| China | | 57 | | 22,831 | | 67 |
| | 25,140 |
| Guam | | 1 | | 436 | | 1 |
| | 436 |
| India | | 15 | | 3,951 | | 23 |
| | 5,752 |
| Indonesia | | 9 | | 1,955 | | 10 |
| | 2,261 |
| Japan | | 10 | | 3,151 | | 12 |
| | 3,684 |
| Malaysia | | 7 | | 3,019 | | 7 |
| | 3,070 |
| Philippines | | 2 | | 657 | | 2 |
| | 657 |
| Singapore | | 3 | | 1,059 | | 3 |
| | 1,059 |
| South Korea | | 5 | | 1,751 | | 5 |
| | 1,751 |
| Thailand | | 20 | | 4,527 | | 18 |
| | 3,815 |
| Vietnam | | 1 | | 336 | | 2 |
| | 786 |
| Total Asia | | 130 | | 43,673 | | 150 |
| | 48,411 |
| Australia | | 6 | | 1,768 | | 5 |
| | 1,527 |
| Continental Europe | | | | |
| Azerbaijan | | | 1 |
| | 243 |
| Armenia | | 1 | | 226 | | 2 |
| | 326 |
| Austria | | 7 | | 1,720 | | 8 |
| | 1,922 |
| Belgium | | 5 | | 881 | | 5 |
| | 881 |
| Czech Republic | | 6 | | 1,088 | | 6 |
| | 1,088 |
| Denmark | | 1 | | 401 | | 1 |
| | 402 |
| France | | 16 | | 3,664 | | 21 |
| | 4,266 |
| Georgia | | 2 | | 245 | | 2 |
| | 245 |
| Germany | | 30 | | 6,853 | | 28 |
| | 6,481 |
| Greece | | 1 | | 314 | | 1 |
| | 314 |
| Hungary | | 4 | | 892 | | 4 |
| | 891 |
| Israel | | 1 | | 342 | | 3 |
| | 539 |
| Italy | | 21 | | 3,301 | | 23 |
| | 3,677 |
| Kazakhstan | | 3 | | 465 | | 5 |
| | 634 |
| Netherlands | | 3 | | 945 | | 3 |
| | 946 |
| Poland | | 2 | | 754 | | 2 |
| | 759 |
| Portugal | | 5 | | 1,161 | | 5 |
| | 1,150 |
| Romania | | 1 | | 401 | | 1 |
| | 401 |
| Russia | | 14 | | 3,492 | | 13 |
| | 3,013 |
| Spain | | 82 | | 9,812 | | 75 |
| | 9,590 |
| Sweden | | 2 | | 406 | | 2 |
| | 406 |
| Switzerland | | 6 | | 1,181 | | 6 |
| | 1,181 |
| Turkey | | 8 | | 2,230 | | 10 |
| | 2,560 |
| Total Continental Europe | | 221 | | 40,774 | | 227 |
| | 41,915 |
| | | | | | | | | |
| Total | | 3,718 | | 643,196 | | 3,916 |
| | 675,623 |
Descriptions of Our Brands
North American Full-Service Segment, North American Limited-Service Segment,
International Segment Lodging Products
Marriott Hotels & Resortsis our global flagship premium brand, primarily serving business and leisure upper-upscale travelers and meeting groups. Marriott Hotels & Resorts properties seek to be "brilliant hosts" to global, mobile guests who blend work and play, demand seamless connectivity and seek style with substance. Properties are located in downtown, urban, and suburban areas, near airports, and at resort locations. Marriott Hotels & Resorts is a performance-inspired brand that caters to the achievement-oriented guest.
Typically, properties contain 300 to 700 well-appointed guest rooms, the Revive® bedding package, in-room high-speed Internet access, swimming pools, convention and banquet facilities, destination-driven restaurantrestaurants and lounges, room service, concierge lounges, fitness centers, swimming pools, wireless Internet access in public places,spaces, and parking facilities. SeventeenSixteen properties have over 1,000 rooms. Many resort properties have additional recreational facilities, such as tennis courts, golf courses, additional restaurants and lounges, and spa facilities. New and renovated properties typically reflectshowcase the M.I. greatroomSM, a reinventedMarriott Greatroom lobby featuring functional seating, state-of-the-art technology, and innovative food and beverage concepts in a stylish setting, as well as the new Marriott guest room,experience, which features dynamic public spaces that flex to meet a wide variety of the social, mobile, and collaborative behaviors of today's traveler. Properties feature luxurious guest rooms, contemporary residential design, warm colors,designs with rich woods and architectural detail, flat-screen high-definition televisions, “plug ‘n play” technology,in-room high-speed Internet access, and bathrooms reflectingembodying spa-like luxury. The Marriott Hotels brand is also leading the industry with the deployment of Mobile Guest Services that allows customers to check in and check out of a hotel on their mobile device. At year-end 2011,2013, there were 492486 Marriott Hotels & Resorts properties (178,854174,509 rooms), excluding JW Marriott and Marriott Conference Centers.
At year-end 2011,2013, there were 10 Marriott Conference Centers (2,915 rooms) throughout the United States. Some of the centers are used exclusively by employees of sponsoring organizations, while others are marketed to outside meeting groups and individuals. In addition to the features found in a typical Marriott full-serviceHotels property, theconference centers typically include expanded meeting room space, banquet and dining facilities, and recreational facilities.
JW Marriott is a global luxury brand made up of a collection of beautiful properties and resorts that cater to accomplished, discerning travelers seeking an elegant environment with discreet personal service. JW Marriott's elegant yet approachable positioning provides a differentiated offering in the luxury hotel market, bridging the gap between full service hotel brands and the super luxury brands at the top of the tier. At year-end 2011,2013, there were 5363 properties (23,82627,477 rooms) primarily located in gateway cities and upscale locations throughout the world. JW Marriott offers anticipatory service and exceptional amenities, many with world-class golf and spa facilities. In addition to the features found in a typical Marriott full-serviceHotels property, the facilities and amenities at JW Marriott properties normally include larger guest rooms, higher endhigher-end décor and furnishings, upgraded in-room amenities, upgraded executive lounges, business centers and fitness centers, and 24-hour room service.
|
| | | | | |
Marriott Hotels, & Resorts, Marriott Conference Centers, and JW Marriott Geographic Distribution at Year-End 20112013 | | Properties | | |
United States (42(43 states and the District of Columbia) | | 353344 |
| | (142,881138,860 rooms) |
| Non-U.S. (58 countries and territories) | | | | |
| Americas | | 4650 |
| | |
| Continental Europe | | 3941 |
| | |
| United Kingdom and Ireland | | 5251 |
| | |
| Asia | | 4250 |
| | |
| Middle East and Africa | | 1819 |
| | |
| Australia | | 54 |
| | |
| Total Non-U.S. | | 202215 |
| | (62,71466,041 rooms) |
Renaissance Hotels is a global, full-service lifestyle brand that targets lifestyle-oriented business and leisure travelers who are discoverers"discoverers at heartheart" and who seekvalue business travel as a way to live lifeexplore the world. Each Renaissance hotel offers its own personality, local flavor, and distinctive style and provides guests the opportunity to discover something new at every turn. Two innovations include the fullest.Navigator program, which helps guests discover authentic establishments in the locale, and RLife® LIVE, which helps guests discover emerging talent in music, films, arts, and more in the comfort of the hotel lobby bars and lounges. For
group customers, Renaissance offers R.E.N. Meetings, which includes Renaissance sensory meeting space and table settings, Entertainment with RLife LIVE, and Navigator local experts, all built on our company's trusted meetings expertise and heritage.
Renaissance Hotels properties are generally located in downtown locations of major cities, in suburban office parks, near major gateway airports, and in destination resorts. Renaissance hotels echo and embrace their locales—fromHotels' diverse portfolio includes historic icons, to modern boutiques, to exotic resorts.resorts, and convention hotels. Most properties contain from 250 to 500 rooms, featuring modern chic design, active restaurantslively bars and lounges, state-of-the-art technology, and inspiringcreative meeting and banquet facilities. At year-end 2011,2013, there were 154153 Renaissance Hotels properties (52,96651,900 rooms), including two Renaissance ClubSport properties (349 rooms).
|
| | | | | |
Renaissance Hotels Geographic Distribution at Year-End 20112013 | | Properties | | |
| United States (28 states and the District of Columbia) | | 8076 |
| | (29,22927,189 rooms) |
| Non-U.S. (33 countries and territories) | | | | |
| Americas | | 9 |
| | |
| Continental Europe | | 3231 |
| | |
| United Kingdom and Ireland | | 4 |
| | |
| Asia | | 2629 |
| | |
| Middle East and Africa | | 34 |
| | |
| Total Non-U.S. | | 7477 |
| | (23,73724,711 rooms) |
Autograph Collection Hotels. The Autograph Collection is our evolving ensemblea growing portfolio of upper-upscale and luxury independent hotels located in major cities and desired destinations worldwide. Hotels are selected for their originality, rich character, and uncommon details. Autograph Collection hotels seek to reflectaround the adventurous spirit and uncompromising originality of the guests who seek them out. Propertiesworld. Each hotel in the Collection fall into a variety of hotel categories and guest experiences thatis selected for its distinction as an iconic landmark, its cultural significance, remarkable design or for its best-in-class resort amenities. Autograph Collection provides the Collectionour company the opportunity to attract new customers as they look for travelguests who prefer original and varying hotel experiences ourthat other brands do not offer. The Collection also enables our company to grow by attractingprovides owners of high-quality hotels who benefit fromwith a much strongercompelling consumer offering through our leading reservations and marketing platforms as well asand Marriott Rewards®, our world-class rewardsaward winning loyalty program. Every hotel in the Collection has its own character and unique sense of place. At year-end 2011,2013, there were 2756 Autograph Collection properties (6,10511,463 rooms) operating in six15 countries and territories.
|
| | | | | |
Autograph Collection Hotels Geographic Distribution at Year-End 20112013 | | Properties | | |
United States (11(15 states) | | 1732 |
| | (5,2078,410 rooms) |
Non-U.S. (5(14 countries and territories) | | | | |
| Americas | | 13 |
| | |
| Continental Europe | | 915 |
| | |
| United Kingdom and Ireland | | 4 |
| | |
| Asia | | 2 |
| | |
| Total Non-U.S. | | 1024 |
| | (8983,053 rooms) |
Gaylord Hotels. With its world-class group and convention-oriented hotels, Gaylord Hotels is a leader in the group and meetings business and complements our existing network of large convention hotels. Gaylord Hotels properties are located in Prince George's County, Maryland near Washington, D.C. (Gaylord National®), in Nashville, Tennessee (Gaylord Opryland® and The Inn at Opryland), in Kissimmee, Florida near Orlando (Gaylord Palms®) and in Lake Grapevine, Texas, near Dallas (Gaylord Texan®). Gaylord Hotels properties are designed to celebrate the heritage of their destinations. Properties typically have between approximately 1,400 rooms and 2,900 rooms, extensive meeting and convention space ranging from 400,000 to 600,000 square feet, from 4 to 15 restaurants, eateries and bars, and retail outlets serving groups and leisure travelers. Fueled by the brand’s hallmark "Everything in one place" concept, each Gaylord Hotels resort blends magnificent settings, luxurious rooms, and world-class dining and entertainment offerings. Gaylord Hotels properties invite their guests to experience live music, dining, dancing, sporting activities, shopping, golf, movies, and more, all in one place. We also manage Gaylord Springs Golf Links, Wildhorse Saloon, and General Jackson Showboat located at or near the Gaylord Opryland in Nashville. At year-end 2013, there were five Gaylord Hotels properties (8,098 rooms, including the 303 room Inn at Opryland) operating in the United States.
AC Hotels by Marriott. In 2011, we entered intoWe are a partner with AC Hoteles, S.A. of Spain in joint ventures with AC Hotels of Spain to createthat created the “AC Hotels by Marriott” co-brand. AC Hotels by Marriott is designed to attract the upper-moderate design-conscious guest andlooking for a cosmopolitan hotel in a great city location. The brand features stylish, sleek designs with limited food and beverage offerings. Room counts vary by continent and can range from 50 to175 rooms. AC Hotelsby Marriott hotels are typically contain 50 to 150 rooms and are located in destination, downtown, and suburban markets.lifestyle centers. Each hotel has its own unique style and character, but all feature the signature “AC Bed” with four large pillows and built-in reading light. OtherAC Hotels by Marriott also features the “AC Lounge” offering cocktails, appetizers and sharable plates where guests can relax and unwind, and "AC Fitness" centers with state-of-the-art exercise equipment. Small meeting rooms can be found in most hotels for private board meetings or intimate social gatherings. Based on location, other hotel amenities include a mini-bar, 24-hour room service, laundry service, exclusive bathroom amenities, writing desk, and Wi-Fi. AC Hotels also feature “AC Fitness” centers with state-of-the-art exercise equipment and the “AC Lounge” where guests can relax and unwind. Small meeting rooms can be found in most hotels to enable guests to have private board meetings or intimate social gatherings. At year-end 2011,2013, there were 8075 AC Hotels by Marriott properties (8,3718,491 rooms) in Spain, Italy, France, and Portugal. In 2013, we announced that we plan to import the AC Hotels brand into the U.S. and the rest of the Americas.
Moxy Hotels. In 2013, we announced a collaboration with Inter IKEA to develop our newest brand, Moxy Hotels, a design-led, lifestyle budget hotel developed around the needs of Generation X and Y travelers. Moxy offers a new way of traveling in which smaller is concentration, not reduction, and in which affordability is not a sacrifice of style, nor a loss of comfort. The brand offers a vibrant, communal and stylish public space and a fun, energetic and edgy personality. The brand will debut in Italy, with the first Moxy expected to open in Milan in mid-2014.
Courtyard is our select-service hotel product designed for the upper-moderate price tier. Focused primarily on transient business travel, Courtyard hotels are designed to offer a refreshing environment to help guests stay connected, productive, and balanced, while accommodating their need for choice and control when traveling. The hotels typically contain 90 to 150 rooms in suburban locales and 140 to 340 rooms in downtown domestic and international locales. Well-landscaped grounds typically include a courtyard with a pool and outdoor social areas. Hotels feature functionally designed guest rooms and meeting rooms, free in-room high-speed Internet access, free wireless high-speed Internet access (Wi-Fi) in the lobby (in North America), a swimming pool, an exercise room, and The Market (a self-serve food store open 24 hours a day). While manyAt year-end 2013, over 80 percent of our North American Courtyard hotels currently offercompleted the Courtyard Refreshing Business lobby design, a breakfast buffet, the brand is transitioning to a new state-of-the-art lobby design we began implementing in 2008. The Bistro is the centerpiece of the lobby and is a "paid for" food and beverage concept.concept that offers guests fresh and healthy meals for both breakfast and dinner along with Starbucks® Coffee, specialty espresso drinks, and a full evening bar service. The multifunctional lobby space enables guests to work, relax, eat, drink, and socialize at their own pace, taking advantage of enhanced technology and The Bistro’s breakfast and dinner offerings. The new, sophisticated lobby design is intended to keep Courtyard well positioned against its competition by providing better value through superior facilities, technology, and service to generate stronger connections with our guests. At year-end 2011, over half of our North American Courtyard hotels had completed the new lobby design. At year-end 2011,2013, there were 913953 CourtyardsCourtyard properties (134,719140,549 rooms) operating in 3738 countries and territories.
|
| | | | | |
Courtyard Geographic Distribution at Year-End 20112013 | | Properties | | |
| United States (49 states and the District of Columbia) | | 805836 |
| | (113,413117,693 rooms) |
Non-U.S. (36(37 countries and territories) | | | | |
| Americas | | 3543 |
| | |
| Continental Europe | | 4342 |
| | |
| United Kingdom and Ireland | | 12 |
| | |
| Asia | | 2524 |
| | |
| Middle East and Africa | | 35 |
| | |
| Australia | | 1 |
| | |
| Total Non-U.S. | | 108117 |
| | (21,30622,856 rooms) |
Fairfield Inn & Suites (which includes Fairfield Inn) competesInn, Fairfield Inn & Suites and Fairfield by MarriottSM) is an established leader in the moderate-price tier segment and is targeted primarily at value-conscious business travelers. Fairfield Inn & Suites’ new prototype provides owners and investors with options and flexibility to meet specific market needs. Whether the hotel is located in an urban, secondary, or tertiary market, this innovative design allows owners to adapt the model based on location and site requirements. A typical Fairfield Inn & Suites or Fairfield Inn property has 60 to 140 rooms in suburban locations and up to 200 rooms in urban destinations. Fairfield Inn & Suites offers a wide range of amenities, including free in-room high-speed Internet access and free Wi-Fi access in the lobby, on-site business services (copying, faxing, and printing), a business center/lobby computer with Internet access and print capability, complimentary continentalfree hot breakfast, buffet, The Market (a self-serve food store open 24 hours a day, at most locations), exercise facilities (at most locations), and a swimming pool. Additionally, suite rooms (approximately 25 percent of the rooms at a typical Fairfield Inn & Suites) provide guests with separate areas for sleeping, working, and relaxing as well as in-room amenities including a microwave and refrigerator. At year-end 2011,2013, there were 431 511
Fairfield Inn & Suites properties and 249197 Fairfield Inn properties (61,96064,965 rooms combined total), operating in the United States, Canada, Mexico and Mexico.India.
|
| | | | | |
Fairfield Inn & Suites and Fairfield Inn Geographic Distribution at Year-End 20112013 | | Properties | | |
United States (49(48 states and the District of Columbia) | | 667691 |
| | (60,39262,921 rooms) |
Non-U.S. Americas (Canada(3 countries and Mexico)territories) | | 13 | | |
| Americas | | 16 |
| | |
| Asia | | 1 |
| | |
| Total Non-U.S. | | 17 |
| | (1,5682,044 rooms) |
Residence Inn is North America’s leading upscale extended-stay hotel brand designed for frequent and extended stay business and leisure travelers staying five or more nights. Residence Inn provides upscale design and style with spacious suites that feature separate living, sleeping, and working areas, as well as kitchens with full-size appliances. Building on the brand’s innovative spirit, Residence Inn is evolving to better support our guests with our new guest room designs, featuring a new desk design that offers room to spread out and work in comfort, a signature sofa that offers a place to work and relax, and an updated bath area with thoughtful storage. Additionally, we have created a fresh, stylish, residential design for the lobby space to encourage guests to enjoy time with friends and family outside their suites. Guests can maintain their own pace and routines through free in-room high-speed Internet access and free Wi-Fi access in the lobby, on-site exercise options, and comfortable places to work and relax. Additional amenities include free hot breakfast and evening social events, free grocery shopping services, 24-hour friendly and knowledgeable staffing, and laundry facilities. At year-end 2013, there were 653 Residence Inn properties (79,405 rooms) operating in 6 countries and territories.
|
| | | | | |
Residence Inn Geographic Distribution at Year-End 2013 | | Properties | | |
| United States (48 states and the District of Columbia) | | 629 |
| | (76,056 rooms) |
| Non-U.S. (5 countries and territories) | | | | |
| Americas | | 21 |
| | |
| Continental Europe | | 1 |
| | |
| United Kingdom and Ireland | | 1 |
| | |
| Middle East and Africa | | 1 |
| | |
| Total Non-U.S. | | 24 |
| | (3,349 rooms) |
SpringHill Suites is our all-suite brand in the upper-moderate-price tier primarily targeting business and leisure travelers who are looking for extra space and style with a great value. Fusing form and function with modern décor and creature comforts like great bedding, good food, and fitness options, SpringHill Suites delivers a stimulating and enriching experience for its target guests, who are "independent social explorers" looking for extra space and style with a great value. SpringHill Suites properties typically have 90 to 165 suites that have approximately 25 percent more space than a traditional hotel guest room with separate areas for sleeping, working, and relaxing. The brand offers a broad range of amenities, including free in-room high-speed Internet access and free Wi-Fi access in the lobby, The Market (a self-serve food store open 24 hours a day), complimentary hot breakfast buffet, lobby computer and on-site business services (copying, faxing, and printing), exercise facilities, and a swimming pool. At year-end 2011,2013, there were 285306 properties (33,46635,888 rooms) locatedoperating in the United States (45 states) and 2two properties (299 rooms) in Canada.
Residence Inn is North America’s leading upscale extended-stay hotel brand designed for business and leisure travelers staying five or more nights. Residence Inn provides upscale design and style with spacious suites that feature separate living, sleeping, and working areas, as well as kitchens with full-size appliances. Guests can maintain their own pace and routines through free in-room high-speed Internet access and free Wi-Fi access in the lobby, on-site exercise options, and comfortable places to work or relax. Additional amenities include free hot breakfast and evening social events, free grocery shopping services, 24-hour friendly and knowledgeable staffing, and laundry facilities. At year-end 2011, there were 617 Residence Inn properties (74,867 rooms) located in the United States, Canada, Costa Rica, United Kingdom, and Germany.
|
| | | | | |
Residence Inn
Geographic Distribution at Year-End 2011
| | Properties | | |
United States (47 states and the District of Columbia) | | 597 |
| | (72,076 rooms) |
Non-U.S. Americas (4 countries and territories) | | | | |
Americas | | 18 |
| | |
Continental Europe | | 1 |
| | |
United Kingdom and Ireland | | 1 |
| | |
Total Non-U.S. | | 20 |
| | (2,791 rooms) |
TownePlace Suites is a moderately priced extended-stay hotel brand that is designed to appeal to business and leisure travelers who stay for five nights or more. DesignedCreated for the self-sufficient, value-consciousvalue smart traveler who has a preference for a comfortable, uncomplicated and convenient hotel experience, each suite generally provides functional spaces for living and working, including a full kitchen and a home office. TownePlace Suites associates provide insightful local knowledge, and each hotel specializes in delivering service that helps guests settle in, maintain their day-to-day routine, and connect to the local area. Additional amenities include daily housekeeping services, breakfast, on-site exercise facilities, a pool, 24-hour staffing, laundry facilities, free in-room high-speed Internet access and free Wi-Fi access in the lobby and laundry facilities.guest suites. At year-end 2011,2013, there were 200222 TownePlace Suites properties (20,04822,039 rooms) were located in 42 states.
Marriott ExecuStay provides furnished corporate apartments primarily for long-term stays nationwide. ExecuStay owns no residential real estate and provides units primarily through short-term lease agreements with apartment owners and managers and franchise agreements. At year-end 2011, Marriott leased approximately 2,200 apartments and our 11 franchisees leased approximately 2,500 apartments. Apartments are located in 43 different marketsoperating in the United States of which 34 are franchised.(44 states) and two properties (278 rooms) operating in Canada.
Marriott Executive Apartments provide temporary housing (“Serviced Apartments”)provides luxury serviced apartments with five-star amenities and services for business executives and othersthose on leisure who need qualityrequire accommodations outside their home country, usually for 30 or more days. These full-service apartments are designed with upscale finishes and a wide variety of amenities including food and beverage options,
a 24-hour front desk, daily and weekly housekeeping services, laundry facilities within the apartment, and on-site laundryrecreational facilities. With all the space of a high-endluxury apartment and all the services of Marriott'sour skilled staff, Marriott Executive Apartments offersoffer a truly unique solution for long-term international guests.guests seeking an opportunity to live, connect, and explore their new city. At year-end 2011, 212013, 25 Marriott Executive Apartments and two other Serviced Apartments properties (3,7004,295 rooms total) were located in 16 countries and territories. All Marriott Executive Apartments are located outside the United States.
Luxury Segment Lodging Products
The Ritz-Carlton is aone of the world's leading global luxury lifestyle brand, comprised ofbrands, with hotels and resorts renowned for their extraordinary locations, inspired design, and legendary service. The brand, designed to appeal to the guest who enjoys genuine care and comfort, seeks to provide unique, memorable, and personal experiences that transcend luxury hospitality and create indelible marks in guests' lives. The Ritz-Carlton properties typically include elegant spa and wellness facilities, restaurants led by celebrity chefs, championship golf courses (at resort properties), 24-hour room service, twice-daily housekeeping, fitness and business centers, meeting and banquet facilities, concierge services, and The Ritz-Carlton Club®Level. Established in 1983 and acquired by Marriott International in 1995, theThe Ritz-Carlton is a highly reputable, award-winning organization and the only service company to have twice earned the prestigious Malcolm Baldrige National Quality Award. At year-end 2013, there were 88 The Ritz-Carlton hotel properties (25,569 rooms) and 40 home and condominium projects (4,228 units) for which we manage the related owners' associations operating in 29 countries and territories.
|
| | | | | |
The Ritz-Carlton Geographic Distribution at Year-End 20112013 (1) | | Properties | | |
United States (16(17 states and the District of Columbia) | | 6867 |
| | (15,09614,638 rooms) |
Non-U.S. (26(29 countries and territories) | | | | |
| Americas | | 915 |
| | |
| Continental Europe | | 712 |
| | |
| United Kingdom and Ireland | | 1— |
| | |
| Asia | | 2024 |
| | |
| Middle East and Africa | | 910 |
| | |
| Total Non-U.S. | | 4661 |
| | (12,90415,159 rooms) |
| |
(1) | Includes 3240 home and condominium projects (3,8384,228 units) for which we manage the related owners’ associations. |
Bulgari Hotels & Resorts. ThroughBulgari Hotels & Resorts is the product of a joint venture withbetween us and Italian jeweler and luxury goods designer Bulgari SpA, we operateSpA. The Bulgari Hotels & Resorts brand offers distinctive luxury hotel properties located in prime locations undergateway cities and exclusive resorts around the nameworld. These innovative hotels combine Bulgari Hotels & Resorts.style with incredible service in an informal yet impeccable setting, providing a flawless experience sought by the most discriminating guests. At year-end 2011, we operated2013, there were three Bulgari properties: the Bulgari MilanoMilan Hotel (58 rooms), in Milan, Italy, and the Bulgari Bali Resort which features 59(59 private villas, two restaurants, and comprehensive spa facilities.facilities), and the Bulgari Hotel in London, England (85 rooms) overlooking Hyde Park and Knightsbridge. We also operate two restaurants in Tokyo, Japan, which are co-located with two Bulgari retail stores. The propertieshotels are designed by renowned Italian designer Antonio Citterio and the furnishings and detailing embody the idea of contemporary luxury. Upcoming openings include aWe operate all of the Bulgari Hotels & Resorts brand properties and restaurants other than the hotel in London, in 2012 and otherwhich is franchised. Other projects are currently in various stages of development in Europe, Asia, the Middle East, and North America.
EDITION. In 2007, we entered into an agreementcollaboration with hotel innovator Ian Schrager, to create next-generation lifestyle boutique hotels to be designed by Schrager and operated by Marriott. The EDITION brand offers acombines the personal, intimate, individualized, and unique lodginghotel experience onthat Ian Schrager is known for, with the global reach, operational expertise and scale of Marriott. The brand’s approach and attitude toward modern lifestyle provides a unifying aesthetic, blending groundbreaking innovation, great design, outstanding dining and entertainment with personal, friendly and modern service. The heightened experience, authenticity and originality that Ian Schrager brings to the brand coupled with the global scale.reach of Marriott results in a truly distinct product that sets itself apart from anything else currently in the marketplace. EDITION showcases the finest dining and entertainment offerings for guests and locals in the know. At year-end 2011,2013, the brand operatesoperated The Istanbul EDITION, an award-winning 78-room hotelproperty in Istanbul, Turkey, and isrecently opened the 173-room London EDITION to great acclaim. Planned openings are also scheduled to open hotels in London (2012),international gateway cities including Miami Beach (2013)(2014), New York (2014)York-Madison Square Park (2015), Gurgaon, India (2015), Sanya, China (2015), Bangkok, Thailand (2016), Abu Dhabi (2016), Shanghai, China (2016), Wuhan, China (2017), West Hollywood (2017), and Abu Dhabi (2015)New York-Times Square (2017), along with other projects under development in key locations around the world. The EDITION hotels in Miami Beach and New York-Madison Square Park are currently under construction and development with our own funds. Early in the 2014 first quarter, we sold The London
EDITION to a third party and simultaneously entered into definitive agreements to sell The Miami Beach and The New York EDITION hotels to the same third party when construction is complete. We will retain long-term management agreements for each of these three EDITION hotels. See Footnote No. 7, "Acquisitions and Dispositions" for additional information on this transaction.
Licensed Timeshare Brands
PriorOn November 21, 2011 ("the spin-off date"), we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our then wholly owned subsidiary MVW. Before the spin-off date, we developed, operated, marketed, and sold timeshare interval, fractional ownership, and residential properties as part of our former Timeshare segment under four brand names - Marriott Vacation Club, The Ritz-Carlton Destination Club, The Ritz-Carlton Residences, and Grand Residences by Marriott. In conjunction with the spin-off, of our timeshare operations and timeshare development business, we entered into licensing agreements with MVW for MVW’s use of the Marriott timeshare and Ritz-Carlton fractional brands. See Footnote No. 15, "Spin-off," for more information on the spin-off.
Under the licensing agreements, MVW is the exclusive worldwide developer, marketer, seller, and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. They areMVW is also the exclusive global developer, marketer, and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand. Ritz-Carlton generally provides on-site management for Ritz-Carlton branded properties. We receive license fees under the licensing agreements with MVW.
Many resorts are located adjacent to company-operated hotels we operate, such as Marriott Hotels & Resorts and The Ritz-Carlton, and owners have access to certain hotel facilities during their vacation.
Brands licensed by usWe license the following brands to MVW are as follows:MVW:
The Marriott Vacation Club brand is MVW's signature offering in the upscale tier of the vacation ownership industry. Marriott Vacation Club resorts typically combine many of the comforts of home, such as spacious accommodations with one-, two- and three- bedroomthree-bedroom options, living and dining areas, and in-unit kitchens and laundry facilities, with resort amenities such as large feature swimming pools, restaurants and bars, convenience stores, and fitness facilities and spas, as well as sports and recreation facilities appropriate for each resort's unique location.
Grand Residences by Marriott is an upscale tier vacation ownership and whole ownership residence brand. MVW's vacation ownership products under this brand include multi-week ownership interests. The ownership structure and physical products for these locations are similar to those MVW offers to Marriott Vacation Club owners, although the time period for each Grand Residences by Marriott ownership interest ranges between three and 13 weeks. MVW also offers whole ownership residential products under this brand.
The Ritz-Carlton Destination Club brand is MVW's vacation ownership offering in the luxury tier of the industry. The Ritz-Carlton Destination Club provides luxurious vacation experiences commensurate with The Ritz-Carlton brand. The Ritz-Carlton Destination Club resorts typically feature two-, three- and four- bedroomfour-bedroom units that generally include marble foyers, walk-in closets, and custom kitchen cabinetry, and luxury resort amenities such as large feature pools and full-service restaurants and bars. We deliver on-site services, which usually include daily maidhousekeeping service, valet, in-residence dining, and access to fitness facilities as well as spa and sports facilities as appropriate for each destination, through our Ritz-Carlton subsidiary.
The Ritz-Carlton Residences brand is a whole ownership residence brand in the luxury tier of the industry. The Ritz-Carlton Residences include whole ownership luxury residential condominiums and home sites for luxury home construction co-located with certain The Ritz-Carlton Destination Club resorts. Owners can typically purchase condominiums that vary in size from one-bedroom apartments to spacious penthouses. The Ritz-Carlton Residences are situated in settings ranging from city center locations to golf and beach communities with private homes where residents can avail themselves of the services and facilities on an a la carte basis that are associated with the co-located The Ritz-Carlton Destination Club resort. On-siteWe deliver on-site services are delivered by Ritz-Carlton.through our Ritz-Carlton subsidiary. While the worldwide residential market is very large, the luxurious nature of theThe Ritz-Carlton Residences properties, the quality and exclusivity associated with theThe Ritz-Carlton brand, and the hospitality services that are provided all make The Ritz-Carlton Residences properties distinctive.
MVW offers Marriott Rewards® Points and The Ritz-Carlton Rewards® Points to its owners or potential owners as sales, tour, and financing incentives, in exchange for vacation ownership usage rights, for customer referrals, and to resolve customer service issues. TheseMVW buys these points are purchased from theour Marriott Rewards and Ritz-Carlton Rewards programs.
At year-end 2011,2013, MVW operated 6462 properties, primarily in the United States, but also in other countries and territories.
Other Activities
Credit Card Programs. At year-end 2011, Marriott Golf managed 44 golf course facilities as part of our management of hotels and for other golf course owners.
At year-end 2011, we operated 15 system-wide hotel reservation centers, eight in the United States and Canada and seven in other countries and territories, which handle reservation requests for our lodging brands worldwide, including franchised properties. We own one of the U.S. facilities and lease the others.
At year-end 2011,2013, we had six credit card programs in the United States, Canada, and the United Kingdom, which include both Marriott Rewards and The Ritz-Carlton Rewards credit cards. We earn licensing fees based on card usage, and the cards are designed to encourage loyalty to our brands.
Sales and Marketing, Loyalty Programs, and Reservation Systems. We focus on increasing value for the consumer and “selling the way the customer wants to buy.” Our Look No Further® Best Rate Guarantee gives customers access to the same rates whether they book through our telephone reservation system, our website, or any other Marriott reservation channel. Also key toMarriott’s Look No Further Guarantee ensures best rate integrity, strengthening consumer confidence in our success is ourbrand. Our strong Marriott Rewards program, ourand The Ritz-Carlton Rewards program,guest recognition programs and our information-rich and easy-to-use Marriott.com website.website are also key to our success.
With 75 percent of our guests saying they use our website when planning or booking their stays and with nearly $7 billion in annual property-level gross revenues,44 million visitors each month, Marriott.com isremains one of the largest online retail sites in the world, based on sales.and continues to experience unprecedented growth. According to Internet Retailer (September 2013), Marriott is now the largest hotel company in gross mobile bookings including bookings via smartphone and tablets. In 2011,2013, we introduced a number of new digital innovations, including a newsuccessfully launched Mobile Check-In at Marriott Hotels in North America and select international properties. Marriott Rewards members can now remotely check in at almost 350 Marriott Hotels using their mobile booking experience. We madedevices. Ongoing design improvements to the Marriott.com booking, search,will add elegance and online Marriott Rewards experience that are designed to generate more revenue, further reduce booking costs, and makesimplicity, making it even easier for our customersguests to do business with us. discover our properties on every device available.
We are also a founding venture partner along with five other major hotel chains in the establishment of Roomkey.com, a newan industry online referral and lead generation site. Roomkey.com will allowlaunched in January 2012 and allows consumers to research hotel options across multiple brands and whenbrands. When a Roomkey.com customer selects a Marriott branded hotel with one of our brands, the customer books directly on Marriott.com. As a result, weWe expect Roomkey.com will drive new business to Marriott.com withbe a more cost-effective and efficient business model for properties in our system than other online travel sites.
Our sales deployment strategy alignsAt year-end 2013, we operated 13 systemwide hotel reservation centers, six in the United States and Canada and seven in other countries and territories, which handle reservation requests for our sales efforts around customer needs, reducing duplicationlodging brands worldwide, including franchised properties. We own one of sales efforts,the U.S. facilities and enabling coverage for a larger number of accounts. We consider our new organizationto bea key competitive advantage for Marriott. The deployment rollout, which began in late 2007, was completed in June 2011.lease the others. Our reservation system manages and controls inventory availability and pricing set by our hotels and allows us to utilize online and offline agents where cost effective. With over 3,7003,900 properties in our system, economies of scale enable us to minimize costs per occupied room, drive profits for our owners and franchisees, and enhance our fee revenue. In 2011, we
The global sales and revenue management organization is a key competitive advantage for us due to an unrelenting focus on optimizing our investment in people, processes, and systems. We continue to develop and implement sales and revenue management plans and strategies that are tailored to specific markets around the world to meet the needs of our hotel owners. Our above-property sales deployment strategy aligns our sales efforts around the customer, reducing duplication of sales efforts by individual hotels and allowing us to cover a larger number of accounts. We also implementedutilize innovative technology solutions, including our Retail Pricing Optimizer tool ("RPO") and our High Performance Pricing tool ("HPP"). RPO determines optimal transient retail (benchmark) rates for hotels using an analytically-driven and market-based methodology. We believe this technology providessophisticated revenue management systems, many of which are proprietary, that provide a competitive advantage in pricing decisions, increasesincrease efficiency in analysis and decision making, and producesproduce increased property levelproperty-level revenue for transient retail and associated segments. HPP enablesthe hotels in our system. Most of the hotels in our system utilize web-based programs to more effectively manage the rate set up and modification processes using web-based functionality. The streamlined processwhich provides for greater pricing flexibility, reduces time spent on rate program creation and maintenance, and increases the speed to market of new products and services. For our company-managed hotels in North America, at year-end 2013, approximately one-third of our sales staff worked on-property, approximately one-third worked in outside sales (spending the majority of their time meeting in customer offices), and approximately one-third responded to customer requests in state-of-the-art sales offices.
Our customer loyalty programs, Marriott Rewards and The Ritz-Carlton Rewards, have over 45 million members and 14 participating brands. MVW and other program partners also participate in our rewards programs. The rewards programs yield repeat guest business by rewarding frequent stays with points toward free hotel stays and other rewards, or airline miles with any of 36 participating airline programs. We believe that our rewards programs generate substantial repeat business that might otherwise go to competing hotels. In 2013, rewards program members purchased over 50 percent of our room nights. We continue to enhance our rewards program offerings and strategically market to this large and growing customer base. Our loyal rewards member base provides a low cost and high impact vehicle for our revenue generation efforts. See the "Our Rewards Programs" caption in Footnote No. 1, "Summary of Significant Accounting Policies" for more information.
As we further discusseddiscuss in Part I, Item 1A “Risk Factors” later in this report, in conducting our business, we utilize sophisticated technology and systems including those used forin our reservation, revenue management, and property management systems, andin our Marriott Rewards and The Ritz-CarltonRitz-
Carlton Rewards programs.programs, and in other aspects of our business. We also make certain technologies available to our guests. Keeping pace with developments in technology is important for our operations and our competitive position. Furthermore, the integrity and protection of customer, employee, and company data is critical to us as we use such data for business decisions and to maintain operational efficiency.
Building on more than 20 years ofEnvironmental Responsibility and "Green" Hotels. Our sustainability strategy supports business growth and reaches beyond our hotels to preserve and protect our planet's natural resources. Marriott's environmental goals are to: (1) further reduce energy conservation experience, we are committedand water consumption by 20% by 2020; (2) empower our hotel development partners to protecting the environment. Our “Spirit to Preserve®” environmental strategy calls for: greeningbuild green hotels; (3) green our multi-billion dollar supply chain; further reducing fuel(4) educate and water consumption; expanding our portfolio of green hotels and buildings; educating and inspiring employeesinspire associates and guests to support the environment;conserve and investingpreserve; and (5) address environmental challenges through innovative conservation initiatives including rainforest protection and water conservation.
We recognize our responsibility to reduce consumption of water, waste and energy in innovative, large-scale conservation projects worldwide.
our hotels and corporate offices and are focused on integrating greater environmental sustainability throughout our business. We were the first in the hospitality industrymajor hotel chain to calculate our carbon footprint and launch a series of green hotel prototypesplan to improve energy efficiency, conserve water and support projects that have been pre-approved byreduce deforestation. We use Energy and Environmental Action (EEAP) plans, our best-practice auditing tool, to help our properties achieve energy and water reduction goals. Working in partnership with the U.S. Green Building Council (“USGBC”) as part of its(USGBC) for Leadership in Energy and EnvironmentEnvironmental Design (“LEED”(LEED®) and the Green Building Certification Institute (GBCI), Marriott is empowering our hotel development partners to build green hotels. In 2011, we developed the first LEED Volume program, meaningProgram (LVP) to provide a streamlined path to certification for the hospitality industry through a green hotel prototype. The LEED Volume Program that any hotel that follows these plans will earn basic LEED certification, or possibly higher, upon final
USGBC approval while also reducingMarriott offers can save our owners 25 percent in energy and water consumption upfor the life of their buildings and should recover their initial investment in two to 25 percent. We are also developing a portfolio of newly designed "green" Fairfield Inn propertiessix years. Marriott has more than 110 LEED-certified buildings, with more in Brazil. The U.S. Travel Association confirms that travelers place the importance of supporting environmentally responsible travel service suppliers as a necessity, even in an economic downturn.development pipeline.
Our Architecture and Construction (“A&C”) division provides design, development, construction, refurbishment, and procurement services to owners and franchisees of lodging properties on a voluntary basis outside the scope of and separate from our management or franchise contracts. Similar to third-party contractors, A&C provides these services for owners and franchisees of Marriott-branded properties on a fee basis.
CompetitionMarriott Golf. At year-end 2013, Marriott Golf managed 35 golf course facilities as part of our management of hotels and for other golf course owners. In addition, we provide similar services to six facilities operated by others.
Competition. We encounter strong competition both as a lodging operator and as a franchisor. We believe that by operating a number of hotels among our brands that address different price and service points, we stay in direct touch with customers and react to changes in the marketplace more quickly than chains that rely exclusively on franchising. There are approximately 900872 lodging management companies in the United States, including approximately 20nine that operate more than 100 properties. These operators are primarily private management firms, but also include several large national chains that own and operate their own hotels and also franchise their brands. Our management contracts are typically long-term in nature, but most allow the hotel owner to replace the management firm if certain financial or performance criteria are not met.
During the recentlast recession we experienced a significant reductionsreduction in demand for hotel rooms, and timeshare products, particularly in 2009, and we took steps to reduce operating costs and improve efficiency. Due to the competitive nature of our industry, we focused these efforts on areas that had limited or no impact on the guest experience. While demand trends globally improved infrom 2010 and 2011,through 2013, additional cost reductions could become necessary to preserve operating margins if demand trends reverse, butreverse. If any such efforts become necessary, we would expect to implement any such effortsthem in a manner designed to maintain customer loyalty, owner preference, and associate satisfaction, in order to help maintain or increase our market share.
Affiliation with a national or regional brand is prevalent in the U.S. lodging industry, and we believe that our brand recognition isgives us a method of competitioncompetitive advantage in the industry.attracting and retaining guests, owners and franchisees. In 2011,2013, approximately 69 percent of U.S. hotel rooms were brand-affiliated. Most of the branded properties are franchises, under which the operator pays the franchisor a fee for use of its hotel name and reservation system. The franchising business is concentrated, with the six largest franchisors operating multiple brands accounting for a significant proportion of all U.S. rooms.
Outside the United States, branding is much less prevalent and most markets are served primarily by independent operators, although branding is more common for new hotel development. We believe that chain affiliation will increase in overseas markets as local economies grow, trade barriers are reduced, international travel accelerates, and hotel owners seek the economies of centralized reservation systems and marketing programs.
Based on lodging industry data, we have approximately a ten10 percent share of the U.S. hotel market (based on number of rooms) and we estimate less than a onetwo percent share of the lodging market outside the United States. We believe that our hotel brands are attractive to hotel owners seeking a management company or franchise affiliation because our hotels typically
generate higher occupancies and Revenue per Available Room (“RevPAR”) than our direct competitors in most market areas. We attribute this performance premium to our success in achieving and maintaining strong customer preference. We believe that the location and quality of our lodging facilities, our marketing programs, our reservation systems, and our emphasis on guest service and guest and associate satisfaction are contributing factors across all of our brands.
Properties that we operate, franchise, or license are regularly upgraded to maintain their competitiveness. Most of our management agreements provide for the allocation of funds, generally a fixed percentage of revenue, for periodic renovation of buildings and replacement of furnishings. These ongoing refurbishment programs, along with periodic brand initiatives, are generally adequate to preserve or enhance the competitive position and earning power of the hotels and timeshare properties. Competitor hotelsProperties converting to one of Marriott’sour brands typically complete renovations as needed in conjunction with the conversion.
Marriott Rewards and The Ritz-Carlton Rewards are our frequent guest programs with over 38 million members and 13 participating brands. In addition, MVW and other program partners are able to participate in the Marriott Rewards and The Ritz-Carlton Rewards programs. The rewards programs yield repeat guest business by rewarding frequent stays with points toward free hotel stays and other rewards, or airline miles with any of 35 participating airline programs. We believe that our rewards programs generate substantial repeat business that might otherwise go to competing hotels. In 2011, approximately 50 percent of our room nights were purchased by rewards program members. We continue to enhance our rewards program offerings and specifically and strategically market to this large and growing customer base. Our loyal rewards member base
provides a low cost and high impact vehicle for our revenue generation efforts. See the "Our Rewards Programs" caption in Footnote No. 1 "Summary of Significant Accounting Policies" for additional information.
Employee Relations
At year-end 2011,2013, we had approximately 120,000123,000 employees, approximately 7,80010,100 of whom were represented by labor unions. We believe relations with our employees are positive.
Environmental Compliance
The properties we operate or develop are subject to national, state, and local laws and regulations that govern the discharge of materials into the environment or otherwise relate to protecting the environment. Those environmental provisions include requirements that address health and safety; the use, management, and disposal of hazardous substances and wastes; and emission or discharge of wastes or other materials. We believe that our operation of properties and our development of properties comply, in all material respects, with environmental laws and regulations. Our compliance with such provisions also has not had a material impact on our capital expenditures, earnings, or competitive position, norand we do wenot anticipate that such compliance will have a material impact in the future.
Internet Address and Company SEC Filings
Our Internet address is Marriott.com. On the investor relations portion of our website, Marriott.com/investor, we provide a link to our electronic filings with the U.S. Securities and Exchange Commission (the "SEC"), including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to these reports. AllWe make all such filings are available free of charge and are available as soon as reasonably practicable after filing. The information found on our website is not part of this or any other report we file with or furnish to the SEC.
Forward-Looking Statements
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 currently available to us. Forward-looking statements include information about our possible or assumed future results of operations, which follow under the headings “Business and Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions.
Forward-looking statements are subject to aAny number of risks and uncertainties that could cause actual results to differ materially from those we express in theseour forward-looking statements, including the risks and uncertainties describedwe describe below and other factors we describe from time to time in our periodic filings with the SEC.U.S. Securities and Exchange Commission (the "SEC"). We therefore caution you not to rely unduly on any forward-looking statements.statement. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise.
Risks and Uncertainties
We are subject to various risks that could have a negative effect on us or on our financial condition. You should understand that these risks could cause results to differ materially from those expressed in forward-looking statements contained in this report andor in other Company communications. Because there is no way to determine in advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give equal weight to each of the following:
Our industry is highly competitive, which may impact our ability to compete successfully with other hotel properties for customers. We generally operate in markets that contain numerous competitors. Each of our hotel brands competes with major hotel chains in national and international venues and with independent companies in regional markets. Our ability to remain competitive and to attract and retain business and leisure travelers depends on our success in distinguishing the quality, value, and efficiency of our lodging products and services, including our loyalty programs and consumer-facing technology platforms and services, from those offered by others. If we cannot compete successfully in these areas, this could limit our operating margins diminishcould contract, our market share could decrease, and reduce our earnings.earnings could decline.
General economicEconomic uncertainty and weak demand in the lodging industry could continue to impact our financial results and growth. Weak economic conditions in the United States, Europe and much of the restother parts of the world, the strength or continuation of recovery in countries that have experienced improved economic conditions, potential disruptions in the U.S. economy as a result of governmental action or inaction on the federal deficit, budget, and related issues, including the recent U.S. federal government shutdown, political instability in some areas, and the uncertainty over the durationhow long any of these conditions will continue, could continue to have a negative impact on the lodging industry. U.S. government travel is also a significant part of our business, and this aspect of our business will likely continue to suffer due to recent U.S. federal spending cuts and any further limitations that may result from congressional action or inaction. As a result of such current economic conditions and uncertainty, we continue to experience weakened demand for our hotel rooms particularly in some markets. Recent improvements in demand trends globallyin other markets may not continue, and our future financial results and growth could be further harmed or constrained if the recovery stalls or conditions worsen.
Operational Risks
Premature termination of our management or franchise agreements could hurt our financial performance. Our hotel management and franchise agreements may be subject to premature termination in certain circumstances, such as the bankruptcy of a hotel owner or franchisee, or a failure under some agreements to meet specified financial or performance criteria that are subject to the risks described in this section, which the Company fails or elects not to cure. In addition, some courts have applied principles of agency law and related fiduciary standards to managers of third-party hotel properties, including us (or have interpreted hotel management agreements as “personal services contracts”). This means, among other things, that property owners may assert the right to terminate management agreements even where the agreements provide otherwise, and some courts have upheld such assertions regarding our management agreements and may do so in the future. In the event of any such termination, we may need to enforce our right to damages for breach of contract and related claims, which may cause us to incur significant legal fees and expenses. Any damages we ultimately collect could be less than the projected future value of the fees and other amounts we would have otherwise collected under the management agreement. A significant loss of agreements due to premature terminations could hurt our financial performance or our ability to grow our business.
Our lodging operations are subject to global, regional, and national conditions. Because we conduct our business on a global platform, our activities are susceptible toaffected by changes in the performance of both global and regional economies. In recent years, our business has been hurt by decreases in travel resulting from weak economic conditions and the heightened travel security measures that have resulted from the threat of further terrorism. Our future economic performance could be similarly affected by the economic environment in each of the regions in which we operate, the resulting unknown pace of business travel, and the occurrence of any future incidents in those regions.
The growing significance of our operations outside of the United States also makes us increasingly susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits, or disrupt our business. We currently operate or franchise hotels and resorts in 7372 countries, and our operations outside the United States represented approximately 1617 percent of our revenues in 20112013. We expect that the international share of our total revenues will continue to increase in future years. As a result, we are increasingly exposed to a number ofthe challenges and risks associated withof doing business outside the United States, including the following, any of which could reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, or otherwise disrupt our business:business. These challenges include: (1) compliance with complex and changing
laws, regulations and policies of governments that may impact our operations, includingsuch as foreign ownership restrictions, import and export controls, and trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, including U.S. and other jurisdictions'such as anti-corruption laws, competition laws, currency regulations, and laws affecting dealings with certain nations; (3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (6) rapid changes in government policy, political or civil unrest including in the Middle East and elsewhere, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott legislation; and (7) currency exchange rate fluctuations.
Our new programs and new branded products may not be successful. We cannot assure you that our recently launched, newly acquired or recently announced brands, such as EDITION, Autograph Collection, and AC Hotels by Marriott, brandsGaylord Hotels, Moxy Hotels, or any other new programs or products we may launch in the future will be accepted by hotel owners, potential franchisees, or the traveling public or other customers. We also cannot be certain that we will recover the costs we incurred in developing or acquiring the brands or any new programs or products, or that the brands or any new programs or products will be successful. In addition, some of our new brands involve or may involve cooperation and/or consultation with one or more third parties, including some shared control over product design and development, sales and marketing, and brand standards. Disagreements with these third parties could slow the development of these new brands and/or impair our ability to take actions we believe to be advisable for the success and profitability of such brands.
Risks relating to natural or man-made disasters, contagious disease, terrorist activity, and war could reduce the demand for lodging, which may adversely affect our revenues. So called “Acts of God,” such as hurricanes, earthquakes, tsunamis, and other natural disasters and man-made disasters in recent years, such as the recent oil spillHurricane Sandy in the Gulf of Mexico and, more recently, the aftermath ofNortheastern United States, the earthquake and tsunami in Japan, and the spread of contagious diseases such as H1N1 Flu, Avian Flu, and SARS, in locations where we own, manage, or franchise significant properties and areas of the world from which we draw a large number of customers, could cause a decline in the level of business and leisure travel and reduce the demand for lodging. Actual or threatened war, terrorist activity, political unrest, or civil strife, such as recent events in Syria, Egypt, Libya, and Bahrain, and other geopolitical uncertainty could have a similar effect. Any one or more of these events may reduce the overall demand for hotel rooms and corporate apartments or limit the prices that we can obtain for them, both of which could adversely affect our profits.
Disagreements with the owners of the hotels that we manage or franchise may result in litigation or may delay implementation of product or service initiatives. Consistent with our focus on management and franchising, we own very few of our lodging properties. The nature of our responsibilities under our management agreements to manage each hotel and enforce the standards required for our brands under both management and franchise agreements may be subject to interpretation and will from time to time give rise to disagreements, which may include disagreements over the need for or payment for new product or service initiatives. Such disagreements may be more likely when hotel returns are weaker. We seek to resolve any disagreements in order to develop and maintain positive relations with current and potential hotel owners and joint venture partners but are not always able to do so. Failure to resolve such disagreements has resulted in litigation, and could do so in the future. If any such litigation results in a significant adverse judgment, settlement, or court order, we could suffer significant losses, our profits could be reduced, or our future ability to operate our business could be constrained.
Our business depends on the quality and reputation of our brands, and any deterioration in the quality or reputation of these brands could have an adverse impact on our market share, reputation, business, financial condition, or results of operations. Events that may be beyond our control could affect the reputation of one or more of our properties or more generally impact the reputation of our brands. If the reputation or perceived quality of our brands declines, our market share, reputation, business, financial condition, or results of operations could be affected.
Actions by our franchisees and licensees could adversely affect our image and reputation. We franchise and license many of our brand names and trademarks to third parties in connection with lodging, timeshare, and residential services. Under the terms of their agreements with us, our franchisees and licensees interact directly with customers and other third parties under our brand and trade names. If these franchisees or licensees fail to maintain or act in accordance with applicable brand standards, experience operational problems, or project a brand image inconsistent with ours, our image and reputation could suffer. Although our franchise and license agreements provide us with recourse and remedies in the event of a breach by the franchisee or licensee, including termination of the agreements under certain circumstances, pursuing any such recourse, remedy, or termination could be expensive and time consuming. In addition, while we believe that our contractual termination rights are strong, we cannot assure you that a court would ultimately enforce thoseour contractual termination rights in every instance.
Damage to, or losses involving, properties that we own, manage, or franchise may not be covered by insurance. We have comprehensive property and liability insurance policies with coverage features and insured limits that we believe are customary. Market forces beyond our control may nonetheless limit the scope of the insurance coverage we can obtain or our ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes,
hurricanes and floods, or terrorist acts, or liabilities that result from breaches in the security of our information systems may be uninsurable or too expensive to justify obtaining insurance. As a result, we may not be successful in obtaining insurance without increases in cost or decreases in coverage levels. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our lost investment or that of hotel owners or in some cases could result in certain losses being totally uninsured. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated for guarantees, debt, or other financial obligations related tofor the property.
Development and Financing Risks
While we are predominantly a manager and franchisor of hotel properties, our hotel owners depend on capital to buy, develop, and improve hotels, and our hotel owners may be unable to access capital when necessary. In order to fund new hotel investments, as well as refurbish and improve existing hotels, both the Company and current and potential hotel owners must periodically spend money. The availability of funds for new investments and improvement of existing hotels by our current and potential hotel owners depends in large measure on capital markets and liquidity factors, over which we can exert little control. Instability in the financial markets and theThe difficulty of obtaining financing on attractive terms orcan, at all, continues to constraintimes, be constrained by the capital markets for hotel and real estate investments. In addition, owners of existing hotels that we franchise or manage may have difficulty meeting required debt service payments or refinancing loans at maturity.
Our growth strategy depends upon third-party owners/operators, and future arrangements with these third parties may be less favorable. Our present growth strategy for development of additional lodging facilities entails entering into and maintaining various arrangements with property owners. The terms of our management agreements, franchise agreements, and leases for each of our lodging facilities are influenced by contract terms offered by our competitors, among other things. We cannot assure you that any of our current arrangements will continue or that we will be able to enter into future collaborations, renew agreements, or enter into new agreements in the future on terms that are as favorable to us as those that exist today.
Our ability to grow our management and franchise systems is subject to the range of risks associated with real estate investments. Our ability to sustain continued growth through management or franchise agreements for new hotels and the conversion of existing facilities to managed or franchised Marriott brands is affected, and may potentially be limited, by a variety of factors influencing real estate development generally. These include site availability, financing, planning, zoning and other local approvals, and other limitations that may be imposed by market and submarket factors, such as projected room occupancy, changes in growth in demand compared to projected supply, territorial restrictions in our management and franchise agreements, costs of construction, and anticipated room rate structure.
Our development activities expose us to project cost, completion, and resale risks. We develop new hotel and residential properties, and previously developed timeshare interval and fractional ownership properties, both directly and through partnerships, joint ventures, and other business structures with third parties. As demonstrated by the 2009 and 2011 impairment charges associated withfor our former Timeshare business, our ongoing involvement in the development of properties presents a number of risks, including that: (1) continued weakness in the capital markets may limit our ability, or that of third parties with whom we do business, to raise capital for completion of projects that have commenced or for development of future properties; (2) properties that we develop could become less attractive due to further decreases in demand for hotel and residential increases in mortgage rates and/or decreases in mortgage availability,properties, market absorption or oversupply, with the result that we may not be able to sell such properties for a profit or at the prices or selling pace we anticipate, potentially requiring additional changes in our pricing strategy that could result in further charges; (3) construction delays, cost overruns, lender financial defaults, or so called “Acts of God” such as earthquakes, hurricanes, floods, or fires may increase overall project costs or result in project cancellations; and (4) we may be unable to recover development costs we incur for theseany projects that arewe do not pursuedpursue to completion.
Development activities that involve our co-investment with third parties may result in disputes that could increase project costs, impair project operations, or increase project completion risks. Partnerships, joint ventures, and other business structures involving our co-investment with third parties generally include some form of shared control over the operations of the business and create additionaladded risks, including the possibility that other investors in such ventures could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies, or objectives that are inconsistent with ours. Although we actively seek to minimize such risks before investing in partnerships, joint ventures, or similar structures, actions by another investor may present additional risks of project delay, increased project costs, or operational difficulties following project completion. Such disputes may also be more likely in the current difficult business environment.environments.
Risks associated with development and sale of residential properties that are associated with our lodging properties or brands may reduce our profits. In certain hotel and timeshare projects we participate, directly or through noncontrolling interests and/or
licensing fees,agreements, in the development and sale of residential properties associated with our brands, including luxury residences and condominiums under our The Ritz-Carlton, EDITION, JW Marriott, Autograph Collection, and Marriott brands.brand names and trademarks. Such projects pose additionalfurther risks beyond those generally associated with our lodging businesses, which may reduce our profits or compromise our brand equity, including the following:
The (1) the continued weakness in residential real estate and demand generally willmay continue to reduce our profits and could result in losses on residential sales, increase our carrying costs due to a slower pace of sales than we anticipated, and could make it more difficult to convince future hotel development partners of the value added by our brands;
Increases (2) increases in interest rates, reductions in mortgage availability, or increases in the costs of residential ownership could prevent potential customers from buying residential products or reduce the prices they are willing to pay; and
Residential (3) residential construction may be subject to warranty and liability claims, and the costs of resolving such claims may be significant.
Some hotel openings in our existing development pipeline and approved projects may be delayed or not result in new hotels, which could adversely affect our growth prospects. At year-end 2013 we reported approximately 1,165 hotels in our development pipeline, which includes hotels under construction and under signed contracts, as well as over 170 hotels approved for development but not yet under signed contracts. The eventual opening of the hotels in our development pipeline and, in particular, the hotels approved for development that are not yet under contract, is subject to numerous risks, including in some cases the owner’s or developer’s ability to obtain adequate financing or governmental or regulatory approvals. Accordingly, we cannot assure you that our development pipeline, and in particular hotels approved for development, will result in new hotels that enter our system, or that those hotels will open when we anticipate.
Planned transactions that we announce may be delayed, not occur at all, or involve unanticipated costs. From time to time we announce transactions that we expect will close at a future date, such as the recently announced acquisition of Protea Hotel Group’s brands and management business and disposition of our EDITION hotels in Miami Beach and New York upon completion of construction. If the conditions to consummating these transactions are neither satisfied nor waived by the time we expect, the closings could be delayed or not occur at all. In addition, the EDITION contracts are for a fixed purchase price based upon the estimated total development costs for the hotels and we will not recover any development costs in excess of the agreed purchase price, so we will bear those development costs to the extent that they are higher than we anticipated when we agreed to the transaction.
Technology, Information Protection, and Privacy Risks
A failure to keep pace with developments in technology could impair our operations or competitive position. The lodging industry continues to demand the use of sophisticated technology and systems, including those used for our reservation, revenue management, and property management systems, our Marriott Rewards and The Ritz-Carlton Rewards programs, and technologies we make available to our guests. These technologies and systems must be refined, updated, and/or replaced with more advanced systems on a regular basis. Ifbasis, and if we are unable tocannot do so as quickly as our competitors or within budgeted costs and time frames, our business could suffer. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could impair our operating results.
An increase in the use of third-party Internet services to book online hotel reservations could adversely impact our business. Some of our hotel rooms are booked through Internet travel intermediaries such as Expedia.com®, Travelocity.com®, and Orbitz.com®, as well as lesser-known online travel service providers. These intermediaries initially focused on leisure travel, but now also provide offerings for corporate travel and group meetings. Although Marriott’s Look No Further® Best Rate Guarantee has helped prevent customer preference shift to the intermediaries and greatly reduced the ability of intermediaries to undercut the published rates at our hotels, intermediaries continue to use a variety of aggressive online marketing methods to attract customers, including the purchase, by certain companies, of trademarked online keywords such as “Marriott” from Internet search engines such as Google®, Bing®, Yahoo®, and YahooBaidu® to steer customers toward their websites (a practice currently beingthat has been challenged by various trademark owners in federal court). Although Marriott has successfully limited these practices through contracts with key online intermediaries, the number of intermediaries and related companies that drive
traffic to intermediaries’ websites is too large to permit us to eliminate this risk entirely. In addition, recent class action litigation against several online travel intermediaries and lodging companies, including Marriott, challenges the legality under antitrust law of contract provisions that support programs such as Marriott's Look No Further® Best Rate Guarantee, and we cannot assure you that the courts will ultimately uphold such provisions. Our business and profitability could be harmed if online intermediaries succeed in significantly shifting loyalties from our lodging brands to their travel services, diverting bookings away from Marriott.com, or through their fees increasing the overall cost of Internet bookings for our hotels.
Failure to maintain the integrity of internal or customer data could result in faulty business decisions, operational inefficiencies, damage ofto our reputation and/or subject us to costs, fines, or lawsuits. Our businesses require collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of our customers in various information systems that we maintain and in those maintained by third parties with whom we contract to provide services, including in areas such as human resources outsourcing, website hosting, and email marketing.various forms of electronic communications. We and third parties who provide services to us also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee, and company data is critical to us. If that data is inaccurate or incomplete, we could make faulty decisions. Our customers and employees also have a high expectation that we and our service providers will adequately protect their personal information. The regulatory environment as well asinformation, security, and privacy requirements imposed by governmental regulation and the requirements imposed on us byof the payment card industry surrounding information, security and privacy isare also increasingly demanding, in both the United States and other jurisdictions in whichwhere we operate. Our systems or our franchisees' systems may not be unableable to satisfy these changing regulatory and payment card industry requirements and employee and customer expectations, or may require significant additional investments or time in order to do so. Our informationEfforts to hack or breach security measures, failures of systems and records, including those we maintain with our service providers, may be subjector software to security breaches, system failures,operate as designed or intended, viruses, operator error, or inadvertent releases of data.data may materially impact our and our service providers' information systems and records. Our reliance on computer, Internet-based and mobile systems and communications and the frequency and sophistication of efforts by hackers to gain unauthorized access to such systems have increased significantly in recent years. A significant theft, loss, or fraudulent use of customer, employee, or company data maintained by us or by a service provider could adversely impact our reputation and could result in remedial and other expenses, fines, or litigation. A breachBreaches in the security of our information systems or those of our franchisees or service providers or other disruptions in data services could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.
Early in 2011, we were notified by Epsilon, a marketing vendor used by the Company to manage customer emails, that an unauthorized third party gained access to a number of Epsilon’s accounts including the Company’s email list. Epsilon has stated that the unauthorized person(s) had access only to names and email addresses of the Company’s customers and did not have access to other customer information, such as physical addresses, loyalty program point balances, account logins and
passwords, credit card information or other personal data. We have informed our affected customers of the breach and that it may result in receiving unsolicited emails.
Changes in privacy law could adversely affect our ability to market our products effectively. We rely on a variety of direct marketing techniques, including email marketing, online advertising, and postal mailings. Any further restrictions in laws such as the CANSPAM Act, and various U.S. state laws, or new federal laws regardingon marketing and solicitation or international data protection laws that govern these activities could adversely affect the continuing effectiveness of email, online advertising, and postal mailing techniques and could force further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of certain products. We also obtain access to potential customers from travel service providers or other companies with whom we have substantial relationships and market to some individuals on these lists directly or by including our marketing message in the other company’s marketing materials. If access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce them to our products could be impaired.
Other Risks
Changes in tax and other laws and regulations could reduce our profits or increase our costs. Our businesses are subject to regulation under a wide variety of laws, regulations, and policies in jurisdictions around the world. In response to the recent economic crisisworld, including those for financial reporting, taxes, healthcare, and the recent recession,environment. Changes to these laws, regulations, and policies, including those associated with health care, tax or financial reforms, could reduce our profits. Further, we anticipate that many of the jurisdictions in which we do business will continue to review tax and other revenue raising laws, regulations, and policies, and any resulting changes could impose new restrictions, costs, or prohibitions on our current practices and reduce our profits. In particular, governments may revise tax laws, regulations, or official interpretations in ways that could have a significant impact on us, including modifications that could reduce the profits that we can effectively realize from our non-U.S. operations, or that could require costly changes to those operations, or the way in which they are structured. For example, most U.S. company effective tax rates reflect the fact that income earned and reinvested outside the United States is generally taxed at local rates, which are often much lower than U.S. tax rates. If changes in tax laws, regulations, or interpretations significantly increase the tax rates on non-U.S. income, our effective tax rate could increase and our profits could be reduced. If such increases resulted from our status as a U.S. company, those changes could place us at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax rates.
The spin-off could result in significant tax liability to us and our shareholders. Although we received a private letter ruling from the IRS and an opinion from our tax counsel confirming that the distribution of Marriott Vacations Worldwide Corporation ("MVW") common stock will not result in the recognition, for U.S. federal income tax purposes, of income, gain or loss to us or our shareholders (except to the extent of cash received in lieu of fractional shares of MVW common stock), the private letter ruling and opinion that we received are subject to the continuing validity of any assumptions and representations reflected therein. In addition, an opinion from our tax counsel is not binding on the IRS or a court. Moreover, certain future events that may or may not be within our control, including certain extraordinary purchases of our stock or MVW's stock, could cause the distribution not to qualify as tax-free. Accordingly, the IRS could determine that the distribution of the MVW common stock is a taxable transaction and a court could agree with the IRS. If the distribution of the MVW common stock is determined to be taxable for U.S. federal income tax purposes, we and our shareholders who received shares of MVW common stock in the spin-off could incur significant tax liabilities. Under the tax sharing and indemnification agreement that we entered into with MVW, we are entitled to indemnification from MVW for certain taxes and related losses resulting from the failure of the distribution of MVW common stock to qualify as tax-free as a result of (i) any breach by MVW or its subsidiaries of the covenants regarding the preservation of the tax-free status of the distribution, (ii) certain acquisitions of equity securities or assets of MVW or its subsidiaries, and (iii) any breach by MVW or its subsidiaries of certain representations in the documents submitted to the IRS and the separation documents relating to the spin-off. If, however, the distribution fails to qualify as a tax-free transaction for reasons other than those specified in the indemnification provisions of the tax sharing and indemnification agreement, liability for any resulting taxes related to the distribution will be apportioned between us and MVW based on our relative fair market values.
The spin-off might not produce the cash tax benefits we anticipate. In connection with the spin-off, we completed an internal reorganization, which included transactions that have been structured in a manner that are expected to result, for U.S. federal income tax purposes, in our recognition of built-in losses in properties used in the North American and Luxury segments of the Timeshare division. The recognition of these built-in losses and corresponding tax deductions are expected to generate significant cash tax benefits for us. Although we received a private letter ruling from the IRS and an opinion from our tax counsel confirming that these built-in losses will be recognized and deducted by us, the private letter ruling and opinion that we received are subject to the continuing validity of any assumptions and representations reflected therein. Accordingly, the IRS could determine that the built-in losses should not be recognized or deductions for such losses should be disallowed and a court could agree with the IRS. If we are unable to deduct these losses for U.S. federal income tax purposes, and, instead, the tax basis of the properties that is attributable to the built-in losses is available to MVW and its subsidiaries, MVW has agreed,
pursuant to the tax sharing and indemnification agreement, to indemnify us for certain tax benefits that we otherwise would have recognized if we were able to deduct such losses. For additional information on the cash tax benefits anticipated, see the "Liquidity and Capital Resources" caption within Part II Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this report.
If we cannot attract and retain talented associates, our business could suffer. We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit, train, develop, and retain sufficient numbers of talented associates, we could experience increased associate turnover, decreased guest satisfaction, low morale, inefficiency, or internal control failures. Insufficient numbers of talented associates could also limit our ability to grow and expand our
businesses. Any shortage of skilled labor could also require higher wages that would increase our labor costs, which could reduce our profits of our third-party owners.
Delaware law and our governing corporate documents contain, and our Board of Directors could implement, anti-takeover provisions that could deter takeover attempts. Under the Delaware business combination statute, a stockholder holding 15 percent or more of our outstanding voting stock could not acquire us without Board of Director consent for at least three years after the date the stockholder first held 15 percent or more of the voting stock. Our governing corporate documents also, among other things, require supermajority votes in connection withfor mergers and similar transactions. In addition, our Board of Directors could, without stockholder approval, implement other anti-takeover defenses, such as a stockholder’s rights plan.
| |
| Item 1B. | Unresolved Staff Comments. |
None.
Company-operatedWe describe our company-operated properties are described in Part I, Item 1. “Business,” earlier in this report. We believe our properties are in generally good physical condition with the need for only routine repairs and maintenance and periodic capital improvements. Most of our regional offices and reservation centers, both domestically and internationally, are located in leased facilities. We also lease space in a number of buildings with combined space of approximately 1.1 million square feet in Maryland where our corporate and The Ritz-Carlton headquarters are located.
| |
| Item 3. | Legal Proceedings. |
See the information under "Legal Proceedings" in Footnote No. 13, "Contingencies" which we incorporate here by reference.
From time to time, we are also subject to certainother legal proceedings and claims in the ordinary course of business, including adjustments proposed during governmental examinations of the various tax returns we file. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect on our business, financial condition, or operating results.
| |
| Item 4. | Mine Safety Disclosures. |
Not applicable.
Executive Officers of the Registrant
See Part III, Item 10 of this report for information about our executive officers.
PART II
Part II
| |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market Information and Dividends
The table below shows the price range of pricesour Class A Common Stock (our "common stock") and the per share cash dividends we declared for each fiscal quarter during the last two years.
|
| | | | | | | | | | | | |
| | | Stock Price | | Dividends Declared per Share |
| | | High | | Low | |
| 2012 | First Quarter | $ | 38.63 |
| | $ | 29.73 |
| | $ | 0.1000 |
|
| | Second Quarter | 40.45 |
| | 35.68 |
| | 0.1300 |
|
| | Third Quarter | 40.00 |
| | 34.69 |
| | 0.1300 |
|
| | Fourth Quarter | 41.84 |
| | 33.93 |
| | 0.1300 |
|
|
| | | | | | | | | | | | |
| | | Stock Price | | Dividends Declared per Share |
| | | High | | Low | |
| 2013 | First Quarter | $ | 42.27 |
|
| $ | 36.24 |
|
| $ | 0.1300 |
|
| | Second Quarter | 44.45 |
|
| 38.17 |
|
| 0.1700 |
|
| | Third Quarter | 43.99 |
|
| 39.58 |
|
| 0.1700 |
|
| | Fourth Quarter | 49.84 |
|
| 41.26 |
|
| 0.1700 |
|
At February 7, 2014, 294,823,291 shares of our common stock were outstanding and cash dividends declared per share for each quarterly period within the last two years are shown in the following table and have not been adjusted for the impact of the spin-off. See Footnote No. 17, "Spin-off," of the Notes to our Financial Statements included in this annual report for additional information on the spin-off.
|
| | | | | | | | | | | | |
| | | Stock Price | | Dividends Declared Per Share |
| | | High | | Low | |
| 2010 | First Quarter | $ | 31.24 |
| | $ | 25.63 |
| | $ | 0.0400 |
|
| | Second Quarter | 38.15 |
| | 30.44 |
| | 0.0400 |
|
| | Third Quarter | 36.39 |
| | 28.94 |
| | 0.0400 |
|
| | Fourth Quarter | 42.68 |
| | 34.51 |
| | 0.0875 |
|
|
| | | | | | | | | | | | |
| | | Stock Price | | Dividends Declared Per Share |
| | | High | | Low | |
| 2011 | First Quarter | $ | 42.78 |
| | $ | 36.24 |
| | $ | 0.0875 |
|
| | Second Quarter | 38.52 |
| | 32.92 |
| | 0.1000 |
|
| | Third Quarter | 37.90 |
| | 25.92 |
| | 0.1000 |
|
| | Fourth Quarter | 33.57 |
| | 25.49 |
| | 0.1000 |
|
At January 27, 2012, there were333,866,753 shares of Class A Common Stock outstanding held by 42,08636,811 shareholders of record. Our Class A CommonSince October 21, 2013, our common stock has traded on the NASDAQ Global Select Market ("NASDAQ") and the Chicago Stock isExchange; prior to October 21, 2013, it traded on the New York Stock Exchange and the Chicago Stock Exchange. The fiscal year-end closing price for our stock was $29.17 on December 30, 2011, and $41.54$49.35 on December 31, 2010.2013, and $36.48 on December 28, 2012. All prices are reported on the consolidated transaction reporting system.
Fourth Quarter 20112013 Issuer Purchases of Equity Securities
|
| | | | | | | | | | | | |
| (in millions, except per share amounts) | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price per Share | | Total Number of
Shares Purchased as Part of Publicly Announced Plans or
Programs (1) | | Maximum Number
of Shares That May Yet Be Purchased Under the Plans or
Programs (1) |
| September 10, 2011-October 7, 2011 | 2.0 |
| | $ | 27.77 |
| | 2.0 |
| | 10.4 |
|
| October 8, 2011-November 4, 2011 | — |
| | — |
| | — |
| | 10.4 |
|
| November 5, 2011-December 2, 2011 | 1.1 |
| | 28.88 |
| | 1.1 |
| | 9.3 |
|
| December 3, 2011-December 30, 2011 | 3.8 |
| | 29.28 |
| | 3.8 |
| | 5.5 |
|
|
| | | | | | | | | | | |
| (in millions, except per share amounts) | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price per Share | | Total Number of
Shares Purchased as Part of Publicly Announced Plans or
Programs (1) | | Maximum Number
of Shares That May Yet Be Purchased Under the Plans or
Programs (1) |
| October 1, 2013- October 31, 2013 | 1.0 |
| | 41.82 |
| | 1.0 |
| | 17.7 |
|
| November 1, 2013-November 30, 2013 | 1.2 |
| | 46.44 |
| | 1.2 |
| | 16.5 |
|
| December 1, 2013-December 31, 2013 | 2.2 |
| | 46.63 |
| | 2.2 |
| | 14.3 |
|
| |
(1) | On February 15, 2013, we announced that our Board of Directors had increased, by 25 million shares, the authorization to repurchase our common stock. As of year-end 20112013, 5.514.3 million shares remained available for repurchase under authorizations previously approved by our Board of Directors.On February 14, 2014, we announced that our Board of Directors further increased, by 25 million shares, the authorization to repurchase our common stock. We repurchase shares in the open market and in privately negotiated transactions. On February 10, 2012, we announced that our Board of Directors increased, by 35 million shares, the authorization to repurchase our Class A Common Stock. |
Amounts in the preceding table have not been adjusted for the impact of the spin-off. See Footnote No. 17, "Spin-off," of the Notes to our Financial Statements included in this annual report for additional information on the spin-off.
| |
Item 6. | Selected Financial Data. |
Item 6. Selected Financial Data.
The following table presents a summary of selected historical financial data for the Company derived from our financial statementsFinancial Statements as of and for our last ten10 fiscal years.
Since thethis information in this table is only a summary and does not provide all of the information contained in our financial statements, including the related notes, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements in our Form 10-Kthis report for each respective year for more detailed information including, among other items, restructuring costs and other charges we incurred in 2008 and 2009, timeshare strategy - impairmentstrategy-impairment charges we incurred in 2009 and 2011, and theour 2011 spin-off of theour former timeshare operations and timeshare development business in 2011.business. For periods priorbefore the 2011 spin-off, we continue to the spin-off date, theinclude our former Timeshare segment continues to be included in Marriott's historical financial results as a component of continuing operations because of Marriott's significant continuing involvement in MVW future operations.
| | | | Fiscal Year (1) | Fiscal Year (1) |
| ($ in millions,��except per share data) | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
| ($ in millions, except per share data) | | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | | 2006 | | 2005 | | 2004 |
| Income Statement Data: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Revenues (2) | $ | 12,317 |
| | $ | 11,691 |
| | $ | 10,908 |
| | $ | 12,879 |
| | $ | 12,990 |
| | $ | 11,995 |
| | $ | 11,129 |
| | $ | 9,778 |
| | $ | 8,712 |
| | $ | 8,222 |
| $ | 12,784 |
| | $ | 11,814 |
| | $ | 12,317 |
| | $ | 11,691 |
| | $ | 10,908 |
| | $ | 12,879 |
| | $ | 12,990 |
| | $ | 11,995 |
| | $ | 11,129 |
| | $ | 9,778 |
|
Operating income (loss) (2) | $ | 526 |
| | $ | 695 |
| | $ | (152 | ) | | $ | 765 |
| | $ | 1,183 |
| | $ | 1,089 |
| | $ | 671 |
| | $ | 579 |
| | $ | 476 |
| | $ | 448 |
| $ | 988 |
| | $ | 940 |
| | $ | 526 |
| | $ | 695 |
| | $ | (152 | ) | | $ | 765 |
| | $ | 1,183 |
| | $ | 1,089 |
| | $ | 671 |
| | $ | 579 |
|
| Income (loss) from continuing operations attributable to Marriott | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | | $ | 359 |
| | $ | 697 |
| | $ | 712 |
| | $ | 543 |
| | $ | 487 |
| | $ | 380 |
| | $ | 365 |
| $ | 626 |
| | $ | 571 |
| | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | | $ | 359 |
| | $ | 697 |
| | $ | 712 |
| | $ | 543 |
| | $ | 487 |
|
Cumulative effect of change in accounting principle (3) | — |
| | — |
| | — |
| | — |
| | — |
| | (109 | ) | | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (109 | ) | | — |
| | — |
|
Discontinued operations (4) | — |
| | — |
| | — |
| | 3 |
| | (1 | ) | | 5 |
| | 126 |
| | 109 |
| | 122 |
| | (88 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | (1 | ) | | 5 |
| | 126 |
| | 109 |
|
| Net income (loss) attributable to Marriott | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | | $ | 362 |
| | $ | 696 |
| | $ | 608 |
| | $ | 669 |
| | $ | 596 |
| | $ | 502 |
| | $ | 277 |
| $ | 626 |
| | $ | 571 |
| | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | | $ | 362 |
| | $ | 696 |
| | $ | 608 |
| | $ | 669 |
| | $ | 596 |
|
| Per Share Data: | | | | | | | | | | | | | | | | | | | | |
Per Share Data (5): | | | |
| | | | | | | | | | | | | | | | |
Diluted earnings (losses) per share from continuing operations attributable to Marriott shareholders (7) | $ | 0.55 |
| | $ | 1.21 |
| | $ | (0.97 | ) | | $ | 0.97 |
| | $ | 1.73 |
| | $ | 1.64 |
| | $ | 1.16 |
| | $ | 1.01 |
| | $ | 0.76 |
| | $ | 0.71 |
| $ | 2.00 |
| | $ | 1.72 |
| | $ | 0.55 |
| | $ | 1.21 |
| | $ | (0.97 | ) | | $ | 0.97 |
| | $ | 1.73 |
| | $ | 1.64 |
| | $ | 1.16 |
| | $ | 1.01 |
|
Diluted losses per share from cumulative effect of accounting change (7) | — |
| | — |
| | — |
| | — |
| | — |
| | (0.25 | ) | | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (0.25 | ) | | — |
| | — |
|
Diluted earnings (losses) per share from discontinued operations attributable to Marriott shareholders (7) | — |
| | — |
| | — |
| | 0.01 |
| | — |
| | 0.01 |
| | 0.27 |
| | 0.22 |
| | 0.25 |
| | (0.17 | ) | |
| Diluted earnings per share from discontinued operations attributable to Marriott shareholders | | — |
| | — |
| | — |
| | — |
| | — |
| | 0.01 |
| | — |
| | 0.01 |
| | 0.27 |
| | 0.22 |
|
Diluted earnings (losses) per share attributable to Marriott shareholders (7) | 0.55 |
| | 1.21 |
| | (0.97 | ) | | 0.98 |
| | 1.73 |
| | 1.40 |
| | 1.43 |
| | 1.23 |
| | 1.01 |
| | 0.54 |
| $ | 2.00 |
| | $ | 1.72 |
| | $ | 0.55 |
| | $ | 1.21 |
| | $ | (0.97 | ) | | $ | 0.98 |
| | $ | 1.73 |
| | $ | 1.40 |
| | $ | 1.43 |
| | $ | 1.23 |
|
Cash dividends declared per share (7) | 0.3875 |
| | 0.2075 |
| | 0.0866 |
| | 0.3339 |
| | 0.2844 |
| | 0.2374 |
| | 0.1979 |
| | 0.1632 |
| | 0.1459 |
| | 0.1360 |
| $ | 0.6400 |
| | $ | 0.4900 |
| | $ | 0.3875 |
| | $ | 0.2075 |
| | $ | 0.0866 |
| | $ | 0.3339 |
| | $ | 0.2844 |
| | $ | 0.2374 |
| | $ | 0.1979 |
| | $ | 0.1632 |
|
| Balance Sheet Data (at year-end): | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total assets | $ | 5,910 |
| | $ | 8,983 |
| | $ | 7,933 |
| | $ | 8,903 |
| | $ | 8,942 |
| | $ | 8,588 |
| | $ | 8,530 |
| | $ | 8,668 |
| | $ | 8,177 |
| | $ | 8,296 |
| $ | 6,794 |
| | $ | 6,342 |
| | $ | 5,910 |
| | $ | 8,983 |
| | $ | 7,933 |
| | $ | 8,903 |
| | $ | 8,942 |
| | $ | 8,588 |
| | $ | 8,530 |
| | $ | 8,668 |
|
| Long-term debt | 1,816 |
| | 2,691 |
| | 2,234 |
| | 2,975 |
| | 2,790 |
| | 1,818 |
| | 1,681 |
| | 836 |
| | 1,391 |
| | 1,553 |
| 3,147 |
| | 2,528 |
| | 1,816 |
| | 2,691 |
| | 2,234 |
| | 2,975 |
| | 2,790 |
| | 1,818 |
| | 1,681 |
| | 836 |
|
| Shareholders’ equity | (781 | ) | | 1,585 |
| | 1,142 |
| | 1,380 |
| | 1,429 |
| | 2,618 |
| | 3,252 |
| | 4,081 |
| | 3,838 |
| | 3,573 |
| |
| Shareholders’ (deficit) equity | | (1,415 | ) | | (1,285 | ) | | (781 | ) | | 1,585 |
| | 1,142 |
| | 1,380 |
| | 1,429 |
| | 2,618 |
| | 3,252 |
| | 4,081 |
|
| Other Data: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Base management fees | $ | 602 |
| | $ | 562 |
| | $ | 530 |
| | $ | 635 |
| | $ | 620 |
| | $ | 553 |
| | $ | 497 |
| | $ | 435 |
| | $ | 388 |
| | $ | 379 |
| $ | 621 |
| | $ | 581 |
| | $ | 602 |
| | $ | 562 |
| | $ | 530 |
| | $ | 635 |
| | $ | 620 |
| | $ | 553 |
| | $ | 497 |
| | $ | 435 |
|
| Franchise fees | 506 |
| | 441 |
| | 400 |
| | 451 |
| | 439 |
| | 390 |
| | 329 |
| | 296 |
| | 245 |
| | 232 |
| 666 |
| | 607 |
| | 506 |
| | 441 |
| | 400 |
| | 451 |
| | 439 |
| | 390 |
| | 329 |
| | 296 |
|
| Incentive management fees | 195 |
| | 182 |
| | 154 |
| | 311 |
| | 369 |
| | 281 |
| | 201 |
| | 142 |
| | 109 |
| | 162 |
| 256 |
| | 232 |
| | 195 |
| | 182 |
| | 154 |
| | 311 |
| | 369 |
| | 281 |
| | 201 |
| | 142 |
|
| Total fees | $ | 1,303 |
| | $ | 1,185 |
| | $ | 1,084 |
| | $ | 1,397 |
| | $ | 1,428 |
| | $ | 1,224 |
| | $ | 1,027 |
| | $ | 873 |
| | $ | 742 |
| | $ | 773 |
| $ | 1,543 |
| | $ | 1,420 |
| | $ | 1,303 |
| | $ | 1,185 |
| | $ | 1,084 |
| | $ | 1,397 |
| | $ | 1,428 |
| | $ | 1,224 |
| | $ | 1,027 |
| | $ | 873 |
|
| Fee Revenue-Source: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
North America (5)(6) | $ | 970 |
| | $ | 878 |
| | $ | 806 |
| | $ | 1,038 |
| | $ | 1,115 |
| | $ | 955 |
| | $ | 809 |
| | $ | 682 |
| | $ | 592 |
| | $ | 626 |
| $ | 1,186 |
| | $ | 1,074 |
| | $ | 970 |
| | $ | 878 |
| | $ | 806 |
| | $ | 1,038 |
| | $ | 1,115 |
| | $ | 955 |
| | $ | 809 |
| | $ | 682 |
|
Total Outside North America | 333 |
| | 307 |
| | 278 |
| | 359 |
| | 313 |
| | 269 |
| | 218 |
| | 191 |
| | 150 |
| | 147 |
| 357 |
| | 346 |
| | 333 |
| | 307 |
| | 278 |
| | 359 |
| | 313 |
| | 269 |
| | 218 |
| | 191 |
|
| Total fees | $ | 1,303 |
| | $ | 1,185 |
| | $ | 1,084 |
| | $ | 1,397 |
| | $ | 1,428 |
| | $ | 1,224 |
| | $ | 1,027 |
| | $ | 873 |
| | $ | 742 |
| | $ | 773 |
| $ | 1,543 |
| | $ | 1,420 |
| | $ | 1,303 |
| | $ | 1,185 |
| | $ | 1,084 |
| | $ | 1,397 |
| | $ | 1,428 |
| | $ | 1,224 |
| | $ | 1,027 |
| | $ | 873 |
|
| |
(1) | Beginning with our 2013 fiscal year, we changed to a calendar year-end reporting cycle. All fiscal years prior to 2013 included 52 weeks, except for 2008 and 2002, which each included 53 weeks. |
| |
(2) | Balances do not reflect the impact of discontinued operations. Also, for periods prior to 2009, we reclassified our provision for loan losses associated with our lodging operations to the "General, administrative, and other expenses" caption of our Income Statements to conform to our presentation for periods beginning in 2009. This reclassification only affected operating income. |
| |
(3) | We adopted certain provisions of Accounting Standards Certification Topic 978 (previously Statement of Position 04-2, “Accounting for Real Estate Time Sharing Transactions”), in our 2006 first quarter, which we reported in our Income Statements as a cumulative effect of change in accounting principle. |
| |
(4) | In 2002, we announced our intent to sell, and subsequently did sell, our Senior Living Services business and exited our Distribution Services business. In 2007, we exited our synthetic fuel business. These businesses are now reflected as discontinued operations. |
| |
(5) | IncludesFor periods before the stock dividends we issued in the third and fourth quarters of 2009, we have adjusted all per share data retroactively to reflect those stock dividends. Additionally, for periods before 2006, we have adjusted all per share data retroactively to reflect the June 9, 2006, stock split that we effected in the form of a stock dividend. |
| |
(6) | Represents fee revenue from the continental United States (which does not include Hawaii) and Canada, except for 2011 through 2013, which representsrepresent fee revenue from the United States (including Hawaii) and Canada. |
| |
(6)(7) | Represents fee revenue outside the continental United States and Canada, except for 2011 through 2013, which representsrepresent fee revenue outside the United States and Canada. |
| |
(7) | For periods prior to the stock dividends issued in the third and fourth quarters of 2009, all per share data have been retroactively adjusted to reflect the stock dividends. Additionally, for periods prior to 2006, all per share data have been retroactively adjusted to reflect the June 9, 2006, stock split effected in the form of a stock dividend. |
| |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
BUSINESS AND OVERVIEW
Overview
Under numerous brand names in 73 countries and territories, weWe are a worldwide operator, franchisor, and licensor of hotels corporate housing properties, and timeshare properties.properties in 72 countries and territories under numerous brand names. We also develop, operate, and market residential properties and provide services to home/condominium owner associations. Under our business model, we typically manage or franchise hotels, rather than own them. At year-end 2011,2013, of the total population of hotel rooms in our system was comprised ofworldwide, we operated 3,71842 properties (percent under management agreements; our franchisees operated 643,19655 rooms).percent under franchise agreements; and we owned or leased only two percent. The figuresremainder represented our interest in the preceding sentence include 32 homeunconsolidated joint ventures that manage hotels and condominium products (3,838 units) for which we manage the related owners’ associations. In addition, we provided 2,166 furnished corporate housing rental units, which are not included in the totals. At year-end 2011,provide services to franchised properties. We group our operations are grouped into four business segments: North American Full-Service, Lodging, North American Limited-Service, Lodging, International, Lodging, and Luxury Lodging.Luxury.
On November 21, 2011 ("the spin-off date"), we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our wholly owned subsidiary Marriott Vacations Worldwide Corporation ("MVW"). In connection with the spin-off, we entered into several agreements with MVW, and, in some cases, certain of its subsidiaries, that govern our post-spin-off relationship with MVW, including a Separation and Distribution Agreement and two License Agreements for the use of Marriott and Ritz-Carlton marks and intellectual property. Under license agreements with us, MVW is both the exclusive developer and operator of timeshare, fractional, and related products under the Marriott brand and the exclusive developer of fractional and related products under The Ritz-Carlton brand. We receive license fees under these license agreements.
Because of our significant continuing involvement in MVW future operations (by virtue of the license and other agreements between us and MVW), our former Timeshare segment's historical financial results prior to the spin-off date will continue to be included in our historical financial results as a component of continuing operations. Please see Footnote No. 17, “Spin-off,” of the Notes to our Financial Statements and “Part I, Item 1A – Risk Factors; Other Risks” for additional information.
We earn base management fees and in many cases incentive management fees from the properties that we manage, and we earn franchise fees based uponon the termsproperties that others operate under franchise agreements with us. Base fees typically consist of our management and franchise agreements. We earn revenues from the limited numbera percentage of hotels we own or lease. We also earnproperty-level revenue while incentive fees from credit card endorsements, the saletypically consist of branded residentiala percentage of net house profit adjusted for a specified owner return. Net house profit is calculated as gross operating profit (house profit) less noncontrollable expenses such as insurance, real estate taxes, capital spending reserves, and licensing the Marriott timesharelike.
Our emphasis on long-term management contracts and fractionalfranchising tends to provide more stable earnings in periods of economic softness, while adding new hotels to our system generates growth, typically with little or no investment by the company. This strategy has driven substantial growth while minimizing financial leverage and Ritz-Carlton fractional brands to MVW. Prior to the spin-off of our Timeshare business,risk in a cyclical industry. In addition, we also generated revenues from the following sources: (1) selling timeshare interval, fractional ownership, and residential properties; (2) operating the resorts and residential properties; (3) financing customer purchases of timesharing intervals; and (4) rentals, all of which we included in our Timeshare segment.
We sell residential real estate either in conjunction with luxury hotel development or on a stand-alone basis under The Ritz-Carlton brand (The Ritz-Carlton Residences). Residences are typically constructed and sold by third-party developers with limited amounts, if any, ofbelieve minimizing our capital at risk. Whileinvestments and adopting a strategy of recycling the worldwide residential market is very large, the luxurious nature of our residential properties, the quality and exclusivity associated with our brands, and the hospitality servicesinvestments that we provide, all serve todo make maximizes and maintains our residential properties distinctive.financial flexibility.
Lodging
Conditions for our lodging business improved in 2011 reflecting generally low supply growth, a more favorable economic climate in most developed markets around the world, albeit at a generally low growth rate, and stronger economic growth in emerging markets, strong unit growth, and the impact of operating efficiencies across our company. While economic growth in Europe slowed in the later part of 2011 and the level of economic growth is uncertain in the United States, weWe remain focused on doing the things that we do well; that is, selling rooms, taking care of our guests, and making sure we control our costs. In 2011, as compared to 2010, worldwide average daily rates increased 3.4 percent on a constant dollar basis to $133.26 for comparable systemwidecosts both at company-operated properties with RevPAR increasing 6.4 percent to $92.69and occupancy increasing 2.0 percentage points to 69.6 percent.
For properties in North America in 2011, markets inat the West reflected strong demand, while properties in the East and South reflected more moderate demand. In Washington, D.C., a shorter Congressional calendar and government spending concerns reduced lodging demand. For properties in China and Brazil, demand was particularly strong during 2011, while for properties in Europe, demand was more moderate reflecting the financial crisis and related economic concerns. Demand at properties in the Middle East remained weak reflecting continued unrest in that region, and demand outside of the more metropolitan regions in Britain remained weak as a result of government austerity measures. While demand in Japan was weak in the first quarter of 2011 reflecting the impact of the aftermath of the earthquake and tsunami, domestic demand began to
improve in the 2011 second quarter and continued throughout the rest of 2011, but remained below 2010 levels.
We monitor market conditions continuously and carefully price our rooms daily to meet individual hotel demand levels. We modify the mix of our business to increase revenue as demand changes. Demand for higher rated rooms improved in 2010 and that improvement continued in 2011, which allowed us to reduce discounting and special offers for transient business. This mix improvement benefited average daily rates.
The hotels in our system serve both transient and group customers. Overall, business transient and leisure transient demand was strong in 2011, while group demand continues to improve. Group customers typically book rooms and meeting space with significant lead times, sometimes several years in advance of guest arrival. Typically, two-thirds of group business is booked prior to the year of arrival and one-third is booked in the year of arrival. During an economic recovery, group pricing tends to lag transient pricing due to the significant lead times for group bookings. Group business booked in earlier periods at lower rates continues to roll off, and with improving group demand, is being replaced with bookings reflecting generally higher rates.
Negotiated corporate business (“special corporate business”level ("above-property") represented 14 percent of our full-service hotel room nights for 2011 in North America. We typically negotiate and fix room rates associated with special corporate business in advance of the year to which they apply, which limits our ability to raise these rates quickly. For 2012, we expect to complete negotiations with our special corporate business clients in the first quarter, and we expect rates to be higher than the prior year. In negotiating pricing for this segment of business, we do not focus strictly on volume, but instead carefully evaluate the relationship with our customers, including for example, stay patterns (day of week and season), locations of stays, non-room spend, and aggregate spend.
Properties in our system continue to maintain very tight cost controls. Where appropriate for market conditions, we have maintained many of our 2009 property-level cost saving initiatives regarding menus and restaurant hours, room amenities, cross-training personnel, and utilizing personnel at multiple properties where feasible. We also control above-property costs, which we allocate to hotels, by remaining focused on systems, processing, and support areas. In addition, we continue to require (where legally permitted) or encourage employees to use their vacation time accrued during the year.
. Our brands remain strong as a result of skilled management teams, dedicated associates, superior customer service with an emphasis on guest and associate satisfaction, the worldwide presence and quality of our brands,significant distribution, our Marriott Rewards and The Ritz-Carlton Rewards loyalty programs, a multichannel central reservations system, and desirable property amenities. We strive to effectively leverage our size and broad distribution.
We, along with owners and franchisees, continue to invest in our brands by means of new, refreshed, and reinvented properties, new room and public space designs, and enhanced amenities and technology offerings. We also removeaddress, through various means, hotels from ourin the system that no longerdo not meet our standards. We continue to enhance the appeal of our proprietary, information-rich, and easy-to-use website, Marriott.com, and of our associated mobile smartphone applications and mobile website that connect to Marriott.com, through functionality and service improvements, and we expect to continue capturing an increasing proportion of property-level reservations via this cost-efficient channel. In 2013, we successfully launched Mobile Check-In at 350 Marriott Hotels both in North America and select international locations.
Our profitability, as well as that of owners and franchisees, has benefited from our approach to property-level and above-property productivity. Properties in our system continue to maintain very tight cost controls. We also control above-property costs, some of which we allocate to hotels, by remaining focused on systems, processing, and support areas.
Performance Measures
We completed the roll out of our sales deployment strategy in 2011, which aligns our sales efforts around customer needs, reducing duplication of sales efforts, and enabling coverage for a larger number of accounts. We now have the systems, training, and incentives for sales associates to sell our represented hotels as a portfolio rather than solely on a hotel-by-hotel basis. Our largest properties continue to have sales staff assigned on property. In 2011, we also implemented innovative technology solutions, including our Retail Pricing Optimizer toolbelieve Revenue per Available Room ("RPO"RevPAR") and our High Performance Pricing tool ("HPP"). RPO determines optimal transient retail (benchmark) rates for hotels using an analytically-driven and market-based methodology. We believe this technology provides a competitive advantage in pricing decisions, increases efficiency in analysis and decision making, and produces increased property level revenue for transient retail and associated segments. HPP enables hotels to more effectively manage the rate set up and modification processes using web-based functionality. The streamlined process provides for greater pricing flexibility, reduces time spent on rate program creation and maintenance, and increases the speed to market of new products and services.
Our lodging business model involves managing and franchising hotels, rather than owning them. At year-end 2011, we operated 44 percent of the hotel rooms in our worldwide system under management agreements, our franchisees operated 53 percent under franchise agreements, we owned or leased 2 percent, and 1 percent were operated or franchised through unconsolidated joint ventures. Our emphasis on long-term management contracts and franchising tends to provide more stable earnings in periods of economic softness, while the addition of new hotels to our system generates growth, typically with little or no investment by the company. This strategy has allowed substantial growth while reducing financial leverage and risk in a cyclical industry. In addition, we believe we increase our financial flexibility by reducing our capital investments and adopting a strategy of recycling the investments that we make.
We consider RevPAR,, which we calculate by dividing room sales for comparable properties by room nights available to guests for the period, to beis 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. We also believe occupancy and average daily rate (“ADR”), which both correlate with 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.
References to year-end 2013 RevPAR statistics, including occupancy and average daily rate, throughout this report reflect the twelve months ended December 31, 2013, as compared to the twelve months ended December 31, 2012. References to RevPAR throughout this report are in constant dollars, unless otherwise noted. Constant dollarstatistics, including occupancy and average daily rate, have not been modified to a calendar basis for year-end 2012 compared to year-end 2011. Accordingly, these statistics reflect the 52-week period ended December 28, 2012 compared to the 52-week period ended December 30, 2011, with the exception of The Ritz-Carlton and Autograph Collection brand properties and properties located outside of the United States where statistics are calculatedfor the twelve months ended for each year presented, consistent with historic presentation. For the properties located in countries that use currencies other than the U.S. dollar, the 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.
Company-operatedWe define our comparable properties as those that were open and operating under one of our brands for at least one full calendar year as of the end of the current period and have not, in either the current or previous periods presented, (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. Comparable properties represented the following percentage of our properties for the years ended 2013, 2012, and 2011, respectively: (1) 89%, 93%, and 94% of North American properties; (2) 75%, 78%, and 79% of International properties; and (3) 87%, 91%, and 92% of total properties.
We also believe company-operated house profit margin, which is the ratio of property-level gross operating profit (also known as house profit) to total property-level revenue. We consider house profit margin to berevenue, is a meaningful indicator of our performance because this ratio measures our overall ability as the operator to produce property-level profits by generating sales and controlling the operating expenses over which we have the most direct control. House profit includes room, food and beverage, and other revenue and the related expenses including payroll and benefits expenses, as well as repairs and maintenance, utility, general and administrative, and sales and marketing expenses. House profit does not include the impact of management fees, furniture, fixtures and equipment replacement reserves, insurance, taxes, or other fixed expenses.
TimeshareResults
Conditions for our business continued to improve in 2013, reflecting generally low supply growth in the United States ("U.S."), global improving economic climate in many markets around the world, improved pricing in most markets, and a year-over-year increase in the number of properties in our system. Demand was particularly strong at luxury properties, followed by full-service properties, and limited-service properties.
Comparable worldwide systemwide average daily rates for the twelve months ended December 31, 2013 increased 3.4 percent on a constant dollar basis to $143.33, RevPAR increased 4.6 percent to $102.46, and occupancy increased 0.9 percentage points to 71.5 percent, compared to the same period a year ago.
Continuing economic uncertainty in the U.S. and U.S. government sequestration had a dampening effect on short-term group customer demand through the 2013 first half. Short-term group customer demand improved in the 2013 second half, benefiting from better attendance at group functions. Group bookings in the 2013 second half for future short-term group business also improved. Government and government-related demand was constrained due to government spending restrictions and the U.S. federal government shutdown in October, particularly in Washington, D.C. and the surrounding areas. Transient demand was particularly strong in the western U.S., which allowed us to continue eliminating discounts, shifting business into higher rated price categories, and raising room rates. In the northeast U.S., weak group demand in the region in the first half of 2013, new supply in the city of New York, and weak government and government-related business in Washington, D.C., further impacted by the government shutdown, constrained RevPAR improvement. Leisure destinations in the U.S. had strong demand.
The properties in our system serve both transient and group customers. Business transient and leisure transient demand in the U.S. was strong in 2013. For group business, two-thirds is typically booked before the year of arrival and one-third is booked in the year of arrival. Also, during an economic recovery, group pricing tends to lag transient pricing due to the significant lead times for group bookings. During the recent U.S. economic recession, organizers of large group meetings
scheduled smaller and fewer meetings to take place in 2013 than was previously typical. As the U.S. economy recovered, we replaced this lower level of large advance-purchase groups with smaller, last-minute group bookings and transient business. Last-minute group demand weakened during the first half of 2013, largely driven by weak corporate business and soft government demand at many properties, but corporate demand improved in the 2013 second half. U.S. government group demand weakened further as the year progressed, significantly impacted by the government shutdown in the 2013 fourth quarter.
Short-term group demand shortfalls in the 2013 first half were largely mitigated by strong transient demand leading to strong occupancy rates. At the same time, as transient guests typically spend less on food and beverage than group customers, property-level food and beverage revenues increased year-over-year more slowly than room revenue. In addition, spending on food and beverage in 2013 was constrained by the somewhat uncertain economic climate and government spending restrictions in the U.S.
As noted previously,of year-end 2013, our group revenue booking pace for company-operated Marriott Hotels brand properties in North America is up over 4 percent for stays in 2014, compared to year-end 2012 booking pace for stays in 2013, reflecting improved group demand and greater pricing power.
Outside of North America, Eastern Europe, Russia, and Northern United Kingdom had strong demand in 2013 while Western Europe experienced moderate RevPAR growth. London RevPAR declined in the first three quarters of 2013, reflecting tough comparisons to last year's summer Olympic Games, but improved in the 2013 fourth quarter. Demand in France weakened as the year progressed. Demand remained weak in European markets more dependent on November 21, 2011, we completedregional travel and new supply and weak economies constrained RevPAR growth in a spin-offfew markets. In the Middle East, demand was strong in the United Arab Emirates, but weakened further in Egypt (particularly in the second half of 2013), Jordan, and Qatar. Demand in the Asia Pacific region continued to moderate, as our hotels in China experienced weaker government-related travel, moderating economic growth, and new supply in several markets. Thailand and Indonesia had higher demand and strong RevPAR growth in 2013.
We monitor market conditions and carefully price our rooms daily in accordance with individual property demand levels, generally adjusting room rates as demand changes. We also modify the mix of our timeshare operationsbusiness to increase revenue as demand changes. Demand for higher rated rooms improved in most markets in 2013, which allowed us to reduce discounting and timeshare developmentspecial offers for transient business through a special tax-free dividendin many markets. This mix improvement benefited average daily rates. For our company-operated properties, we continue to our shareholders of all of the issuedfocus on enhancing property-level house profit margins and outstanding common stock of our wholly owned subsidiary MVW.
In preparing our former Timeshare segment to operate as an independent, publicly traded company following the spin-off of the stock of MVW management assessed the Timeshare segment's intended use of excess undeveloped land and built inventory and the current market conditions for those assets. On September 8, 2011, management approved a plan for our former Timeshare segment to accelerate cash flow through the monetization of certain excess undeveloped land and excess built luxury inventory. As a result, we recorded a pre-tax non-cash impairment charge of $324 million ($234 million after-tax) in our 2011 Income Statement under the "Timeshare strategy-impairment charges" caption. We discuss these charges in more detail under the caption "Timeshare Strategy-Impairment Charges" later in this Management's Discussion and Analysis section. Also see the "Timeshare" caption later in this Management's Discussion and Analysis section, for additional information on the results of operations.actively pursue productivity improvements.
CONSOLIDATED RESULTS
The following discussion presents an analysis of results of our operations for 20112013, 20102012, and 20092011. The results for 2011 include (which included the results of the former Timeshare segment prior tobefore the spin-off).
In late 2011, we completed the spin-off date while 2010of our timeshare operations and 2009 included the formertimeshare development business. Accordingly, we no longer have a Timeshare segment for the entire fiscal year.and instead earn license fees that we do not allocate to any of our segments and include in "other unallocated corporate." See the Timeshare segment discussion later in this reportFootnote No. 15, "Spin-off" for additional information.
Revenues
20112013 Compared to 20102012
Revenues increased by $626970 million (58 percent) to $12,31712,784 million in 20112013 from $11,69111,814 million in 2010,2012 as a result of higher:of: higher cost reimbursements revenue ($886 million), higher franchise fees ($59 million), higher base management fees ($40 million), and higher incentive management fees($60424 million); base management, comprised of a $27 million increase for North America and franchise fees ($105a $3 million); decrease outside of North America), partially offset by lower owned, leased, corporate housing, and other revenue ($3739 million);.We estimate that the $970 million increase in revenues included $8 million of combined base management fee, franchise fee, and incentive management fees ($13 million (all from properties outsidefee revenues due to the additional four days of North America)). These favorable variances were partially offset by lower Timeshare sales and services revenue ($133 million).
The increasesactivity in base management fees, to $602 million in 2011 from $562 million in 2010, and in franchise fees, to $506 million in 2011 from $441 million in 2010, primarily reflected stronger RevPAR and, to a lesser extent, the impact of unit growth across the system and favorable foreign exchange rates. Base management fees in 2011 included $51 million associated with the timeshare business2013 compared to $55 million in the prior year. Franchise fees in 2011 included $4 million associated with MVW license fees. The increase in incentive management fees from $182 million in 2010 to $195 million in 2011 primarily reflected higher net property-level income resulting from higher property-level revenue and continued property-level cost controls and, to a lesser extent, new unit growth in international markets and favorable foreign exchange rates.
The increase in owned, leased, corporate housing, and other revenue, to $1,083 million in 2011, from $1,046 million in 2010, reflected $21 million of higher total branding fees, $7 million of higher corporate housing revenue, $4 million of higher hotel agreement termination fees, and $3 million of higher other revenue. Combined branding fees associated with credit card endorsements and the sale of branded residential real estate by others totaled $99 million and $78 million in 2011 and 2010, respectively.
The decrease in Timeshare sales and services revenue to $1,088 million in 2011, from $1,221 million in 2010, primarily
reflected: (1) $49 million of lower development revenue which reflected the spin-off and, to a lesser extent, lower sales volumes, partially offset byfavorable reportability primarily related to sales reserves recorded in 2010; (2) $45 million of lower financing revenue from lower interest income as a result of the transfer of the mortgage portfolio to MVW in conjunction with the spin-off as well as a lower mortgage portfolio balance prior to the spin-off date; (3) $32 million of lower other revenue, which primarily reflected the spin-off and lower resales revenue; and (4) $7 million of lower services revenue which reflected the spin-off, partially offset byincreased rental occupancies and rates prior to the spin-off date. See “BUSINESS SEGMENTS: Timeshare” later in this report for additional information on our former Timeshare segment.2012.
Cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer. As we record cost reimbursements based upon costs incurred with no added markup, this revenue and related expense has no impact on either our operating income or net income. The $886 millionincrease in total cost reimbursements revenue, to $8,84310,291 million in 20112013 from $8,2399,405 million in 2010,2012, reflected the impact of higher property-level demand and growth across the system.
2010 Compared to 2009
The $40 million (comprised of a $12 million increase for North America and a $16 million increase outside of North America)); and owned, leased, corporate housing, and other revenue ($27 million).
The increase in Timeshare sales and services revenue to $1,221 million in 2010, from $1,123 million in 2009, primarily reflected higher financing revenue due to higher interest income and to a lesser extent higher services revenue reflecting increased rental occupancy levels and rates. These favorable impacts were partially offset by lower development revenue reflecting lower sales volumes primarily associated with tough comparisons driven by sales promotions begun in 2009, a $20 million increase in reserves (we now reserve for 100 percent of notes that are in default in addition to the reserve we record on notes not in default), and lower sales to new customers in our initial launch of the MVCD Program. See “BUSINESS SEGMENTS: Timeshare” later in this report for additional information on our Timeshare segment.
The increases intotal base management fees, to $562$621 million in 20102013 from $530$581 million in 2009, and in franchise fees, to $441 million in 2010 from $400 million in 2009, primarily2012, mainly reflected stronger RevPAR anddue to increased demand ($18 million), the impact of unit growth across the system.system ($18 million), primarily driven by Gaylord brand properties we began managing in the fourth quarter of 2012, and the additional four days of activity (approximately $3 million). The$59 million increase in total franchise fees, to $666 million in 2013 from $607 million in 2012, primarily reflected stronger RevPAR due to increased demand ($22 million), the impact of unit growth across the system ($23 million), increased relicensing fees primarily for certain North American Limited-Service properties ($8 million), and the additional four days of activity (approximately $5 million). The $24 million increase in incentive management fees from $232 million in 2012 to $182$256 million in 2010 from $154 million in 2009, primarily2013 largely reflected higher property-level revenueincome at managed hotels ($33 million), particularly full-service hotels in North America, partially offset by unfavorable foreign exchange rates ($3 million) and continued tight property-level cost controls that improved 2010 margins comparedunfavorable variances from the following 2012 items: recognition of incentive management fees due to 2009contract revisions for certain International segment properties ($3 million) and to a lesser extent, new unit growth.recognition of previously deferred fees in conjunction with an International segment property's change in ownership ($3 million).
The increase$39 million decrease in owned, leased, corporate housing, and other revenue, to $1,046$950 million in 2010,2013 from $1,019$989 million in 2009, largely2012, primarily reflected $14$35 million of lower corporate housing revenue due to the sale of the ExecuStay corporate housing business in the 2012 second quarter and $28 million of lower owned and leased revenue, partially offset by $12 million of higher branding fees, $8 million of higher hotel agreement termination fees, associated with six properties that exited our system, $8 million of higher branding fees, $6 million of higher revenue for owned and leased properties, and $5$2 million of higher other revenue. Partially offsetting these favorable variances was a one-time $6 million transaction cancellation fee received in 2009. The increase inLower owned and leased revenue primarily reflected increased RevPARfewer International segment leased properties due to three leases that we terminated in 2013 and occupancy levels.weaker demand at one leased property in London, as well as a $2 million business interruption payment received in the 2012 second quarter from a utility company. Combined branding fees associated withfor credit card endorsements and the sale of branded residential real estate by others totaled $78 million and $70$118 million in 20102013 and 2009, respectively.$106 million in 2012.
2012 Compared to 2011
Revenues decreased by $503 million (4 percent) to $11,814 million in 2012 from $12,317 million in 2011. As detailed later in this report in the table under the caption "Former Timeshare Segment - 2012 Compared to 2011," the spin-off contributed to a net $1,282 million decrease in revenues. This decrease was partially offset by a $779 million increase in revenues in our lodging business.
The $779 million increase in revenues for our lodging business was a result of: higher cost reimbursements revenue ($757 million), higher franchise fees ($44 million), higher incentive management fees ($37 million, comprised of an $18 million increase for North America and a $19 million increase outside of North America), and higher base management fees ($35 million), partially offset by lower owned, leased, corporate housing, and other revenue ($94 million, which includes a $70 million reduction from our sold corporate housing business as further discussed later in this section).
The $562 million increase in total cost reimbursements revenue, to $8,239$9,405 million in 20102012 from $7,682$8,843 million in 2009,2011, reflected a $757 million increase (allocated across our lodging business) resulting from higher property-level demand and growth across our system, partially offset by a net $195 million decline in timeshare-related cost reimbursements due to the spin-off.
The $21 million decrease in total base management fees, to $581 million in 2012 from $602 million in 2011, primarily reflected a decline of $56 million in former Timeshare segment ($51 million) and International segment ($5 million) base management fees due to the spin-off, partially offset by a net increase of $35 million across our lodging business. The $35 million net increase in base management fees across our lodging business primarily reflected stronger RevPAR ($24 million) and the impact of unit growth across the system ($9 million), as well as recognition in the 2012 third quarter of $7 million of previously deferred base management fees in conjunction with the sale of our equity interest in a North American-Limited Service joint venture, partially offset by lower property-level costsunfavorable foreign exchange rates ($3 million) and the unfavorable impact of $3 million of fee reversals in response2012 for two properties to cost controls. Netreflect contract revisions. The $101 million increase in total franchise fees, to $607 million in 2012 from $506 million in 2011, primarily reflected an increase of hotels exiting$57 million in license fees from MVW and an increase of $44 million across our lodging business primarily as a result of stronger RevPAR ($27 million) and the impact of unit growth across the system we added 4,287 managed rooms($13 million). The $37 million increase in incentive management fees from $195 million in 2011 to $232 million in 2012 primarily reflected higher net property-level income ($30 million), new unit growth, net of terminations ($6 million), recognition of incentive management fees due to contract revisions for certain International segment properties ($3 million), and 17,024 franchised roomsrecognition of previously deferred fees in conjunction with an International segment property's change in ownership ($3 million), partially offset by unfavorable foreign exchange rates ($4 million).
The $94 million decrease in owned, leased, corporate housing, and other revenue, to our system$989 million in 2010.
Timeshare Strategy-Impairment Charges
2012 from $1,083 million in 2011, Charges
In preparing our former Timeshare segmentprimarily reflected $70 million of lower corporate housing revenue due to operate as an independent, publicly traded company following our spin-offthe sale of the stock of MVW (see Footnote No. 17, "Spin-off" for additional information), management assessed the Timeshare segment's intended use of excess undeveloped land and built inventory and the current market conditions for those assets. On September 8, 2011, management approved a plan for the Timeshare segment to accelerate cash flow through the monetization of certain excess undeveloped landExecuStay® corporate housing business in the U.S., Mexico,2012 second quarter, $29 million of lower owned and the Bahamas over the next 18 to 24 monthsleased revenue, and to accelerate sales$3 million of excess built luxury fractional and residential inventory over the next three years. As a result, in accordance with the guidance for accounting for the impairment or disposal of long-lived assets, because the nominal cash flows from the planned land sales and the estimated fair values of the land and excess built luxury inventory were less than their respective carrying values, we recorded a pre-tax non-cash impairment charge of $324 million ($234 million after-tax) in our 2011 Incomelower
Statement under the “Timeshare strategy-impairment charges” caption.
2009 Charges
In 2009 we recorded pretax charges totaling $752termination fees, partially offset by $7 million of higher branding fees and $3 million of higher other revenue. The $29 million decrease in owned and leased revenue primarily reflected: (1) $34 million of lower revenue at several owned and leased properties in our Income StatementInternational segment, primarily driven by three hotels that left the system ($502 million after-tax)18 million), including $614weaker demand at three other hotels ($6 million), two hotels that are no longer leased but remain within our system as managed or franchised properties ($5 million), and unfavorable foreign exchange rates ($5 million); and (2) $23 million of pretax chargeslower revenue at a North American Full-Service segment property that impacted operating income under the “Timeshare strategy-impairment charges” caption, and $138converted from leased to managed at year-end 2011; partially offset by (3) $14 million of pretax charges that impacted non-operating income underhigher revenue at one leased property in London due to strong demand, in part associated with the “Timeshare strategy-impairment charges (non-operating)” caption. The $7522012 third quarter Olympic Games; and (4) $10 million of pretax impairment charges were non-cash, other than $27 million of charges associatedhigher revenue at one leased property in Japan. The property in Japan benefited from favorable comparisons with ongoing mezzanine loan fundings and $21 million of charges for purchase commitments.
For additional information related to the 2009 and 2011 impairment charges, including how these impairments were determined, the impairment charges grouped by product type and/or geographic location, and a table showing the composition of the charges, see Footnote No. 18, “Timeshare Strategy - Impairment Charges.”
Restructuring Costs and Other Charges
As part of the restructuring actions we began in 2008, we initiated further cost savings measures in 2009 associated with our former Timeshare segment, hotel development, above-property level management, and corporate overhead. These further measures resulted in additional restructuring costs of $51 million in 2009. For additional information on the 2009 restructuring costs, including the types of restructuring costs incurred in total and by segment, please see Footnote No. 21, “Restructuring Costs and Other Charges,” of the Notes to the Financial Statements in our 2009 Form 10-K. For the cumulative restructuring costs incurred since inception, please see Footnote No. 19, “Restructuring Costs and Other Charges,” of the Notes to our Financial Statements in this Form 10-K.
Asas a result of our restructuring efforts, we realizedvery weak demand due to the following annual cost savingsearthquake and tsunami as well as a $2 million business interruption payment received in 20102012 from a utility company. Combined branding fees for credit card endorsements and 2009, respectively, which were primarily reflectedthe sale of branded residential real estate by others totaled $106 million in our Income Statement under the expense captions noted: (i) $1132012 and $99 million ($73 million after-tax) and $80 million to $85 million ($48 million to $52 million after-tax) for our former Timeshare segment, under “Timeshare-direct” and “General, administrative, and other”; (ii) $12 million ($8 million after-tax) and $9 million ($5 million after-tax) for hotel development across several of our Lodging segments, primarily under “General, administrative, and other”; and (iii) $10 million ($8 million after-tax) and $8 million ($5 million after-tax) for reducing above property-level lodging management personnel under “General, administrative, and other.”in 2011.
Operating Income (Loss)
20112013 Compared to 20102012
Operating income decreasedincreased by $16948 million to $526988 million in 20112013 from $695940 million in 2010.2012. The decrease reflected Timeshare strategy-impairment charges of $324 million recorded in 2011 and $40 million of lower Timeshare sales and services revenue net of direct expenses, partially offset by a $10548 million increase in operating income reflected a $59 million increase in franchise fees, a $40 million increase in base management fees, a $24 million increase in incentive management fees, and franchise fees, $496 million of higher owned, leased, corporate housing, and other revenue net of direct expenses, a $28partially offset by an $81 million decrease increase in general, administrative and other expenses, and $13expenses. Approximately $7 million of higher incentive management fees.the net increase in operating income was due to the additional four days of activity in 2013. We addressdiscuss the reasons for the increases in base management andfees, franchise fees, and in incentive management fees as compared to 20102012 in the preceding “Revenues” section.
The $496 million (544 percent) increase in owned, leased, corporate housing, and other revenue, net of direct expenses was primarilylargely attributable to $21$12 million of higher branding fees, $15 million of net stronger results at some owned and leased properties due to higher RevPAR and property-level margins, $6$8 million of higher hotel agreement termination fees, net of 2010 termination costs, $6and $2 million of higher corporate housingother revenue, partially offset by $17 million of lower owned and otherleased revenue, net of direct expenses. Lower owned and leased revenue, net of direct expenses andwas primarily due to $7 million in costs related to three International segment leases we terminated, $5 million of decreased rent expense,in lower results at one leased property in London, $7 million in pre-opening expenses for the London and Miami EDITION hotels, and a $2 million business interruption payment received in the 2012 second quarter from a utility company for our leased property in Japan, partially offset by $4 million of lowerin net favorable results at aseveral leased hotel in Japan that experienced lower demand as a result of the earthquake and tsunami earlier in the year.properties.
General, administrative, and other expenses decreasedincreased by $2881 million (413 percent) to $752726 million in 20112013 from $780645 million in 2012. The 2010$81 million. The decrease primarily increase largely reflected favorable variances from the following items recorded in 2010: an $842013 items: (1) $32 million long-lived asset impairment charge associated with a capitalized revenue management software asset (which we did not allocate to any of our segments); a $13 million long-lived asset impairment charge (allocated to our former Timeshare segment); and a $14 million long-lived asset impairment charge (allocated to our North American Limited-Service segment). Also contributing to the decrease in expenses, was $9 million of lower former Timeshare segment expenses due to the spin-off and a $5 million reversal in 2011 of a loan loss provision related to one property with increased expected future cash flows. These favorable variances were partially offset by the following items recorded in 2011: $34 million of transaction-related expenses associated with the spin-off of the timeshare business; $17 million of higher compensation costs; $10 million of increased other expenses primarily associated with higher costs in international markets, higher costs for hotel development, and higher costs for branding and service initiatives to enhance and grow our brands globally, a $5globally; (2) $26 million of higher compensation and other overhead expenses including increases in hotel development staffing and bonus compensation; (3) $18 million of impairment ofand accelerated amortization expense for deferred contract acquisition costs and a $5 million accounts receivable reserve, both related
to one Luxury segment property whose owner filedprimarily for bankruptcy;properties that left our system or which had cash flow shortfalls; (4) a $5 million performance cure payment for a North American Full-Servicean International segment property; and $7(5) $4 million of higher amortization expense year over year for deferred contract acquisition costs related to anthe 2012 Gaylord brand and hotel management company acquisition; and (6) a $4 million increase in the guarantee reserves for one International and one North American Full-Service property,legal expenses, primarily due to cash flow shortfalls atfavorable litigation settlements in 2012. These increases were partially offset by a favorable variance from the properties, and a $2accelerated amortization of $8 million write-off of deferred contract acquisition costs associated with two other properties. Unfavorable variances fromin 2012 for a $4 million reversal of excess accruals for net asset tax based on the receipt of final assessments from a taxing authority located outside the United States and a $6 million reversal of guarantee accruals, primarily related to a completion guarantee for which we satisfied the related requirements, both recorded in 2010, further offset the aforementioned favorable variances.
property that exited our system. The $2881 million decreaseincrease in total general, administrative, and other expenses consisted of a $34included $27 million decrease that we did not allocate to any of our segments; a $22segments, and $54 million decrease that we allocated as follows: $18 million to our former Timeshare segment;International segment, $19 million to our Luxury segment, $15 million to our North American Full-Service segment, and a $12$2 million decrease allocated to our North American Limited-Service segment; partially offset by a $20 million increase allocated to our Luxury segment; a $15 million increase allocated to our International segment; and a $5 million increase allocated to our North American Full-Service segment.
Timeshare sales and services revenue net of direct expenses totaled $159 million in 2011 and $199 million in 2010. The decrease of $40 million as compared to 2010, primarily reflected $28 million of lower other revenue, net of expenses and $25 million of lower financing revenue, net of expenses, partially offset by $8 million of higher development revenue net of product costs and marketing and selling costs and $5 million of higher services revenue, net of expenses. The $28 million decrease in other revenue, net of expenses primarily reflected a $15 million unfavorable variance from an adjustment to the Marriott Rewards liability in the prior year and, to a lesser extent in the current year reflected the impact of the spin-off as well as lower resales revenue, net of expenses due to lower closings. The $25 million decrease in financing revenue, net of expenses primarily reflected decreased interest income due to the spin-off as well as lower notes receivable balances prior to the spin-off date. Higher development revenue net of product costs and marketing and selling costs primarily reflected favorable reportability as well as a favorable variance from a net $12 million reserve in the prior year, partially offset by lower 2011 sales volumes as well as the impact of the spin-off. See “BUSINESS SEGMENTS: Timeshare,” later in this report for additional information on our former Timeshare segment prior to spin-off.
20102012 Compared to 20092011
Operating income increased by $847$414 million to operating income of $695$940 million in 20102012 from an operating loss of $152$526 million in 2009.2011. The $414 million increase in operating income reflected a net $265 million favorable variance of $614due to the spin-off (which included $324 million related toof Timeshare strategy-impairment charges recorded in 2009, $1162011. See Footnote No. 15, "Spin-off" for additional information on these charges.), as detailed in the table under the caption "Former Timeshare Segment - 2012 Compared to 2011," and a $149 million of higher Timeshare sales and services revenue net of direct expenses,increase across our lodging business. This $149 million increase across our lodging business reflected a $73$44 million increase in franchise fees, a $37 million increase in incentive management fees, a $35 million increase in base management and franchise fees, a $51 million decrease in restructuring costs, $28 million of higher incentive management fees, and $23$25 million of higher owned, leased, corporate housing, and other revenue net of direct expenses, partially offset by a $58and an $8 million increasedecrease in general, administrative and other expenses. We notediscuss the reasons for the increase of $73 millionincreases in base management andfees, franchise fees, as well as the increase of $28 million inand incentive management fees asacross our lodging business compared to 20092011 in the preceding “Revenues” section.
Timeshare sales and services revenue netThe $23$25 million (34(18 percent) increase in owned, leased, corporate housing, and other revenue net of direct expenses was primarily attributable to $12$19 million of higher hotel agreement termination fees net ofstronger results, particularly at one leased property closing costs, $8in Japan ($9 million) and one leased property in London ($8 million), $7 million of higher branding fees, a $4and $3 million reversal of a liability related to a hotel that closed in 2010, and net stronger results at some owned and leased properties due to higher RevPAR and property-level margins,other revenue, partially offset by additional rent expense$3 million of lower termination fees. Our leased property in London benefited from strong demand and higher property-level margins in 2012 in part associated with onethe 2012 third quarter Olympic Games, while our leased property in Japan experienced strong demand in 2012, benefiting from favorable comparisons with 2011 as a result of very weak demand due to the earthquake and an unfavorable variancetsunami as well as a $2 million business interruption payment received in 2012 from a one-time $6 million transaction cancellation fee received in 2009.
utility company.
General, administrative, and other expenses increaseddecreased by $58$107 million (8(14 percent) to $780$645 million in 20102012 from $722$752 million in 2009.2011. The increase primarily$107 million decrease reflected a decline of $99 million due to the following 2010 charges: an $84spin-off (consisting of $63 million long-lived asset impairment charge associated with a capitalized revenue management software asset (which we did not allocate to any of our segments); a
$13 million long-lived asset impairment charge (allocated to our former Timeshare segment); and a $14 million long-lived asset impairment charge (allocated to our North American Limited-Service segment). See Footnote No. 7, “Property and Equipment,” of the Notes to our Financial Statements for additional information on these three impairment charges. In addition, we recorded a $4 million contract acquisition cost impairment charge (allocated to our North American Full-Service segment) in 2010. See the North American Full-Service segment discussion for additional information on this impairment charge. Also contributing to the year-over-year increase was $35 million of higher compensation costs, $14 million of increased other expenses primarily associated with initiatives to enhance our brands globally, $7 million of increased currency exchange losses, and $2 million of increased legal expenses. These unfavorable variances were partially offset by an $8 million reversal in 2010 of guarantee accruals, primarily related to a completion guarantee for which we satisfied the related requirements, and a $4 million reversal of excess accruals for net asset tax based on the receipt of final assessments from a taxing authority located outside the United States. In addition, the comparison reflects the following 2009 expenses that we did not incur in 2010: $49 million of impairment charges related to two security deposits that we deemed unrecoverable in 2009 due, in part, to our decision not to fund certain cash flow shortfalls, partially offset by an $11 million reversal of the 2008 accrual for the funding of those cash flow shortfalls; a $7 million write-off of Timeshare segment capitalized software costs; and $4 million of bad debt expense on an accounts receivable balance. The year-over-year comparison also reflected a $15 million favorable variance in deferred compensation expenses (with changes to our deferred compensation plan, general, administrative, and other expenses for 2010 had no deferred compensation impact, compared with $15and $36 million of mark-to-market valuation expenses in 2009). The increase in general, administrative, and other expenses not previously allocated to the former Timeshare segment, including $34 million of Timeshare spin-off costs and $2 million of other expenses), and a decline of $8 million across our lodging business. The $8 million decrease across our lodging business was alsoprimarily a result of: (1) favorable variances from the following 2011 items: (a) a $5 million impairment of deferred contract acquisition costs and a $5 million accounts receivable reserve, both for one Luxury segment property whose owner filed for bankruptcy; (b) a $5 million performance cure payment for a North American Full-Service property; and (c) $8 million for a guarantee accrual for one North American Full-Service property and the write-off of contract acquisition costs for several other properties; and (2) $11 million of guarantee accrual reversals in 2012, primarily associated with four properties for which we either satisfied the related guarantee requirements or were otherwise released; (3) a favorable litigation settlement, partially offset by higher legal expenses, netting to a favorable $3 million; and (4) $2 million in decreased expenses due to favorable foreign exchange rates. These favorable items were partially offset by: (1) the eliminationfollowing unfavorable 2012 items: (a) $20 million of increased compensation and other overhead expenses; and (b) the accelerated amortization of $8 million of deferred contract acquisitions costs for a North American Full-Service segment property (for which we earned a termination fee that we recorded in owned, leased, corporate housing, and other revenue); and (2) the unfavorable variance for a $5 million reversal in 2011 of a loan loss provision in 2010, comparedfor one property with a $43 million provision in 2009, which reflected $29 million associated with one Luxury segment project and $14 million associated with aincreased expected future cash flows. See "BUSINESS SEGMENTS: North American Limited-Service segment portfolio.
Full-Service Lodging" for more information on the termination fee and the related accelerated amortization of deferred contract acquisition costs recorded in 2012.
The $58$8 million increasedecrease in total general, administrative, and other expenses was comprised of:across our lodging business consisted of a $77$21 million decrease allocated to our Luxury segment, partially offset by an $11 million increase that we did not allocate to any of our segments;segments and a $5$2 million increase allocated to our former Timeshare segment; an $8 million decrease allocated to our North American Limited-Service segment; an $8 million decrease allocated to our Luxury segment; a $7 million decrease allocated to our North American Full-Service segment; and a $1 million decrease allocated to our International segment.
Gains (Losses) Gains and Other Income (Expense)
We show our gains (losses) gains and other income for 2011, 2010,2013, 2012, and 20092011 in the following table:
| | | | | | | | | |
| ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| Gain on debt extinguishment | $ | — |
| | $ | — |
| | $ | 21 |
| |
| Gains on sales of real estate and other | 11 |
| | 34 |
| | 10 |
| $ | 2 |
| | $ | 27 |
| | $ | 11 |
|
| Gain/(loss) on sale of joint venture and other investments | $ | — |
| | $ | 1 |
| | $ | 3 |
| |
| Gain on sale of joint venture and other investments | | 9 |
| | 21 |
| | — |
|
| Income from cost method joint ventures | — |
| | — |
| | 2 |
| — |
| | 2 |
| | — |
|
| Impairment of equity securities | (18 | ) | | — |
| | (5 | ) | |
| Impairment of cost method joint venture investments and equity securities | | — |
| | (8 | ) | | (18 | ) |
| | $ | (7 | ) | | $ | 35 |
| | $ | 31 |
| $ | 11 |
| | $ | 42 |
| | $ | (7 | ) |
20112013 Compared to 20102012
The $23Gains and other income decreased by $31 million (74 percent) to $11 million in 2013 compared to $42 million in 2012. This decrease in gains on sales of real estate and other primarilyincome principally reflected an unfavorable variance from an $18the $41 million gain we recognized in 2012 on the sale of one Timeshare segment propertythe equity interest in 2010. The a North American Limited-Service joint venture which we discuss in the following "$182012 Compared to 2011" discussion, and a $2 million impairment loss we recognized in 2013 as a result of equity securities in 2011 reflects an other-than-temporary impairment of marketable securities. For additionalmeasuring certain assets at fair value less the costs we incurred to sell those assets. See Footnote No. 7, "Acquisition and Dispositions" for more information on the reclassification of these assets to held for sale. The decrease in gains and other income was partially offset by a gain of $8 million we recognized in 2013 on the sale of a portion of our shares of a publicly traded company and a favorable variance from an other-than-temporary $7 million impairment see Footnote No. 4, “Fair Value of Financial Instruments.”we recorded in 2012 which we discuss in the following "
20102012 Compared to 2009
We did not extinguish any debt in 2010. In 2009, we repurchased $122 million principal amount of our Senior Notes in the open market, across multiple series. The $21 million gain on debt extinguishment in 2009 represents the difference between the $98 million purchase price and the $119 million net carrying amount of Senior Notes we repurchased during the period. The $5 million impairment of equity securities in 2009 reflected an other-than-temporary impairment of marketable securities in accordance with the guidance for accounting for certain investments in debt and equity securities. For additional information on the impairment, see Footnote No. 5, “Fair Value Measurements,” of the Notes to the Financial Statements in our 2009 Form 10-K.
2011" discussion.
2012 Compared to 2011
In 2012, we recognized a total gain of $41 million on the sale of an equity interest in a North American Limited-Service joint venture (formerly two joint ventures which were merged before the sale) which consisted of: (1) a $21 million gain on the sale of this interest reflected in the "Gain on sale of joint venture and other investments" caption in the preceding table; and (2) recognition of the $20 million remaining gain we deferred in 2005 due to contingencies in the original transaction documents for the sale of land to one of the joint ventures, reflected in the "Gains on sales of real estate and other" caption in the preceding table. See Footnote No. 7, "Acquisitions and Dispositions" for more information on the sale of this equity interest.
The "Impairment of cost method joint venture investments and equity securities" line in the preceding table reflects the other-than-temporary impairment in 2012 of two cost method joint venture investments and the other-than-temporary impairment in 2011 of marketable equity securities. For more information on the $7 million impairment of one of the cost method joint venture investments in 2012, see Footnote No. 4, “Fair Value of Financial Instruments.” For more information on the impairment of marketable equity securities in 2011, see Footnote No. 4, “Fair Value of Financial Instruments” of the 2012 Form 10-K.
Interest Expense
20112013 Compared to 20102012
Interest expense decreased by $1617 million (912 percent) to $164120 million in 20112013 compared to $180137 million in 2010.2012. This decrease wasin interest expense principally reflected a net $13 million decrease due to net Senior Note retirements and new Senior Note issuances at lower interest rates; and $3 million of increased capitalized interest primarily driven by: (1)related to developing two EDITION hotels, partially offset by completion of The London EDITION in the 2013 fourth quarter.
2012 Compared to 2011
Interest expense decreased by $27 million (16 percent) to $137 million in 2012 compared to $164 million in 2011. This decrease reflected a $12$29 million decrease due to the spin-off, partially offset by a $2 million increase for our lodging business. The $29 million decrease in interest expense on securitized notes, which reflected the transfer of these notes to MVW on the spin-off date, as well as a lower average outstanding balance and a lower average interest rate on those notes priordue to the spin-off date; (2)consisted of interest expense in 2011 that was allocated to the former Timeshare segment ($43 million), partially offset by interest expense in 2012 for ongoing obligations for costs that were a component of "Timeshare-direct" expenses before the spin-off ($8 million) and the unfavorable variance to 2011 for capitalized interest expense for construction projects for our former Timeshare segment ($6 million). For the $8 million of interest expense in 2012 for ongoing spin-off obligations, we also recorded $8 million of "Interest income" in 2012 for the associated notes receivable. The $2 million increase in capitalized interest associated with construction projects; and (3) a $1 million decrease in interest expense associated withfor our revolving credit facilitylodging business was primarily for the Series K Notes and the Series L Notes we issued in 2012 ($23 million) as well as increased interest expense for our Marriott Rewards program and our commercial paper program, which reflected lowerreflecting higher average balances and interest rates.rates ($2 million), partially offset by increased capitalized interest expense principally for lodging construction projects ($15 million) and the absence of interest expense for the Series F Senior Notes following our repayment of those notes in 2012 ($9 million). See the “LIQUIDITY"LIQUIDITY AND CAPITAL RESOURCES”RESOURCES" caption later in this report for additionalmore information on our credit facility.
2010 Compared to 2009
Interest expense increased by $62 million (53 percent) to $180 million in 2010 compared to $118 million in 2009. This increase was driven by: (1) the consolidation of $1,121 million of debt in the 2010 first quarter associated with previously securitized notes, which resulted in a $55 million increase in interest expense in 2010 related to that debt; (2) a $14 million unfavorable variance from 2009 as a result of lower capitalized interest in 2010 associated with construction projects; and (3) $12 million of higher interest expense in 2010 associated with our executive deferred compensation plan. These increases were partially offset by: (1) $12 million of lower interest expense associated with our repurchase of $122 million of principal amount of our Senior Notes in 2009, the maturity of our Series C Senior Notes in the 2009 fourth quarter and other net debt reductions; and (2) a $7 million decrease in interest expense associated with our previous $2.4 billion multicurrency revolving credit facility, which primarily reflected lower average borrowings.
Interest Income and Income Tax
20112013 Compared to 20102012
Interest income decreasedincreased by $56 million (2635 percent) to $1423 million in 20112013 compared to $1917 million in 2010,2012, primarily reflecting $5 million earned on the $65 million mandatorily redeemable preferred equity ownership interest we acquired in the 2013 second quarter. See Footnote No. 4, "Fair Value of Financial Instruments" for more information on the acquisition.
Our tax provision decreased by $7 million (3 percent) to $271 million in 2013 from $278 million in 2012. The decrease resulted from a lower effective tax rate (30.2 percent in 2013 compared to 32.7 percent in 2012), favorable tax provision to tax return adjustments in 2013, favorable variance from a reserve recorded for an international tax issue in 2012, a favorable state tax adjustment in 2013, and higher income before income taxes in jurisdictions outside of the U.S. with lower tax rates, partially offset by higher income tax expense in the U.S.
2012 Compared to 2011
Interest income increased by $3 million (21 percent) to $17 million in 2012 compared to $14 million in 2011, primarily reflecting $9 million of increased interest income for two notes receivable issued to us in conjunction with the spin-off, partially offset by a $6 million decrease associated withprimarily from the repayment of certain loans. For $8 million of the $9 million increase
in interest income in 2012 for notes receivable issued to us in conjunction with the spin-off, we also recorded $8 million of "Interest expense" in 2012 for ongoing obligations for those notes.
Our tax provision increased by $65$120 million (70 percent) (76 percent) to a tax provision of $158$278 million in 20112012 from a tax provision of $93$158 million in 2010.2011. The increase was primarily due to an unfavorablethe absence of timeshare pre-tax losses in 2012 due to the spin-off and the effect of higher pre-tax income from our lodging business, as well as a lower percentage of lodging pre-tax income in 2012 from jurisdictions outside the U.S. with lower tax rates. These increases in the provision were partially offset by a favorable variance related to a prior year IRS settlement on the treatment of funds received from certain non-U.S. subsidiaries that resulted in an $85$34 million benefit to our income tax provision in 2010 and $34 million of income tax expense that we recorded in 2011 to write-offwrite off certain deferred tax assets that we transferred to MVW in conjunction with the spin-off of our timeshare operations and timeshare development business. We impaired these assets because we consider it "more likely than not" that MVW will be unable to realize the value of those deferred tax assets. Please see Footnote No. 17, "Spin-off" of the Notes to our Financial Statements for additional information on the transaction. The increases were partially offset by lower pretax income in 2011.
2010 Compared to 2009
Interest income decreased by $6 million (24 percent) to $19 million in 2010, compared to $25 million in 2009, primarily reflecting a $4 million decrease associated with a loan that we determined was impaired in 2009. Because we recognize interest on impaired loans on a cash basis, we did not recognize any interest on this loan after its impairment. The decline in interest income also reflected a $2 million decrease due to a reduction in principal due associated with one loan.
Our income tax expense increased by $158 million (243 percent) to a provision of $93 million in 2010 from a benefit of $65 million in 2009. The increase was primarily due to pretax income in 2010 (as compared to a pretax loss in 2009) and $14 million of higher tax expense associated with changes to our deferred compensation plan (there were no 2010 plan changes impacting deferred compensation expenses, compared with changes which had a $14 million favorable impact in 2009). The increase was partially offset by a lower tax rate in 2010, as 2009 reflected $52 million of income tax expense primarily related to the treatment of funds received from certain non-U.S. subsidiaries. In the 2010 fourth quarter, we settled issues with the Internal Revenue Service (“IRS”) on our treatment of funds received from certain non-U.S. subsidiaries. In conjunction with that settlement, we recorded an $85 million benefit to our income tax provision in 2010. Our 2010 income tax expense also reflected a $12 million benefit we recorded primarily associated with revisions to prior years’ estimated foreign tax expense.
Equity in (Losses) EarningsLosses
20112013 Compared to 20102012
Equity in losses of $5 million in 2013 improved by $8 million from equity in losses of $13 million in 2011 decreased2012. The change primarily reflected a favorable variance from the following 2012 items: (1) $8 million in losses at a Luxury segment joint venture for the impairment of certain underlying residential properties; and (2) a $2 million loan loss provision for certain notes receivable due from another Luxury segment joint venture. These favorable variances were partially offset by a $4 million impairment charge in the 2013 second quarter associated with a corporate joint venture (not allocated to one of our segments) that we determined was fully impaired because we did not expect to recover the investment.$5
2012 Compared to 2011
Equity in losses of $13 million in 2012 was unchanged from equity in losses of $18$13 million in 20102011, and
the spin-off. The $4 million decrease in equity in losses across our lodging business primarily reflected $9$3 million of increased earnings at two International segment joint ventures, $3 million of decreased losses at two other joint ventures, and a $3 million favorable variance from the 2012 sale of an equity interest in a North American Limited-Service joint venture (formerly two joint ventures and one Internationalwhich were merged before the sale) which had losses in the prior year, partially offset by $3 million of increased losses at a Luxury segment joint venture, primarilyand a $2 million loan loss provision for certain notes receivable due to stronger property-level performance;from another Luxury segment joint venture. The $3 million of increased losses at a Luxury segment joint venture reflected increased losses of $8 million of lower losses for a residential and fractional project joint venture (our former Timeshare segment stopped recognizing their share of the joint venture’s losses as their investment, including loans dueprimarily from the joint venture, was reduced to zeroimpairment of certain underlying residential properties in 2010); and a favorable variance from joint venture impairment charges in 2010 of $5 million associated with our North American Limited-Service segment. These favorable impacts were2012, partially offset by $8$5 million of decreased earnings at two Luxury segmentlosses in 2012, after the impairment, as a result of decreased joint ventures. Furthermore,venture costs. The $4 million unfavorable variance due to the impact of the spin-off reflected the $4 million reversal in 2011 and 2010 we reversed $3 million and $11 million, respectively of the $27 million funding liability associated with Timeshare-strategy impairment charges we initiallyoriginally recorded in the Timeshare strategy-impairment charges (non-operating) caption of our 2009 Income Statement (see2009. See Footnote No. 18, "Timeshare Strategy-Impairment Charges" of the Notes to our Financial Statements of this2011 Form 10-K for additional information). The $11 million reversal in 2010 and the $3 million reversal in 2011 were both recorded basedinformation on facts and circumstances surrounding a project related to our former Timeshare segment, including continued progress on certain construction-related legal claims and potential funding of certain costs by one of the partners.
2010 Compared to 2009
Equity in losses of $18 million in 2010 decreased by $48 million from equity in losses of $66 million in 2009 and primarily reflected favorable variances from a $30 million impairment charge associated with a Luxury segment joint venture investment that we determined was fully impaired and a $3 million impairment charge for a joint venture that we did not allocate to one of our segments, both incurred in 2009. In the 2010 fourth quarter we also recorded an $11 million reversal of the $27 million funding liability initially recorded in 2009 (see preceding "2011 Compared to 2010" discussion). Increased earnings of $5 million for our International segment joint ventures and $3 million of lower cancellation reserves at our former Timeshare segment joint venture also contributed to the decrease in equity in losses. A 2010 impairment charge of $5 million associated with our North American Limited-Service segment joint venture partially offset the favorable impacts.
Net Losses Attributable to Noncontrolling Interests
2010 Compared to 2009
Net losses attributable to noncontrolling interests decreased by $7 million in 2010 to zero, compared to $7 million in 2009. The benefit for net losses attributable to noncontrolling interests in 2009 of $7 million are net of tax and reflected our partners’ share of losses totaling $11 million associated with joint ventures we consolidate, net of our partners’ share of tax benefits of $4 million associated with the losses.this reversal.
Net Income (Loss)
20112013 Compared to 20102012
Net income and net income attributable to Marriott decreasedincreased by $26055 million to $626 million in 2013 from $571 million in 2012, and diluted earnings per share increased by $0.28 per share (5716 percent) to $198 million in 2011 from $458 million in 2010, and diluted earnings per share attributable to Marriott decreased by $0.66 per share (55 percent) to $0.552.00 per share from $1.211.72 per share in 2010.2012. As discussed in more detail in the preceding sections beginning with “Operating“Revenues,” or as shown in the Consolidated Statements of Income, (Loss),” the $26055 million decreaseincrease in net income compared to the prior year was due to Timeshare strategy-impairment charges ($324 million)higher franchise fees ($59 million), higher base management fees ($40 million), higher incentive management fees ($24 million), lower interest expense ($17 million), lower equity in losses ($8 million), lower income taxes ($65 million), lower gains and other income ($42 million), lower Timeshare sales and services revenue net of direct expenses ($40 million), and lower interest income ($5 million). Higher base management and franchise fees ($1057 million), higher owned, leased, corporate housing, and other revenue, net of direct expenses ($496 million), lowerand higher interest income ($6 million). These increases were partially offset by higher general, administrative, and other expenses ($28 million), lower interest expense ($16 million), higher incentive management fees ($13 million),($81 million) and lower equity in losses ($5 million) partially offset these items.gains and other income ($31 million).
20102012 Compared to 20092011
Net income of $458increased by $373 million to $571 million in 2010 increased by $811 million (230 percent)2012 from a loss of $353$198 million in 2009, net income attributable to Marriott of $458 million in 2010 increased by $804 million (232 percent) from a loss of $346 million in 2009,2011, and diluted income per share attributable to Marriott of $1.21earnings per share increased by $2.18 (225$1.17 per share (213 percent) to $1.72 per share from losses of $0.97$0.55 per share in 2009.2011. As discussed in more detail in the preceding sections beginning with “Operating“Revenues,” or as shown in the Consolidated Statements of Income, (Loss),” the $458$373 million increase in net income compared to the prior year was due to a favorable variance related to Timeshare strategy-impairment charges in 2009the impact of the spin-off ($752296 million), as well as the following increases across our lodging business: higher gains and other income ($52 million), higher Timeshare sales and services revenue net of direct expenses ($116 million), lower restructuring costs ($51 million), higher base management and franchise fees ($73 million), lower equity in losses ($4844 million), higher incentive management fees ($2837 million), higher base management fees ($35 million), higher owned, leased, corporate housing, and other revenue, net of direct expenses ($2325 million), lower general, administrative, and other expenses ($8 million), and higher gains and other incomelower
equity in losses ($4 million). These favorable variancesincreases were partially offset by higher income taxes ($158120 million), higher general, administrative, and other expenses ($58 million), higher interest expense ($62 million), and as well as the following decreases across our lodging business: lower interest income ($6 million) and higher interest expense ($2 million).
Former Timeshare Segment - 2012 Compared to 2011
The following tables facilitate the comparison of 2012 to 2011 by detailing the components of our former Timeshare segment revenues and results for 2011, as well as certain items that we did not allocate to our Timeshare segment for 2011 while also showing the components of revenue, interest income and interest expense we received from MVW for 2012.
|
| | | | | | | | | | | |
| ($ in millions) | 2012 | | 2011 | | Change 2012/2011 |
| Former Timeshare segment revenues | | | | | |
| Base fee revenue | $ | — |
| | $ | 51 |
| | |
| Total sales and services revenue | — |
| | 1,088 |
| | |
| Cost reimbursements | — |
| | 299 |
| | |
| Former Timeshare segment revenues | — |
| | 1,438 |
| | $ | (1,438 | ) |
| | | | | | |
| Other base fee revenue | — |
| | 5 |
| | (5 | ) |
| | | | | | |
| Other unallocated corporate revenues from MVW | | | | | |
| Franchise fee revenue | 61 |
| | 4 |
| | |
| Cost reimbursements | 128 |
| | 24 |
| | |
| Revenues from MVW | 189 |
| | 28 |
| | 161 |
|
| | | | | | |
| Total revenue impact | $ | 189 |
| | $ | 1,471 |
| | $ | (1,282 | ) |
| | | | | | |
| | | | | | |
| | 2012 | | 2011 | | Change 2012/2011 |
| Former Timeshare segment results operating income impact | | | | | |
| Base fee revenue | $ | — |
| | $ | 51 |
| | |
| Timeshare sales and services, net | — |
| | 159 |
| | |
| Timeshare strategy-impairment charges | — |
| | (324 | ) | | |
| General, administrative, and other expense | — |
| | (63 | ) | | |
Former Timeshare segment results operating income impact (1) | — |
| | (177 | ) | | $ | 177 |
|
| | | | | | |
| Other base fee revenue | — |
| | 5 |
| | (5 | ) |
| General, administrative, and other expenses | | | | | |
| Timeshare spin-off costs | — |
| | (34 | ) | | 34 |
|
| Other miscellaneous expenses | — |
| | (2 | ) | | 2 |
|
| | | | | | |
| Other Unallocated corporate operating income impact from MVW | | | | | |
| Franchise fee revenue | 61 |
| | 4 |
| | 57 |
|
| | | | | | |
| Total operating income (loss) impact | 61 |
| | (204 | ) | | 265 |
|
Gains (losses) and other income (1) | — |
| | 3 |
| | (3 | ) |
Interest expense (1) | (8 | ) | | (43 | ) | | 35 |
|
| Capitalized interest | — |
| | 6 |
| | (6 | ) |
| Interest income | 11 |
| | 2 |
| | 9 |
|
Equity in earnings (losses) | — |
| | 4 |
| | (4 | ) |
| Income (loss) before income taxes spin-off impact | $ | 64 |
| | $ | (232 | ) | | $ | 296 |
|
| |
(1) | Timeshare segment results for year-end 2011 totaled a segment loss of $217 million and consisted of $177 million of operating losses, $43 million of interest expense, and $3 million of gains and other income. |
Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA
EBITDA, a financial measure that is not prescribed or authorized by United States generally accepted accounting principles (“GAAP”), reflects earnings excluding the impact of interest expense, provision for income taxes, and depreciation and amortization. We considerbelieve that EBITDA to be anis a meaningful indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels, and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. We, therefore, exclude depreciation and amortization expense. Effective with this report, we have also modified our EBITDA calculation to exclude depreciation and amortization expense that we classify in the "Owned, leased, and corporate housing-direct expenses" and "General, administrative, and other expenses" captions of our Income Statements; as well as the depreciation expense that third party owners reimburse to us that we classify in the "Reimbursed costs" caption of our Income Statements.
We also evaluatebelieve that Adjusted EBITDA, another non-GAAP financial measure, as anis a meaningful indicator of operating performance. Our Adjusted EBITDA reflects:
(1) Timeshare Spin-off Adjustments ("Timeshare Spin-off Adjustments") as ifan adjustment to exclude the spin-off had occurred$41 million pre-tax gain on the first day2012 sale of 2010. The Timeshare Spin-off Adjustments removean equity interest in a North American Limited-Service joint venture discussed earlier in the results"Gains and Other Income" caption; and (2) beginning with this report, an adjustment to exclude share-based compensation expense for all years presented. Because companies use share-based payment awards differently, both in the type and quantity of awards granted, we excluded share-based compensation expense to address considerable variability among companies in recording compensation expense. We believe Adjusted EBITDA that excludes these items is a meaningful measure of our former Timeshare segment for 2011 and 2010, remove unallocated spin-off transaction costs of $34 million we incurred in 2011, and assume payment by MVW to us of estimated license fees of $60 million for 2011 and $64 million for 2010. We have also included certain corporate items not previously allocated to our former Timeshare segment in the Timeshare spin-off adjustments. For additional information on the nature of the Timeshare Spin-off Adjustments, see the Form 8-K we filed with the SEC on November 21, 2011 upon completion of the spin-off;
(2) an adjustment for $28 million of other charges for 2011 consisting of an $18 million charge for an other-than-temporary impairment of marketable securities; a $5 million impairment of deferred contract acquisition costs and a $5 million accounts receivable reserve, both related to one Luxury segment property whose owner filed for bankruptcy; and
(3) an adjustment for $98 million of other charges for 2010 consisting of an $84 million impairment charge related to a capitalized revenue management software asset and a $14 million impairment charge related to a land parcel.
We discuss the second and third of these items in greater detail in the preceding "(Losses) Gains and Other Income (Expense)" caption and the "2010 Compared to 2009" heading under the "Operating Income (Loss)" caption, respectively.
We evaluate Adjusted EBITDA to makeoperating performance because it permits period-over-period comparisons of our ongoing core operations before material charges. EBITDAthese items and Adjusted EBITDA also facilitatefacilitates our comparison of results from our ongoing operations before material chargesthese items with results from other lodging companies.
EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as substitutes for performance measures calculated in accordance withunder GAAP. Both of these non-GAAP measures exclude certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate EBITDA and in particular Adjusted EBITDA differently than we do or may not calculate them at all, limiting EBITDA's and Adjusted EBITDA's usefulness as comparative measures. We provide Adjusted EBITDA for illustrative and informational purposes only and this measure is not necessarily indicative of and does not purport to represent what our operating results would have been had the spin-off occurred on the first day of 2010. This information also does not reflect certain financial and operating benefits we expect to realize as a result of the spin-off.
We show our 20112013 and 20102012 EBITDA and Adjusted EBITDA calculations that reflect the changes we describe above and reconcile those measures with Net Income in the following tables.tables:
|
| | | |
| ($ in millions) | 2013 |
| Net Income | $ | 626 |
|
| Interest expense | 120 |
|
| Tax provision | 271 |
|
| Depreciation and amortization | 127 |
|
| Depreciation classified in Reimbursed costs | 48 |
|
| Interest expense from unconsolidated joint ventures | 4 |
|
| Depreciation and amortization from unconsolidated joint ventures | 13 |
|
| EBITDA | $ | 1,209 |
|
| Share-based compensation (including share-based compensation reimbursed by third-party owners) | 116 |
|
| Adjusted EBITDA | $ | 1,325 |
|
| | |
| ($ in millions) | 2012 |
| Net Income | $ | 571 |
|
| Interest expense | 137 |
|
| Tax provision | 278 |
|
| Depreciation and amortization | 102 |
|
| Depreciation classified in Reimbursed costs | 45 |
|
| Interest expense from unconsolidated joint ventures | 11 |
|
| Depreciation and amortization from unconsolidated joint ventures | 20 |
|
| EBITDA | $ | 1,164 |
|
| Share-based compensation (including share-based compensation reimbursed by third-party owners) | 94 |
|
| Less: Gain on Courtyard JV sale, pre-tax | (41 | ) |
| Adjusted EBITDA | $ | 1,217 |
|
|
| | | | | | | | | | | | | | | |
| ($ in millions) | As Reported 2011 | | Timeshare Spin-off Adjustments | | Other Charges | | 2011 Adjusted EBITDA |
| Net Income | $ | 198 |
| | $ | 260 |
| | $ | 17 |
| |
|
|
| Interest expense | 164 |
| | (29 | ) | | — |
| |
|
|
| Tax provision (benefit) | 158 |
| | 40 |
| | 11 |
| |
|
|
| Depreciation and amortization | 168 |
| | (28 | ) | | — |
| |
|
|
| Less: Depreciation reimbursed by third-party owners | (15 | ) | | — |
| | — |
| |
|
|
| Interest expense from unconsolidated joint ventures | 18 |
| | — |
| | — |
| |
|
|
| Depreciation and amortization from unconsolidated joint ventures | 30 |
| | — |
| | — |
| |
|
|
| EBITDA | $ | 721 |
| | $ | 243 |
| | $ | 28 |
| | $ | 992 |
|
| | | | | | | | |
| ($ in millions) | As Reported 2010 | | Timeshare Spin-off Adjustments | | Other Charges | | 2010 Adjusted EBITDA |
| Net Income (Loss) | $ | 458 |
| | $ | (47 | ) | | $ | (25 | ) | |
|
|
| Interest expense | 180 |
| | (43 | ) | | — |
| |
|
|
| Tax provision (benefit) | 93 |
| | (29 | ) | | 123 |
| |
|
|
| Depreciation and amortization | 178 |
| | (35 | ) | | — |
| |
|
|
| Less: Depreciation reimbursed by third-party owners | (11 | ) | | — |
| | — |
| |
|
|
| Interest expense from unconsolidated joint ventures | 19 |
| | (3 | ) | | — |
| |
|
|
| Depreciation and amortization from unconsolidated joint ventures | 27 |
| | — |
| | — |
| |
|
|
| EBITDA | $ | 944 |
| | $ | (157 | ) | | $ | 98 |
| | $ | 885 |
|
| | | | | | | | |
Business SegmentsBUSINESS SEGMENTS
We are a diversified hospitalitylodging company with operations in four business segments: North American Full-Service, Lodging, North American Limited-Service, Lodging, International, Lodging, and Luxury Lodging.Luxury. See Footnote No. 16,14, “Business Segments,” of the Notes to our Financial Statements for further information on our segments including how we aggregate our individual brands into each segment, the reclassification of certain 2010 and 2009 segment revenues, segment financial results, and segment assets to reflect our movement of Hawaii to our North American segments from our International segment, and other information about each segment, including revenues, net income (loss) attributable to Marriott, net losses attributable to noncontrolling interests, equity in earnings (losses) of equity method investees, assets, and capital expenditures.information.
In addition to theour four current segments, noted previously, on November 21, 2011 we spun off our former timeshare operations and timeshare development business, which had until that time been our Timeshare segment, as a new independent company, MVW, which was formerly our Timeshare segment.MVW. See Footnote No. 16,14, “Business Segments,” of the Notes to our Financial Statements for historical financial results of our former Timeshare segment and Footnote No. 17,15, "Spin-off" of the Notes to our Financial Statements for additional information on the spin-off.more information.
At year-end 20112013, we operated, franchised, and licensed the following properties (excluding 2,166 corporate housing rental units associated with our ExecuStay brand):by segment:
| | | | Total Lodging and Timeshare Products | Total Lodging and Timeshare Products |
| | Properties | | Rooms | Properties | | Rooms |
| | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total |
North American Full-Service Lodging Segment (1) | | | | | | | | | | | | |
| Marriott Hotels & Resorts | 322 |
| | 14 |
| | 336 |
| | 127,826 |
| | 5,244 |
| | 133,070 |
| |
North American Full-Service Segment (1) | | | | | | | | | | | | |
| Marriott Hotels | | 312 |
| | 15 |
| | 327 |
| | 123,296 |
| | 5,355 |
| | 128,651 |
|
| Marriott Conference Centers | 10 |
| | — |
| | 10 |
| | 2,915 |
| | — |
| | 2,915 |
| 10 |
| | — |
| | 10 |
| | 2,915 |
| | — |
| | 2,915 |
|
| JW Marriott | 21 |
| | 1 |
| | 22 |
| | 12,140 |
| | 221 |
| | 12,361 |
| 22 |
| | 1 |
| | 23 |
| | 12,649 |
| | 221 |
| | 12,870 |
|
| Renaissance Hotels | 78 |
| | 2 |
| | 80 |
| | 28,880 |
| | 790 |
| | 29,670 |
| 74 |
| | 2 |
| | 76 |
| | 26,840 |
| | 790 |
| | 27,630 |
|
| Renaissance ClubSport | 2 |
| | — |
| | 2 |
| | 349 |
| | — |
| | 349 |
| 2 |
| | — |
| | 2 |
| | 349 |
| | — |
| | 349 |
|
| Gaylord Hotels | | 5 |
| | — |
| | 5 |
| | 8,098 |
| | — |
| | 8,098 |
|
| Autograph Collection | 17 |
| | — |
| | 17 |
| | 5,207 |
| | — |
| | 5,207 |
| 32 |
| | — |
| | 32 |
| | 8,410 |
| | — |
| | 8,410 |
|
| | 450 |
| | 17 |
| | 467 |
| | 177,317 |
| | 6,255 |
| | 183,572 |
| 457 |
| | 18 |
| | 475 |
| | 182,557 |
| | 6,366 |
| | 188,923 |
|
North American Limited-Service Lodging Segment (1) | | | | | | | | | | | | |
North American Limited-Service Segment (1) | | | | | | | | | | | | |
| Courtyard | 805 |
| | 17 |
| | 822 |
| | 113,413 |
| | 2,929 |
| | 116,342 |
| 836 |
| | 21 |
| | 857 |
| | 117,693 |
| | 3,835 |
| | 121,528 |
|
| Fairfield Inn & Suites | 667 |
| | 11 |
| | 678 |
| | 60,392 |
| | 1,234 |
| | 61,626 |
| 691 |
| | 14 |
| | 705 |
| | 62,921 |
| | 1,562 |
| | 64,483 |
|
| SpringHill Suites | 285 |
| | 2 |
| | 287 |
| | 33,466 |
| | 299 |
| | 33,765 |
| 306 |
| | 2 |
| | 308 |
| | 35,888 |
| | 299 |
| | 36,187 |
|
| Residence Inn | 597 |
| | 17 |
| | 614 |
| | 72,076 |
| | 2,450 |
| | 74,526 |
| 629 |
| | 20 |
| | 649 |
| | 76,056 |
| | 2,928 |
| | 78,984 |
|
| TownePlace Suites | 200 |
| | 1 |
| | 201 |
| | 20,048 |
| | 105 |
| | 20,153 |
| 222 |
| | 2 |
| | 224 |
| | 22,039 |
| | 278 |
| | 22,317 |
|
| | 2,554 |
| | 48 |
| | 2,602 |
| | 299,395 |
| | 7,017 |
| | 306,412 |
| 2,684 |
| | 59 |
| | 2,743 |
| | 314,597 |
| | 8,902 |
| | 323,499 |
|
International Lodging Segment (1) | | | | | | | | | | | | |
| Marriott Hotels & Resorts | — |
| | 156 |
| | 156 |
| | — |
| | 45,784 |
| | 45,784 |
| |
International Segment (1) | | | | | | | | | | | | |
| Marriott Hotels | | — |
| | 159 |
| | 159 |
| | — |
| | 45,858 |
| | 45,858 |
|
| JW Marriott | — |
| | 31 |
| | 31 |
| | — |
| | 11,465 |
| | 11,465 |
| — |
| | 40 |
| | 40 |
| | — |
| | 14,607 |
| | 14,607 |
|
| Renaissance Hotels | — |
| | 72 |
| | 72 |
| | — |
| | 22,947 |
| | 22,947 |
| — |
| | 75 |
| | 75 |
| | — |
| | 23,921 |
| | 23,921 |
|
| Autograph Collection | — |
| | 5 |
| | 5 |
| | — |
| | 548 |
| | 548 |
| — |
| | 19 |
| | 19 |
| | — |
| | 2,705 |
| | 2,705 |
|
| Courtyard | — |
| | 91 |
| | 91 |
| | — |
| | 18,377 |
| | 18,377 |
| — |
| | 96 |
| | 96 |
| | — |
| | 19,021 |
| | 19,021 |
|
| Fairfield Inn & Suites | — |
| | 2 |
| | 2 |
| | — |
| | 334 |
| | 334 |
| — |
| | 3 |
| | 3 |
| | — |
| | 482 |
| | 482 |
|
| Residence Inn | — |
| | 3 |
| | 3 |
| | — |
| | 341 |
| | 341 |
| — |
| | 4 |
| | 4 |
| | — |
| | 421 |
| | 421 |
|
| Marriott Executive Apartments | — |
| | 23 |
| | 23 |
| | — |
| | 3,700 |
| | 3,700 |
| — |
| | 27 |
| | 27 |
| | — |
| | 4,295 |
| | 4,295 |
|
| | — |
| | 383 |
| | 383 |
| | — |
| | 103,496 |
| | 103,496 |
| — |
| | 423 |
| | 423 |
| | — |
| | 111,310 |
| | 111,310 |
|
| Luxury Lodging Segment | | | | | | | | | | | | |
| Luxury Segment | | | | | | | | | | | | |
| The Ritz-Carlton | 39 |
| | 39 |
| | 78 |
| | 11,587 |
| | 11,996 |
| | 23,583 |
| 37 |
| | 47 |
| | 84 |
| | 11,040 |
| | 13,950 |
| | 24,990 |
|
| Bulgari Hotels & Resorts | — |
| | 2 |
| | 2 |
| | — |
| | 117 |
| | 117 |
| — |
| | 3 |
| | 3 |
| | — |
| | 202 |
| | 202 |
|
| EDITION | — |
| | 1 |
| | 1 |
| | — |
| | 78 |
| | 78 |
| — |
| | 2 |
| | 2 |
| | — |
| | 251 |
| | 251 |
|
The Ritz-Carlton-Residential(2) | 29 |
| | 3 |
| | 32 |
| | 3,509 |
| | 329 |
| | 3,838 |
| 30 |
| | 10 |
| | 40 |
| | 3,598 |
| | 630 |
| | 4,228 |
|
| The Ritz-Carlton Serviced Apartments | — |
| | 4 |
| | 4 |
| | — |
| | 579 |
| | 579 |
| — |
| | 4 |
| | 4 |
| | — |
| | 579 |
| | 579 |
|
| | 68 |
| | 49 |
| | 117 |
| | 15,096 |
| | 13,099 |
| | 28,195 |
| 67 |
| | 66 |
| | 133 |
| | 14,638 |
| | 15,612 |
| | 30,250 |
|
| Unconsolidated Joint Ventures | | | | | | | | | | | | | | | | | | | | | | |
| Autograph Collection | — |
| | 5 |
| | 5 |
| | — |
| | 350 |
| | 350 |
| — |
| | 5 |
| | 5 |
| | — |
| | 348 |
| | 348 |
|
| AC Hotels by Marriott | — |
| | 80 |
| | 80 |
| | — |
| | 8,371 |
| | 8,371 |
| — |
| | 75 |
| | 75 |
| | — |
| | 8,491 |
| | 8,491 |
|
| | — |
| | 85 |
| | 85 |
| | — |
| | 8,721 |
| | 8,721 |
| — |
| | 80 |
| | 80 |
| | — |
| | 8,839 |
| | 8,839 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Timeshare (3) | 50 |
| | 14 |
| | 64 |
| | 10,496 |
| | 2,304 |
| | 12,800 |
| 47 |
| | 15 |
| | 62 |
| | 10,506 |
| | 2,296 |
| | 12,802 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | 3,122 |
| | 596 |
| | 3,718 |
| | 502,304 |
| | 140,892 |
| | 643,196 |
| 3,255 |
| | 661 |
| | 3,916 |
| | 522,298 |
| | 153,325 |
| | 675,623 |
|
| |
(1) | North American includes properties located in the United States and Canada. International includes properties located outside the United States and Canada. |
| |
(2) | Represents projects where we manage the related owners’ association. We include residential products once they possess a certificate of occupancy. |
| |
(3) | Timeshare properties licensed by MVW under the Marriott Vacation Club, The Ritz-Carlton Destination Club, The Ritz-Carlton Residences, and Grand Residences by Marriott brand names. Includes products that are in active sales as well as those that are sold out. MVW's property and room counts are reported on a fiscal year basis for the MVW year ended January 3, 2014. |
Lodging (reflectsThe following discussion reflects all four of our Lodging segments and, for 2012 compared to 2011, our former Timeshare segment, for periods prior to the spin-off date)segment.
20112013 Compared to 20102012
We added 206161 properties (30,85625,420 rooms) and 3051 properties (6,26210,299 rooms) exited our system in 2011.2013. These figures do not include residential or ExecuStay units. During that time2013, we also added fourfive residential properties (753301 units) and no residential properties or units exited the system. These property additions include 80 hotels (8,371 rooms) which are operated or franchised as part of our unconsolidated joint venture with AC Hoteles, S.A. See Footnote No. 8,“Acquisitions and Dispositions,” for additional information about AC Hotels by Marriott.
Total segment financial results decreasedincreased by $21824 million (22 percent) to $7651,197 million in 20112013 from $983$1,173 million in 2010,2012, and total segment revenues increased by $586992 million to $12,19712,518 million in 2011,2013, a 59 percent percent increase from revenues of $11,611$11,526 million in 2010.2012.
The year-over-year increase in segment revenues includedof $992 million was a $604result of a $923 million increase in cost reimbursements revenue, which does not impact operating income or net income. Total segment financial results, compared to 2010, primarily reflecteda $59 million increase in franchise fees, a $40 million increase in base management fees, and a $24 million increase in incentive management fees, partially offset by a $32454 million decrease in owned, leased, corporate housing, and other revenue. The year-over-year increase of Timeshare strategy-impairment charges,$24 million in segment results reflected a decrease of $40$59 million increase in Timeshare sales and services revenue net of direct expenses,franchise fees, a $40 million increase in base management fees, a $24 million decreaseincrease in incentive management fees, and $8 million of lower joint venture equity losses, partially offset by a $54 million increase in general, administrative, and other expenses, $44 million of lower gains and other income, and a $69 million increase in general, administrative, and other expenses. Partially offsetting these unfavorable factors were: a $101 million increase in base management and franchise fees to $1,104 million in 2011 from $1,003 million in 2010, an increase of $37 milliondecrease in owned, leased, corporate housing, and other revenue net of direct expenses, $13 million of higher incentive management fees to $195 million in 2011 from $182 million in 2010, $13 million of lower joint venture equity losses, and a $12 million decrease in interest expense.expenses. For more detailed information on the variances, see the preceding sections beginning with “Operating Income (Loss).“Revenues.”
The $101 million increase in base management and franchise fees primarily reflected stronger RevPAR and the impact of unit growth across the system and favorable foreign exchange rates. In 2011, 292013, 39 percent of our managed properties paid incentive management fees to us versus 2733 percent in 2010.2012. In addition, in 2011, 672013, 58 percent of our incentive fees came from properties outside the United States versus 65 percent in 2010.2012. In North America, 22 percent of managed properties paid incentive management fees to us in 2013, compared to 15 percent in 2012. Further, in North America, 20 North American Limited-Service segment properties, 19 North American Full-Service segment properties, and two Luxury segment properties earned a combined $8 million in incentive management fees in 2013, but did not earn any incentive management fees in 2012.
See “Statistics” below for detailed information on Systemwide RevPAR and Company-operated RevPAR by segment, region, and brand.
Compared to 2010,2012, worldwide comparable company-operated house profit margins in 20112013 increased by 6090 basis points and worldwide comparable company-operated house profit per available room ("HP-PAR"(“HP-PAR”) increased by 7.66.2 percent percent on a constant U.S. dollar basis, reflecting higher occupancy, rate increases, improved productivity, and the impact of tight cost controls in 2011 at properties in our system, partially offset by higher property-level compensation.lower energy costs. These same factors contributed to North American company-operated house profit margins increasing by 70130 basis points compared to 2010 and2012. HP-PAR at those same properties increased by 8.18.3 percent percent.. International company-operated house profit margins increased by 40 basis points, and HP-PAR at those properties increased by 6.73.4 percent percent reflecting increased demand and higher RevPAR in most locations and continued tight property-level cost controls, partially offset by higher property-level compensation and the effectsimproved productivity. Note that 2013 had four additional days of RevPAR declines in the Middle East.activity.
20102012 Compared to 20092011
We added 154122 properties (28,114(27,059 rooms) and 3142 properties (6,072(8,883 rooms) exited theour system in 2010.2012. These figures do not include residential or ExecuStay units. We alsoDuring 2012, we added three residential properties (442(89 units), and oneno residential property (25 units)properties or units exited the system in 2010.system.
Total segment financial results increased by $979$408 million to $983$1,173 million in 20102012 from $4$765 million in 2009,2011, and total segment revenues increaseddecreased by $780$671 million to $11,611$11,526 million in 2010,2012, a 76 percent increasedecrease from revenues of $10,831$12,197 million in 2009.2011. The $408 million increase in segment results reflected a $212 million favorable variance from the spin-off (which included $324 million of Timeshare strategy-impairment charges in 2011) and a net $196 million increase in segment results across our lodging business. The $671 million decrease in total segment revenues reflected a $1,443 million decrease due to the impact of the spin-off that was partially offset by a net $772 million increase across our lodging business.
The year-over-year net increase in segment revenues includedacross our lodging business of $772 million resulted from a $557$757 million increase in cost reimbursements revenue which does not impact operating income or net income, attributable to Marriott.a $44 million increase in franchise fees, a $35 million increase in base management fees, and a $37 million increase in incentive management fees, partially offset by a $101 million decrease in owned, leased, corporate housing, and other revenue. The $196 million year-over-year increase in segment results compared to 2009,across our lodging business reflected a favorable variance from $685$44 million increase in franchise fees, $39 million of 2009 Timeshare strategy-impairment charges, $614higher gains and other income, a $37 million of which were reportedincrease in the “Timeshare strategy-impairment charges” caption and $71incentive management fees, a $35 million of which were reportedincrease in the “Timeshare strategy-impairment charges (non-operating)” caption of our Income Statements, an increase of $116 million in Timeshare sales and services revenue net of direct expenses,base management fees, a $19 million of decreaseddecrease in general, administrative, and other expenses, a $73an $18 million increase in base management and franchise fees to $1,003 million in 2010 from $930 million in 2009, a $48 million decrease in restructuring costs, $35 million of lower joint venture equity losses, $28 million of higher incentive management fees to $182owned,
million in 2010 from $154 million in 2009, an increase of $21 million in owned, leased, corporate housing, and other revenue net of direct expenses, and a $21 million increase in gains and other income. These favorable variances were partially offset by $55$4 million of increased interest expense and an $11 million decrease in net losses attributable to noncontrolling interest benefit.lower joint venture equity losses. For more detailed information on the variances, see the preceding sections beginning with “Operating Income (Loss).“Revenues.”
In 2010, 272012, 33 percent of our managed properties paid incentive management fees to us versus 2529 percent in 2009.2011. In addition, in 2010,2012, 65 percent of our incentive fees were derivedcame from properties outside of the continental United States versus 67 percent in 2009.2011. In North America, 15 percent of managed properties paid incentive management fees to us in 2012, compared to 13 percent in 2011. Further, in North America, 14 North American Full-Service segment properties, seven North American Limited-Service segment properties, and two Luxury segment properties earned a combined $13 million in incentive management fees in 2012, but did not earn any incentive management fees in 2011.
See “Statistics” below for detailed information on Systemwide RevPAR and Company-operated RevPAR by segment, region, and brand.
Compared to 2009,2011, worldwide comparable company-operated house profit margins in 20102012 increased by 50120 basis points and worldwide comparable company-operated HP-PARhouse profit per available room (“HP-PAR”) increased by 6.49.0 percent on a constant U.S. dollar basis, reflecting the impact of tight cost controls in 2010 at properties in our systemhigher occupancy, rate increases, improved productivity, and increased demand, partially offset by decreased average daily rates.lower energy costs. These same factors contributed to North American company-operated house profit margins were nearly unchanged asincreasing by 140 basis points compared to 2009 while2011. HP-PAR at those same properties increased by 3.8 percent reflecting increased demand and tight cost controls at properties, partially offset by decreased average daily rates and lower cancellation and attrition fees.9.9 percent. International company-operated house profit margins increased by 12090 basis points, and HP-PAR at those properties increased by 10.67.3 percent reflecting increased demand and continued tight property-level cost controls.higher RevPAR in most locations and improved productivity.
Lodging Development
We openedadded 206161 properties, totaling 30,85625,420 rooms, across our brands in 20112013 and 3051 properties (6,26210,299 rooms) left the system, not including residential products or ExecuStay.products. We also added fourfive residential properties (753301 units) and no residential properties left the system. Highlights of the year included:
Converting 3436 properties (5,6156,266 rooms), or 1824 percent of our gross room additions for the year, to one of our brands, including 13eight properties joining our Autograph Collection brand. Seventeenbrand in the United States. Twenty-three of the properties converted were located in the United States;
Becoming a partner in two new unconsolidated joint ventures formed for the operation, management and development of AC Hotels by Marriott, initially in Europe but eventually in other parts of the world. The hotels are managed by the joint ventures or franchised at the direction of the joint ventures. There were 80 AC Hotels by Marriott at year-end 2011;
OpeningAdding approximately 6241 percent of all the new rooms outside the United States; and
Adding 68108 properties (8,379(12,927 rooms) to our North American Limited-Service brands.
We currently have over 110,000195,000 hotel rooms in our development pipeline, which includes hotel rooms under construction awaiting conversion, orand under signed contracts, as well as nearly 30,000 hotel rooms approved for development inbut not yet under signed contracts. We expect the number of our hotel development pipeline and we expect to add approximately 30,000 hotel rooms (gross) to our systemincrease approximately six percent in 2012.2014.
We believe that we have access to sufficient financial resources to finance our growth, as well as to support our ongoing operations and meet debt service and other cash requirements. Nonetheless, our ability to develop and update our brands and the ability of hotel developers to build or acquire new Marriott-branded properties, both of which are important parts of our growth plan, depend in part on capital access, availability and cost for other hotel developers and third-party owners. These growth plans are subject to numerous risks and uncertainties, many of which are outside of our control. See the “Forward-Looking Statements” and “Risks and Uncertainties” captions earlier in this report and the “Liquidity and Capital Resources” caption later in this report.
Statistics
The following tables show occupancy, average daily rate, and RevPAR for comparable properties, for each of the brands in our North American Full-Service and North American Limited-Service segments, for our International segment by region, and the principal brand in our Luxury segment, The Ritz-Carlton. We have not presented statistics for company-operated Fairfield Inn & Suites properties in these tables because the brand is predominantly franchised and we operate very few properties, so such information would not be meaningful (identified as “nm” in the tables that follow).segment. Systemwide statistics include data from our franchised properties, in addition to our owned, leased, and managed properties.
The occupancy, average daily rate, and RevPAR statistics we use throughout this report for 2011 include the 52 weeks from January 1, 2011, through December 30, 2011, for 2010 include the 52 weeks from January 2, 2010, through December 31, 2010, and for 2009 include the 52 weeks from January 3, 2009, through January 1, 2010 (except in each case, for The Ritz-Carlton brand properties and properties located outside of the United States, which for those properties includes the period from January 1 through December 31 for each year).
|
| | | | | | | | | | | | | | |
| | Comparable Company-Operated
North American Properties (1) | | Comparable Systemwide North American Properties (1) | |
| | 2011 | | Change vs. 2010 | | 2011 | | Change vs. 2010 | |
Marriott Hotels & Resorts(2) | | | | | | | | |
| Occupancy | 71.0 | % | | 0.8 | % | pts. | 68.2 | % | | 1.1 | % | pts. |
| Average Daily Rate | $ | 164.08 |
| | 3.4 | % | | $ | 149.94 |
| | 3.3 | % | |
| RevPAR | $ | 116.45 |
| | 4.6 | % | | $ | 102.28 |
| | 5.0 | % | |
| Renaissance Hotels | | | | | | | | |
| Occupancy | 69.7 | % | | 2.3 | % | pts. | 69.0 | % | | 1.9 | % | pts. |
| Average Daily Rate | $ | 161.40 |
| | 3.1 | % | | $ | 146.74 |
| | 3.3 | % | |
| RevPAR | $ | 112.55 |
| | 6.7 | % | | $ | 101.24 |
| | 6.3 | % | |
Composite North American Full-Service (3) | | | | | | | | |
| Occupancy | 70.7 | % | | 1.1 | % | pts. | 68.4 | % | | 1.3 | % | pts. |
| Average Daily Rate | $ | 163.59 |
| | 3.3 | % | | $ | 149.36 |
| | 3.3 | % | |
| RevPAR | $ | 115.72 |
| | 5.0 | % | | $ | 102.10 |
| | 5.2 | % | |
| The Ritz-Carlton North America | | | | | | | | |
| Occupancy | 69.2 | % | | 2.4 | % | pts. | 69.2 | % | | 2.4 | % | pts. |
| Average Daily Rate | $ | 302.31 |
| | 6.3 | % | | $ | 302.31 |
| | 6.3 | % | |
| RevPAR | $ | 209.11 |
| | 10.2 | % | | $ | 209.11 |
| | 10.2 | % | |
Composite North American Full-Service and Luxury (4) | | | | | | | | |
| Occupancy | 70.6 | % | | 1.3 | % | pts. | 68.4 | % | | 1.3 | % | pts. |
| Average Daily Rate | $ | 178.65 |
| | 4.0 | % | | $ | 159.53 |
| | 3.7 | % | |
| RevPAR | $ | 126.07 |
| | 5.9 | % | | $ | 109.14 |
| | 5.8 | % | |
| Residence Inn | | | | | | | | |
| Occupancy | 75.1 | % | | 1.2 | % | pts. | 76.7 | % | | 1.7 | % | pts. |
| Average Daily Rate | $ | 117.25 |
| | 2.4 | % | | $ | 115.41 |
| | 2.9 | % | |
| RevPAR | $ | 88.09 |
| | 4.0 | % | | $ | 88.47 |
| | 5.2 | % | |
| Courtyard | | | | | | | | |
| Occupancy | 67.2 | % | | 2.8 | % | pts. | 68.1 | % | | 2.5 | % | pts. |
| Average Daily Rate | $ | 111.42 |
| | 3.2 | % | | $ | 113.19 |
| | 3.0 | % | |
| RevPAR | $ | 74.90 |
| | 7.7 | % | | $ | 77.03 |
| | 7.0 | % | |
| Fairfield Inn & Suites | | | | | | | | |
| Occupancy | nm |
| | nm |
| pts. | 65.8 | % | | 3.1 | % | pts. |
| Average Daily Rate | nm |
| | nm |
| | $ | 89.57 |
| | 3.9 | % | |
| RevPAR | nm |
| | nm |
| | $ | 58.92 |
| | 9.1 | % | |
| TownePlace Suites | | | | | | | | |
| Occupancy | 71.9 | % | | 4.8 | % | pts. | 72.1 | % | | 3.7 | % | pts. |
| Average Daily Rate | $ | 75.52 |
| | 3.3 | % | | $ | 83.46 |
| | 3.7 | % | |
| RevPAR | $ | 54.32 |
| | 10.7 | % | | $ | 60.15 |
| | 9.3 | % | |
| SpringHill Suites | | | | | | | | |
| Occupancy | 66.9 | % | | 2.5 | % | pts. | 68.5 | % | | 3.6 | % | pts. |
| Average Daily Rate | $ | 99.71 |
| | 4.2 | % | | $ | 99.21 |
| | 2.5 | % | |
| RevPAR | $ | 66.69 |
| | 8.3 | % | | $ | 67.98 |
| | 8.2 | % | |
Composite North American Limited-Service (5) | | | | | | | | |
| Occupancy | 69.7 | % | | 2.4 | % | pts. | 70.1 | % | | 2.6 | % | pts. |
| Average Daily Rate | $ | 110.34 |
| | 3.0 | % | | $ | 106.02 |
| | 3.0 | % | |
| RevPAR | $ | 76.86 |
| | 6.7 | % | | $ | 74.29 |
| | 7.0 | % | |
Composite North American (6) | | | | | | | | |
| Occupancy | 70.2 | % | | 1.8 | % | pts. | 69.5 | % | | 2.2 | % | pts. |
| Average Daily Rate | $ | 150.00 |
| | 3.5 | % | | $ | 125.67 |
| | 3.2 | % | |
| RevPAR | $ | 105.28 |
| | 6.2 | % | | $ | 87.28 |
| | 6.5 | % | |
| |
(1) | Statistics are for the 52 weeks ended December 30, 2011, and December 31, 2010, except for The Ritz-Carlton, for which the statistics are for the 12 months ended December 31, 2011, and December 31, 2010. Statistics include only properties located in the United States. |
| |
(2) | Marriott Hotels & Resorts includes JW Marriott properties. |
| |
(3) | Composite North American Full-Service statistics include Marriott Hotels & Resorts and Renaissance Hotels properties. |
| |
(4) | Composite North American Full-Service and Luxury includes Marriott Hotels & Resorts, Renaissance Hotels, and The Ritz-Carlton properties. |
| |
(5) | Composite North American Limited-Service statistics include Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, and SpringHill Suites properties. |
| |
(6) | Composite North American statistics include Marriott Hotels & Resorts, Renaissance Hotels, Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, SpringHill Suites, and The Ritz-Carlton properties. |
|
| | | | | | | | | | | | | | |
| | Comparable Company-Operated
Properties (1) | | Comparable Systemwide
Properties (1) | |
| | 2011 | | Change vs. 2010 | | 2011 | | Change vs. 2010 | |
Caribbean and Latin America(2) | | | | | | | | |
| Occupancy | 72.6 | % | | 2.8 | % | pts. | 69.3 | % | | 2.3 | % | pts. |
| Average Daily Rate | $ | 183.64 |
| | 6.4 | % | | $ | 163.29 |
| | 6.2 | % | |
| RevPAR | $ | 133.29 |
| | 10.6 | % | | $ | 113.14 |
| | 9.9 | % | |
Europe(2) | | | | | | | | |
| Occupancy | 73.2 | % | | 0.1 | % | pts. | 72.3 | % | | 0.5 | % | pts. |
| Average Daily Rate | $ | 175.20 |
| | 4.8 | % | | $ | 171.34 |
| | 4.6 | % | |
| RevPAR | $ | 128.21 |
| | 5.0 | % | | $ | 123.95 |
| | 5.3 | % | |
Middle East and Africa(2) | | | | | | | | |
| Occupancy | 58.8 | % | | (11.0 | )% | pts. | 58.4 | % | | (9.7 | )% | pts. |
| Average Daily Rate | $ | 141.22 |
| | 7.6 | % | | $ | 137.92 |
| | 6.7 | % | |
| RevPAR | $ | 83.11 |
| | (9.3 | )% | | $ | 80.55 |
| | (8.5 | )% | |
Asia Pacific(2) | | | | | | | | |
| Occupancy | 73.1 | % | | 5.6 | % | pts. | 72.6 | % | | 4.4 | % | pts. |
| Average Daily Rate | $ | 137.80 |
| | 5.9 | % | | $ | 147.36 |
| | 3.6 | % | |
| RevPAR | $ | 100.69 |
| | 14.8 | % | | $ | 106.97 |
| | 10.3 | % | |
Regional Composite (3) | | | | | | | | |
| Occupancy | 71.8 | % | | 1.1 | % | pts. | 70.8 | % | | 1.1 | % | pts. |
| Average Daily Rate | $ | 162.58 |
| | 5.4 | % | | $ | 161.01 |
| | 4.7 | % | |
| RevPAR | $ | 116.67 |
| | 7.0 | % | | $ | 114.03 |
| | 6.4 | % | |
International Luxury(4) | | | | | | | | |
| Occupancy | 63.8 | % | | (0.5 | )% | pts. | 63.8 | % | | (0.5 | )% | pts. |
| Average Daily Rate | $ | 312.52 |
| | 7.0 | % | | $ | 312.52 |
| | 7.0 | % | |
| RevPAR | $ | 199.53 |
| | 6.2 | % | | $ | 199.53 |
| | 6.2 | % | |
Total International (5) | | | | | | | | |
| Occupancy | 70.8 | % | | 0.9 | % | pts. | 70.1 | % | | 0.9 | % | pts. |
| Average Daily Rate | $ | 179.38 |
| | 5.5 | % | | $ | 174.82 |
| | 4.9 | % | |
| RevPAR | $ | 129.96 |
| | 6.9 | % | | $ | 122.59 |
| | 6.3 | % | |
| |
(1) | We report financial results for all properties on a period-end basis, but report statistics for properties located outside the United States and Canada on a month-end basis. The statistics are for January 1 through December 31. For the properties located in countries that use currencies other than the U.S. dollar, the comparison to 2010 was on a constant U.S. dollar basis.
|
| |
(2) | Regional information includes Marriott Hotels & Resorts, Renaissance Hotels, and Courtyard properties. |
| |
(3) | Regional Composite statistics include properties located outside of the United States and Canada for Marriott Hotels & Resorts, Renaissance Hotels, and Courtyard brands. |
| |
(4) | Includes The Ritz-Carlton properties located outside the United States and Canada and Bulgari Hotels & Resorts properties. |
| |
(5) | Total International includes Regional Composite statistics and statistics for The Ritz-Carlton International and Bulgari Hotels & Resorts brands. |
| | | | Comparable Company-Operated
Properties (1) | | Comparable Systemwide
Properties (1) | | Comparable Company-Operated
North American Properties (1) | | Comparable Systemwide North American Properties (1) | |
| | 2011 | | Change vs. 2010 | | 2011 | | Change vs. 2010 | | Twelve Months Ended December 31, 2013 | | Change vs. Twelve Months Ended December 31, 2012 | | Twelve Months Ended December 31, 2013 | | Change vs. Twelve Months Ended December 31, 2012 | |
Composite Luxury (2) | | | | | | | | | |
| Marriott Hotels | | | | | | | | | |
| Occupancy | 66.9 | % | | 1.2 | % | pts. | 66.9 | % | | 1.2 | % | pts. | 73.6 | % | | 0.8 | % | pts. | 71.3 | % | | 1.0 | % | pts. |
| Average Daily Rate | $ | 306.45 |
| | 6.5 | % | | $ | 306.45 |
| | 6.5 | % | | $ | 179.44 |
| | 4.3 | % | | $ | 164.37 |
| | 4.0 | % | |
| RevPAR | $ | 205.04 |
| | 8.5 | % | | $ | 205.04 |
| | 8.5 | % | | $ | 132.03 |
| | 5.4 | % | | $ | 117.20 |
| | 5.4 | % | |
Total Worldwide (3) | | | | | | | | | |
| Renaissance Hotels | | | | | | | | | |
| Occupancy | 70.3 | % | | 1.5 | % | pts. | 69.6 | % | | 2.0 | % | pts. | 73.4 | % | | 0.4 | % | pts. | 71.3 | % | | 0.7 | % | pts. |
| Average Daily Rate | $ | 158.15 |
| | 4.1 | % | | $ | 133.26 |
| | 3.4 | % | | $ | 170.98 |
| | 3.1 | % | | $ | 153.33 |
| | 3.2 | % | |
| RevPAR | $ | 111.26 |
| | 6.4 | % | | $ | 92.69 |
| | 6.4 | % | | $ | 125.55 |
| | 3.6 | % | | $ | 109.30 |
| | 4.2 | % | |
| Autograph Collection Hotels | | | | | | | | | |
| Occupancy | | * |
| | * |
| pts. | 76.6 | % | | 1.7 | % | pts. |
| Average Daily Rate | | * |
| | * |
| | $ | 207.34 |
| | 6.4 | % | |
| RevPAR | | * |
| | * |
| | $ | 158.87 |
| | 8.8 | % | |
| Composite North American Full-Service | | | | | | | | | |
| Occupancy | | 73.6 | % | | 0.7 | % | pts. | 71.5 | % | | 0.9 | % | pts. |
| Average Daily Rate | | $ | 178.29 |
| | 4.1 | % | | $ | 164.24 |
| | 4.0 | % | |
| RevPAR | | $ | 131.15 |
| | 5.2 | % | | $ | 117.39 |
| | 5.4 | % | |
| The Ritz-Carlton North America | | | | | | | | | |
| Occupancy | | 71.3 | % | | 1.4 | % | pts. | 71.3 | % | | 1.4 | % | pts. |
| Average Daily Rate | | $ | 323.83 |
| | 6.6 | % | | $ | 323.83 |
| | 6.6 | % | |
| RevPAR | | $ | 230.82 |
| | 8.7 | % | | $ | 230.82 |
| | 8.7 | % | |
| Composite North American Full-Service and Luxury | | | | | | | | | |
| Occupancy | | 73.3 | % | | 0.8 | % | pts. | 71.5 | % | | 1.0 | % | pts. |
| Average Daily Rate | | $ | 192.70 |
| | 4.6 | % | | $ | 173.37 |
| | 4.3 | % | |
| RevPAR | | $ | 141.30 |
| | 5.7 | % | | $ | 123.89 |
| | 5.7 | % | |
| Residence Inn | | | | | | | | | |
| Occupancy | | 76.2 | % | | 0.7 | % | pts. | 77.4 | % | | 0.4 | % | pts. |
| Average Daily Rate | | $ | 127.35 |
| | 2.3 | % | | $ | 125.04 |
| | 3.5 | % | |
| RevPAR | | $ | 97.09 |
| | 3.2 | % | | $ | 96.79 |
| | 3.9 | % | |
| Courtyard | | | | | | | | | |
| Occupancy | | 68.6 | % | | 0.9 | % | pts. | 70.2 | % | | 0.9 | % | pts. |
| Average Daily Rate | | $ | 122.07 |
| | 3.8 | % | | $ | 123.07 |
| | 3.6 | % | |
| RevPAR | | $ | 83.75 |
| | 5.3 | % | | $ | 86.35 |
| | 4.9 | % | |
| Fairfield Inn & Suites | | | | | | | | | |
| Occupancy | | nm |
| | nm |
| pts. | 67.9 | % | | 0.6 | % | pts. |
| Average Daily Rate | | nm |
| | nm |
| | $ | 98.58 |
| | 3.3 | % | |
| RevPAR | | nm |
| | nm |
| | $ | 66.95 |
| | 4.3 | % | |
| TownePlace Suites | | | | | | | | | |
| Occupancy | | 68.7 | % | | (1.9 | )% | pts. | 71.5 | % | | (0.5 | )% | pts. |
| Average Daily Rate | | $ | 88.37 |
| | 6.4 | % | | $ | 91.64 |
| | 2.4 | % | |
| RevPAR | | $ | 60.74 |
| | 3.6 | % | | $ | 65.50 |
| | 1.8 | % | |
| SpringHill Suites | | | | | | | | | |
| Occupancy | | 71.9 | % | | 1.2 | % | pts. | 72.2 | % | | 1.3 | % | pts. |
| Average Daily Rate | | $ | 106.75 |
| | 2.4 | % | | $ | 107.42 |
| | 3.3 | % | |
| RevPAR | | $ | 76.73 |
| | 4.1 | % | | $ | 77.57 |
| | 5.2 | % | |
| Composite North American Limited-Service | | | | | | | | | |
| Occupancy | | 71.0 | % | | 0.8 | % | pts. | 71.8 | % | | 0.7 | % | pts. |
| Average Daily Rate | | $ | 120.98 |
| | 3.5 | % | | $ | 115.00 |
| | 3.4 | % | |
| RevPAR | | $ | 85.85 |
| | 4.7 | % | | $ | 82.52 |
| | 4.4 | % | |
| Composite North American - All | | | | | | | | | |
| Occupancy | | 72.3 | % | | 0.8 | % | pts. | 71.6 | % | | 0.8 | % | pts. |
| Average Daily Rate | | $ | 163.24 |
| | 4.2 | % | | $ | 136.05 |
| | 3.8 | % | |
| RevPAR | | $ | 118.08 |
| | 5.4 | % | | $ | 97.48 |
| | 5.0 | % | |
* There are no company-operated properties.
nm means not meaningful as the brand is predominantly franchised.
| |
(1) | We report financial results for all properties on a period-end basis, but report statistics for properties located outside the United States and Canada on a month-end basis. For the properties located in countries that use currencies other than the U.S. dollar, the comparison to 2010 was on a constant U.S. dollar basis.(1)
|
| |
(2) | Composite Luxury includes worldwide properties for The Ritz-Carlton and Bulgari Hotels & Resorts brands. |
| |
(3) | Total Worldwide statisticsStatistics include properties worldwide for Marriott Hotels & Resorts, Renaissance Hotels, Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, SpringHill Suites, and The Ritz-Carlton brands. Statistics foronly properties located in the United States (except for The Ritz-Carlton) represent the fifty-two weeks ended December 30, 2011, and December 31, 2010. Statistics for The Ritz-Carlton brand properties and properties located outside of the United States represent the 12 months ended December 31, 2011, and December 31, 2010.States. |
| | | | Comparable Company-Operated North American Properties (1) | | Comparable Systemwide North American Properties (1) | | Comparable Company-Operated
Properties | | Comparable Systemwide
Properties | |
| | 2010 | | Change vs. 2009 | | 2010 | | Change vs. 2009 | | Twelve Months Ended December 31, 2013 | | Change vs. Twelve Months Ended December 31, 2012 | | Twelve Months Ended December 31, 2013 | | Change vs. Twelve Months Ended December 31, 2012 | |
Marriott Hotels & Resorts(2) | | | | | | | | | |
| Caribbean and Latin America | | | | | | | | | |
| Occupancy | 69.5 | % | | 3.0 | % | pts. | 66.7 | % | | 3.5 | % | pts. | 73.5 | % | | 0.5 | % | pts. | 72.0 | % | | 1.5 | % | pts. |
| Average Daily Rate | $ | 156.91 |
| | 0.2 | % | | $ | 143.75 |
| | (0.6 | )% | | $ | 209.79 |
| | 6.2 | % | | $ | 181.95 |
| | 4.0 | % | |
| RevPAR | $ | 109.05 |
| | 4.6 | % | | $ | 95.93 |
| | 4.9 | % | | $ | 154.28 |
| | 7.0 | % | | $ | 130.98 |
| | 6.2 | % | |
| Renaissance Hotels | | | | | | | | | |
| Europe | | | | | | | | | |
| Occupancy | 67.2 | % | | 1.9 | % | pts. | 67.2 | % | | 3.5 | % | pts. | 73.5 | % | | 1.7 | % | pts. | 72.5 | % | | 1.7 | % | pts. |
| Average Daily Rate | $ | 152.57 |
| | (0.3 | )% | | $ | 139.71 |
| | (1.0 | )% | | $ | 172.01 |
| | (1.5 | )% | | $ | 167.33 |
| | (1.0 | )% | |
| RevPAR | $ | 102.51 |
| | 2.6 | % | | $ | 93.82 |
| | 4.4 | % | | $ | 126.47 |
| | 0.8 | % | | $ | 121.34 |
| | 1.5 | % | |
Composite North American Full-Service (3) | | | | | | | | | |
| Middle East and Africa | | | | | | | | | |
| Occupancy | 69.1 | % | | 2.8 | % | pts. | 66.8 | % | | 3.5 | % | pts. | 55.7 | % | | (2.5 | )% | pts. | 56.3 | % | | (2.1 | )% | pts. |
| Average Daily Rate | $ | 156.14 |
| | 0.1 | % | | $ | 143.04 |
| | (0.6 | )% | | $ | 147.63 |
| | 2.0 | % | | $ | 144.18 |
| | 2.2 | % | |
| RevPAR | $ | 107.86 |
| | 4.3 | % | | $ | 95.56 |
| | 4.8 | % | | $ | 82.22 |
| | (2.4 | )% | | $ | 81.20 |
| | (1.5 | )% | |
| The Ritz-Carlton North America | | | | | | | | | |
| Asia Pacific | | | | | | | | | |
| Occupancy | 67.6 | % | | 5.8 | % | pts. | 67.6 | % | | 5.8 | % | pts. | 73.0 | % | | 1.5 | % | pts. | 73.4 | % | | 1.6 | % | pts. |
| Average Daily Rate | $ | 280.17 |
| | 0.3 | % | | $ | 280.17 |
| | 0.3 | % | | $ | 142.76 |
| | 0.9 | % | | $ | 146.49 |
| | 1.1 | % | |
| RevPAR | $ | 189.30 |
| | 9.8 | % | | $ | 189.30 |
| | 9.8 | % | | $ | 104.27 |
| | 3.0 | % | | $ | 107.59 |
| | 3.4 | % | |
Composite North American Full-Service and Luxury (4) | | | | | | | | | |
Regional Composite (1) | | | | | | | | | |
| Occupancy | 68.9 | % | | 3.1 | % | pts. | 66.9 | % | | 3.6 | % | pts. | 71.4 | % | | 1.0 | % | pts. | 71.2 | % | | 1.3 | % | pts. |
| Average Daily Rate | $ | 169.69 |
| | 0.5 | % | | $ | 152.35 |
| | (0.3 | )% | | $ | 163.13 |
| | 0.7 | % | | $ | 160.84 |
| | 0.8 | % | |
| RevPAR | $ | 116.92 |
| | 5.2 | % | | $ | 101.86 |
| | 5.4 | % | | $ | 116.40 |
| | 2.2 | % | | $ | 114.56 |
| | 2.7 | % | |
| Residence Inn | | | | | | | | | |
International Luxury (2) | | | | | | | | | |
| Occupancy | 74.0 | % | | 4.7 | % | pts. | 75.3 | % | | 4.8 | % | pts. | 65.6 | % | | 1.7 | % | pts. | 65.6 | % | | 1.7 | % | pts. |
| Average Daily Rate | $ | 113.52 |
| | (2.2 | )% | | $ | 112.06 |
| | (1.6 | )% | | $ | 367.86 |
| | 3.9 | % | | $ | 367.86 |
| | 3.9 | % | |
| RevPAR | $ | 84.06 |
| | 4.4 | % | | $ | 84.41 |
| | 5.0 | % | | $ | 241.31 |
| | 6.8 | % | | $ | 241.31 |
| | 6.8 | % | |
| Courtyard | | | | | | | | | |
Total International (3) | | | | | | | | | |
| Occupancy | 64.3 | % | | 3.1 | % | pts. | 65.7 | % | | 3.1 | % | pts. | 70.7 | % | | 1.1 | % | pts. | 70.7 | % | | 1.3 | % | pts. |
| Average Daily Rate | $ | 107.69 |
| | (1.9 | )% | | $ | 110.00 |
| | (1.0 | )% | | $ | 185.74 |
| | 1.5 | % | | $ | 179.28 |
| | 1.4 | % | |
| RevPAR | $ | 69.26 |
| | 3.1 | % | | $ | 72.27 |
| | 4.0 | % | | $ | 131.27 |
| | 3.2 | % | | $ | 126.72 |
| | 3.4 | % | |
| Fairfield Inn & Suites | | | | | | | | | |
| Occupancy | nm |
| | nm |
| | 63.1 | % | | 2.9 | % | pts. | |
| Average Daily Rate | nm |
| | nm |
| | $ | 84.54 |
| | (0.3 | )% | | |
| RevPAR | nm |
| | nm |
| | $ | 53.33 |
| | 4.6 | % | | |
| TownePlace Suites | | | | | | | | | |
| Occupancy | 65.5 | % | | 4.2 | % | pts. | 68.7 | % | | 6.1 | % | pts. | |
| Average Daily Rate | $ | 73.94 |
| | (4.5 | )% | | $ | 80.02 |
| | (3.7 | )% | | |
| RevPAR | $ | 48.47 |
| | 2.1 | % | | $ | 55.01 |
| | 5.6 | % | | |
| SpringHill Suites | | | | | | | | | |
| Occupancy | 64.7 | % | | 3.4 | % | pts. | 65.7 | % | | 3.7 | % | pts. | |
| Average Daily Rate | $ | 96.04 |
| | (1.2 | )% | | $ | 97.32 |
| | (2.2 | )% | | |
| RevPAR | $ | 62.16 |
| | 4.3 | % | | $ | 63.91 |
| | 3.6 | % | | |
Composite North American Limited- Service(5) | | | | | | | | | |
| Occupancy | 67.1 | % | | 3.6 | % | pts. | 67.8 | % | | 3.8 | % | pts. | |
| Average Daily Rate | $ | 106.59 |
| | (2.0 | )% | | $ | 102.96 |
| | (1.4 | )% | | |
| RevPAR | $ | 71.51 |
| | 3.5 | % | | $ | 69.85 |
| | 4.4 | % | | |
Composite North American (6) | | | | | | | | | |
| Occupancy | 68.1 | % | | 3.3 | % | pts. | 67.5 | % | | 3.7 | % | pts. | |
| Average Daily Rate | $ | 143.85 |
| | (0.4 | )% | | $ | 121.85 |
| | (0.9 | )% | | |
| RevPAR | $ | 98.03 |
| | 4.7 | % | | $ | 82.20 |
| | 4.9 | % | | |
| |
(1) | Statistics areCompany-operated statistics include properties located outside of the United States and Canada for the 52 weeks ended December 31, 2010,Marriott Hotels, Renaissance Hotels, Courtyard, and January 1, 2010, except for The Ritz-Carlton for whichResidence Inn brands. In addition to the foregoing brands, systemwide statistics are for the 12 months ended December 31, 2010, and December 31, 2009. Statisticsalso include only properties located inoutside of the United States.States and Canada for Autograph Collection and Fairfield Inn & Suites brands. |
| |
(2) | MarriottInternational Luxury includes The Ritz-Carlton properties located outside the United States and Canada, as well as Bulgari Hotels & Resorts includes JW Marriottand EDITION properties. |
| |
(3) | Total International includes Regional Composite North American Full-Service statistics include Marriott Hotels & Resorts and Renaissance Hotels properties. |
| |
(4) | Composite North American Full-Service andInternational Luxury includes Marriott Hotels & Resorts, Renaissance Hotels, and The Ritz-Carlton properties. |
| |
(5) | Composite North American Limited-Service statistics include Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, and SpringHill Suites properties. |
| |
(6) | Composite North American statistics include Marriott Hotels & Resorts, Renaissance Hotels, Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, SpringHill Suites, and The Ritz-Carlton properties.statistics. |
| | | | Comparable Company- Operated Properties (1) | | Comparable Systemwide Properties (1) | | Comparable Company-Operated
Properties | | Comparable Systemwide
Properties | |
| | 2010 | | Change vs. 2009 | | 2010 | | Change vs. 2009 | | Twelve Months Ended December 31, 2013 | | Change vs. Twelve Months Ended December 31, 2012 | | Twelve Months Ended December 31, 2013 | | Change vs. Twelve Months Ended December 31, 2012 | |
Caribbean and Latin America (2) | | | | | | | | | |
Composite Luxury (1) | | | | | | | | | |
| Occupancy | 70.7 | % | | 4.1 | % | pts. | 67.9 | % | | 6.3 | % | pts. | 68.5 | % | | 1.6 | % | pts. | 68.5 | % | | 1.6 | % | pts. |
| Average Daily Rate | $ | 178.59 |
| | (0.5 | )% | | $ | 161.09 |
| | 0.3 | % | | $ | 344.38 |
| | 5.3 | % | | $ | 344.38 |
| | 5.3 | % | |
| RevPAR | $ | 126.19 |
| | 5.5 | % | | $ | 109.45 |
| | 10.6 | % | | $ | 235.94 |
| | 7.7 | % | | $ | 235.94 |
| | 7.7 | % | |
Continental Europe (2) | | | | | | | | | |
Total Worldwide (2) | | | | | | | | | |
| Occupancy | 71.1 | % | | 4.0 | % | pts. | 69.9 | % | | 4.5 | % | pts. | 71.8 | % | | 0.9 | % | pts. | 71.5 | % | | 0.9 | % | pts. |
| Average Daily Rate | $ | 161.63 |
| | 1.6 | % | | $ | 160.08 |
| | 0.2 | % | | $ | 170.35 |
| | 3.3 | % | | $ | 143.33 |
| | 3.4 | % | |
| RevPAR | $ | 114.92 |
| | 7.6 | % | | $ | 111.95 |
| | 7.1 | % | | $ | 122.32 |
| | 4.6 | % | | $ | 102.46 |
| | 4.6 | % | |
United Kingdom (2) | | | | | | | | | |
| Occupancy | 76.4 | % | | 3.1 | % | pts. | 75.9 | % | | 3.1 | % | pts. | |
| Average Daily Rate | $ | 159.27 |
| | 3.3 | % | | $ | 158.75 |
| | 3.3 | % | | |
| RevPAR | $ | 121.68 |
| | 7.8 | % | | $ | 120.47 |
| | 7.7 | % | | |
Middle East and Africa (2) | | | | | | | | | |
| Occupancy | 70.5 | % | | 2.4 | % | pts. | 70.4 | % | | 2.7 | % | pts. | |
| Average Daily Rate | $ | 133.18 |
| | (5.9 | )% | | $ | 131.66 |
| | (6.0 | )% | | |
| RevPAR | $ | 93.86 |
| | (2.6 | )% | | $ | 92.74 |
| | (2.3 | )% | | |
Asia Pacific (2) | | | | | | | | | |
| Occupancy | 66.7 | % | | 11.7 | % | pts. | 67.2 | % | | 10.1 | % | pts. | |
| Average Daily Rate | $ | 125.88 |
| | 1.7 | % | | $ | 134.90 |
| | (1.0 | )% | | |
| RevPAR | $ | 83.96 |
| | 23.3 | % | | $ | 90.71 |
| | 16.5 | % | | |
Regional Composite (3) | | | | | | | | | |
| Occupancy | 70.7 | % | | 5.9 | % | pts. | 69.8 | % | | 6.0 | % | pts. | |
| Average Daily Rate | $ | 150.19 |
| | 0.3 | % | | $ | 150.31 |
| | (0.3 | )% | | |
| RevPAR | $ | 106.16 |
| | 9.4 | % | | $ | 104.91 |
| | 9.2 | % | | |
International Luxury (4) | | | | | | | | | |
| Occupancy | 64.0 | % | | 6.0 | % | pts. | 64.0 | % | | 6.0 | % | pts. | |
| Average Daily Rate | $ | 310.46 |
| | 0.4 | % | | $ | 310.46 |
| | 0.4 | % | | |
| RevPAR | $ | 198.82 |
| | 10.7 | % | | $ | 198.82 |
| | 10.7 | % | | |
Total International (5) | | | | | | | | | |
| Occupancy | 69.9 | % | | 5.9 | % | pts. | 69.3 | % | | 6.0 | % | pts. | |
| Average Daily Rate | $ | 166.70 |
| | 0.4 | % | | $ | 163.96 |
| | (0.1 | )% | | |
| RevPAR | $ | 116.58 |
| | 9.7 | % | | $ | 113.57 |
| | 9.4 | % | | |
| |
(1) | We report financial resultsComposite Luxury includes worldwide properties for all properties on a period-end basis, but report statistics for properties located outside the continental United StatesThe Ritz-Carlton, Bulgari Hotels & Resorts, and Canada on a month-end basis. The statistics are for January 1 through December 31. For the properties located in countries that use currencies other than the U.S. dollar, the comparison to 2009 was on a constant U.S. dollar basis.EDITION brands. |
| |
(2) | Regional information includesCompany-operated statistics include properties worldwide for Marriott Hotels, Renaissance Hotels, The Ritz-Carlton, Bulgari Hotels & Resorts, Renaissance Hotels,EDITION, Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, and Courtyard properties.SpringHill Suites brands. In addition to the foregoing brands, systemwide statistics also include properties worldwide for the Autograph Collection brand. |
|
| | | | | | | | | | | | | | |
| | Comparable Company-Operated
North American Properties (1) | | Comparable Systemwide North American Properties (1) | |
| | 2012 | | Change vs. 2011 | | 2012 | | Change vs. 2011 | |
| Marriott Hotels | | | | | | | | |
| Occupancy | 72.7 | % | | 1.8 | % | pts. | 70.1 | % | | 1.8 | % | pts. |
| Average Daily Rate | $ | 171.48 |
| | 3.5 | % | | $ | 157.17 |
| | 3.6 | % | |
| RevPAR | $ | 124.72 |
| | 6.1 | % | | $ | 110.19 |
| | 6.4 | % | |
| Renaissance Hotels | | | | | | | | |
| Occupancy | 73.6 | % | | 2.1 | % | pts. | 71.2 | % | | 1.4 | % | pts. |
| Average Daily Rate | $ | 167.67 |
| | 4.5 | % | | $ | 150.53 |
| | 4.7 | % | |
| RevPAR | $ | 123.38 |
| | 7.5 | % | | $ | 107.18 |
| | 6.8 | % | |
| Autograph Collection Hotels | | | | | | | | |
| Occupancy | * |
| | * |
| pts. | 76.1 | % | | 3.6 | % | pts. |
| Average Daily Rate | * |
| | * |
| | $ | 176.61 |
| | 1.6 | % | |
| RevPAR | * |
| | * |
| | $ | 134.36 |
| | 6.6 | % | |
| Composite North American Full-Service | | | | | | | | |
| Occupancy | 72.9 | % | | 1.8 | % | pts. | 70.3 | % | | 1.8 | % | pts. |
| Average Daily Rate | $ | 170.92 |
| | 3.6 | % | | $ | 156.30 |
| | 3.8 | % | |
| RevPAR | $ | 124.52 |
| | 6.3 | % | | $ | 109.93 |
| | 6.4 | % | |
| The Ritz-Carlton North America | | | | | | | | |
| Occupancy | 69.9 | % | | 0.8 | % | pts. | 69.9 | % | | 0.8 | % | pts. |
| Average Daily Rate | $ | 319.57 |
| | 4.9 | % | | $ | 319.57 |
| | 4.9 | % | |
| RevPAR | $ | 223.51 |
| | 6.1 | % | | $ | 223.51 |
| | 6.1 | % | |
| Composite North American Full-Service and Luxury | | | | | | | | |
| Occupancy | 72.6 | % | | 1.7 | % | pts. | 70.3 | % | | 1.7 | % | pts. |
| Average Daily Rate | $ | 185.57 |
| | 3.8 | % | | $ | 166.02 |
| | 3.8 | % | |
| RevPAR | $ | 134.64 |
| | 6.3 | % | | $ | 116.72 |
| | 6.4 | % | |
| Residence Inn | | | | | | | | |
| Occupancy | 75.4 | % | | 0.3 | % | pts. | 77.2 | % | | 0.6 | % | pts. |
| Average Daily Rate | $ | 123.55 |
| | 4.3 | % | | $ | 120.66 |
| | 4.2 | % | |
| RevPAR | $ | 93.14 |
| | 4.7 | % | | $ | 93.10 |
| | 5.0 | % | |
| Courtyard | | | | | | | | |
| Occupancy | 67.7 | % | | 0.5 | % | pts. | 69.2 | % | | 1.2 | % | pts. |
| Average Daily Rate | $ | 117.11 |
| | 4.9 | % | | $ | 118.68 |
| | 4.6 | % | |
| RevPAR | $ | 79.32 |
| | 5.6 | % | | $ | 82.15 |
| | 6.5 | % | |
| Fairfield Inn & Suites | | | | | | | | |
| Occupancy | nm |
| | nm |
| pts. | 67.3 | % | | 1.7 | % | pts. |
| Average Daily Rate | nm |
| | nm |
| | $ | 94.49 |
| | 4.8 | % | |
| RevPAR | nm |
| | nm |
| | $ | 63.56 |
| | 7.5 | % | |
| TownePlace Suites | | | | | | | | |
| Occupancy | 70.8 | % | | (0.4 | )% | pts. | 72.3 | % | | 0.6 | % | pts. |
| Average Daily Rate | $ | 83.04 |
| | 5.6 | % | | $ | 89.07 |
| | 5.0 | % | |
| RevPAR | $ | 58.76 |
| | 5.1 | % | | $ | 64.39 |
| | 5.9 | % | |
| SpringHill Suites | | | | | | | | |
| Occupancy | 70.5 | % | | 2.8 | % | pts. | 71.0 | % | | 2.6 | % | pts. |
| Average Daily Rate | $ | 103.04 |
| | 2.7 | % | | $ | 103.81 |
| | 3.8 | % | |
| RevPAR | $ | 72.63 |
| | 7.0 | % | | $ | 73.74 |
| | 7.8 | % | |
| Composite North American Limited-Service | | | | | | | | |
| Occupancy | 70.2 | % | | 0.6 | % | pts. | 71.2 | % | | 1.3 | % | pts. |
| Average Daily Rate | $ | 116.43 |
| | 4.6 | % | | $ | 111.12 |
| | 4.4 | % | |
| RevPAR | $ | 81.76 |
| | 5.5 | % | | $ | 79.07 |
| | 6.3 | % | |
| Composite North American - All | | | | | | | | |
| Occupancy | 71.6 | % | | 1.2 | % | pts. | 70.8 | % | | 1.4 | % | pts. |
| Average Daily Rate | $ | 157.05 |
| | 4.2 | % | | $ | 130.97 |
| | 4.2 | % | |
| RevPAR | $ | 112.40 |
| | 6.0 | % | | $ | 92.79 |
| | 6.4 | % | |
nm means not meaningful as the brand is predominantly franchised.
| |
(3)(1) | Regional CompositeStatistics include only properties located in the United States. |
|
| | | | | | | | | | | | | | |
| | Comparable Company-Operated
Properties | | Comparable Systemwide
Properties | |
| | Twelve Months Ended December 31, 2012 | | Change vs. Twelve Months Ended December 31, 2011 | | Twelve Months Ended December 31, 2012 | | Change vs. Twelve Months Ended December 31, 2011 | |
| Caribbean and Latin America | | | | | | | | |
| Occupancy | 72.3 | % | | 1.2 | % | pts. | 70.2 | % | | 1.3 | % | pts. |
| Average Daily Rate | $ | 190.75 |
| | 5.1 | % | | $ | 171.32 |
| | 3.4 | % | |
| RevPAR | $ | 137.93 |
| | 6.9 | % | | $ | 120.27 |
| | 5.3 | % | |
| Europe | | | | | | | | |
| Occupancy | 72.7 | % | | 0.2 | % | pts. | 71.9 | % | | 0.2 | % | pts. |
| Average Daily Rate | $ | 170.72 |
| | 2.8 | % | | $ | 166.02 |
| | 2.6 | % | |
| RevPAR | $ | 124.20 |
| | 3.0 | % | | $ | 119.40 |
| | 2.8 | % | |
| Middle East and Africa | | | | | | | | |
| Occupancy | 61.8 | % | | 5.3 | % | pts. | 61.8 | % | | 5.6 | % | pts. |
| Average Daily Rate | $ | 133.14 |
| | (1.0 | )% | | $ | 130.10 |
| | (0.6 | )% | |
| RevPAR | $ | 82.25 |
| | 8.3 | % | | $ | 80.37 |
| | 9.2 | % | |
| Asia Pacific | | | | | | | | |
| Occupancy | 73.0 | % | | 3.7 | % | pts. | 72.9 | % | | 3.6 | % | pts. |
| Average Daily Rate | $ | 133.01 |
| | 3.0 | % | | $ | 141.17 |
| | 2.2 | % | |
| RevPAR | $ | 97.04 |
| | 8.4 | % | | $ | 102.90 |
| | 7.6 | % | |
Regional Composite (1) | | | | | | | | |
| Occupancy | 71.9 | % | | 2.0 | % | pts. | 71.2 | % | | 1.9 | % | pts. |
| Average Daily Rate | $ | 156.74 |
| | 2.7 | % | | $ | 156.47 |
| | 2.2 | % | |
| RevPAR | $ | 112.66 |
| | 5.6 | % | | $ | 111.45 |
| | 5.0 | % | |
International Luxury (2) | | | | | | | | |
| Occupancy | 63.4 | % | | 1.3 | % | pts. | 63.4 | % | | 1.3 | % | pts. |
| Average Daily Rate | $ | 341.32 |
| | 3.6 | % | | $ | 341.32 |
| | 3.6 | % | |
| RevPAR | $ | 216.34 |
| | 5.9 | % | | $ | 216.34 |
| | 5.9 | % | |
Total International (3) | | | | | | | | |
| Occupancy | 70.9 | % | | 1.9 | % | pts. | 70.5 | % | | 1.8 | % | pts. |
| Average Daily Rate | $ | 175.14 |
| | 2.8 | % | | $ | 171.36 |
| | 2.4 | % | |
| RevPAR | $ | 124.22 |
| | 5.6 | % | | $ | 120.85 |
| | 5.1 | % | |
| |
(1) | Company-operated statistics include all properties located outside of the United States and Canada for the Marriott Hotels, & Resorts, Renaissance Hotels, Courtyard, and CourtyardResidence Inn brands. In addition to the foregoing brands, systemwide statistics also include properties located outside of the United States and Canada for Autograph Collection and Fairfield Inn & Suites brands. |
| |
(4)(2) | IncludesInternational Luxury includes The Ritz-Carlton properties located outside of the United States and Canada and Bulgari Hotels & Resorts properties. |
| |
(5)(3) | Total International includes Regional Composite statistics and statistics for The Ritz-Carlton International and Bulgari Hotels & Resorts brands.Luxury statistics. |
| | | | Comparable Company-Operated Properties (1) | | Comparable Systemwide Properties (1) | | Comparable Company-Operated
Properties | | Comparable Systemwide
Properties | |
| | 2010 | | Change vs. 2009 | | 2010 | | Change vs. 2009 | | 2012 | | Change vs. 2011 | | 2012 | | Change vs. 2011 | |
Composite Luxury (2)(1) | | | | | | | | | | | | | | | | |
| Occupancy | 66.1 | % | | 5.9 | % | pts. | 66.1 | % | | 5.9 | % | pts. | 67.0 | % | | 1.0 | % | pts. | 67.0 | % | | 1.0 | % | pts. |
| Average Daily Rate | $ | 292.11 |
| | 0.4 | % | | $ | 292.11 |
| | 0.4 | % | | $ | 328.68 |
| | 4.4 | % | | $ | 328.68 |
| | 4.4 | % | |
| RevPAR | $ | 193.17 |
| | 10.2 | % | | $ | 193.17 |
| | 10.2 | % | | $ | 220.33 |
| | 6.0 | % | | $ | 220.33 |
| | 6.0 | % | |
Total Worldwide (3)(2) | | | | | | | | | | | | | | | | |
| Occupancy | 68.7 | % | | 4.1 | % | pts. | 67.8 | % | | 4.1 | % | pts. | 71.4 | % | | 1.4 | % | pts. | 70.8 | % | | 1.5 | % | pts. |
| Average Daily Rate | $ | 150.46 |
| | 0.0 | % | | $ | 128.82 |
| | (0.6 | )% | | $ | 162.39 |
| | 3.8 | % | | $ | 137.49 |
| | 3.9 | % | |
| RevPAR | $ | 103.30 |
| | 6.3 | % | | $ | 87.28 |
| | 5.8 | % | | $ | 115.91 |
| | 5.9 | % | | $ | 97.34 |
| | 6.1 | % | |
| |
(1) | We report financial results for all properties on a period-end basis, but report statistics for properties located outside the United States and Canada on a month-end basis. For the properties located in countries that use currencies other than the U.S. dollar, the comparison to 2009 was on a constant U.S. dollar basis. |
| |
(2) | Composite Luxury includes worldwide properties for The Ritz-Carlton and Bulgari Hotels & Resorts brands. |
| |
(3)(2) | Total WorldwideCompany-operated statistics include properties worldwide for Marriott Hotels, Renaissance Hotels, The Ritz-Carlton, Bulgari Hotels & Resorts, Renaissance Hotels, Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, and SpringHill Suites The Ritz-Carlton and Bulgari Hotels & Resorts brands. StatisticsIn addition to the foregoing brands, systemwide statistics also include properties worldwide for properties located in the United States (except for The Ritz-Carlton) represent the fifty-two weeks ended December 31, 2010 and January 1, 2010. Statistics for The Ritz-Carlton brand properties and properties located outside of the United States represent the 12 months ended December 31, 2010, and December 31, 2009.Autograph Collection brand. |
.
North American Full-Service Lodging includes Marriott Hotels & Resorts, JW Marriott, Renaissance Hotels, Gaylord Hotels, and Autograph Collection Hotels.
| | | ($ in millions) | | | Annual Change | | | Annual Change |
| | 2011 | | 2010 | | 2009 | | 2011/2010 | | 2010/2009 | 2013 | | 2012 | | 2011 | | 2013/2012 | | 2012/2011 |
| Segment revenues | $ | 5,450 |
| | $ | 5,159 |
| | $ | 4,892 |
| | 6 | % | | 5 | % | $ | 6,601 |
| | $ | 5,965 |
| | $ | 5,450 |
| | 11 | % | | 9 | % |
| Segment results | $ | 351 |
| | $ | 317 |
| | $ | 268 |
| | 11 | % | | 18 | % | $ | 451 |
| | $ | 407 |
| | $ | 351 |
| | 11 | % | | 16 | % |
20112013 Compared to 20102012
In 2011,2013, across our North American Full-Service Lodging segment we added 1012 properties (4,1782,922 rooms) and seven14 properties (1,9255,163 rooms) left the system.
In 2011,For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable company-operatedsystemwide North American Full-Service properties increased by 5.05.4 percent percent to $115.72117.39, occupancy for these properties increased by 1.10.9 percentage points to 70.771.5 percent percent,, and average daily rates increased by 3.34.0 percent percent to $163.59164.24.
The $3444 million increase in segment results, compared to 2010, primarily reflected $262012, was driven by $34 million of higher base management and franchise fees and $16$22 million of higher incentive management fees, partially offset by $15 million of higher general, administrative, and other expenses. Owned, leased, and other revenue net of direct expenses was unchanged compared to 2012.
Higher base management and franchise fees stemmed from both higher RevPAR due to increased demand and unit growth, including the Gaylord brand properties we began managing in 2012, and also reflected fees for the additional four days of activity. The increase in incentive management fees primarily reflected higher property-level income resulting from higher property-level revenue and margins.
General, administrative, and other expenses reflected the following 2013 items: the $8 million impairment of deferred contract acquisition costs primarily related to two properties that left the system and one property that converted to a franchised property, $4 million of higher amortization of deferred contract acquisition costs associated with the Gaylord brand and hotel management company acquisition, and $9 million in other net miscellaneous cost increases. These increases were partially offset by a favorable variance from the 2012 accelerated amortization of $8 million of deferred contract acquisition costs for a property that exited our system and for which we earned a $14 million termination fee.
Owned, leased, and other revenue net of direct expenses was unchanged, primarily driven by our recognition in 2012 of a $14 million termination fee for one property, and our recognition in 2013 of $7 million in termination fees for five properties and $4 million of stronger results at two leased properties.
Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $5,896 million in 2013, compared to $5,325 million in 2012.
2012 Compared to 2011
In 2012, across our North American Full-Service segment we added 18 properties (11,444 rooms), including five properties from the Gaylord acquisition (8,098 rooms). Eight properties (3,569 rooms) left the system.
In 2012, RevPAR for comparable systemwide North American Full-Service properties increased by 6.4 percent to $109.93, occupancy for these properties increased by 1.8 percentage points to 70.3 percent, and average daily rates increased by 3.8 percent to $156.30.
The $56 million increase in segment results, compared to 2011, primarily reflected $30 million of higher base management and franchise fees, $15 million of higher incentive management fees, and $11 million of higher owned, leased, and other revenue net of direct expenses, partially offset by $5$2 million of higher general, administrative, and other expenses.
Higher base management and franchise fees primarily reflected increased RevPAR and, to a lesser extent, unit growth, including properties added to the Autograph Collection.growth. The $15 million increase in incentive management fees primarily reflected higher property-level income resulting from higher property-level revenue and margins.
The $16$11 million increase in owned, leased, and other revenue net of direct expenses is primarily due to $7reflected a $14 million termination fee for one property in 2012 and $3 million of net stronger owned and leased property results, primarily driven by higher RevPAR
two properties that left the system and property-level margins,had losses in the prior year, partially offset by $7 million of termination fees for two properties and a $3 million favorable variance associated with prior year losses associated with a leased property that now is operated under a management agreement.in 2011.
The $5 million increase in general,General, administrative, and other expenses increased by $2 million and primarily reflected the accelerated amortization of $8 million of deferred contract acquisition costs for the property for which we earned the $14 million termination fee and $2 million of miscellaneous cost increases, partially offset by favorable variances from the following 2011 items: a $5 million performance cure payment we made for one property, a $2 million increase in the guarantee reserveaccrual for one property, and the write-off of contract acquisition costs totaling $2 million for two properties, partially offset by a favorable variance from the $4 million contract acquisition cost impairment charge recorded in 2010, further detailed in the "2010 Compared to 2009" discussion that follows.properties.
Cost reimbursements revenue and expenses associated withfor our North American Full-Service Lodging segment properties totaled $4,862$5,325 million in 2011,2012, compared to $4,587 million in 2010.
2010 Compared to 2009
In 2010, across our North American Full-Service Lodging segment we added 20 properties (7,591 rooms) and 5 properties (1,541 rooms) left the system.
In 2010, RevPAR for comparable company-operated North American Full-Service properties increased by 4.3 percent to $107.86, occupancy for these properties increased by 2.8 percentage points to 69.1 percent, and average daily rates increased by 0.1 percent to $156.14.
The $49 million increase in segment results, compared to 2009, primarily reflected $22 million of higher base management and franchise fees, $10 million of higher incentive management fees, $8 million of lower general, administrative, and other expenses, and $8 million of higher owned, leased, and other revenue net of direct expenses.
The $22 million of higher base management and franchise fees primarily reflected increased RevPAR and unit growth as well as franchise fees from new properties added to the Autograph Collection. The $10 million increase in incentive management fees was largely due to higher property-level revenue and continued tight property-level cost controls favorably impacting house profit margins.
The $8 million increase in owned, leased, and other revenue net of direct expenses is primarily due to stronger results driven by higher RevPAR and property-level margins.
The $8 million decrease in general, administrative, and other expenses primarily reflected favorable variances from an $8 million impairment charge related to the write-off of contract acquisition costs for one property, a $7 million charge for a security deposit, both of which we deemed unrecoverable in 2009, and a $3 million reversal of a completion guarantee accrual because we satisfied the related guarantee release requirements in 2010. These favorable variances were partially offset by $7$4,862 million in net 2010 other cost increases, primarily reflecting incentive compensation, as well as a $4 million contract acquisition cost impairment charge recorded in the 2010 fourth quarter because we expected that a management agreement associated with one property would be terminated early in 2011 in conjunction with a change in property ownership.
Cost reimbursements revenue and expenses associated with our North American Full-Service Lodging segment properties totaled $4,587 million in 2010, compared to$4,333 million in 2009.
2011.
North American Limited-Service Lodging includes Courtyard, Fairfield Inn & Suites, SpringHill Suites, Residence Inn, TownePlace Suites, and included Marriott ExecuStay.until we sold that business in the 2012 second quarter.
| | | ($ in millions) | | | | | | | Annual Change | | | | | | | Annual Change |
| | 2011 | | 2010 | | 2009 | | Change 2011/2010 | | Change 2010/2009 | 2013 | | 2012 | | 2011 | | Change 2013/2012 | | Change 2012/2011 |
| Segment revenues | $ | 2,358 |
| | $ | 2,150 |
| | $ | 1,986 |
| | 10 | % | | 8 | % | $ | 2,601 |
| | $ | 2,466 |
| | $ | 2,358 |
| | 5 | % | | 5 | % |
| Segment results | $ | 382 |
| | $ | 298 |
| | $ | 265 |
| | 28 | % | | 12 | % | $ | 478 |
| | $ | 472 |
| | $ | 382 |
| | 1 | % | | 24 | % |
20112013 Compared to 2010
2012
In 2011,2013, across our North American Limited-Service Lodging segment we added 68108 properties (8,37912,927 rooms) and 1322 properties (1,4322,427 rooms) left the system. The majority of the properties that left the system were older Residence InnCourtyard and Fairfield Inn & Suites properties. In the 2012 second quarter, we completed the sale of our ExecuStay corporate housing business. The revenues, results of operations, assets, and liabilities of our ExecuStay business were not material to the Company's financial position, results of operations or cash flows for any of the periods presented.
In 2011,For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable company-operatedsystemwide North American Limited-Service properties increased by 6.74.4 percent percent to $76.8682.52, occupancy for these properties increased by 2.40.7 percentage points to 69.771.8 percent percent,, and average daily rates increased by 3.03.4 percent percent to $110.34115.00.
The $846 million increase in segment results, compared to 2010,2012, primarily reflected $50$45 million of higher base management and franchise fees and $4 million of higher incentive management fees, partially offset by $43 million of lower gains and other income.
Higher base management and franchise fees were primarily driven by higher RevPAR due to increased demand, some of which was attributable to the favorable effect of property renovations, and higher relicensing fees, as well as the additional four days of activity, partially offset by an unfavorable variance from the 2012 recognition of $7 million of deferred base management fees $12 millionin conjunction with the sale of higher owned, leased, corporate housing, and other revenue net of direct expenses, $12 million of lower general, administrative, and other expenses, and $11 million of decreasedour equity interest in a joint venture equity losses.
Higher franchise and baseventure. The increase in incentive management fees primarily reflected higher RevPARproperty-level revenue which resulted in higher property-level income and new unit growth, as well as the favorable effect of property renovations.
The $12 million increase in owned, leased, corporate housing,margins. Lower gains and other revenue net of direct expensesincome primarily reflected $5 million of stronger results for owned and leased properties driven by higher RevPAR and property-level margins, $3 million of higher corporate housing revenue, net of expenses, and $2 million of higher termination fees.
The $12 million decrease in general, administrative, and other expenses primarily reflected a favorablean unfavorable variance from a $14$41 million long-lived asset impairment chargegain on the sale of our equity interest in 2010, partially offset by $2 million of other cost increases.
The $11 million decrease ina joint venture in 2012. See the "Gains (Losses) and Other Income" caption earlier in this report for more information on the sale of this equity losses primarily reflected $5 million of increased earnings in 2011 associated with two joint ventures primarily reflecting stronger property-level performance and a $5 million impairment charge recorded in 2010 associated with another joint venture.interest.
Cost reimbursements revenue and expenses associated withfor our North American Limited-Service Lodging segment properties totaled $1,6871,957 million in 2011,2013, compared to $1,548$1,842 million in 2012.2010.
2012 Compared to 2011
2010 Compared to 2009
In 2010,2012, across our North American Limited-Service Lodging segment we added 10370 properties (12,341(8,470 rooms) and 1516 properties (1,556(2,033 rooms) left the system. The majority of the properties that left the system were Residenceolder Fairfield Inn propertiesproperties. In the 2012 second quarter, we completed the sale of poor quality.
our ExecuStay corporate housing business, as discussed in the preceding "2013 Compared to 2012" caption. In 2010, RevPAR for comparable company-operated2012, we also completed the sale of an equity interest in a North American Limited-Service properties increased by 3.5 percent to $71.51, occupancy for these properties increased by 3.6 percentage points to 67.1 percent, and average daily rates decreasedsegment joint venture (formerly two joint ventures which were merged before the sale), which did not result in any rooms leaving the system.
In 2012, RevPAR for comparable systemwide North American Limited-Service properties increased by 2.06.3 percent to $106.59.
$79.07, occupancy for these properties increased by 1.3 percentage points to 71.2 percent, and average daily rates increased by 4.4 percent to $111.12.
The $33$90 million increase in segment results, compared to 2009,2011, primarily reflected $33$43 million of higher base management and franchise fees, $8$41 million of lower general, administrative,higher gains and other expenses,income, $4 million of decreased joint venture equity losses, and $2 million of higher incentive management fees, partially offset by $4 million of increased joint venture equity losses, $4 million of lower owned, leased, corporate housing, and other revenue net of direct expenses, and $2 million of lowerfees.
Higher gains and other income.income reflected a $41 million gain on the sale of our equity interest in a joint venture.
The $33 million of higherHigher base management and franchise fees primarily reflected higher RevPAR due to increased demand, some of which is attributable to the favorable effect of property renovations, and, to a lesser extent, new unit growth. The $2growth and our recognition of $7 million increase in incentiveof deferred base management fees was due to higher property-level revenue and continued tight property-level cost controls favorably impacting house profit margins.
The $8 million decrease in general, administrative, and other expenses primarily reflected a favorable variance from a net $31 million impairment charge recorded2012 in 2009 related to two security deposits that we deemed unrecoverable due,conjunction with the sale of our equity interest in part, to our decision not to fund certain cash flow shortfalls, partially offset by a $14 million long-lived asset impairment charge in 2010 and $9 million of other cost increases primarily driven by higher incentive compensation. See Footnote No. 7, “Property and Equipment,” of the Notes to our Financial Statements for more information on the impairment charge recorded in 2010.
joint venture.
The $4 million increasedecrease in joint venture equity losses primarily reflected an impairment charge associated with one joint venture. The $2 million decreasea favorable variance from the sale of our equity interest in gains and other income reflected the lack of dividends from onea joint venture due to a declinewhich had losses in available cash flow.the prior year.
The $4 million decrease in owned, leased, corporate housing, and other revenue net of direct expenses primarily reflected lower revenue and property-level margins associated with weaker demand at certain leased properties.
Cost reimbursements revenue and expenses associated withfor our North American Limited-Service Lodging segment properties totaled $1,548$1,842 million in 2010,2012, compared to$1,419 $1,687 million in 2009.
2011.
International Lodging includes Marriott Hotels & Resorts, JW Marriott, Renaissance Hotels, Autograph Collection, Courtyard, AC Hotels by Marriott, Fairfield Inn & Suites, Residence Inn, and Marriott Executive Apartments located outside the United States and Canada.
| | | ($ in millions) | | | | | | | Annual Change | | | | | | | Annual Change |
| | 2011 | | 2010 | | 2009 | | Change 2011/2010 | | Change 2010/2009 | 2013 | | 2012 | | 2011 | | Change 2013/2012 | | Change 2012/2011 |
| Segment revenues | $ | 1,278 |
| | $ | 1,188 |
| | $ | 1,096 |
| | 8 | % | | 8 | % | $ | 1,522 |
| | $ | 1,330 |
| | $ | 1,278 |
| | 14 | % | | 4 | % |
| Segment results | $ | 175 |
| | $ | 165 |
| | $ | 128 |
| | 6 | % | | 29 | % | $ | 160 |
| | $ | 192 |
| | $ | 175 |
| | (17 | )% | | 10 | % |
20112013 Compared to 2010
2012
In 2011,2013, across our International Lodging segment we added 12133 properties (16,3557,191 rooms) and eight10 properties (2,4281,772 rooms) left the system.
For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable systemwide international properties increased by 2.7 percent to $114.56, occupancy for these properties increased by 1.3 percentage points to 71.2 percent, and average daily rates increased by 0.8 percent to $160.84. See "Business and Overview" for a discussion of results in the various International segment regions.
The $32 million decrease in segment results in 2013, compared to 2012,predominantly reflected $18 million of higher general, administrative, and other expenses, $11 million of lower owned, leased, and other revenue net of direct expenses, $7 million of lower incentive management fees, and $4 million of decreased joint venture equity earnings, partially offset by $11 million of higher base management and franchise fees.
The increase in general, administrative, and other expenses primarily reflected $14 million of increased expenses for initiatives to enhance and grow our brands globally, $7 million of higher accounts receivable reserves primarily related to two properties, and a $5 million performance cure payment for one property, partially offset by a favorable variance from a $5 million guarantee accrual for one property in 2012.
The decrease in owned, leased, and other revenue net of direct expenses largely reflected $7 million in costs related to three International segment leases we terminated, $5 million in weaker results at one leased property in London, and $5 million in weaker results at a leased property due to an asset write-off and the impact of renovations, partially offset by $5 million of higher termination fees principally associated with one property.
Lower joint venture equity earnings were primarily driven by a renovation at a hotel in one joint venture and lower earnings at two other joint ventures.
The increase in base management and franchise fees largely reflected new unit growth and higher RevPAR due to increased demand. The decrease in incentive management fees was primarily driven by a $3 million unfavorable impact from a contract revision for a property, a $3 million unfavorable variance from the 2012 recognition of previously deferred fees in
conjunction with a property's change in ownership, and a $3 million unfavorable foreign exchange rate impact. These were partially offset by $2 million in net new unit growth.
Cost reimbursements revenue and expenses for our International segment properties totaled $905 million in 2013, compared to $682 million in 2012.
2012 Compared to 2011
In 2012, across our International segment we added 29 properties (6,418 rooms) and 18 properties (3,281 rooms) left the system, largely due to quality issues. The properties added include 80 AC Hotels by Marriott properties (8,371 rooms) that are operated or franchised as part of our new unconsolidated joint ventures.
In 2011,2012, RevPAR for comparable company-operatedsystemwide international properties increased by 6.95.0 percent to $129.96,$111.45, occupancy for these properties increased by 0.91.9 percentage points to 70.871.2 percent, and average daily rates increased by 5.52.2 percent to $179.38.$156.47. Comparable company-operated RevPAR improved significantly in South America, India,Thailand, China, Thailand,Indonesia, the United Arab Emirates, and France,Mexico, while Europe experienced more modest RevPAR increases. Demand remained particularly weak in Egypt, experienced RevPAR declines.Jordan, Kuwait, Oman and markets in Europe more dependent on regional travel.
The $10$17 million increase in segment results in 2011,2012, compared to 2010,2011, primarily reflected an $18a $16 million increase in incentive management fees and $2 million of decreased joint venture equity losses, partially offset by a $1 million decrease in owned, leased, and other revenue net of direct expenses. Aggregate base management and franchise fees as well as general, administrative, and other expenses remained unchanged compared to 2011.
The $16 million increase in incentive management fees primarily reflected higher property-level income associated with better RevPAR and margins ($10 million), new unit growth net of terminations ($3 million), recognition of incentive management fees due to contract revisions for certain properties ($3 million), and recognition of previously deferred fees in conjunction with a property's change in ownership ($3 million), partially offset by unfavorable foreign exchange rates ($4 million).
Aggregate base management and franchise fees were unchanged and reflected $5 million of lower base management fees due to the spin-off, offset by $5 million of higher base management and franchise fees across our lodging business. The decrease in base management fees due to the spin-off reflected fees that the International segment no longer receives from the timeshare business following the spin-off. The $5 million increase in base management and franchise fees an $8 million increase in incentive management fees, $3 million of lower joint venture equity losses and $1 million of higher owned, leased, and other revenueacross our lodging business primarily reflected stronger RevPAR ($8 million), new unit growth net of direct expenses,terminations ($5 million), partially offset by $15 million of higher general, administrative, and other expenses and $5 million of lower gains and other income.
The $18 million increase in base management and franchise fees primarily reflected new unit growth, strong RevPAR and, to a lesser extent, favorable foreign exchange rates. The $8 million increase in incentive management fees primarily reflected new unit growth, favorableunfavorable foreign exchange rates ($5 million) and to a lesser extent, higher net property-level income resulting from higher property-level revenue at severalcontract revisions for certain properties partially offset by lower property-level revenue at properties in the Middle East.($3 million).
The $15 million increase in general, administrative, and other expenses primarily reflected $7 million of increased expenses associated with initiatives to enhance and grow our brands globally and a $5 million increase in a guarantee reserve related to one property with projected cash flow shortfalls.
The $5 million decrease in gains and other income primarily reflected an unfavorable variance from a net gain associated with the sale of two properties and one joint venture in 2010.
The $3$2 million decrease in joint venture equity losses primarily reflected decreased lossesincreased earnings at onetwo joint venture.ventures.
The $1 million increasedecrease in owned, leased, and other revenue net of direct expenses primarily reflected $5$8 million of decreased rent expense and $2 million of stronger results at one property,lower termination fees in 2012, partially offset by $5net stronger results principally at a leased property in London in 2012 which had increased demand.
General, administrative, and other expenses remained unchanged and primarily reflected $6 million of increased expenses for initiatives to enhance and grow our brands globally, almost entirely offset by $3 million of lower income related to the conversion of two properties from owned to managed.
Cost reimbursements revenue and expenses associated with our International Lodging segment properties totaled $621 million in 2011, compared to $568 million in 2010.
2010 Compared to 2009
In 2010, across our International Lodging segment we added 26 properties (7,289 rooms) and 10 properties (2,626 rooms) left the system, largely due to quality issues.
In 2010, RevPAR for comparable company-operated international properties increased by 9.7 percent to $116.58, occupancy for these properties increased by 5.9 percentage points to 69.9 percent, and average daily rates increased by 0.4 percent to $166.70. Comparable company-operated RevPAR improved significantly in China, Brazil and Germany and, to a lesser extent, in France and the United Kingdom, while the United Arab Emirates experienced RevPAR declines.
The $37 million increase in segment results in 2010, compared to 2009, primarily reflected a $13 million increase in
incentive management fees, an $8 million increase in base management and franchise fees, a $5 million increase in owned, leased, and other revenue net of direct expenses, a $5 million increase in gains and other income, a $4 million decrease in joint venture equity losses,accounts receivable reserves, and a $2 million decreaseguarantee accrual reversal in restructuring costs.
The $13 million increase in incentive management fees was largely due to higher property-level revenue and continued tight property-level cost controls that favorably impacted house profit margins, and to a lesser extent new unit growth. The $8 million increase in base management and franchise fees primarily reflected stronger RevPAR and new unit growth, partially offset by increased currency exchange losses.
The $5 million increase in owned, leased, and other revenue net of direct expenses primarily reflected $11 million of stronger results at some owned and leased properties, and $7 million of higher termination fees partially offset by $12 million of additional rent expense associated with one property.
The $5 million increase in gains and other income primarily reflected a favorable variance associated with a net gain associated with the sale of two properties in 2010.
The $4 million decrease in joint venture equity losses primarily reflected increased earnings at our joint ventures, resulting from stronger property-level performance, and a favorable variance from a $3 million impairment charge recorded2012 for one joint venture in 2009.
The $2 million decrease in restructuring costs primarily reflects a favorable variance from a $2 million severance and fringe benefit charge recorded in 2009 during our restructuring efforts. See Footnote No. 19, “Restructuring Costs and Other Charges,”property where we were released of the Notes to our Financial Statements for more information.
guarantee.
Cost reimbursements revenue and expenses associated withfor our International Lodging segment properties totaled $568$682 million in 2010,2012, compared to $518$621 million in 2009.
2011.
Luxury Lodging includes The Ritz-Carlton, Bulgari Hotels & Resorts, and EDITION worldwide.
| | | ($ in millions) | | | | | | | Annual Change | | | | | | | Annual Change |
| | 2011 | | 2010 | | 2009 | | Change 2011/2010 | | Change 2010/2009 | 2013 | | 2012 | | 2011 | | Change 2013/2012 | | Change 2012/2011 |
| Segment revenues | $ | 1,673 |
| | $ | 1,563 |
| | $ | 1,413 |
| | 7 | % | | 11 | % | $ | 1,794 |
| | $ | 1,765 |
| | $ | 1,673 |
| | 2 | % | | 5 | % |
| Segment results | $ | 74 |
| | $ | 77 |
| | $ | 17 |
| | (4 | )% | | 353 | % | $ | 108 |
| | $ | 102 |
| | $ | 74 |
| | 6 | % | | 38 | % |
20112013 Compared to 20102012
In 2011,2013, across our Luxury Lodging segment we added seveneight properties (1,8622,380 rooms) and two properties (477(737 rooms) left the system. In 2011,2013, we also added fourfive residential products (753(301 units) and no residential products left the system.
In 2011,For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable company-operatedsystemwide luxury properties increased by 8.57.7 percent percent to $205.04235.94, occupancy increased by 1.21.6 percentage points to 66.968.5 percent, and average daily rates increased by 5.3 percent to $344.38.
The $6 million increase in segment results, compared to 2012, reflected $9 million of higher base management fees, $9 million of decreased joint venture equity losses, a $5 million increase in incentive management fees, and $1 million of higher owned, leased, and other revenue net of direct expenses, partially offset by a $19 million increase in general, administrative, and other expenses.
Higher base management fees stemmed from a favorable variance from $3 million of fee reversals in 2012 for two properties with contract revisions, increased RevPAR due to increased demand, and new unit growth.
The decrease in joint venture equity losses reflected a favorable variance from $8 million in losses in 2012 at a Luxury segment joint venture for the impairment of certain underlying residential properties.
The increase in incentive management fees was primarily driven by higher property-level revenue which resulted in higher property-level income and margins.
The increase in owned, leased, and other revenue net of direct expenses primarily reflected $7 million of termination fees for two properties, offset by $7 million of pre-opening expenses for the London and Miami EDITION hotels.
The increase in general, administrative, and other expenses reflected an unfavorable variance from $8 million in reversals of guarantee accruals in 2012 for three properties and the following 2013 items: (1) a $3 million impairment of deferred contract acquisition costs for a property that left our system; (2) a $2 million impairment of deferred contract acquisition costs for a property with cash flow shortfalls; (3) $4 million of higher expenses to support our growth; and (4) $2 million of other net miscellaneous cost increases.
Cost reimbursements revenue and expenses for our Luxury segment properties totaled $1,442 million in 2013, compared to $1,428 million in 2012.
2012 Compared to 2011
In 2012, across our Luxury segment we added four properties (499 rooms) and no properties left the system. In 2012, we also added three residential products (89 units). No residential products left the system.
In 2012, RevPAR for comparable systemwide luxury properties increased by 6.0 percent to $220.33, occupancy increased by 1.0 percentage points to 67.0 percent, and average daily rates increased by 6.54.4 percent to $306.45.$328.68.
The $3$28 million decrease increase in segment results, compared to 2010, primarily2011, reflected $20a $21 million of increaseddecrease in general, administrative, and other expenses, and $8 million of increased joint venture equity losses, partially offset by an $11 million increase in base management fees, $8 million of higher owned, leased, and other revenue net of direct expenses, and a $5$4 million increase in incentive management fees.fees, partially offset by $3 million of increased joint venture equity losses and $3 million of decreased gains and other income.
The $20$21 million increasedecrease in general, administrative, and other expenses primarily reflected a favorable variance from a $5 million impairment of deferred contract acquisition costs and a $5 million accounts receivable reserve, both related torecognized in 2011 and both for one property whose owner filed for bankruptcy, in 2011, a $5as well as $8 million reversal in 2010 of a completion guarantee accrual and $4 millionreversals in other cost increases in 2011.2012 for three properties for which we either satisfied the related guarantee requirements or were otherwise released.
The $8 million increase in joint venture equity losses primarily reflected decreased earnings at two joint ventures.
The $11 million increase in base management fees was largely driven by RevPAR growth associated with stronger demand and, to a lesser extent, new unit growth. The $5 million increase in incentive management fees primarily reflected higher net property-level income resulting from higher property-level revenue and continued property-level cost controls, new unit growth and, to a lesser extent, favorable foreign exchange rates.
The $8 million increase in owned, leased, and other revenue net of direct expenses primarily reflected $12a $9 million in increased branding fees associated with the sale of real estate by others, partially offset by a $4 million decline in incomeincrease associated with our leased property in Japan which(which experienced lowervery low demand in 2011 as a result of the earthquake and tsunami earlierand received a $2 million business interruption payment in the year.
Cost reimbursements revenue and expenses associated with our Luxury Lodging segment properties totaled $1,350 million in 2011, compared to $1,261 million in 20102012 from a utility company).
2010 Compared to 2009
In 2010, across our Luxury Lodging segment we added three properties (763 rooms) and one property (349 rooms) left the segment becoming an Autograph Collection hotel. In 2010, we also added three residential products (441 units) and one product (25 units) left the system.
Compared to 2009, RevPAR for comparable company-operated luxury properties increased by 10.2 percent to $193.17, occupancy for these properties increased by 5.9 percentage points to 66.1 percent, and average daily rates increased by 0.4 percent to $292.11. While Luxury Lodging was particularly hurt by weak demand associated with the financial services industry and other corporate group business in 2009, that business improved in 2010.
The $60 million increase in segment results, compared to 2009, reflected a $30 million decrease in joint venture equity losses, $12 million of higher owned, leased, and other revenue net of direct expenses, $8 million of decreased general, administrative, and other expenses, a $7 million increase in base management fees, and a $3$4 million increase in incentive management fees.
The $30 million decrease in joint venture equity lossesfees primarily reflected a favorable variance from a $30 million impairment charge recorded in 2009 associated with a joint venture investment that we determined to be fully impaired.
The $12 million of higher owned, leased, and other revenue net of direct expenses primarily reflected a $6 million favorable variance from improved operating performance at three properties, as well as $4 million of higher branding fees primarily from one property, and $2 million of termination fees net of property closing costs, all in 2010.
The $8 million decrease in general, administrative, and other expenses primarily reflected a $5 million reversal in 2010 of a completion guarantee accrual for which we satisfied the related requirements and a $4 million favorable variance from bad debt expense recorded in 2009 on an accounts receivable balance we deemed uncollectible, partially offset by $1 million in other net 2010 cost increases primarily reflecting incentive compensation.
The $7 million increase in base management fees was largely driven by RevPAR growth associated with stronger demand and, to a lesser extent, new unit growth. The $3 million increase in incentive management feesjoint venture equity losses primarily reflected fees earnedincreased losses of $8 million, principally for the impairment of certain underlying residential properties in 2012, partially offset by $5 million of decreased losses after the impairment, as a result of decreased joint venture costs. The $3 million decrease in gains and due from one property in 2010 that were calculated based on prior periods’ results.
other income primarily reflected the impairment of a cost method joint venture investment.
Cost reimbursements revenue and expenses associated withfor our Luxury Lodging segment properties totaled $1,261$1,428 million in 2010,2012, compared to $1,143$1,350 million in 2009.2011.
Timeshare included Marriott Vacation Club, The Ritz-Carlton Destination Club and Residences, and Grand Residences by Marriott brands worldwide, prior to the spin-off. See Footnote No. 17, "Spin-off" of the Notes to our Financial Statements for additional information on the spin-off. The results for 2011 include the results of the former Timeshare segment prior to the spin-off date while results for 2010 and 2009 include the former Timeshare segment for those entire fiscal years.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | Annual Change |
| ($ in millions) | 2011 | (1) | 2010 | | 2009 | | Change 2011/2010 | | Change 2010/2009 |
| Segment revenues | | | | | | | | | |
| Base fee revenue | $ | 51 |
| | $ | 55 |
| | $ | 52 |
| | | | |
| Sales and services revenue | | | | |
| | | | |
| Development | 577 |
| | 626 |
| | 626 |
| | | | |
| Services | 344 |
| | 351 |
| | 330 |
| | | | |
| Financing revenue | | | | |
| | | | |
| Interest income non-securitized notes | 27 |
| | 40 |
| | 46 |
| | | | |
| Interest income-securitized notes | 116 |
| | 147 |
| | — |
| | | | |
| Other financing revenue | 6 |
| | 7 |
| | 67 |
| | | | |
| Total financing revenue | 149 |
| | 194 |
| | 113 |
| | | | |
| Other revenue | 18 |
| | 50 |
| | 54 |
| | | | |
| Total sales and services revenue | 1,088 |
| | 1,221 |
| | 1,123 |
| | | | |
| Cost reimbursements | 299 |
| | 275 |
| | 269 |
| | | | |
| Segment revenues | $ | 1,438 |
| | $ | 1,551 |
| | $ | 1,444 |
| | (7 | )% | | 7 | % |
| Segment Results | | | | | | | | | |
| Base fee revenue | $ | 51 |
| | $ | 55 |
| | 52 |
| | | | |
| Timeshare sales and services, net | 159 |
| | 199 |
| | 83 |
| | | | |
| Timeshare strategy-impairment charges | (324 | ) | | — |
| | (614 | ) | | | | |
| Restructuring costs | — |
| | — |
| | (45 | ) | | | | |
| Joint venture equity losses | — |
| | (8 | ) | | (12 | ) | | | | |
| Gains and other income | 3 |
| | 20 |
| | 2 |
| | | | |
| Net losses attributable to noncontrolling interests | | | | | 11 |
| | | | |
| General, administrative, and other expense | (63 | ) | | (85 | ) | | (80 | ) | | | | |
| Timeshare strategy-impairment charges (non-operating) | — |
| | — |
| | (71 | ) | | | | |
| Interest expense | (43 | ) | | (55 | ) | | — |
| | | | |
| Segment (losses) results | $ | (217 | ) | | $ | 126 |
| | $ | (674 | ) | | (272 | )% | | 119 | % |
| Contract Sales | | | | | | | | | |
| Timeshare | $ | 570 |
| | $ | 651 |
| | $ | 685 |
| | | | |
| Fractional | 23 |
| | 28 |
| | 28 |
| | | | |
| Residential | 4 |
| | 9 |
| | 8 |
| | | | |
| Total company | 597 |
| | 688 |
| | 721 |
| | | | |
| Fractional | 8 |
| | 5 |
| | (21 | ) | | | | |
| Residential | 13 |
| | (8 | ) | | (35 | ) | | | | |
| Total joint venture | 21 |
| | (3 | ) | | (56 | ) | | | | |
| Total Timeshare segment contract sales | $ | 618 |
| | $ | 685 |
| | $ | 665 |
| | (10 | )% | | 3 | % |
(1) 2011 Activity is prior to the date of spin-off, November 21, 2011.
2011 Compared to 2010
Timeshare segment contract sales decreased by $67 million to $618 million in 2011 from $685 million in 2010 primarily reflecting an $81 million decrease in timeshare contract sales and a $2 million decrease in fractional contract sales, partially offset by a $16 million increase in residential contract sales. Timeshare contract sales decreased in 2011 primarily as a result of
the spin-off of the timeshare business resulting in fewer periods of Timeshare segment activity reflected in the 2011 fiscal year, as compared to a full fiscal year in 2010, as well as difficult comparisons driven by sales promotions in 2010 and the start-up impact of the shift from the sale of weeks-based to points-based products in the 2010 third quarter. Residential and fractional contract sales benefited from a net $19 million decrease in cancellation allowances that we recorded in 2010 in anticipation that a portion of contract revenue, previously recorded for certain residential and fractional projects would not be realized due to contract cancellations prior to closing.
The $113 million decrease in Timeshare segment revenues to $1,438 million from $1,551 million primarily reflected a $133 million decrease in Timeshare sales and services revenue and a $4 million decrease in base management fees, partially offset by a $24 million increase in cost reimbursements revenue. The decrease in Timeshare sales and services revenue primarily reflected: (1) $49 million of lower development revenue which reflected the spin-off and, to a lesser extent, lower sales volumes, partially offset byfavorable reportability primarily related to sales reserves recorded in 2010; (2) $45 million of lower financing revenue from lower interest income as a result of the transfer of the mortgage portfolio to MVW in conjunction with the spin-off as well as a lower mortgage portfolio balance prior to the spin-off date; (3) $32 million of lower other revenue which primarily reflected the spin-off and lower resales revenue; and (4) $7 million of lower services revenue which reflected the spin-off, partially offset byincreased rental occupancies and rates.
Segment results decreased by $343 million to segment losses of $217 million in 2011 from segment income of $126 million in 2010, and primarily reflected $324 million of Timeshare strategy-impairment charges, $40 million of lower Timeshare sales and services revenue net of direct expenses, $17 million of lower gains and other income, and $4 million of lower base management fees, partially offset by $22 million of lower general, administrative, and other expense, $12 million of lower interest expense, and $8 million of lower joint venture equity losses.
The $40 million decrease in Timeshare sales and services revenue net of direct expenses primarily reflected $28 million of lower other revenue, net of expenses and $25 million of lower financing revenue, net of expenses, partially offset by $8 million of higher development revenue net of product costs and marketing and selling costs and $5 million of higher services revenue, net of expenses. The $28 million decrease in other revenue, net of expenses primarily reflected a $15 million unfavorable variance from an adjustment to the Marriott Rewards liability in the prior year and, to a lesser extent the impact of the spin-off in 2011 as well as lower resales revenue, net of expenses due to lower closings. The $25 million decrease in financing revenue, net of expenses primarily reflected decreased interest income due to the spin-off as well as lower notes receivable balances. Higher development revenue net of product costs and marketing and selling costs primarily reflected favorable reportability as well as a favorable variance from a net $12 million reserve in the prior year, partially offset by lower 2011 sales volumes as well as the impact of the spin-off.
Gains and other income decreased by $17 million and primarily reflected the sale of one property for a gain in 2010 and smaller gains on sales of property in 2011. Base management fees decreased by $4 million, primarily due to the spin-off.
General, administrative, and other expense decreased by $22 million primarily due to a $13 million impairment charge in 2010 associated with the disposition of a golf course and related assets as well as the impact of the spin-off. For additional information on the impairment charge recorded in 2010, see Footnote No. 7, “Property and Equipment,” of the Notes to our Financial Statements.
Joint venture equity losses decreased by $8 million and primarily reflected lower losses from a residential and fractional project joint venture for which the former Timeshare segment stopped recognizing their portion of the losses since their investment, including loans due from the joint venture, was reduced to zero in 2010.
The $12 million decrease in interest expense was a result of the transfer of the outstanding debt obligations associated with securitized notes receivable to MVW in conjunction with the spin-off, as well as lower outstanding debt obligations and lower interest rates.
2010 Compared to 2009
During the 2010 third quarter, we launched the points-based Marriott Vacation Club Destinations timeshare program (the “MVCD Program”) in North America and the Caribbean. Under the MVCD Program, we sold beneficial interests in a domestic land trust. Based on the number of beneficial interests purchased, MVCD members received an annual allocation of Vacation Club Points to redeem for travel at numerous destinations. Although the rights and privileges, that existed at the launch of the new program for owners of weeks-based intervals were unchanged, those owners also had the option of enrolling in the MVCD Program, which afforded them the opportunity to trade their weeks-based intervals for Vacation Club Points usage each year, as well as to purchase additional product in increments of less than one week. Since the MVCD Program was a significant change from our prior approach to the timeshare business, marketing efforts initially focused on existing owners, to encourage participation and purchase of additional product.
Timeshare segment contract sales, including sales made by our timeshare joint venture projects, represent sales of timeshare interval, fractional ownership, and residential ownership products before the adjustment for percentage-of-completion accounting. Timeshare segment contract sales increased by $20 million to $685 million in 2010 from $665 million in 2009 primarily reflecting a $28 million increase in residential contract sales and a $26 million increase in fractional contract sales, mostly offset by a $34 million decrease in timeshare contract sales. Sales of timeshare intervals were hurt by tough comparisons driven by sales promotions begun in 2009. Residential and fractional contract sales benefited from a net $63 million decrease in cancellation allowances we recorded in anticipation that a portion of contract revenue previously recorded for certain residential and fractional projects would not be realized due to contract cancellations prior to closing.
The $107 million increase in Timeshare segment revenues to $1,551 million from $1,444 million in 2009 primarily reflected a $98 million increase in Timeshare sales and services revenue, a $6 million increase in cost reimbursements revenue, and a $3 million increase in base management fees. The increase in Timeshare sales and services revenue, compared to 2009, primarily reflected higher financing revenue due to higher interest income associated with the impact of the new Transfers of Financial Assets and Consolidation standards and, to a lesser extent, higher services revenue reflecting increased rental occupancies and rates. These favorable impacts were partially offset by lower development revenue reflecting lower sales volumes primarily due to tough comparisons driven by sales promotions begun in 2009, and a $20 million increase in reserves (we began reserving for 100 percent of notes that were in default in addition to the reserve we recorded on notes not in default).
Segment income of $126 million in 2010 increased by $800 million from $674 million of segment losses in 2009, and primarily reflected a favorable variance from the $685 million of impairments recorded in 2009, $116 million of higher 2010 Timeshare sales and services revenue net of direct expenses, $45 million of lower restructuring costs compared with 2009, $18 million increase in gains and other income, $3 million increase in base management fees, and $4 million of lower joint venture equity losses partially offset by a $55 million increase in interest expense, an $11 million decrease in net losses attributable to noncontrolling interest, and $5 million of higher general, administrative, and other expenses.
The $116 million increase in Timeshare sales and services revenue net of direct expenses primarily reflected $78 million of higher financing revenue, net of expenses, $33 million of higher development revenue net of product costs and marketing and selling costs, and $8 million of higher other revenue net of expense, partially offset by $3 million of lower services revenue net of expenses. Higher development revenue net of product costs and marketing and selling costs primarily reflected both lower costs due to lower sales volumes and lower marketing and selling costs in 2010, as well as favorable variances from both a $10 million charge related to an issue with a state tax authority and a net $3 million impact from contract cancellation allowances in 2009, partially offset by lower development revenue for the reasons stated previously. The $20 million unfavorable impact to development revenue related to the reserve for uncollectible accounts was partially offset by a favorable impact in product costs, resulting in a net $12 million increase in reserves.
The $78 million increase in financing revenue, net of expense, primarily reflected: (1) a net $141 million increase in interest income, reflecting a $147 million increase from the notes receivable we consolidated in 2010 associated with past securitization transactions as part of our adoption of the new Transfers of Financial Assets and Consolidation standards, partially offset by a $6 million decrease in interest income related to non-securitized notes receivable reflecting a lower outstanding balance; and (2) a favorable variance from a $20 million charge in 2009 related to the reduction in the valuation of residual interests. These favorable variances were partially offset by $42 million of decreased residual interest accretion reflecting the elimination of residual interests as part of our 2010 adoption of the new Transfers of Financial Assets and Consolidation standards, $37 million of gain on notes sold in 2009, and $3 million of other net expenses.
The $8 million increase in other revenue net of expense primarily reflected a $15 million favorable adjustment to the Marriott Rewards liability resulting from lower than anticipated cost of redemptions, as well as $6 million of higher other miscellaneous revenue, partially offset by $13 million of net costs in excess of enrollment revenue related to the MVCD Program. The $11 million increase in services revenue net of expenses primarily reflected higher rental revenue associated with increased transient demand.
The $55 million in interest expense was a result of the consolidation of debt obligations due to our adoption of the new Transfers of Financial Assets and Consolidation standards.
Gains and other income increased by $18 million, primarily due to the sale of one property in the 2010 fourth quarter.
The $5 million increase in general, administrative, and other expenses primarily reflected a $13 million impairment charge in 2010 associated with the anticipated disposition of a golf course and related assets. Partially offsetting this unfavorable variance was a $7 million write-off of capitalized software development costs in 2009 related to a project for
which we decided not to pursue further development.
Joint venture equity losses decreased by $4 million and primarily reflected higher cancellation allowances recorded at a joint venture in 2009.
The $11 million decrease to zero in net losses attributable to a noncontrolling interest was associated with our acquisition of that noncontrolling interest.
SHARE-BASED COMPENSATION
Under our 2002 Comprehensive Stock and Cash Incentive Plan, we award: (1) stock options to purchase our Class A Common Stockcommon stock (“Stock Option Program”); (2) stock appreciation rights (“SARs”) for our Class A Common Stockcommon stock (“Stock Appreciation Right Program”); (3) restricted stock units (“RSUs”) of our Class A Common Stock;common stock; and (4) deferred stock units. We grant awards at exercise prices or strike prices that equal the market price of our Class A Common Stockcommon stock on the date of grant.
During 20112013, we granted 2.62.5 million RSUs, 0.2 million service and performance RSUs, 0.7 million Employee SARs, and 29,0000.1 million deferred stock units.options. See Footnote No. 3, “Share-Based Compensation,” of the Notes to our Financial Statements for additionalmore information.
NEW ACCOUNTING STANDARDS
See Footnote No. 1, “Summary of Significant Accounting Policies,” of the NotesWe do not expect that accounting standard updates issued to date and that are effective after December 31, 2013, will have a material effect on our Financial Statements for information related to our adoption of new accounting standards in 2011 and for information on our anticipated adoption of recently issued accounting standards.Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash Requirements and Our Credit Facilities
On June 23, 2011,July 18, 2013, we amended and restated our multicurrency revolving credit agreement (the “Credit Facility”"Credit Facility") to extend the facility’sfacility's expiration from May 14, 2012to June 23, 2016July 18, 2018 and reduce (at our direction)increase the facility size from $2.404 billionto $1.750 billion2,000 million of aggregate effective borrowings. The material terms of the amended and restated Credit Facility are otherwise unchanged, and theunchanged. The facility continues to supportsupports general corporate needs, including working capital, capital expenditures, and letters of credit. The availability of the Credit Facility also supports our commercial paper program. Borrowings under the Credit Facility 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. For additionalmore information on our Credit Facility, including participating financial institutions, see Exhibit 10, “Second“Third Amended and Restated Credit Agreement,” to our Current Report on Form 8-K that we filed with the SEC on June 27, 2011.July 19, 2013.
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 Consolidated EBITDA, each as defined in the Credit Facility) to not more than 4 to 1. 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 to restrict our ability to meet our anticipated borrowing and guarantee levels or increase those levels should we decide to do so in the future.
We believe the Credit Facility and our access to capital markets, together with cash we expect to generate from operations, remainsremain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, meet debt service, and fulfill other cash requirements.
In early 2011 we resumed issuingWe issue commercial paper in the United States. We do not have purchase commitments from buyers for our commercial paper; therefore, our issuances areability to issue commercial paper is subject to market demand. We classify any outstanding commercial paper and Credit Facility borrowings as long-term debt based on our ability and intent to refinance itthem on a long-term basis. We reserve unused capacity under our Credit Facility to repay outstanding commercial paper borrowings in the event that the commercial paper market is not available to us for any reason when outstanding borrowings mature. We do not expect fluctuations in the demand for commercial paper to affect our liquidity, given our borrowing capacity under the Credit Facility.
At year-end 20112013, our available borrowing capacity amounted to $1.520 billion1,291 million and reflected borrowing capacity of $1.418 billion1,165 million under our Credit Facility and our cash balance of $102126 million. We calculated that borrowing capacity by taking $1.750 billion2,000 million of effective aggregate bank commitments under our Credit Facility and subtracting $834 million of outstanding commercial paper and $1 million of outstanding letters of credit under our Credit FacilityFacility.
We monitor the status of the capital markets and $331 millionregularly evaluate the effect that changes in capital market conditions may have on our ability to execute our announced growth plans. We expect to continue meeting part of outstandingour financing and liquidity needs primarily through commercial paper. We had no outstandingpaper borrowings, underissuances of Senior Notes, and access to long-term committed credit facilities. If conditions in the lodging industry deteriorate, or if disruptions in the capital markets take place as they did in the immediate aftermath of both the 2008 worldwide financial crisis and the events of September 11, 2001, we may be unable to place some or all of our Credit Facility at year-end 2011. We anticipate that available borrowing capacitycommercial paper on a temporary or extended basis and may have to rely more on borrowings under the Credit Facility, which we believe will be adequate to fund our liquidity needs, including repayment of debt obligations.obligations, but which may or may not carry a higher cost than commercial paper. Since we continue to have ample flexibility under the Credit Facility’s covenants, we also expect that undrawn bank commitments under the Credit Facility will remain available to us even if business conditions were to deteriorate markedly.
Cash from Operations
Cash from operations, depreciation expense, and amortization expense for the last three fiscal years are as follows:
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| Cash from operations | $ | 1,089 |
| | $ | 1,151 |
| | $ | 868 |
| $ | 1,140 |
| | $ | 989 |
| | $ | 1,089 |
|
| Depreciation expense | 127 |
| | 138 |
| | 151 |
| 59 |
| | 48 |
| | 87 |
|
| Amortization expense | 41 |
| | 40 |
| | 34 |
| 68 |
| | 54 |
| | 57 |
|
Our ratio of current assets to current liabilities was roughly0.7 to 1.0 at year-end 2013 and 0.5 to 1.0 at year-end 2011 and 1.4 to 1.0 at year-end 2010. See Footnote No. 17, "Spin-off" of the Notes to our Financial Statements for information on the spin-off in 2011 and related decrease in current assets.2012. We minimize working capital through cash management, strict credit-granting policies, and aggressive collection efforts. We also have significant borrowing capacity under our Credit Facility should we need additional working capital.
Our ratios of earnings to fixed charges for the last five fiscal years, the calculations of which are detailed in Exhibit 12 to
this 20112013 Annual Report on Form 10-K, are as follows:
|
| | | | | | | | |
| Fiscal Years |
| 2011 | | 2010 | | 2009 | | 2008 | | 2007 |
| 2.3x | | 2.9x | | * | | 3.1x | | 4.3x |
|
| | | | | | | | |
| Fiscal Years |
| 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| 5.1x | | 4.6x | | 2.3x | | 2.9x | | * |
| |
| * | In 2009, earnings were inadequate to cover fixed charges by approximately $364 million. |
Timeshare Cash Flows
While our former Timeshare segment historically generated positive operating cash flow, year-to-year cash flow varied based on the timing of both cash outlays for the acquisition and development of new resorts and cash received from purchaser financing. We included timeshare reportable sales we financed in cash from operations when we collected cash payments. We show the 2011 net operating activity from our former Timeshare segment prior tobefore the spin-off (which doesdid not include income from our former Timeshare segment) in the following table. In 2011, 2010, and 2009, newNew Timeshare segment mortgages totaled $214 million, $256 million, and $302 million, respectively, in 2011 and collections totaled $273 million in 2011 (which included collections on securitized notes of $187 million), $347 million (which included collections on securitized notes of $230 million), and $155 million, respectively..
|
| | | | | | | | | | | |
| ($ in millions) | 2011 | | 2010 | | 2009 |
| Timeshare segment development less than (in excess of) cost of sales | $ | 97 |
| | $ | 15 |
| | $ | (4 | ) |
| Timeshare segment collections (net of new mortgages) | 59 |
| | 91 |
| | (147 | ) |
| Note repurchases | — |
| | — |
| | (81 | ) |
| Financially reportable sales less than closed sales | 3 |
| | 58 |
| | 29 |
|
| Note securitization gains | — |
| | — |
| | (37 | ) |
| Note securitization proceeds | — |
| | — |
| | 349 |
|
| Collection on retained interests in securitized notes and servicing fees | — |
| | — |
| | 82 |
|
| Other cash inflows (outflows) | 12 |
| | 52 |
| | (45 | ) |
| Net cash inflows from Timeshare segment activity | $ | 171 |
| | $ | 216 |
| | $ | 146 |
|
|
| | | | |
| ($ in millions) | 2011 | |
| Timeshare segment development less than cost of sales | $ | 97 |
| |
| Timeshare segment collections (net of new mortgages) | 59 |
| |
| Financially reportable sales less than closed sales | 3 |
| |
| Other cash inflows | 12 |
| |
| Net cash inflows from former Timeshare segment activity | $ | 171 |
| |
For additional information onAs noted in Footnote No. 2, “Income Taxes,” all tax matters that could affect the Company's cash tax benefits related to the 2011 spin-off of our timeshare note securitizations, including a discussion ofoperations and timeshare development business were resolved in the cash flows on securitized notes, see Footnote No. 11, “Asset Securitizations,” of the Notes to our Financial Statements.
For additional information on the spin-off, please see Footnote No. 17, "Spin-off" of the Notes to our Financial Statements. We2013 first quarter, and we expect that the spin-off will result in theour realization through 2015 of approximately $400 million to $450$480 million of cash tax benefits, to Marriott, including approximately $115 million to $125 million for the 2012 fiscal year, relating to the value of the timeshare business. For 2011, weWe realized approximately $80$363 million of these cash tax benefits.benefits through 2013, of which $135 million of those benefits were realized in 2013. We expect to realize approximately$52 million in 2014. For more information on the spin-off, see Footnote No. 15, "Spin-off."
Investing Activities Cash Flows
Capital Expenditures and Other Investments. We made capital expenditures of $404 million in 2013, $437 million in 2012, and $183 million in 2011, $307 million in 2010, and $147 million in 2009 that2011. These included expenditures related to the development and construction of new hotels and acquisitions of hotel properties, as well as improvements to existing properties, and systems initiatives. Timeshare segment development expenditures, which we included in “Cash from Operations” prior to the spin-off, as noted in that section, were not reflected in these numbers. Capital expenditures in 20112013 decreased by $33 million compared to 2012, primarily due to the purchase2012 acquisition of two hotelsland and a building we plan to develop into a hotel in 2010. Capital expendituresour Luxury segment, partially offset by the 2013 acquisition of a managed property in 2010 increasedour North American Full-Service segment. Contract acquisition costs in 2013 decreased by $192 million compared to 2012, primarily due to the purchase$192 million acquisition of twothe Gaylord hotel properties.management company in 2012. Separately, we classified the $18 million acquisition of the Gaylord brand name in 2012 as "Other investing activities."
Capital expenditures in 2012 increased by $254 million compared to 2011, primarily due to the acquisition of land and a building, renovations of buildings associated with developing three EDITION hotels, and the acquisition of land for an EDITION hotel. Contract acquisitions costs in 2012 increased by $179 million compared to 2011, primarily due to the $192 million acquisition of the Gaylord hotel management company. See Footnote No. 7, "Acquisitions and Dispositions," for more information on these acquisitions. We expect 2014 investment spending for the 2012 fiscal year will total approximately $550$800 million to $750 million1 billion, including approximately $50 million to $100150 million for maintenance capital spending.spending and approximately $186 million for Protea. Investment spending will also includeincludes other capital expenditures (including property acquisitions), loan advances, contract acquisition costs, and equity and other investments.
Over time, we have sold lodging properties, both completed and under development, subject to long-term management agreements. The ability of third-party purchasers to raise the necessary debt and equity capital necessary to acquire such properties depends in part on the perceived risks inherent in the lodging industry and other constraints inherent in the capital markets as a whole. We monitor the status of the capital markets and regularly evaluate the potential impact on our business operations of changes in capital market conditions.conditions on our business operations. We expect to continue to makemaking selective and opportunistic investments in connection with addingto add units to our lodging business. These
investmentsbusiness, which may include loans and noncontrolling equity investments.
Fluctuations in the values of hotel real estate generally have little impact on theour overall business results of our Lodging segment because: (1) we own less than one percent of the total number of hotels that we operate or franchise; (2) management and franchise fees are generally based upon hotel revenues and profits rather than current hotel property values; and (3) our management agreements generally do not terminate upon hotel sale or foreclosure.
Dispositions.Property and asset sales generated nocash proceeds of $20in 2013, $65 million in 2011, $1142012, and $20 million in 2010,2011. See Footnote No. 7, "Acquisitions and $2 million in 2009.Dispositions," for more information on completed dispositions and planned dispositions.
Loan Activity.From time to time we make loans to owners of hotels that we operate or franchise. Collections and sales for such loans,Loan collections, net of loan advances, during 2011 and 2010, amounted to net loan collections of $8470 million in 20112013 and net loan advances of $6$138 million in 2010.2012. At year-end 2011,2013, we had noa $3 million long-term senior loansloan and $382$175 million inof mezzanine and other loans (including a current portion of $84 million)($142 million long-term and $36 million short-term) outstanding, compared with noa $15 million long-term senior loansloan and $191$227 million inof mezzanine and other loans (including a current portion of $7 million)($165 million long-term and $62 million short-term) outstanding at year-end 2010.2012. In 2011,2013, our notes receivable balance associated withfor senior, mezzanine, and other loans increaseddecreased by $19164 million and, primarily reflectedreflecting collections on two MVW notes receivable issued to us in 2011 in conjunction with the funding and collection of several loans offset by the reserves against loans.Timeshare spin-off. See the “Senior, Mezzanine, and Other Loans” caption in Footnote No. 1, “Summary"Summary of Significant Accounting Policies,” of the Notes to our Financial Statements for additional information.Policies."
Equity and Cost Method Investments.Cash outflows of$16 million in 2013, $15 million in 2012, and $83 million in 2011 $29 million in 2010, and $28 million in 2009 associated withfor equity and cost method investments primarily reflects our investments in a number of joint ventures.
Cash from Financing Activities
Debt.Debt decreasedincreased by $658264 million in 2011,2013, to $2,1713,199 million at year-end 20112013 from $2,829$2,935 million at year-end 2010,2012, and reflected our 2013 third quarter issuance of $348 million (book value) of Series M Senior Notes and a $1,016 million decrease in non-recourse debt associated with previously securitized notes which we transferred to MVW as part of the spin-off, partially offset by a $331333 million increase in commercial paper borrowings, partially offset by the $400 million (book value) retirement, at maturity, of our Series J Senior Notes, $15 million in decreased borrowings under our Credit Facility, and decreases of $2 million in other debt (which includes capital leases) increases of $27 million. Debt increased by $531$764 million in 2010,2012, to $2,829$2,935 million at year-end 20102012 from $2,298$2,171 million at year-end 2009,2011, and reflected consolidationour 2012 issuance of debt with$594 million (book value) of Series K Senior Notes, our 2012 issuance of $349 million (book value) of Series L Senior Notes, a balance at year-end 2010$170 million increase in commercial paper, and $15 million of $1,016 million, partially offset by decreased borrowings under our Credit Facility, partially offset by the $348 million (book value) retirement, at maturity, of $425 millionour Series F Senior Notes and other net debt decreases of $60 million.$16 million in other debt (which includes capital leases). See Footnote No. 10, "Long-Term Debt" for additional information on the debt issuances.
Our financial objectives include diversifying our financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At year-end 2011,2013, our long-term debt had an average interest rate of 5.03.5 percent and an average maturity of approximately 3.65.1 years. The ratio of our fixed-rate long-term debt to our total long-term debt was 0.820.7 to 1.0 at year-end 2011.
2013.
See the “Cash Requirements and Our Credit Facilities,” caption within this “Liquidity and Capital Resources” section for additionalmore information on our Credit Facility.
During 2010, we repaid all outstanding borrowings under our Credit Facility, which had a balance outstanding at year-end 2009 of $425 million.
In 2009, we repurchased $122 million principal amount of our Senior Notes in the open market, across multiple series. We recorded a gain of $21 million for the debt extinguishment representing the difference between the acquired debt’s purchase price of $98 million and its carrying amount of $119 million.
Share Repurchases. We purchased 43.420.0 million shares of our Class A Common Stockcommon stock in 2013 at an average price of $41.46 per share, purchased 31.2 million shares in 2012 at an average price of $37.15 per share, and purchased 43.4 million shares in 2011 at an average price of $32.79 per share, purchased 1.5 million shares in 2010 at an average price of $39.02 per share, and did not purchase any shares in 2009.share. As of year-end 2011,2013, 5.514.3 million shares remained available for repurchase under authorizations previously approved byfrom our Board of Directors. On February 10, 2012,14, 2014, we announced that our Board of Directors increased, by 3525 million shares, the authorization to repurchase our Class A Common Stock.common stock. We purchase shares in the open market and in privately negotiated transactions.
Dividends. Our Board of Directors declared a cash dividend of $0.0875$0.13 per share on February 11, 2011,15, 2013 and a cash dividend of $0.10$0.17 per share on each of May 6,10, August 4,8, and November 10, 2011,7, 2013, and February 10, 2012.14, 2014.
Contractual Obligations and Off Balance Sheet Arrangements
The following table summarizes our contractual obligations as of year-end 2011:2013:
Contractual Obligations
| | | | | | Payments Due by Period | | | Payments Due by Period |
| ($ in millions) | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years |
Debt (1) | $ | 2,484 |
| | $ | 449 |
| | $ | 553 |
| | $ | 1,042 |
| | $ | 440 |
| $ | 3,638 |
| | $ | 112 |
| | $ | 796 |
| | $ | 1,247 |
| | $ | 1,483 |
|
Capital lease obligations (1) | 71 |
| | 3 |
| | 62 |
| | 2 |
| | 4 |
| 53 |
| | 47 |
| | 2 |
| | 2 |
| | 2 |
|
| Operating leases where we are the primary obligor: | | | | | | | | | | | | | | | | | | |
| Recourse | 1,059 |
| | 125 |
| | 222 |
| | 194 |
| | 518 |
| 890 |
| | 120 |
| | 218 |
| | 162 |
| | 390 |
|
| Non-recourse | 266 |
| | 11 |
| | 18 |
| | 21 |
| | 216 |
| |
| Nonrecourse | | 264 |
| | 14 |
| | 30 |
| | 27 |
| | 193 |
|
| Operating leases where we are secondarily liable | 31 |
| | 12 |
| | 19 |
| | — |
| | — |
| 4 |
| | 4 |
| | — |
| | — |
| | — |
|
| Purchase obligations | 95 |
| | 47 |
| | 48 |
| | — |
| | — |
| 152 |
| | 107 |
| | 45 |
| | — |
| | — |
|
| Other long-term liabilities | 63 |
| | — |
| | 8 |
| | 1 |
| | 54 |
| 48 |
| | — |
| | 4 |
| | 4 |
| | 40 |
|
| Total contractual obligations | $ | 4,069 |
| | $ | 647 |
| | $ | 930 |
| | $ | 1,260 |
| | $ | 1,232 |
| $ | 5,049 |
| | $ | 404 |
| | $ | 1,095 |
| | $ | 1,442 |
| | $ | 2,108 |
|
| |
(1) | Includes principal as well as interest payments. |
The preceding table does not reflect unrecognized tax benefits as of year-end 20112013 of $3934 million. As a large taxpayer, we are under continual audit by the IRS and other taxing authorities. Although we do not anticipate that those audits will have a significant impact on our unrecognized tax benefit balance during the next 52 weeks, it remains possible that our liability for unrecognized tax benefits could change over that time period. SeePlease see Footnote No. 2, “Income Taxes,” of the Notes to our Financial StatementsTaxes” for additional information.
In addition to the purchase obligations noted in the preceding table, in the normal course of the hotel management business, we enter into purchase commitments to manage the daily operating needs of hotels that we manage for owners. Since we are reimbursed from the cash flows of the hotels, these obligations have minimal impact on our net income and cash flow.
The following table summarizes our guarantee commitments as of year-end 2011:2013:
Guarantee Commitments
| | | | | | Amount of Guarantee Commitments Expiration by Period | | | Amount of Guarantee Commitments Expiration by Period |
| ($ in millions) | Total Amounts Committed | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | Total Amounts Committed | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years |
| Total guarantees where we are the primary obligor | $ | 210 |
| | $ | 56 |
| | $ | 41 |
| | $ | 49 |
| | $ | 64 |
| $ | 199 |
| | $ | 37 |
| | $ | 28 |
| | $ | 47 |
| | $ | 87 |
|
| Total guarantees where we are secondarily liable | 258 |
| | 47 |
| | 77 |
| | 56 |
| | 78 |
| 166 |
| | 36 |
| | 60 |
| | 42 |
| | 28 |
|
| Total guarantee commitments | $ | 468 |
| | $ | 103 |
| | $ | 118 |
| | $ | 105 |
| | $ | 142 |
| $ | 365 |
| | $ | 73 |
| | $ | 88 |
| | $ | 89 |
| | $ | 115 |
|
In addition to the guarantees noted in the preceding table, we have provided a project completion guarantee in favor of lenders with an estimated aggregate total cost of $498 million (Canadian $508 million), and a $3 million carrying value for our associated liability as of year-end 2011. During 2010, our joint venture partners executed documents indemnifying us for any payments that may be required in connection with this guarantee.
For additional information on this project completion guarantee, including our pro rata ownership percentage in the associated entity, as well as additional information on our guarantees, including their nature and the circumstances under which they were entered into, see the “Guarantees” caption within Footnote No. 15,“Contingencies,” of the Notes to our Financial Statements.
In addition to the guarantees described in the preceding paragraphs, in conjunction with financing obtained for specific projects or properties owned by joint ventures in which we are a party, we may provide industry standard indemnifications to the lender for loss, liability or damage occurring as a result of our actions or the actions of the other joint venture owner.
We also had the following other commitments, including loan and investment commitments outstanding at year-end
2011: 2013:
Loan and Investment Commitments
| | | | | | Amount of Loan and Investment Commitments Expected Funding by Period | | | Amount of Investment Commitments Expected Funding by Period |
| ($ in millions) | Total Amounts Committed | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | Total Amounts Committed | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years |
| Total loan commitments | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Total investment commitments | 104 |
| | 15 |
| | 89 |
| | — |
| | — |
| $ | 52 |
| | $ | 29 |
| | $ | 23 |
| | $ | — |
| | $ | — |
|
| Total other commitments | $ | 104 |
| | $ | 15 |
| | $ | 89 |
| | $ | — |
| | $ | — |
| |
For further information on our loan and investment commitments, including the nature of the commitments and their expirations, see the “Commitments and Letters of Credit” caption within Footnote No. 15, “Contingencies,13, “Contingencies.” of the Notes to our Financial Statements.
At year-end 2011,2013, we also had $6580 million of letters of credit outstanding ($6479 million outside the Credit Facility and $1 million under our Credit Facility), the majority of which related towere for our self-insurance programs. Surety bonds issued as of year-end 20112013 totaled $108122 million, the majority of which were requested by federal, state, orand local governments related to our lodging operations, includingrequested in connection with our self-insurance programs.
In the normal course of the hotel management business, we enter into purchase commitments to manage the daily operating needs of hotels we manage for owners. Since we are reimbursed from the cash flows of the hotels, these obligations have minimal impact on our net income and cash flow.
RELATED PARTY TRANSACTIONS
Equity Method Investments
We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive fees. We also have equity method investments in entities that provide management and/or franchise services to hotels and receive fees. In addition, in some cases we provide loans, preferred equity, or guarantees to these entities. Our ownership interests in these equity method investments generally vary from 10 to 49 percent. Undistributed earnings attributable to our equity method investments represented approximately $2 million of our consolidated retained earnings at year-end 2013. For other information on these equity method investments, including the impact to our financial statements of transactions with these related parties, see Footnote No. 22,18, “Related Party Transactions,Transactions.” of the Notes to our Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
TheOur 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 estimate to be critical if: (1) it requireswe must make assumptions to be made that were uncertain at the time the estimate was made; and (2) changes in the estimate, or selection of a different estimates that could have been selected,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 presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our financial position or results of operations.
Management has discussed the development and selection of its critical accounting estimatespolicies with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure presented below relating to them.
Please seeSee Footnote No. 1, “Summary of Significant Accounting Policies,” of the Notes to our Financial Statements for further information on our critical accounting policies, including our policies on:
Marriott Rewards and The Ritz-Carlton Rewards, our frequent guest rewards programs, including how members earn points, how we determineestimate the fair value of our redemption obligation, and how we recognize revenue related tofor these programs;
Valuation of Goodwill, including how we evaluate the fair value of goodwillreporting units and when we record an impairment loss on goodwill;
Valuation of 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;
Valuation of Investments in Ventures, including information on how we evaluate the fair value of investments in ventures and when we record impairment losses on investments in ventures;
Legal Contingencies, including information on how we account for legal contingencies;
Income Taxes, including information on how we determine our current year amounts payable or refundable, as well as our estimate of deferred tax assets and liabilities; and
Loan Loss Reserves for Senior, Mezzanine, and Other Loans, and, prior to the spin-off date, for Loans to Timeshare Owners, including information on how we measure impairment on each of these types of loans.
OTHER MATTERS
Inflation
Inflation has been moderate in recent years and has not had a significant impact on our businesses.
| |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
We are exposed to market risk from changes in interest rates, stock prices, currency exchange rates, and debt prices. We manage our exposure to these risks by monitoring available financing alternatives, through development and application of credit granting policies and by entering into derivative arrangements. We do not foresee any significant changes in either our exposure to fluctuations in interest rates or currency rates or how we manage such exposure is managed in the future.
We are exposed to interest rate risk on our floating-rate notes receivable.receivable and floating-rate debt. Changes in interest rates also impact the fair value of our fixed-rate notes receivable and the fair value of our fixed-rate long-term debt.
We are also subject to risk from changes in debt prices from our investments in debt securities and fluctuations in stock price related tofrom our investment in a publicly traded company. Changes in the price of the underlying stock can impact the fair value of our investment. We account for our investments as available-for-sale securities under the guidance for accounting for certain investments in debt and equity securities. At year-end 2011,2013, our investments had a fair value of $50$41 million.
We use derivative instruments, including cash flow hedges, net investment in non-U.S. operations hedges, and other derivative instruments, as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and currency exchange rates. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes. At year-end 2011, our Balance Sheet included a $2 million asset for currency exchange derivatives and a $9 million liability for an interest rate swap. Please seeSee Footnote No. 1, “Summary of Significant Accounting Policies,” of the Notes to our Financial Statements for additionalmore information associated withon derivative instruments.
The following table sets forth the scheduled maturities and the total fair value as of year-end 20112013 for our financial instruments that are impacted by market risks:
| | | | Maturities by Period | Maturities by Period |
| ($ in millions) | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | There- after | | Total Carrying Amount | | Total Fair Value | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | There- after | | Total Carrying Amount | | Total Fair Value |
Assets-Maturities represent expected principal receipts, fair values represent assets. | Assets-Maturities represent expected principal receipts, fair values represent assets. | Assets-Maturities represent expected principal receipts, fair values represent assets. |
| Fixed-rate notes receivable | $ | 76 |
| | $ | 48 |
| | $ | 34 |
| | $ | 23 |
| | $ | 44 |
| | $ | 57 |
| | $ | 282 |
| | $ | 279 |
| $ | 35 |
| | $ | 82 |
| | $ | 3 |
| | $ | 3 |
| | $ | 5 |
| | $ | 36 |
| | $ | 164 |
| | $ | 163 |
|
| Average interest rate | | | | | | | | | | | | | 3.45 | % | | | | | | | | | | | | | | | 4.27 | % | | |
| Floating-rate notes receivable | $ | 8 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 90 |
| | $ | 100 |
| | $ | 54 |
| $ | 1 |
| | $ | 3 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 9 |
| | $ | 14 |
| | $ | 18 |
|
| Average interest rate | | | | | | | | | | | | | 4.84 | % | | | | | | | | | | | | | | | 0.33 | % | | |
Liabilities-Maturities represent expected principal payments, fair values represent liabilities. | Liabilities-Maturities represent expected principal payments, fair values represent liabilities. | Liabilities-Maturities represent expected principal payments, fair values represent liabilities. |
| Fixed-rate debt | $ | (354 | ) | | $ | (406 | ) | | $ | (7 | ) | | $ | (315 | ) | | $ | (629 | ) | | $ | (396 | ) | | $ | (2,107 | ) | | $ | (1,886 | ) | $ | (6 | ) | | $ | (319 | ) | | $ | (297 | ) | | $ | (300 | ) | | $ | (9 | ) | | $ | (1,384 | ) | | $ | (2,315 | ) | | $ | (2,432 | ) |
| Average interest rate | | | | | | | | | | | | | 6.60 | % | | | | | | | | | | | | | | | 4.56 | % | | |
| Floating-rate debt | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (834 | ) | | $ | — |
| | $ | (834 | ) | | $ | (834 | ) |
| Average interest rate | | | | | | | | | | | | | | 0.43 | % | | |
| |
| Item 8. | Financial Statements and Supplementary Data. |
The following financial information is included on the pages indicated:
|
| |
| | Page |
| Management’s Report on Internal Control Over Financial Reporting | |
| | |
| Report of Independent Registered Public Accounting Firm | |
| | |
| Report of Independent Registered Public Accounting Firm | |
| | |
| Consolidated Statements of Income | |
| |
| Consolidated Statements of Comprehensive Income | |
| | |
| Consolidated Balance Sheets | |
| | |
| Consolidated Statements of Cash Flows | |
| |
Consolidated Statements of Comprehensive Income | |
| | |
| Consolidated Statements of Shareholders’ (Deficit) Equity | |
| | |
| Notes to Consolidated Financial Statements | |
MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Marriott International, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment ofassessing the effectiveness of internal control over financial reporting. The Company’sCompany has designed its internal control over financial reporting is designed to provide reasonable assurance on the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance on prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations in internal control over financial reporting, such controls may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment ofassessed the effectiveness of the Company’s internal control over financial reporting as of December 30, 201131, 2013, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the “COSO criteria”).
Based on this assessment, management has concluded that, applying the COSO criteria, as of December 30, 201131, 2013, the Company’s internal control over financial reporting was effective to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, a copy of which appears on the next page of this annual report.following page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Marriott International, Inc.:
We have audited Marriott International, Inc.’s internal control over financial reporting as of December 30, 201131, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). Marriott International, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Marriott International, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 30, 201131, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Marriott International, Inc. as of December 30, 201131, 2013 and December 31, 201028, 2012, and the related consolidated statements of income, comprehensive income, shareholders’ (deficit) equity, and cash flows for each of the three fiscal years in the period ended December 30, 201131, 2013 of Marriott International, Inc. and our report dated February 16, 201220, 2014 expressed an unqualified opinion thereon.
McLean, Virginia
February 16, 201220, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Marriott International, Inc.:
We have audited the accompanying consolidated balance sheets of Marriott International, Inc. as of December 30, 201131, 2013 and December 31, 201028, 2012, and the related consolidated statements of income, comprehensive income, shareholders’ (deficit) equity and cash flows for each of the three fiscal years in the period ended December 30, 201131, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Marriott International, Inc. at December 30, 201131, 2013 and December 31, 201028, 2012, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 30, 201131, 2013, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for its qualified special purpose entities associated with past securitization transactions as a result of the adoption of Accounting Standards Update No. 2009-16, "Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets" and Accounting Standards Update No. 2009-17, "Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities," effective January 2, 2010.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Marriott International, Inc.’s internal control over financial reporting as of December 30, 201131, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated February 16, 201220, 2014, expressed an unqualified opinion thereon.
McLean, Virginia
February 16, 201220, 2014
MARRIOTT INTERNATIONAL, INC. (“MARRIOTT”)
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years 20112013, 20102012, and 20092011
($ in millions, except per share amounts)
| | | | 2011 | | 2010 | | 2009 | 368 Days Ended December 31, 2013 | | 364 Days Ended December 28, 2012 | | 364 Days Ended December 30, 2011 |
| REVENUES | | | | | | | | | | |
Base management fees (1) | $ | 602 |
| | $ | 562 |
| | $ | 530 |
| $ | 621 |
| | $ | 581 |
| | $ | 602 |
|
Franchise fees (1) | 506 |
| | 441 |
| | 400 |
| 666 |
| | 607 |
| | 506 |
|
Incentive management fees (1) | 195 |
| | 182 |
| | 154 |
| 256 |
| | 232 |
| | 195 |
|
Owned, leased, corporate housing, and other revenue (1) | 1,083 |
| | 1,046 |
| | 1,019 |
| 950 |
| | 989 |
| | 1,083 |
|
| Timeshare sales and services (including net note securitization gains of $37 in 2009) | 1,088 |
| | 1,221 |
| | 1,123 |
| |
| Timeshare sales and services | | — |
| | — |
| | 1,088 |
|
Cost reimbursements (1) | 8,843 |
| | 8,239 |
| | 7,682 |
| 10,291 |
| | 9,405 |
| | 8,843 |
|
| | 12,317 |
| | 11,691 |
| | 10,908 |
| 12,784 |
| | 11,814 |
| | 12,317 |
|
| OPERATING COSTS AND EXPENSES | | | | | | | | | | |
| Owned, leased, and corporate housing-direct | 943 |
| | 955 |
| | 951 |
| 779 |
| | 824 |
| | 943 |
|
| Timeshare-direct | 929 |
| | 1,022 |
| | 1,040 |
| — |
| | — |
| | 929 |
|
| Timeshare strategy-impairment charges | 324 |
| | — |
| | 614 |
| — |
| | — |
| | 324 |
|
Reimbursed costs (1) | 8,843 |
| | 8,239 |
| | 7,682 |
| 10,291 |
| | 9,405 |
| | 8,843 |
|
| Restructuring costs | — |
| | — |
| | 51 |
| |
General, administrative, and other (1) | 752 |
| | 780 |
| | 722 |
| 726 |
| | 645 |
| | 752 |
|
| | 11,791 |
| | 10,996 |
| | 11,060 |
| 11,796 |
| | 10,874 |
| | 11,791 |
|
| OPERATING INCOME (LOSS) | 526 |
| | 695 |
| | (152 | ) | |
(Losses) gains and other income (including gain on debt extinguishment of $21 in 2009) (1) | (7 | ) | | 35 |
| | 31 |
| |
| OPERATING INCOME | | 988 |
| | 940 |
| | 526 |
|
Gains (losses) and other income (1) | | 11 |
| | 42 |
| | (7 | ) |
Interest expense (1) | (164 | ) | | (180 | ) | | (118 | ) | (120 | ) | | (137 | ) | | (164 | ) |
Interest income (1) | 14 |
| | 19 |
| | 25 |
| 23 |
| | 17 |
| | 14 |
|
Equity in losses (1) | (13 | ) | | (18 | ) | | (66 | ) | (5 | ) | | (13 | ) | | (13 | ) |
Timeshare strategy - impairment charges (non-operating) (1) | — |
| | — |
| | (138 | ) | |
| INCOME (LOSS) BEFORE INCOME TAXES | 356 |
| | 551 |
| | (418 | ) | |
| (Provision) benefit for income taxes | (158 | ) | | (93 | ) | | 65 |
| |
| NET INCOME (LOSS) | 198 |
| | 458 |
| | (353 | ) | |
| Add: Net losses attributable to noncontrolling interests, net of tax | — |
| | — |
| | 7 |
| |
| NET INCOME (LOSS) ATTRIBUTABLE TO MARRIOTT | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | |
| INCOME BEFORE INCOME TAXES | | 897 |
| | 849 |
| | 356 |
|
| Provision for income taxes | | (271 | ) | | (278 | ) | | (158 | ) |
| NET INCOME | | $ | 626 |
| | $ | 571 |
| | $ | 198 |
|
| EARNINGS PER SHARE-Basic | | | | | | | | | | |
| Earnings (losses) per share attributable to Marriott shareholders | $ | 0.56 |
| | $ | 1.26 |
| | $ | (0.97 | ) | |
| Earnings per share | | $ | 2.05 |
| | $ | 1.77 |
| | $ | 0.56 |
|
| EARNINGS PER SHARE-Diluted | | | | | | | | | | |
| Earnings (losses) per share attributable to Marriott shareholders | $ | 0.55 |
| | $ | 1.21 |
| | $ | (0.97 | ) | |
| CASH DIVIDENDS DECLARED PER SHARE | $ | 0.3875 |
| | $ | 0.2075 |
| | $ | 0.0866 |
| |
| Earnings per share | | $ | 2.00 |
| | $ | 1.72 |
| | $ | 0.55 |
|
| |
(1) | See Footnote No. 22,18, "Related Party Transactions," to our Consolidated Financial Statements for disclosure of therelated party amounts. |
See Notes to Consolidated Financial Statements
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years 2013, 2012, and 2011
($ in millions)
|
| | | | | | | | | | | |
| | 368 Days Ended December 31, 2013 | | 364 Days Ended December 28, 2012 | | 364 Days Ended December 30, 2011 |
| Net income | $ | 626 |
| | $ | 571 |
| | $ | 198 |
|
| Other comprehensive income (loss): | | | | | |
| Foreign currency translation adjustments | 1 |
| | 4 |
| | (31 | ) |
| Other derivative instrument adjustments, net of tax | — |
| | (2 | ) | | (20 | ) |
| Unrealized gains (losses) on available-for-sale securities, net of tax | 5 |
| | — |
| | (3 | ) |
| Reclassification of (gains) losses, net of tax | (6 | ) | | 2 |
| | 8 |
|
| Total other comprehensive income (loss), net of tax | — |
| | 4 |
| | (46 | ) |
| Comprehensive income | $ | 626 |
| | $ | 575 |
| | $ | 152 |
|
See Notes to Consolidated Financial Statements
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
Fiscal Year-End 2013 and 2012
($ in millions)
|
| | | | | | | |
| | December 31,
2013 | | December 28,
2012 |
| ASSETS | | | |
| Current assets | | | |
| Cash and equivalents | $ | 126 |
| | $ | 88 |
|
Accounts and notes receivable, net (1) | 1,081 |
| | 1,028 |
|
| Current deferred taxes, net | 252 |
| | 280 |
|
| Prepaid expenses | 67 |
| | 57 |
|
| Other | 27 |
| | 22 |
|
| Assets held for sale | 350 |
| | — |
|
| | 1,903 |
| | 1,475 |
|
| Property and equipment | 1,543 |
| | 1,539 |
|
| Intangible assets | | | |
| Goodwill | 874 |
| | 874 |
|
Contract acquisition costs and other (1) | 1,131 |
| | 1,115 |
|
| | 2,005 |
| | 1,989 |
|
Equity and cost method investments (1) | 222 |
| | 216 |
|
Notes receivable, net (1) | 142 |
| | 180 |
|
Deferred taxes, net (1) | 647 |
| | 676 |
|
Other (1) | 332 |
| | 267 |
|
| | $ | 6,794 |
| | $ | 6,342 |
|
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | | | |
| Current liabilities | | | |
| Current portion of long-term debt | $ | 6 |
| | $ | 407 |
|
Accounts payable (1) | 557 |
| | 569 |
|
| Accrued payroll and benefits | 817 |
| | 745 |
|
| Liability for guest loyalty programs | 666 |
| | 593 |
|
Other (1) | 629 |
| | 459 |
|
| | 2,675 |
| | 2,773 |
|
| Long-term debt | 3,147 |
| | 2,528 |
|
| Liability for guest loyalty programs | 1,475 |
| | 1,428 |
|
Other long-term liabilities (1) | 912 |
| | 898 |
|
| Shareholders’ deficit | | | |
| Class A Common Stock | 5 |
| | 5 |
|
| Additional paid-in-capital | 2,716 |
| | 2,585 |
|
| Retained earnings | 3,837 |
| | 3,509 |
|
| Treasury stock, at cost | (7,929 | ) | | (7,340 | ) |
| Accumulated other comprehensive loss | (44 | ) | | (44 | ) |
| | (1,415 | ) | | (1,285 | ) |
| | $ | 6,794 |
| | $ | 6,342 |
|
| |
(1) | See Footnote No. 18, "Related Party Transactions," to our Consolidated Financial Statements for disclosure of related party amounts. |
See Notes to Consolidated Financial Statements
MARRIOTT INTERNATIONAL, INC. (“MARRIOTT”)
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF CASH FLOWS
Fiscal Year-EndYears 20112013, 2012, and 20102011
($ in millions)
|
| | | | | | | |
| | 2011 | | 2010 |
| ASSETS | | | |
| Current assets | | | |
| Cash and equivalents | $ | 102 |
| | $ | 505 |
|
Accounts and notes receivable (1) (including from VIEs of $0 and $125, respectively) | 875 |
| | 938 |
|
| Inventory | 11 |
| | 1,489 |
|
| Current deferred taxes, net | 282 |
| | 246 |
|
| Prepaid expenses | 54 |
| | 81 |
|
| Other (including from VIEs of $0 and $31, respectively) | — |
| | 123 |
|
| | 1,324 |
| | 3,382 |
|
| Property and equipment | 1,168 |
| | 1,307 |
|
| Intangible assets | | | |
| Goodwill | 875 |
| | 875 |
|
Contract acquisition costs and other (1) | 846 |
| | 768 |
|
| | 1,721 |
| | 1,643 |
|
Equity and cost method investments (1) | 265 |
| | 250 |
|
Notes receivable (1) (including from VIEs of $0 and $910, respectively) | 298 |
| | 1,264 |
|
Deferred taxes, net (1) | 873 |
| | 932 |
|
Other (including from VIEs of $0 and $14, respectively) (1) | 261 |
| | 205 |
|
| | $ | 5,910 |
| | $ | 8,983 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Current liabilities | | | |
| Current portion of long-term debt (including from VIEs of $0 and $126, respectively) | $ | 355 |
| | $ | 138 |
|
Accounts payable (1) | 548 |
| | 634 |
|
| Accrued payroll and benefits | 650 |
| | 692 |
|
| Liability for guest loyalty program | 514 |
| | 486 |
|
Other (1) (including from VIEs of $0 and $3, respectively) | 491 |
| | 551 |
|
| | 2,558 |
| | 2,501 |
|
| Long-term debt (including from VIEs of $0 and $890, respectively) | 1,816 |
| | 2,691 |
|
| Liability for guest loyalty program | 1,434 |
| | 1,313 |
|
Other long-term liabilities (1) | 883 |
| | 893 |
|
| Marriott shareholders’ equity | | | |
| Class A Common Stock | 5 |
| | 5 |
|
| Additional paid-in-capital | 2,513 |
| | 3,644 |
|
| Retained earnings | 3,212 |
| | 3,286 |
|
| Treasury stock, at cost | (6,463 | ) | | (5,348 | ) |
| Accumulated other comprehensive loss | (48 | ) | | (2 | ) |
| | (781 | ) | | 1,585 |
|
| | $ | 5,910 |
| | $ | 8,983 |
|
The abbreviation VIEs above means Variable Interest Entities. | |
(1)
| | | | | | | | | | | | | | | 368 Days Ended December 31, 2013 | | 364 Days Ended December 28, 2012 | | 364 Days Ended December 30, 2011 | | OPERATING ACTIVITIES | | | | | | | Net income | $ | 626 |
| | $ | 571 |
| | $ | 198 |
| | Adjustments to reconcile to cash provided by operating activities: | | | | | | | Depreciation and amortization | 127 |
| | 102 |
| | 144 |
| | Income taxes | 73 |
| | 224 |
| | 113 |
| | Timeshare activity, net | — |
| | — |
| | 175 |
| | Timeshare strategy-impairment charges | — |
| | — |
| | 324 |
| | Liability for guest loyalty program | 99 |
| | 60 |
| | 78 |
| | Restructuring costs, net | — |
| | — |
| | (5 | ) | | Working capital changes and other | 215 |
| | 32 |
| | 62 |
| | Net cash provided by operating activities | 1,140 |
| | 989 |
| | 1,089 |
| | INVESTING ACTIVITIES | | | | | | | Capital expenditures | (404 | ) | | (437 | ) | | (183 | ) | | Dispositions | — |
| | 65 |
| | 20 |
| | Loan advances | (7 | ) | | (17 | ) | | (26 | ) | | Loan collections | 77 |
| | 155 |
| | 110 |
| | Equity and cost method investments | (16 | ) | | (15 | ) | | (83 | ) | | Contract acquisition costs | (61 | ) | | (253 | ) | | (74 | ) | | Investment in debt security | (65 | ) | | — |
| | — |
| | Other | (43 | ) | | (83 | ) | | (11 | ) | | Net cash used in investing activities | (519 | ) | | (585 | ) | | (247 | ) | | FINANCING ACTIVITIES | | | | | | | Commercial paper/Credit Facility, net | 311 |
| | 184 |
| | 325 |
| | Issuance of long-term debt | 345 |
| | 936 |
| | 118 |
| | Repayment of long-term debt | (407 | ) | | (370 | ) | | (264 | ) | | Issuance of Class A Common Stock | 199 |
| | 179 |
| | 124 |
| | Dividends paid | (196 | ) | | (191 | ) | | (134 | ) | | Purchase of treasury stock | (834 | ) | | (1,145 | ) | | (1,425 | ) | | Other | (1 | ) | | (11 | ) | | 11 |
| | Net cash used in financing activities | (583 | ) | | (418 | ) | | (1,245 | ) | | INCREASE (DECREASE) IN CASH AND EQUIVALENTS | 38 |
| | (14 | ) | | (403 | ) | | CASH AND EQUIVALENTS, beginning of period | 88 |
| | 102 |
| | 505 |
| | CASH AND EQUIVALENTS, end of period | $ | 126 |
| | $ | 88 |
| | $ | 102 |
|
| See Footnote No. 22, "Related Party Transactions," of the Notes to Consolidated Financial Statements for disclosure of related party amounts. |
See Notes to Consolidated Financial Statements
MARRIOTT INTERNATIONAL, INC. (“MARRIOTT”)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years 2011, 2010, and 2009
($ in millions)
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| OPERATING ACTIVITIES | | | | | |
| Net income (loss) | $ | 198 |
| | $ | 458 |
| | $ | (353 | ) |
| Adjustments to reconcile to cash provided by operating activities: | | | | |
|
| Depreciation and amortization | 168 |
| | 178 |
| | 185 |
|
| Income taxes | 113 |
| | (27 | ) | | (167 | ) |
| Timeshare activity, net | 175 |
| | 216 |
| | 146 |
|
| Timeshare strategy-impairment charges | 324 |
| | — |
| | 752 |
|
| Liability for guest loyalty program | 78 |
| | 86 |
| | 103 |
|
| Restructuring costs, net | (5 | ) | | (11 | ) | | 16 |
|
| Asset impairments and write-offs | 47 |
| | 131 |
| | 80 |
|
| Working capital changes and other | (9 | ) | | 120 |
| | 106 |
|
| Net cash provided by operating activities | 1,089 |
| | 1,151 |
| | 868 |
|
| INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (183 | ) | | (307 | ) | | (147 | ) |
| Dispositions | 20 |
| | 114 |
| | 2 |
|
| Loan advances | (26 | ) | | (24 | ) | | (65 | ) |
| Loan collections and sales | 110 |
| | 18 |
| | 20 |
|
| Equity and cost method investments | (83 | ) | | (29 | ) | | (28 | ) |
| Contract acquisition costs | (74 | ) | | (56 | ) | | (39 | ) |
| Sale of available-for-sale securities | — |
| | — |
| | 16 |
|
| Partial surrender of life insurance policy cash value | — |
| | — |
| | 97 |
|
| Other | (11 | ) | | 20 |
| | 75 |
|
| Net cash used in investing activities | (247 | ) | | (264 | ) | | (69 | ) |
| FINANCING ACTIVITIES | | | | | |
| Commercial paper/credit facility, net | 325 |
| | (425 | ) | | (544 | ) |
| Issuance of long-term debt | 118 |
| | 215 |
| | — |
|
| Repayment of long-term debt | (264 | ) | | (385 | ) | | (238 | ) |
| Issuance of Class A Common Stock | 124 |
| | 198 |
| | 27 |
|
| Dividends paid | (134 | ) | | (43 | ) | | (63 | ) |
| Purchase of treasury stock | (1,425 | ) | | (57 | ) | | — |
|
| Other | 11 |
| | — |
| | — |
|
| Net cash used in financing activities | (1,245 | ) | | (497 | ) | | (818 | ) |
| (DECREASE) INCREASE IN CASH AND EQUIVALENTS | (403 | ) | | 390 |
| | (19 | ) |
| CASH AND EQUIVALENTS, beginning of period | 505 |
| | 115 |
| | 134 |
|
| CASH AND EQUIVALENTS, end of period | $ | 102 |
| | $ | 505 |
| | $ | 115 |
|
See Notes to Consolidated Financial Statements
MARRIOTT INTERNATIONAL, INC. (“MARRIOTT”)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years 2011, 2010, and 2009
($ in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Attributable to Marriott | | Attributable to Noncontrolling Interests | | Consolidated |
| | 2011 | | 2010 | | 2009 | | 2011 | | 2010 | | 2009 | | 2011 | | 2010 | | 2009 |
| Net income (loss) | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | | $ | — |
| | $ | — |
| | $ | (7 | ) | | $ | 198 |
| | $ | 458 |
| | $ | (353 | ) |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | |
| Currency translation adjustments | (31 | ) | | (17 | ) | | 24 |
| | — |
| | — |
| | — |
| | (31 | ) | | (17 | ) | | 24 |
|
| Other derivative instrument adjustments | (20 | ) | | — |
| | (6 | ) | | — |
| | — |
| | — |
| | (20 | ) | | — |
| | (6 | ) |
| Unrealized gains (losses) on available-for-sale securities | (3 | ) | | — |
| | 6 |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| | 6 |
|
| Reclassification of losses | 8 |
| | 2 |
| | 4 |
| | — |
| | — |
| | — |
| | 8 |
| | 2 |
| | 4 |
|
| Total other comprehensive (loss) income, net of tax | (46 | ) | | (15 | ) | | 28 |
| | — |
| | — |
| | — |
| | (46 | ) | | (15 | ) | | 28 |
|
| Comprehensive income (loss) | $ | 152 |
| | $ | 443 |
| | $ | (318 | ) | | $ | — |
| | $ | — |
| | $ | (7 | ) | | $ | 152 |
| | $ | 443 |
| | $ | (325 | ) |
See Notes to Consolidated Financial Statements
MARRIOTT INTERNATIONAL, INC. (“MARRIOTT”)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
Fiscal Years 20112013, 20102012, and 20092011
(in millions)
| | | | | | | | | Equity Attributable to Marriott Shareholders | | | | | | | | |
Common Shares Outstanding | Common Shares Outstanding | | | Total | | Class A Common Stock | | Additional Paid-in- Capital | | Retained Earnings | | Treasury Stock, at Cost | | Accumulated Other Comprehensive Income (Loss) | | Equity Attributable to Noncontrolling Interests | Common Shares Outstanding | | | Total | | Class A Common Stock | | Additional Paid-in- Capital | | Retained Earnings | | Treasury Stock, at Cost | | Accumulated Other Comprehensive Income (Loss) |
| 353.4 |
| | Balance at year-end 2008 | $ | 1,391 |
| | $ | 5 |
| | $ | 3,590 |
| | $ | 3,565 |
| | $ | (5,765 | ) | | $ | (15 | ) | | $ | 11 |
| |
| — |
| | Net loss | (353 | ) | | — |
| | — |
| | (346 | ) | | — |
| | — |
| | (7 | ) | |
| — |
| | Other comprehensive income | 28 |
| | — |
| | — |
| | — |
| | — |
| | 28 |
| | — |
| |
| — |
| | Dividends | (33 | ) | | — |
| | — |
| | (125 | ) | | 92 |
| | — |
| | — |
| |
| 4.8 |
| | Employee stock plan issuance | 113 |
| | — |
| | (5 | ) | | 9 |
| | 109 |
| | — |
| | — |
| |
| — |
| | Other | (4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | |
| — |
| | Purchase of treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| 358.2 |
| | Balance at year-end 2009 | 1,142 |
| | 5 |
| | 3,585 |
| | 3,103 |
| | (5,564 | ) | | 13 |
| | — |
| |
| — |
| | Impact of adoption of ASU 2009-16 and ASU 2009-17 (1) | (146 | ) | | — |
| | — |
| | (146 | ) | | — |
| | — |
| | — |
| |
| 358.2 |
| | Opening balance 2010 | 996 |
| | 5 |
| | 3,585 |
| | 2,957 |
| | (5,564 | ) | | 13 |
| | — |
| |
| — |
| | Net income | 458 |
| | — |
| | — |
| | 458 |
| | — |
| | — |
| | — |
| |
| — |
| | Other comprehensive loss | (15 | ) | | — |
| | — |
| | — |
| | — |
| | (15 | ) | | — |
| |
| — |
| | Dividends | (76 | ) | | — |
| | — |
| | (76 | ) | | — |
| | — |
| | — |
| |
| 10.2 |
| | Employee stock plan issuance | 279 |
| | — |
| | 59 |
| | (53 | ) | | 273 |
| | — |
| | — |
| |
| (1.5 | ) | | Purchase of treasury stock | (57 | ) | | — |
| | — |
| | — |
| | (57 | ) | | — |
| | — |
| |
| 366.9 |
| | Balance at year-end 2010 | 1,585 |
| | 5 |
| | 3,644 |
| | 3,286 |
| | (5,348 | ) | | (2 | ) | | — |
|
| | Balance at December 31, 2010 | $ | 1,585 |
| | $ | 5 |
| | $ | 3,644 |
| | $ | 3,286 |
| | $ | (5,348 | ) | | $ | (2 | ) |
| — |
| | Net income | 198 |
| | — |
| | — |
| | 198 |
| | — |
| | — |
| | — |
|
| | Net income | 198 |
| | — |
| | — |
| | 198 |
| | — |
| | — |
|
| — |
| | Other comprehensive loss | (24 | ) | | — |
| | — |
| | — |
| | — |
| | (24 | ) | | — |
|
| | Other comprehensive loss | (24 | ) | | — |
| | — |
| | — |
| | — |
| | (24 | ) |
| — |
| | Dividends | (135 | ) | | — |
| | — |
| | (135 | ) | | — |
| | — |
| | — |
|
| | Dividends | (135 | ) | | — |
| | — |
| | (135 | ) | | — |
| | — |
|
| 9.5 |
| | Employee stock plan issuance | 182 |
| | — |
| | 9 |
| | (137 | ) | | 310 |
| | — |
| | — |
|
| | Employee stock plan issuance | 182 |
| | — |
| | 9 |
| | (137 | ) | | 310 |
| | — |
|
| (43.4 | ) | | Purchase of Treasury stock | (1,425 | ) | | — |
| | — |
| | — |
| | (1,425 | ) | | — |
| | — |
| ) | | Purchase of treasury stock | (1,425 | ) | | — |
| | — |
| | — |
| | (1,425 | ) | | — |
|
| — |
| | Spin-off of Marriott Vacations Worldwide Corporation | (1,162 | ) | | — |
| | (1,140 | ) | | — |
| | — |
| | (22 | ) | | — |
|
| | Spin-off of MVW (1) | (1,162 | ) | | — |
| | (1,140 | ) | | — |
| | — |
| | (22 | ) |
| 333.0 |
| | Balance at year-end 2011 | $ | (781 | ) | | $ | 5 |
| | $ | 2,513 |
| | $ | 3,212 |
| | $ | (6,463 | ) | | $ | (48 | ) | | $ | — |
|
| | Balance at December 30, 2011 | (781 | ) | | 5 |
| | 2,513 |
| | 3,212 |
| | (6,463 | ) | | (48 | ) |
| — | |
| | Net income | 571 |
| | — |
| | — |
| | 571 |
| | — |
| | — |
|
| — | |
| | Other comprehensive income | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
|
| — | |
| | Dividends | (158 | ) | | — |
| | — |
| | (158 | ) | | — |
| | — |
|
| 9.1 | |
| | Employee stock plan issuance | 236 |
| | — |
| | 69 |
| | (116 | ) | | 283 |
| | — |
|
| (31.2 | | ) | | Purchase of treasury stock | (1,160 | ) | | — |
| | — |
| | — |
| | (1,160 | ) | | — |
|
| — | |
| | Spin-off of MVW adjustment (1) | 3 |
| | — |
| | 3 |
| | — |
| | — |
| | — |
|
| 310.9 | |
| | Balance at December 28, 2012 | (1,285 | ) | | 5 |
| | 2,585 |
| | 3,509 |
| | (7,340 | ) | | (44 | ) |
| — | |
| | Net income | 626 |
| | — |
| | — |
| | 626 |
| | — |
| | — |
|
| — | |
| | Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| — | |
| | Dividends | (195 | ) | | — |
| | — |
| | (195 | ) | | — |
| | — |
|
| 7.1 | |
| | Employee stock plan issuance | 269 |
| | — |
| | 131 |
| | (103 | ) | | 241 |
| | — |
|
| (20.0 | | ) | | Purchase of treasury stock | (830 | ) | | — |
| | — |
| | — |
| | (830 | ) | | — |
|
| 298.0 | |
| | Balance at December 31, 2013 | $ | (1,415 | ) | | $ | 5 |
| | $ | 2,716 |
| | $ | 3,837 |
| | $ | (7,929 | ) | | $ | (44 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
(1) | The abbreviation ASU means Accounting Standards Update. |
(1) The abbreviation MVW means Marriott Vacations Worldwide Corporation.
See Notes to Consolidated Financial Statements
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The consolidated financial statements present the results of operations, financial position, and cash flows of Marriott International, Inc. (“Marriott,” and together with its subsidiaries “we,” “us,” or the “Company”). In order to make this report easier to read, we refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” (iv) our properties, brands, or markets in the United States and Canada as “North America” or “North American,” and (v) our properties, brands, or markets outside of the United States and Canada as “international,“international.” and (vi) Accounting Standards Update No. 2009-16, “Transfers and Servicing (Topic 860): Accounting for Transfers ofIn addition, references throughout to numbered "Footnotes" refer to the numbered Notes in these Notes to Consolidated Financial Assets” (“ASU No. 2009-16”) and Accounting Standards Update No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU No. 2009-17”) both of which we adopted on the first day of 2010 as the “new Transfers of Financial Assets and Consolidation standards.”Statements, unless otherwise noted.
On November 21, 2011 ("the spin-off date"), the Companywe completed a spin-off of itsour timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock (the "spin-off") of our wholly owned subsidiary Marriott Vacations Worldwide Corporation ("MVW"). On the spin-off date, Marriott shareholdersBecause of record as of the close of business on November 10, 2011 received one share of MVW common stock for every ten shares of Marriott common stock. As of the spin-off date, Marriott does not beneficially own any shares of MVW common stock and does not consolidate MVW's financial results for periods after the spin-off date as part of its financial reporting. However, because of Marriott'sour significant continuing involvement in MVW future operations after the spin-off (by virtue of license and other agreements between Marriottus and MVW), we continue to include the historical financial results before the spin-off date of our former Timeshare segment's historical financial results prior to the spin-off date will continue to be includedsegment in Marriott'sour historical financial results as a component of continuing operations. See Footnote No. 17,15, "Spin-off," for additionalmore information on the spin-off.
In accordance with the guidance for noncontrolling interests in consolidated financial statements, references in this report to our earnings per share, net income, and shareholders’ equity attributable to Marriott do not include noncontrolling interests (previously known as minority interests), which we report separately.
Preparation of financial statements in conformitythat conform with U.S. generally accepted accounting principles ("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. Accordingly, ultimate results could differ from those estimates.
In our opinion, theThe accompanying consolidated financial statementsFinancial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position at fiscal year-end 20112013 and fiscal year-end 20102012 and the results of our operations and cash flows for fiscal years 20112013, 20102012, and 20092011. We have eliminated all material intercompany transactions and balances between entities consolidated in these financial statements.Financial Statements. We have also reclassified certaindepreciation that third party owners reimburse to us which is included in the "Reimbursed costs" caption of our Income Statements, from the "Depreciation and amortization" caption to the "Working capital changes and other" caption of the Cash Flow Statement for all prior year amountsyears presented to conform to our 20112013 presentation. See Footnote No. 16, “Business Segments,” for additional information on the reclassification of segment revenues, segment financial results, and segment assets to reflect movement of data associated with properties in Hawaii to our North American segments from our International segment.
Adoption of New Accounting Standards Resulting in Consolidation of Special Purpose EntitiesFiscal Year
On January 2, 2010, the first day of the 2010Beginning with our 2013 fiscal year, we adoptedchanged our financial reporting cycle to a calendar year-end reporting cycle and an end-of-month quarterly reporting cycle. Accordingly, our 2013 fiscal year began on December 29, 2012 (the day after the new Transfersend of Financial Assetsthe 2012 fiscal year) and Consolidation standards (which were originally known as Financial Accounting Standards Nos. 166ended on December 31, 2013. Historically, our fiscal year was a 52-53 week fiscal year that ended on the Friday nearest to December 31. As a result, our 2013 fiscal year had 4 more days than the 2012 and 167).2011 fiscal years. We have not restated and do not plan to restate historical results.
Prior to the spin-off date, our former Timeshare segment used certain special purpose entities to securitize Timeshare segment notes receivables, which prior to our adoption of these new standards we treated as off-balance sheet entities. Our former Timeshare segment retained the servicing rights and varying subordinated interests in the securitized notes. Pursuant to GAAP in effect prior to the 2010The table below shows each completed fiscal year we did not consolidate these special purpose entitiesrefer to in our financial statements becausethis report, the securitization transactions qualified as salesdate the fiscal year ended, and the number of financial assets.days in that fiscal year:
|
| | | | | | | | | | |
| Fiscal Year | | Fiscal Year-End Date | | Number of Days | | Fiscal Year | | Fiscal Year-End Date | | Number of Days |
| 2013 | | December 31, 2013 | | 368 | | 2008 | | January 2, 2009 | | 371 |
| 2012 | | December 28, 2012 | | 364 | | 2007 | | December 28, 2007 | | 364 |
| 2011 | | December 30, 2011 | | 364 | | 2006 | | December 29, 2006 | | 364 |
| 2010 | | December 31, 2010 | | 364 | | 2005 | | December 30, 2005 | | 364 |
| 2009 | | January 1, 2010 | | 364 | | 2004 | | December 31, 2004 | | 364 |
As a result of adoptingBeginning in 2014, our fiscal years will be the new Transfers of Financial Assetssame as the corresponding calendar year (each beginning on January 1 and Consolidation standardsending on the first day of 2010, we consolidated December 31, and containing 365 or 366 days).13 existing qualifying special purpose entities associated with past securitization transactions. We recorded a one-time non-cash pretax reduction to shareholders’ equity of $238 million in 2010, representing the cumulative effect of a change
in accounting principle. Including the related $92 million decrease in deferred tax liabilities, the after-tax reduction to shareholders’ equity totaled $146 million.
We recorded the cumulative effect of the adoption of these standards to our financial statements in 2010. This consisted primarily of reestablishing the notes receivable (net of reserves) that we had transferred to special purpose entities as a result of the securitization transactions, eliminating residual interests that we initially recorded in connection with those transactions (and subsequently revalued on a periodic basis), the impact of recording debt obligations associated with third-party interests held in the special purpose entities, and related adjustments to inventory balances accounted for using the relative sales value method. We adjusted the inventory balance to include anticipated future revenue from the resale of inventory that we expected to acquire when we foreclosed on defaulted notes.
Adopting these topics had the following impacts on our Balance Sheet at January 2, 2010: (1) assets increased by $970 million, primarily representing the consolidation of notes receivable (and corresponding reserves) partially offset by the elimination of our retained interests; (2) liabilities increased by $1,116 million, primarily representing the consolidation of debt obligations associated with third party interests; and (3) shareholders’ equity decreased by approximately $146 million. Adopting these topics also impacted our 2010 Income Statement by increasing interest income (reflected in Timeshare sales and services revenue) from securitized notes and increasing interest expense from consolidation of debt obligations, partially offset by the absence of accretion income on residual interests that were eliminated. Our adoption of these topics on January 2, 2010 did not have a significant impact on our Consolidated Statement of Cash Flow because the resulting increase in assets and liabilities was primarily non-cash.
Please also see the 2010 parenthetical disclosures on our Balance Sheet that show the amounts of consolidated assets and liabilities associated with variable interest entities (including those associated with our former Timeshare segment securitizations) that we consolidated.
Fiscal Year
Our fiscal year ends on the Friday nearest to December 31. The fiscal years in the following table encompass a 52-week period, except for 2002 and 2008, which both encompass a 53-week period. Unless otherwise specified, each reference to a particular year in this Form 10-K means the fiscal year ended on the date shown in the following table, rather than the corresponding calendar year:
|
| | | | | | |
| Fiscal Year | | Fiscal Year-End Date | | Fiscal Year | | Fiscal Year-End Date |
| 2011 | | December 30, 2011 | | 2006 | | December 29, 2006 |
| 2010 | | December 31, 2010 | | 2005 | | December 30, 2005 |
| 2009 | | January 1, 2010 | | 2004 | | December 31, 2004 |
| 2008 | | January 2, 2009 | | 2003 | | January 2, 2004 |
| 2007 | | December 28, 2007 | | 2002 | | January 3, 2003 |
Revenue Recognition
Our revenues include: (1) base management and incentive management fees; (2) franchise fees (including licensing fees from MVW after the spin-off of $61 million for 2013, $61 million for 2012 and $4 million for 2011); (3) revenues from lodging properties ownedwe own or leased by us;lease; and (4) cost reimbursements. Management fees compriseare typically composed of a base fee, which is a percentage of the revenues of hotels, and an incentive fee, which is generally based on hotel profitability. Franchise fees compriseare typically composed of initial application fees and continuing royalties generated from our franchise programs, which permit the hotel owners and operators to use certain of our brand names. Cost reimbursements include direct and indirect costs that are reimbursed to us by properties that we manage, franchise, or franchise. For periods prior to the spin-off date, our revenues also include timeshare sales and services revenue (which also includes resort rental revenue, interest income associated with “Loans to timeshare owners,” Timeshare segment note securitization gains, and revenue from the points-based use system) and cost reimbursements revenue associated with our former Timeshare segment.license.
Base Management and Incentive Management Fees: We recognize base management fees as revenue when earned in accordance withwe earn them under the contract.contracts. In interim periods and at year-end, we recognize incentive management fees that would be due as if the contractcontracts were to terminate at that date, exclusive of any termination fees payable or receivable by us.
Franchise Fee and License Fee Revenue: We recognize franchise fees and license fees as revenue in each accounting period as we earn those fees are earned from the franchisee or licensee.licensee under the contracts.
Owned and Leased Units: We recognize room sales and revenues from other guest services for our owned and leased
units when rooms are occupied and serviceswhen we have been rendered.rendered the services.
Cost Reimbursements: We recognize cost reimbursements from managed, franchised, and timesharelicensed properties (for periods prior to the spin-off date) when we incur the related reimbursable costs. These costs primarily consist of payroll and related expenses at managed properties where we are the employer and also include certain operational and administrative costs as provided for in our contracts with the owners. As these costs have no added markup, the revenue and related expense have no impact on either our operating or net income.
Other Revenue: Includes other third-party licensing fees, branding fees for third partythird-party residential sales and credit card licensing, land rental income, and other revenue.
Timeshare Revenue Recognition Before the 2011 Spin-off: For periods before the spin-off, our revenues also included revenue from our former Timeshare segment including cost reimbursements revenue and timeshare sales and services revenue, the latter of which included the following types of revenue:
Timeshare and Fractional Intervals and Condominiums: Prior toBefore the spin-off, date, we recognized sales when: (1) we had received a minimum of ten10 percent of the purchase price; (2) the purchaser’s period to cancel for a refund had expired; (3) we deemed the receivables to be collectible; and (4) we had attained certain minimum sales and construction levels. We deferred all revenue using the deposit method for sales that did not meet all four of these criteria. For sales that did not qualify for full revenue recognition as the project had progressed beyond the preliminary stages but had not yet reached completion, we deferred all revenue and profit were deferred andwhich we then recognized in earnings using the percentage of completion method. Timeshare segment deferred revenue at year-end 2010 was $56 million. The 2011 balance was transferred to MVW at the time of spin-off. See Footnote No. 17, "Spin-off" for additional information.
Timeshare Points-Based Use System Revenue: Prior toBefore the spin-off, date, aswe recognized sales under thisour points-based use system were considered to be the sale of real estate, we recognized these sales when the criteria noted in the “Timeshare and Fractional Intervals and Condominiums” caption were met.met, as we considered these sales to be sales of real estate.
Timeshare Residential (Stand-Alone Structures): Prior toBefore the spin-off, date, we recognized sales under the full accrual method of accounting when we received our proceeds and transferred title at settlement.
Timeshare Interest Income: Before the spin-off, we reflected interest income from “Loans to timeshare owners” in our 2011 Income Statement in the "Timeshare sales and services" revenue caption of $143 million, consisting of $116 million from securitized loans and $27 million from non-securitized loans.
Ground Leases
We are both the lessor and lessee of land under long-term operating leases whichthat include scheduled increases in minimum rents. We recognize these scheduled rent increases on a straight-line basis over the initial lease term.
Real Estate Sales
We reduce gains on sales of real estate by the maximum exposure to loss if we have continuing involvement with the property and do not transfer substantially all of the risks and rewards of ownership. In sales transactions where we retain a
management contract, the terms and conditions of the management contract are generally comparable to the terms and conditions of the management contracts obtained directly with third-party owners in competitive bid processes.
Profit Sharing Plan
We contribute to a profit sharing plan for the benefit of employees meeting certain eligibility requirements and electing participationwho elect to participate in the plan. Contributions are determined based on a specifiedParticipating employees specify the percentage of salary deferrals by participating employees.deferred. We recognized compensation costs from profit sharing of $75 million in 2013, $69 million in 2012, and $91 million in 2011, $86 million in 2010, and $94 million in 2009.2011.
Self-Insurance Programs
We are self-insuredself-insure for certain levels of property, liability, workers’ compensation and employee medical coverage. We accrue estimated costs of these self-insurance programs at the present value of projected settlements for known and incurred but not reported claims. We use a discount rate of 2.0 percent to determine the present value of the projected settlements, which we consider to be reasonable given our history of settled claims, including payment patterns and the fixed nature of the individual settlements.
We are subject to a variety of assessments related tofor our insurance activities, including those by state guaranty funds and workers’ compensation second-injury funds. OurWe record our liabilities recorded for these assessments are reflected within the amounts shown in our Balance Sheets onwithin the other current liabilities line,line. These liabilities, which are not discounted, and totaled $45 million at year-end 20112013 and $5 million at year-end 20102012. TheWe expect to pay the $45 million liability for assessments as of year-end 20112013 is expected to be paid by the end of 20122014.
Our Rewards Programs
Marriott Rewards and The Ritz-Carlton Rewards are our frequent guest loyalty programs. Program members earn points based on their monetary spendingthe money they spend at our lodging operations, purchases of timeshare interval, fractional ownership, and residential products (through MVW for periods after the spin-off date) and, to a lesser degree, through participation in affiliated
partners’ programs, such as those offered by car rental, and credit card companies. Points,Members can redeem points, which we track on members’their behalf, can be redeemed for stays at most of our lodging operations, airline tickets, airline frequent flyer program miles, rental cars, and a variety of other awards; however, pointsawards. Points cannot be redeemed for cash. We provide Marriott Rewards and The Ritz-Carlton Rewards as marketing programs to participating properties, with the objective of operating the programs on a break-even basis to us. As members earn points at properties and other program partners, weWe sell the points for amounts that we expect will, in the aggregate, equal the costs of point redemptions and program operating costs over time.
We defer revenue received from managed, franchised, and Marriott-owned/leased hotels and program partners equal toestimate the fair value of our future redemption obligation. We determine the fair value of the future redemption obligation based onusing statistical formulas that project timing of future point redemption based on historical levels, including an estimate of the “breakage” for points that members will never be redeemed,redeem, and an estimate of the points that members will eventually be redeemed.redeem. These judgment factors determine theour rewards programs' required liability for outstanding points. Our rewards programs’That liability totaled $1,9482,141 million at year-end 2013 and $1,7992,021 million at year-end 20112012 and 2010, respectively.. A ten percent reduction in the estimate of “breakage” would have resulted in anincreased the estimated $101 million increase in theyear-end 2013 liability at year-end by2011$139 million.
We defer revenue we receive from managed, franchised, and Marriott-owned/leased hotels and program partners. Our management and franchise agreements require that we be reimbursedproperties reimburse us currently for the costs of operating the program,rewards programs, including marketing, promotion, communication with, and performing member services for rewards program members. Due to the requirement that properties reimburse us for program operating costs as incurred, we recognize the related cost reimbursements revenues from properties in connection withfor our rewards programs at the timewhen we incur and expense such costs are incurred and expensed.costs. We recognize the component of revenue from program partners that corresponds to program maintenance services over the expected life of the points awarded. Upon the redemption ofWhen points are redeemed we recognize the amounts we previously deferred as revenue the amounts previously deferred and recognize the corresponding expense relating to the costs of the awards redeemed.
Guarantees
We measure and record aour liability for the fair value of a guarantee on the datea nonrecurring basis, that is when we issue or modify a guarantee, using Level 3 internally developed inputs, as described below in this footnote under the heading "Fair Value Measurements." We generally base our calculation of the estimated fair value of a guarantee on the income approach or the market approach, depending on the type of guarantee. For the income approach, we use internally developed discounted cash flow and Monte Carlo simulation models that include the following assumptions, among others: projections of revenues and expenses and related cash flows based on assumed growth rates and demand trends; historical volatility of projected performance; the guaranteed obligations; and applicable discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. For the market approach, we use internal analyses based primarily on market comparable data and our assumptions about market capitalization rates, credit spreads, growth rates, and inflation.
The offsetting entry for the guarantee liability depends on the circumstances in which the guarantee was issued. Funding under the guarantee reduces the recorded liability. When noIn most cases, when we do not forecast any funding, is forecasted,we amortize the liability is amortized into income on a straight-line basis over the remaining term of the guarantee. On a quarterly basis, we evaluate all material estimated liabilities based on the operating results and the terms of the guarantee. If we conclude that it is probable that we will be required to fund a greater amount than previously estimated, we will record a loss unless the advance would be recoverable in the form of a loan.
Rebates and Allowances
We participate in various vendor rebate and allowance arrangements as a manager of hotel properties. There are threeThree types of programs that are common in the hotel industry that are sometimes referred to as “rebates” or “allowances,” including unrestricted rebates, marketing (restricted) rebates, and sponsorships. TheThese arrangements have the primary business purposepurposes of these arrangements is to securesecuring favorable pricing for our hotel owners for various products and services or enhanceand enhancing resources for promotional campaigns co-sponsored bythat certain vendors.vendors co-sponsor. More specifically, unrestricted rebates are funds returned to the buyer, generally based uponon volumes or quantities of goods purchased. Marketing (restricted) allowances are funds allocated by vendor agreements for certain marketing or other joint promotional initiatives. Sponsorships are funds paid by vendors, generally used by the vendor to gain exposure at meetings and events, which are accountedwe account for as a reduction of the cost of the event.
We account for rebates and allowances as adjustments of the prices of the vendors’ products and services. We show vendor costs as reimbursed costs and the reimbursement of those costs to us as reimbursed costs and cost reimbursements revenue, respectively; therefore,revenue; and accordingly we reflect rebates are reflected as a reduction of these line items.
Cash and Equivalents
We consider all highly liquid investments with an initial maturity of three months or less at date of purchase to be cash equivalents.
Restricted Cash
Restricted cash in our Balance Sheets at year-end 2011 and year-end 2010 is recorded as zero and $55 million, respectively, in the “Other current assets” line and $16 million and $30 million, respectively, in the “Other long-term assets” line. Restricted cash primarily consists of cash held internationally that we have not repatriated due to statutory, tax and currency risks.
Assets Held for Sale
We consider properties (other than Timeshare segment interval, fractional ownership, and residential products, which we classified as inventory prior to the spin-off date) to be assets held for sale when all of the following criteria are met:
(1) management commits to a plan to sell athe property;
(2) it is unlikely that the disposal plan will be significantly modified or discontinued;
(3) the property is available for immediate sale in its present condition;
(4) actions required to complete the sale of the property have been initiated;
(5) sale of the property is probable and we expect the completed sale will occur within one year; and
(6) the property is actively being marketed for sale at a price that is reasonable given its current market value.
Upon designation of a property as an asset held for sale, we record the carryingproperty's value of each property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and we cease depreciation.
At year-end 20112013, we had $350 million classified as "Assets held for sale" and $61 million in liabilities held for sale classified as "Other current liabilities" on our Balance Sheet. See Footnote No. 7, "Acquisitions and Dispositions" for additional information on these planned dispositions. At year-end 20102012, we had no assets held for sale and no liabilities related to assets held for sale.
Accounts Receivable
Our accounts receivable primarily consist of amounts due from hotel owners with whom we have management and franchise agreements and include reimbursements of costs we incurred on behalf of managed and franchised properties. We generally collect these receivables within 30 days. We record an accounts receivable reserve when losses are probable, based on an assessment of historical collection activity and current business conditions. Our accounts receivable reserve was $43 million at year-end 2013 and $32 million at year-end 2012.
Loan Loss Reserves
Senior, Mezzanine, and Other Loans
We sometimesmay make loans to owners of hotels that we operate or franchise, typicallygenerally to facilitate the development of a hotel and sometimes to facilitate brand programs or initiatives. We expect the owners to repay the loans in accordance with the loan agreements, or earlier as the hotels mature and capital markets permit. We use metrics such as loan-to-value ratios and debt service coverage, and other information about collateral etc.,and from third party rating agencies to assess the credit quality of the loan receivable, both upon entering into the loan agreement and on an ongoing basis as applicable.
On a regular basis, we individually assess all of these loans for impairment. InternallyWe use internally generated cash flow projections are used to determine if we expect the loans are expected to be repaid in accordance withunder the terms of the loan agreements. If we conclude that it is
probable that a loanborrower will not be repaidrepay a loan in accordance with the loan agreement,its terms, we consider the loan impaired and begin recognizing interest income on a cash basis. To measure impairment, we calculate the present value of expected future cash flows discounted at the loan’s original effective interest rate or the estimated fair value of the collateral. If the present value or the estimated collateral is less than the carrying value of the loan receivable, we establish a specific impairment reserve for the difference.
If it is likely that a loan will not be collected based on financial or other business indicators, including our historical experience, it is our policy is to charge off the loansloan in the quarter whenin which we deem it is deemed uncollectible.
Loans to Timeshare Owners
Prior to the spin-off date, we recorded an estimate of expected uncollectibility on all notes receivable from timeshare purchasers as a reduction of revenue at the time we recognized profit on a timeshare sale. We fully reserved all defaulted notes in addition to recording a reserve on the estimated uncollectible portion of the remaining notes. For those notes not in default, we assessed collectibility based on pools of receivables because we held large numbers of homogeneous timeshare notes receivable. We estimated uncollectibles for the pool based on historical activity for similar timeshare notes receivable.
Although we considered loans to timeshare owners past due if we did not receive payment within 30 days of the due date, we suspended accrual of interest only on those that were over 90 days past due. We considered loans over 150 days past due to be in default. We applied payments we received for loans on nonaccrual status first to interest, then principal, and any remainder to fees. We resumed accruing interest when loans were less than 90 days past due. We did not accept payments for notes during the foreclosure process unless the amount was sufficient to pay all principal, interest, fees and penalties owed and fully reinstate the note. We wrote off uncollectible notes against the reserve once we received title through the foreclosure or deed-in-lieu process.
On November 21, 2011, we transferred all balances related to loans to timeshare owners (both securitized and non-securitized) to MVW as part of the spin-off. For additional information on our notes receivable, including information on the related reserves, see Footnote No. 10, “Notes Receivable.”
Valuation of Goodwill
We assess goodwill for potential impairmentsimpairment at the end of each fiscal year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating goodwill for
impairment, we first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then no further testing of the goodwill assigned to the reporting unit is required. However, if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment to be recognized,we will recognize, if any. At year-end 2013 and year-end 2012, we concluded that it was not more likely than not that the fair value of any reporting unit was less than its carrying value.
In the first step of the review process,two-step goodwill impairment test, we compare the estimated fair value of the reporting unit with its carrying value. If the estimated fair value of the reporting unit exceeds its carrying amount, no further analysis is needed.
If, however, the estimated fair value of the reporting unit is less than its carrying amount, we proceed to the second step of the review process toand calculate the implied fair value of the reporting unit goodwill in order to determine whether any impairment is required. We calculate the implied fair value of the reporting unit goodwill by allocating the estimated fair value of the reporting unit to all of the unit's assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss forin the amount of that excess amount.excess. In allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit, we use industry and market data, as well as knowledge of the industry and our past experiences.experience.
We base our calculation ofcalculate the estimated fair value of a reporting unit onusing the income approach. For the income approach, we use internally developed discounted cash flow models that include among others, the following assumptions:assumptions, among others: projections of revenues, and expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our expectations.
We have had no goodwill impairment charges for the last three fiscal years, and as of the date of each of the most recent detailed tests, the estimated fair value of each of our reporting units exceeded its’its respective carrying amount by more than 100 percent based on our models and assumptions.
For additional information related toon goodwill, including the amounts of goodwill by segment, see Footnote No. 16,14, “Business Segments.”
Investments
We consolidate entities that we control. We account for investments in joint ventures using the equity method of accounting when we exercise significant influence over the venture. If we do not exercise significant influence, we account for the investment using the cost method of accounting. We account for investments in limited partnerships and limited liability companies using the equity method of accounting when we own more than a minimal investment. Our ownership interest in these equity method investments varies generally from 10 percent to 49 percent.
The fair value See Footnote No. 4, "Fair Value of ourFinancial Instruments" for additional information on available-for-sale securities. When we sell available-for-sale securities, totaled $50 million and $18 million at year-end 2011 and year-end 2010, respectively. The amount of net losses reclassified out of accumulated other comprehensive income as a result of an other-than-temporary impairment of available-for-sale securities totaled $18 million and zero for 2011 and 2010, respectively. The amount of net losses reclassified out of accumulated other comprehensive income as a result of the sale of available-for-sale securities totaled zero for both 2011 and 2010. We determinedwe determine the cost basis of the securities sold using specific identification.identification, meaning that we track our securities individually.
Valuation of Intangibles and Long-Lived Assets
We test intangibles and long-lived asset groups for recoverability when changes in circumstances indicate the carrying valuethat we may not be recoverable,able to recover the carrying value; for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, andor significant negative industry or economic trends. We also perform a test for recoverability when management has committed to a plan to sell or otherwise dispose of an asset group and we expect to complete the plan is expected to be completed within a year. We evaluate recoverability of an asset group by comparing its carrying
value to the future net undiscounted cash flows that we expect will be generated by the asset group.group will generate. If the comparison indicates that we will not be able to recover the carrying value of an asset group, is not recoverable, we recognize an impairment loss for the excess ofamount by which the carrying value overexceeds the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life.
We base our calculations ofcalculate the estimated fair value of an intangible asset or asset group onusing the income approach or the
market approach. TheWe utilize the same assumptions and methodology we utilize for the income approach are the same as those describedthat we describe in the “Valuation of Goodwill”“Goodwill” caption. For the market approach, we use internal analyses based primarily on market comparables and assumptions about market capitalization rates, growth rates, and inflation.
For information on impairment losses that we recorded in 2011 and 2009 associated with intangibles andfor long-lived assets, see Footnote No. 18, “Timeshare Strategy-Impairment Charges” and Footnote No. 19, “Restructuring Costs and Other Charges” of the Notes to the Financial Statements of this Form 10-K. For information on impairment losses that we recorded in 2010 associated with long-lived assets, see Footnote No. 7, “Property and Equipment” of the Notes to the Financial Statements of this Form 10-K.15, “Spin-off.”
Valuation of Investments in Ventures
We sometimesmay hold a minority equity interest in ventures established to develop or acquire and own hotel properties and prior to the spin-off date held a minority interest in ventures established to develop timeshare interval, fractional ownership and residential properties. These ventures are generally limited liability companies or limited partnerships, and our equity interest in these ventures generally ranges from 10 percent to 49 percent.partnerships.
We evaluate an investment in a venture for impairment when circumstances indicate that the carrying valuewe may not be recoverable,able to recover the carrying value, for example due to loan defaults, significant under performance relative to historical or projected operating performance, andor significant negative industry or economic trends.
We impair investments accountedwe account for using the equity and cost methods of accounting when we determine that there has been an “other than temporary”“other-than-temporary” decline in the venture’s estimated fair value as compared to theits carrying value, of the venture.value. Additionally, a venture's commitment to a plan to sell some or all of theits assets in a venture could cause aus to evaluate the recoverability evaluation forof the venture's individual long-lived assets in the venture and possibly the venture itself.
We calculate the estimated fair value of an investment in a venture using either a market approach or an income approach. TheWe utilize the same assumptions and methodology we utilize for the income approach are the same as those describedthat we describe in the “Valuation of Goodwill”“Goodwill” caption. For the market approach, we use internal analyses based primarily on market comparables and assumptions about market capitalization rates, growth rates, and inflation.
For information regardingon an impairment lossesloss that we recorded in 2009 associated with investments in ventures,2012 for a cost method investment, see Footnote No. 18, “Timeshare Strategy-Impairment Charges” and Footnote No. 19, “Restructuring Costs and Other Charges”4, “Fair Value of the Notes to the Financial Statements of this Form 10-K.Instruments.”
Fair Value Measurements
We have various financial instruments we must measure at fair value on a recurring basis, including certain marketable securities and derivatives. See Footnote No. 4, “Fair Value of Financial Instruments,” for further information. We also apply the provisions of fair value measurement to various non-recurringnonrecurring measurements for our financial and non-financialnonfinancial assets and liabilities.
Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure our assets and liabilities using inputs from the following three levels of the fair value hierarchy:
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 includes unobservable inputs that reflect our assumptions about what factors market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Derivative Instruments
We record derivatives at fair value. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument in our Financial Statements. A derivative qualifies for hedge accounting if, at inception, we expect the derivative to be highly effective in offsetting the underlying hedged cash flows or fair
underlying hedged cash flows or fair value and we fulfill the hedge documentation standards at the time we enter into the derivative contract. We designate a hedge as a cash flow hedge, fair value hedge, or a net investment in non-U.S. operations hedge based on the exposure we are hedging. The asset or liability value of the derivative will change in tandem with its fair value. For the effective portion of qualifying cash flow hedges, we record changes in fair value in other comprehensive income (“OCI”). We release the derivative’s gain or loss from OCI to match the timing of the underlying hedged items’ effect on earnings.
We review the effectiveness of our hedging instruments on a quarterly, basis, recognize current period hedge ineffectiveness immediately in earnings, and discontinue hedge accounting for any hedge that we no longer consider to be highly effective. We recognize changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting in current period earnings. Upon termination of cash flow hedges, we release gains and losses from OCI based on the timing of the underlying cash flows or revenue recognized, unless the termination results from the failure of the intended transaction to occur in the expected timeframe.time frame. Such untimely transactions require us to immediately recognize in earnings the gains andand/or losses that we previously recorded in OCI.
Changes in interest rates, currency exchange rates, and equity securities expose us to market risk. We manage our exposure to these risks by monitoring available financing alternatives, as well as through development and application of credit granting policies. We also use derivative instruments, including cash flow hedges, net investment in non-U.S. operations hedges, fair value hedges, and other derivative instruments, as part of our overall strategy to manage our exposure to market risks. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes. See Footnote No. 4, “Fair Value of Financial Instruments,” for additional information.
Non-U.S. Operations
The U.S. dollar is the functional currency of our consolidated and unconsolidated entities operating in the United States. The functional currency forof our consolidated and unconsolidated entities operating outside of the United States is generally the primary currency of the primary economic environment in which the entity primarily generates and expends cash. ForWe translate the financial statements of consolidated entities whose functional currency is not the U.S. dollar we translate their financial statements into U.S. dollars, and we do the same, as needed, for unconsolidated entities whose functional currency is not the U.S. dollar. We translate assets and liabilities at the exchange rate in effect as of the financial statement date, and translate income statement accounts using the weighted average exchange rate for the period. We include translation adjustments from currency exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of shareholders’ equity. We report gains and losses from currency exchange rate changes related tofor intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from non-U.S. currency transactions, currently in operating costs and expenses, and those amounted to a losslosses of$5 million in 2013, $3 million in 2012, and $7 million in 2011, a loss of $7 million in 2010, and a loss of less than $1 million in 2009.2011. Gains and other income attributable to currency translation adjustment losses, net of gains, from the sale or complete or substantially complete liquidation of investments was zerofor 2011 included $22013 and $1 million for 2012. Gains and other income attributable to currency translation adjustment gains, net of losses, from the sale or complete or substantially complete liquidation of investments. Gains and other incomeinvestments was $2 million for 2010 included 2011.$2 million attributable to currency translation adjustment losses, net of gains, from the sale or complete or substantially complete liquidation of investments. There were no similar gains or losses in 2009.
Legal Contingencies
We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty.uncertain. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability has been incurred and we can reasonably estimate the amount of the loss can be reasonably estimated.loss. In making such determinations we evaluate, among other things, the degree of probability of an unfavorable outcome and, when we believe it is probable that a liability has been incurred, our ability to make a reasonable estimate of the loss. We review these accruals each reporting period and make revisions based on changes in facts and circumstances.
Income Taxes
We record the amounts of taxes payable or refundable for the current year, as well as deferred tax liabilities and assets for the future tax consequences of events that we have recognized in our financial statementsFinancial Statements or tax returns. We usereturns, using judgment in assessing future profitability and the likely future tax consequences of events that we have recognized in our financial statements or tax returns.those events. We base our estimates of deferred tax assets and liabilities on current tax laws, rates and interpretations, and, in certain cases, business plans and other expectations about future outcomes. We develop our estimates of future profitability based on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations.
Changes in existing tax laws and rates, their related interpretations, as well asand the uncertainty generated by the current
economic environment may affect the amounts of our deferred tax liabilities or the valuations of our deferred tax assets over time. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates.
For tax positions we have taken or expect to take in a tax return, we apply a more likely than not threshold, under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to continue to recognize the benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold. We recognize accrued interest and penalties for our unrecognized tax benefits as a component of tax expense.
For information about income taxes and deferred tax assets and liabilities, see Footnote No. 2, “Income Taxes.”
New Accounting Standards
Accounting Standards Update No. 2010-06 – "Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements" (“ASU No. 2010-06”)
Certain provisions of ASU No. 2010-06 became effective during our 2011 first quarter. Those provisions, which amended Subtopic 820-10, require us to present as separate line items all purchases, sales, issuances, and settlements of financial instruments valued using significant unobservable inputs (Level 3) in the reconciliation of fair value measurements, in contrast to the previous aggregate presentation as a single line item. The adoption did not have a material impact on our financial statements or disclosures.
Accounting Standards Update No. 2011-08 – “Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU No. 2011-08”)
We early adopted ASU No. 2011-08 in the 2011 fourth quarter, which amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value ofa reporting unit is less than its carrying amount. Based on our examination of qualitative factors at year-end 2011, we concluded that it was not more likely than not that the fair value of any of our reporting units was less than their respective carrying values; therefore, no further testing of the goodwill assigned to our reporting units was required. The adoption of this update did not have a material impact on our financial statements.
Future Adoption of Accounting Standards
Accounting Standards Update No. 2011-04 – “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No. 2011-04”)
ASU No. 2011-04 generally provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in this update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU No. 2011-04 will be effective for interim and annual periods beginning on or after December 15, 2011, which for us will be our 2012 first quarter. We do not believe the adoption of this updateexpect that accounting standard updates issued to date and that are effective after December 31, 2013 will have a material impacteffect on our financial statements.Financial Statements.
See the “Fair Value Measurements” caption of this footnote for additional information on the three levels of fair value measurements.
Accounting Standards Update No. 2011-05 -“Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”) and Accounting Standards Update No. 2011-12 - "Comprehensive Income (Topic 220):
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05" ("ASU No. 2011-12")
ASU No. 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. ASU No. 2011-12 defers until further notice ASU No. 2011-05's requirement that items that are
reclassified from other comprehensive income to net income be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and both ASU Nos. 2011-05 and 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (for us this will be our 2012 first quarter), with early adoption permitted. We believe the adoption of these updates will change the order in which we present certain financial statements, but will not have any other impact on our financial statements.
Our (provision for)/benefit fromprovision for income taxes for the last three fiscal years consists of:
| | | ($ in millions) | ($ in millions) | 2011 | | 2010 | | 2009 | ($ in millions) | 2013 | | 2012 | | 2011 |
| Current | -U.S. Federal | $ | 53 |
| | $ | 117 |
| | $ | (169 | ) | -U.S. Federal | $ | (139 | ) | | $ | 6 |
| | $ | 53 |
|
| | -U.S. State | — |
| | (7 | ) | | (12 | ) | -U.S. State | (17 | ) | | (8 | ) | | — |
|
| | -Non-U.S. | (55 | ) | | (51 | ) | | (61 | ) | -Non-U.S. | (44 | ) | | (34 | ) | | (55 | ) |
| | | (2 | ) | | 59 |
| | (242 | ) | | (200 | ) | | (36 | ) | | (2 | ) |
| | | | | | | | | | | | | |
| Deferred | -U.S. Federal | (116 | ) | | (150 | ) | | 234 |
| -U.S. Federal | (68 | ) | | (211 | ) | | (116 | ) |
| | -U.S. State | (10 | ) | | (14 | ) | | 28 |
| -U.S. State | (10 | ) | | (30 | ) | | (10 | ) |
| | -Non-U.S. | (30 | ) | | 12 |
| | 45 |
| -Non-U.S. | 7 |
| | (1 | ) | | (30 | ) |
| | | (156 | ) | | (152 | ) | | 307 |
| | (71 | ) | | (242 | ) | | (156 | ) |
| | | $ | (158 | ) | | $ | (93 | ) | | $ | 65 |
| | $ | (271 | ) | | $ | (278 | ) | | $ | (158 | ) |
Our current tax provision does not reflect the following benefits or costs attributable to us for the exercisevesting or vestingexercise of employee share-based awards of benefits ofawards: $66 million in 2013, $76 million in 2012, and $55 million in 2011, benefits of $51 million in 2010, and costs of $8 million in 2009.2011. The preceding table includes tax credits of $3 million in 2013, $3 million in 2012, and $4 million in 2011,2011. We had a tax provision applicable to other comprehensive income of $2 million in 2010,2013 and $25 million in 2009. The taxes2012, and a tax benefit applicable to other comprehensive income are $14loss of $14 million in 2011 and were not material for 2010 and 2009.2011.
We have made no provision for U.S. income taxes or additional non-U.S. taxes on the cumulative unremitted earnings of non-U.S. subsidiaries ($451739 million as of year-end 2011)2013) because we consider these earnings to be indefinitely reinvested. These earnings could become subject to additional taxes if remitted as dividends, loanedthe non-U.S. subsidiaries dividend or loan those earnings to us or to a U.S. affiliate or if we soldsell our interests in the affiliates.non-U.S. subsidiaries. We cannot practically estimate the amount of additional taxes that might be payable on the unremitted earnings.
We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. We conduct business in countries that grant “holidays” from income taxes for 510 to 30 year periods. These holidays expire through 2034. Without these tax “holidays,” we would have incurred the following aggregate income taxes and related earnings per share impacts: $1 million (less than $0.01 per diluted share) in 2011;2013; less than $71 million ($0.02 per diluted share) in 2010; and $4 million ((less than $0.01 per diluted share) in 2009.
We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. We filed an IRS refund claim relating to 20002012; and 2001 for certain software development costs. The IRS disallowed the claims, and in July 2009, we protested the disallowance. We settled this issue with the IRS in the 2011 second quarterresulting in a refund of $31 million relating to 2000 and(less than $5 million0.01 relating to 2001.per diluted share) in 2011.
In 2011, we recorded an income tax expense of $34 million to write-offwrite off certain deferred tax assets that we transferred to MVW in conjunction with the spin-off of our timeshare operations and timeshare development business. We impaired these assets because we considered it "more likely than not" that MVW will not be unableable to realize the value of those deferred tax assets. Please seeSee Footnote No. 17,15, “Spin-off” for additionalmore information regardingon the transaction.
Unrecognized Tax Benefits
InThe following table reconciles our unrecognized tax benefit balance for each year from the 2010 fourth quarter, we reachedbeginning of 2011 to the end of 2013:
|
| | | |
| ($ in millions) | Amount |
| Unrecognized tax benefit at beginning of 2011 | $ | 39 |
|
| Change attributable to tax positions taken during a prior period | (10 | ) |
| Change attributable to withdrawal of tax positions previously taken or expected to be taken | (6 | ) |
| Change attributable to tax positions taken during the current period | 19 |
|
| Decrease attributable to lapse of statute of limitations | (3 | ) |
| Unrecognized tax benefit at year-end of 2011 | 39 |
|
| Change attributable to tax positions taken during the current period | 12 |
|
| Decrease attributable to settlements with taxing authorities | (20 | ) |
| Decrease attributable to lapse of statute of limitations | (2 | ) |
| Unrecognized tax benefit at year-end of 2012 | 29 |
|
| Change attributable to tax positions taken during the current period | 8 |
|
| Decrease attributable to settlements with taxing authorities | (2 | ) |
| Decrease attributable to lapse of statute of limitations | (1 | ) |
| Unrecognized tax benefit at year-end of 2013 | $ | 34 |
|
These unrecognized tax benefits reflect the following year-over-year changes: (1) a $5 million increase in 2013, primarily due to a U.S. federal tax issue, currently in appeals, offset by a settlement with the IRS Appeals Division resolving all issues that arose in the audit of tax yearsinternational taxing authorities; (2) 2005 through 2008. This settlement resulted in an $8510 million decrease in 2012, primarily reflecting the changes attributable to settlements with taxing authorities and positions taken during 2012; and (3) no net change in 2011, although 2011 included increases such as positions for our timeshare spin-off, and decreases such as the closing of the 2005-2008 Internal Revenue Service ("IRS") audits, the re-measurement of existing positions, and the lapse of statutes of limitations.
Our unrecognized tax expense for 2010 due to the release of tax liabilities we had previously established for the treatment of funds we received from non-U.S. subsidiaries. Additionally, our 2010 income tax expense reflected abenefit balances included $12 million benefit we recorded primarily associated with revisions to estimatesat year-end 2013, $13 million at year-end 2012, and $24 million at year-end 2011 of prior years’ foreign income tax expenses.positions that, if recognized, would impact our effective tax rate.
In 2009, we recorded an income tax expense of $52 million primarily related to the treatment of funds received from non-U.S. subsidiaries. This issue has been settled as noted above.
The IRS has examined our federal income tax returns, and we have settled all issues for tax years through 2009. We
participated participate in the IRS Compliance Assurance Program, (“CAP”) for the 2011 and 2010 tax years and also expect to participate for 2012. This programwhich accelerates theIRS examination of key transactions with the goal of resolving any issues before the taxpayer files its return. As a result, our open tax returnyears under audit are substantially complete while the 2013 tax year audit is filed.currently ongoing. Various foreign, state, and local income tax returns are also under examination by foreign, state and localthe applicable taxing authorities.
We had total unrecognized tax benefits of It is reasonably possible that we will resolve with taxing authorities an international issue ($395 million at year-end 2011, $39 million at year-end 2010, and $249 million at year-end 2009. These unrecognized tax benefits reflect the following year-over-year changes: (1) no net change) which arose in 2011 although 2011 included increases such as positions related to the spin-off of our timeshare operations,financing activity and decreases such as the closing of the 2005 - 2008 IRS audits, the re-measurement of existing positions, and the lapse of statutes of limitations; (2) a $210 million decreaseU.S. federal issue ($21 million), currently in 2010, primarily reflecting the settlement with IRS Appeals of the 2005-2008 tax years; and (3) a $108 million increase in 2009, primarily representing an increase for the treatment of funds received from non-U.S. subsidiaries due to our then current exposure.
As a large taxpayer, the IRS and other taxing authorities continually audit us. Although we do not anticipate that a significant impact to our unrecognized tax benefit balance will occurappeals, during the next 52 weeks as a result of these audits, it remains possible that the amount of our liability12 months for which we have an unrecognized tax benefits could change over that time period.
Our unrecognizedbalance of $26 million. The U.S. federal amount is offset by a related deferred tax benefit balances included $24 million at year-end 2011, $26 million at year-end 2010, and $136 million at year-end 2009asset. Therefore, the possible resolution of tax positions that, if recognized, wouldthe issue will not have a material impact on our effective tax rate.
The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 2009 to the end of 2011:
|
| | | |
| ($ in millions) | Amount |
| Unrecognized tax benefit at beginning of 2009 | $ | 141 |
|
| Change attributable to tax positions taken during a prior period | 99 |
|
| Change attributable to tax positions taken during the current period | 22 |
|
| Decrease attributable to settlements with taxing authorities | (10 | ) |
| Decrease attributable to lapse of statute of limitations | (3 | ) |
| Unrecognized tax benefit at end of 2009 | 249 |
|
| Change attributable to tax positions taken during a prior period | (187 | ) |
| Change attributable to tax positions taken during the current period | 25 |
|
| Decrease attributable to settlements with taxing authorities | (47 | ) |
| Decrease attributable to lapse of statute of limitations | (1 | ) |
| Unrecognized tax benefit at end of 2010 | 39 |
|
| Change attributable to tax positions taken during a prior period | (10 | ) |
| Change attributable to withdrawal of tax positions previously taken or expected to be taken | (6 | ) |
| Change attributable to tax positions taken during the current period | 19 |
|
| Decrease attributable to settlements with taxing authorities | — |
|
| Decrease attributable to lapse of statute of limitations | (3 | ) |
| Unrecognized tax benefit at end of 2011 | $ | 39 |
|
In accordance with our accounting policies, we recognize accrued interest and penalties related to our unrecognized tax benefits as a component of tax expense. Related interest expense totaled $1 million in 2011, $2 million in 2010, and $2 million in 2009. Accrued interest expense totaled $3 million in 2011, $4 million in 2010 and $28 million in 2009.financial statements.
Deferred Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we actually pay or recover the taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.
We had the following total deferred tax assets and liabilities at year-end 2013 and year-end 2012:
Total deferred tax assets and liabilities as of year-end 2011 and year-end 2010, were as follows:
| | | ($ in millions) | 2011 | | 2010 | At Year-End 2013 | | At Year-End 2012 |
| Deferred tax assets | $ | 1,145 |
| | $ | 1,236 |
| $ | 926 |
| | $ | 950 |
|
| Deferred tax liabilities | (18 | ) | | (100 | ) | (60 | ) | | (25 | ) |
| Net deferred taxes | $ | 1,127 |
| | $ | 1,136 |
| $ | 866 |
| | $ | 925 |
|
The following table details the composition of theour net deferred tax balances at year-end 20112013 and year-end 20102012.:
| | ($ in millions) Balance Sheet Caption | | At Year-End 2011 | | At Year-End 2010 | | At Year-End 2013 | | At Year-End 2012 |
| Current deferred taxes, net | | $ | 282 |
| | $ | 246 |
| | $ | 252 |
| | $ | 280 |
|
| Long-term deferred taxes, net | | 873 |
| | 932 |
| | 647 |
| | 676 |
|
| Current liabilities, other | | (13 | ) | | (19 | ) | | (19 | ) | | (13 | ) |
| Long-term liabilities, other | | (15 | ) | | (23 | ) | | (14 | ) | | (18 | ) |
| Net deferred taxes | | $ | 1,127 |
| | $ | 1,136 |
| | $ | 866 |
| | $ | 925 |
|
The following table shows the tax effect of each type of temporary difference and carry-forward that givesgave rise to a significant portion of our deferred tax assets and liabilities as of year-end 20112013 and year-end 20102012, were as follows::
| | | ($ in millions) | 2011 | | 2010 | At Year-End 2013 | | At Year-End 2012 |
| Self-insurance | $ | 20 |
| | $ | 22 |
| |
| Employee benefits | 295 |
| | 296 |
| $ | 340 |
| | $ | 321 |
|
| Deferred income | 15 |
| | 18 |
| |
| Net operating loss carry-forwards | | 293 |
| | 294 |
|
| Tax credits | | 273 |
| | 328 |
|
| Reserves | 64 |
| | 213 |
| 61 |
| | 63 |
|
| Frequent guest program | 42 |
| | 104 |
| 30 |
| | 43 |
|
| Self-insurance | | 23 |
| | 19 |
|
| Deferred income | | 23 |
| | 4 |
|
| Joint venture interests | (8 | ) | | 99 |
| (23 | ) | | (11 | ) |
| ASC 740 deferred taxes | 5 |
| | 5 |
| |
| Tax credits | 281 |
| | 235 |
| |
| Net operating loss carry-forwards | 467 |
| | 204 |
| |
| Timeshare financing | — |
| | — |
| |
| Property, equipment, and intangible assets | (10 | ) | | 18 |
| (37 | ) | | (14 | ) |
| Other, net | 28 |
| | (16 | ) | 48 |
| | 23 |
|
| Deferred taxes | 1,199 |
| | 1,198 |
| 1,031 |
| | 1,070 |
|
| Less: valuation allowance | (72 | ) | | (62 | ) | (165 | ) | | (145 | ) |
| Net deferred taxes | $ | 1,127 |
| | $ | 1,136 |
| $ | 866 |
| | $ | 925 |
|
At year-end 2011,2013, we had approximately $4840 million of tax credits that expire through 20312033 and $232233 million of tax credits that do not expire. We recorded $33214 million of net operating loss benefits in 20112013 and $2150 million in 2010.2012. At year-end 2011,2013, we had approximately $3.31.5 billion of net operating losses, of which $2.8 billion747 million expire through 20312033.
Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate
The following table reconciles the U.S. statutory tax rate to our effective income tax rate:
rate for the last three fiscal years:
| | | | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| U.S. statutory tax rate | 35.0 | % | | 35.0 | % | | (35.0 | )% | 35.0 | % | | 35.0 | % | | 35.0 | % |
| U.S. state income taxes, net of U.S. federal tax benefit | 2.3 |
| | 2.4 |
| | (2.1 | ) | 2.6 |
| | 2.6 |
| | 2.3 |
|
| Nondeductible expenses | 1.8 |
| | 0.5 |
| | 0.5 |
| 0.5 |
| | 0.3 |
| | 1.8 |
|
| Non-U.S. income | (0.9 | ) | | (3.7 | ) | | 5.2 |
| (5.7 | ) | | (3.9 | ) | | (0.9 | ) |
Audit activity (1) | 0.0 |
| | (15.6 | ) | | 13.7 |
| |
| Company owned life insurance | 0.0 |
| | 0.0 |
| | (2.0 | ) | |
Change in valuation allowance (2) | 8.9 |
| | 0.9 |
| | 2.2 |
| |
Change in valuation allowance (1) | | 0.3 |
| | (0.2 | ) | | 8.9 |
|
| Tax credits | (1.0 | ) | | (0.4 | ) | | (0.4 | ) | (0.4 | ) | | (0.4 | ) | | (1.0 | ) |
| Other, net | (1.7 | ) | | (2.3 | ) | | 2.3 |
| (2.1 | ) | | (0.7 | ) | | (1.7 | ) |
| Effective rate | 44.4 | % | | 16.8 | % | | (15.6 | )% | 30.2 | % | | 32.7 | % | | 44.4 | % |
| |
(1) | Primarily related tofor the treatment of funds received from certain non-U.S. subsidiaries, as discussed earlier in this footnote. |
| |
(2)
| Primarily related to2011 additional impairment of certain deferred tax assets transferred to MVW, as discussed earlier in this footnote. |
CashWe paid cash for income taxes, net of refunds wasof $77 million in 2013 and $45 million in 2011, and received $6817 million of cash for income tax refunds, net of payments in 2010, and $110 million2012 in 2009..
| |
| 3. | SHARE-BASED COMPENSATION |
Under our2002 Comprehensive Stock and Cash Incentive Plan (the “Comprehensive“Stock Plan”), we award: (1) stock options (our "Stock Option Program") to purchase our Class A Common Stock (“Stock Option Program”(our “common stock”); (2) stock appreciation rights (“SARs”) for our Class A Common Stock (“SARcommon stock (our “SAR Program”); (3) restricted stock units (“RSUs”) of our Class A Common Stock;common stock; and (4) deferred stock units. We grant awards at exercise prices or strike prices that equal to the market price of our Class A Common Stockcommon stock on the date of grant.
For all share-based awards, theapplicable accounting guidance requires that we measure compensation costs related tofor our share-based payment transactions at fair value on the grant date and that we recognize those costs in the financial statementsour Financial Statements over the vesting period during which the employee provides service ("the service period") in exchange for the award.
During 2013, we granted 2.5 million RSUs, 0.2 million service and performance RSUs, 0.7 million SARs, and 0.1 million stock options.
We recorded share-based compensation expense for award grants of $116 million in 2013, $94 million in 2012, and $103 million in 2011. Deferred compensation costs for unvested awards totaled $108 million at year-end 2013 and $122 million at year-end 2012. As of year-end 2013, we expect to recognize these deferred compensation expenses over a weighted average period of two years.
Under the guidance for share-based compensation, we present the tax benefits and costs resulting from the exercise or vesting of share-based awards as financing cash flows. The exercise of share-based awards resulted in tax benefits of $121 million in 2013 and $71 million in 2012. Due to tax losses in 2011, we recorded no tax benefit in that year.
We received cash from the exercise of Marriott stock options of $199 million in 2013, $179 million in 2012, and $124 million in 2011.
RSUs
We issue Marriott RSUs under the Stock Plan 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 recognize compensation expense for RSUs over the service period equal to the fair market value of the stock units on the date of issuance. Upon vesting, Marriott RSUs convert to shares which we distribute from treasury shares. We also issue service and performance Marriott RSUs ("S&P RSUs") to named executive officers under the Stock Plan. In addition to generally being subject to pro-rata annual vesting conditioned on continued service consistent with the standard form of Marriott RSUs, Marriott S&P RSUs are also subject to the satisfaction of a performance condition, expressed as an EBITDA goal, for a fiscal year during the applicable service vesting period. The following information on RSUs includes S&P RSUs.
We had deferred compensation costs for RSUs of approximately $102 million at year-end 2013 and $111 million at year-end 2012. The weighted average remaining term for RSU grants outstanding at year-end 2013 was two years.
The following table provides additional information on Marriott RSUs for the last three fiscal years:
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Share-based compensation expense (in millions) | $ | 101 |
| | $ | 83 |
| | $ | 90 |
|
| Weighted average grant-date fair value (per Marriott RSU) | $ | 38 |
| | $ | 35 |
| | $ | 40 |
|
| Aggregate intrinsic value of converted and distributed Marriott RSUs (in millions) | $ | 125 |
| | $ | 91 |
| | $ | 113 |
|
The following table shows the 2013 changes in our outstanding Marriott RSU grants and the associated weighted average grant-date fair values:
|
| | | | | | |
| | Number of Marriott RSUs (in millions) | | Weighted Average Grant-Date Fair Value (per RSU) |
| Outstanding at year-end 2012 | 7.4 |
| | $ | 31 |
|
Granted during 2013 (2) | 2.7 |
| | 38 |
|
| Distributed during 2013 | (3.0 | ) | | 29 |
|
| Forfeited during 2013 | (0.3 | ) | | 34 |
|
Outstanding at year-end 2013 (1) | 6.8 |
| | $ | 35 |
|
| |
(1) | Includes 0.2 million Marriott RSUs held by MVW employees. |
| |
(2) | Includes 0.2 million S&P RSUs granted to named executive officers. |
Stock Options and SARs
We may grant employee stock options to officers and key employees at exercise prices or strike prices that equal the market price of our common stock on the grant date. Non-qualified options generally expire 10 years after the grant date, except those we issued from 1990 through 2000, which expire 15 years after their grant date. Most stock options under the Stock Option Program may be exercised in cumulative installments of one quarter at the end of each of the first four years following the grant date.
We recognized compensation expense for employee stock options of $2 million in 2013, $1 million in 2012, and less than $1 million in 2011. We had deferred compensation costs for employee stock options of $2 million at year-end 2013 and $3 million at year-end 2012. When holders exercise Marriott stock options we issue shares from treasury shares.
The following table shows the 2013 changes in our outstanding Marriott Stock Option Program awards and the associated weighted average exercise prices:
|
| | | | | | |
| | Number of Marriott Stock Options (in millions) | | Weighted Average Exercise Price (per Option) |
| Outstanding at year-end 2012 | 9.5 |
| | $ | 19 |
|
| Granted during 2013 | 0.1 |
| | 39 |
|
| Exercised during 2013 | (5.0 | ) | | 17 |
|
| Forfeited during 2013 | — |
| | 46 |
|
Outstanding at year-end 2013 (1) | 4.6 |
| | $ | 22 |
|
| |
(1) | Includes 0.1 million Marriott stock options held by MVW employees. |
The following table shows the Marriott stock options issued under the Stock Option Program awards outstanding at year-end 2013, as well as those exercisable on that date (those where the exercise price was less than the market price of our common stock on that date):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Outstanding | | Exercisable |
Range of Exercise Prices | | Number of Stock Options (in millions) | | Weighted Average Exercise Price (per Option) | | Weighted Average Remaining Life (in years) | | Number of Stock Options (in millions) | | Weighted Average Exercise Price (per Option) | | Weighted Average Remaining Life (in years) |
| $ | 13 |
| | to | | $ | 17 |
| | 2.5 |
| | $ | 16 |
| | 1 | | 2.5 |
| | $ | 16 |
| | 1 |
| 18 |
| | to | | 22 |
| | 0.6 |
| | 22 |
| | 1 | | 0.6 |
| | 22 |
| | 1 |
| 23 |
| | to | | 46 |
| | 1.5 |
| | 32 |
| | 4 | | 1.1 |
| | 30 |
| | 3 |
| 13 |
| | to | | 46 |
| | 4.6 |
| | 22 |
| | 2 | | 4.2 |
| | 21 |
| | 2 |
The following table shows the number of Marriott stock options we granted in the last three fiscal years and the associated weighted average grant-date fair values and weighted average exercise prices:
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Options granted | 96,960 |
| | 255,761 |
| | 19,192 |
|
| Weighted average grant-date fair value (per option) | $ | 13 |
| | $ | 12 |
| | $ | 15 |
|
| Weighted average exercise price (per option) | $ | 39 |
| | $ | 35 |
| | $ | 38 |
|
The following table shows the intrinsic value (the amount by which the market price of the underlying common stock exceeded the aggregate exercise price of the stock option) of all outstanding Marriott stock options and of exercisable Marriott stock options at year-end 2013 and 2012:
|
| | | | | | | |
| ($ in millions) | 2013 | | 2012 |
| Outstanding stock options | $ | 126 |
| | $ | 169 |
|
| Exercisable stock options | 121 |
| | 168 |
|
Marriott stock options exercised during the last three years had total intrinsic values of approximately $131 million in 2013, $158 million in 2012, and $124 million in 2011.
We may grant Marriott SARs to officers and key employees ("Employee SARs") at base values (exercise prices or strike prices) equal to the market price of our common stock on the grant date. Employee SARs expire ten years after the grant date and both vest and may be exercised in cumulative installments of one quarter at the end of each of the first four years following the grant date. We may grant Marriott SARs to directors ("Director SARs") at exercise prices or strike prices equal to the market price of our common stock on the grant date. Director SARs generally expire ten years after the date of grant and vest upon grant; however, they are generally not exercisable until one year after grant. On exercise of Marriott SARs, holders receive the number of shares of our common stock equal to the number of SARs that are being exercised multiplied by the quotient of (a) the final value minus the base value, divided by (b) the final value.
We recognized compensation expense for Employee SARs and Director SARs of $12 million in 2013, $9 million in 2012, and $12 million in 2011. We had deferred compensation costs related to SARs of approximately $4 million in 2013 and $8 million in 2012. Upon the exercise of Marriott SARs, we issue shares from treasury shares.
The following table shows the 2013 changes in our outstanding Marriott SARs and the associated weighted average exercise prices:
|
| | | | | | |
| | Number of SARs (in millions) | | Weighted Average Exercise Price |
| Outstanding at year-end 2012 | 6.2 |
| | $ | 31 |
|
| Granted during 2013 | 0.7 |
| | 39 |
|
| Exercised during 2013 | (0.5 | ) | | 30 |
|
| Forfeited during 2013 | — |
| | 41 |
|
Outstanding at year-end 2013 (1) | 6.4 |
| | $ | 32 |
|
| |
(1) | Includes 0.2 million Marriott SARs held by MVW employees. |
The following tables show the number of Employee Marriott SARs and Director Marriott SARs we granted in the last three fiscal years, the associated weighted average exercise prices, and the associated weighted average grant-date fair values:
|
| | | | | | | | | | | |
| Employee Marriott SARs | 2013 | | 2012 | | 2011 |
| Employee Marriott SARs granted (in millions) | 0.7 |
| | 1.0 |
| | 0.7 |
|
| Weighted average exercise price (per SAR) | $ | 39 |
| | $ | 35 |
| | $ | 38 |
|
| Weighted average grant-date fair value (per SAR) | $ | 13 |
| | $ | 12 |
| | $ | 14 |
|
| Director Marriott SARs | 2013 | | 2012 | | 2011 |
| Director Marriott SARs granted | 5,903 |
| | 5,915 |
| | — |
|
| Weighted average exercise price (per SAR) | $ | 44 |
| | $ | 39 |
| | $ | — |
|
| Weighted average grant-date fair value (per SAR) | $ | 15 |
| | $ | 14 |
| | $ | — |
|
Outstanding Marriott SARs had total intrinsic values of $111 million at year-end 2013 and $37 million at year-end 2012. Exercisable Marriott SARs had total intrinsic values of $82 million at year-end 2013 and $24 million at year-end 2012. Marriott SARs exercised during 2013 had total intrinsic values of $6 million and Marriott SARs exercised in 2012 had total intrinsic values of $2 million.
On the grant date, we use a binomial lattice-based valuation model to estimate the fair value of each SAR and option granted. This valuation model uses a range of possible stock price outcomes over the term of the SAR and option, discounted back to a present value using a risk-free rate. Because of the limitations with closed-form valuation models, such as the Black-Scholes model, we have determined that this more flexible binomial model provides a better estimate of the fair value of our options and SARs because it takes into account employee and non-employee director exercise behavior based on changes in the price of our stock and also allows us to use other dynamic assumptions.
We used the following assumptions to determine the fair value of the SARs and stock options we granted to employees and non-employee directors in 2013 and 2012, and to employees in 2011 (we did not grant SARs to non-employee directors in 2011):
|
| | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Expected volatility | 30 - 31% |
| | 31 | % | | 32 | % |
| Dividend yield | 1.17 | % | | 1.01 | % | | 0.73 | % |
| Risk-free rate | 1.8 - 1.9% |
| | 1.7 - 2.0% |
| | 3.4 | % |
| Expected term (in years) | 8 - 10 |
| | 8 - 10 |
| | 8 |
|
In making these assumptions, we base expected volatility on the historical movement of Marriott's stock price. We base risk-free rates on the corresponding U.S. Treasury spot rates for the expected duration at the date of grant, which we convert to a continuously compounded rate. The dividend yield assumption takes into consideration both historical levels and expectations of future payout. The weighted average expected terms for SARs and options are an output of our valuation model which utilizes historical data in estimating the period of time that the SARs and options are expected to remain unexercised. We calculate the expected terms for SARs and options for separate groups of retirement eligible and non-retirement eligible employees. Our valuation model also uses historical data to estimate exercise behaviors, which includes determining the likelihood that employees will exercise their SARs and options before expiration at a certain multiple of stock price to exercise price. In recent years, non-employee directors have generally exercised grants in their last year of exercisability.
Deferred Stock Units
We also issue Marriott deferred stock units to non-employee directors. These non-employee director deferred stock units vest within one year and are distributed upon election.
The following table shows the share-based compensation expense, the number of deferred stock units we granted, the weighted average grant-date fair value, and the aggregate intrinsic value for the last three fiscal years for non-employee director Marriott deferred stock units:
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Share-based compensation expense (in millions) | $ | 1.4 |
| | $ | 1.2 |
| | $ | 1.1 |
|
| Non-employee director deferred stock units granted | 31,000 |
| | 27,000 |
| | 29,000 |
|
| Weighted average grant-date fair value (per share) | $ | 44 |
| | $ | 39 |
| | $ | 36 |
|
| Aggregate intrinsic value of shares distributed (in millions) | $ | 0.7 |
| | $ | 1.0 |
| | $ | 1.4 |
|
We had 261,000 outstanding non-employee Marriott deferred stock units at year-end 2013, and 245,000 outstanding at year-end 2012. The weighted average grant-date fair value of those outstanding deferred stock units was $22 for 2013 and $27 for 2012.
Adjustments for the Timeshare Spin-off
Effective with the spin-off (see Footnote No. 17, "Spin-off"15, "Spin-off," for further information), all holderseach holder of Marriott RSUs, stock options, and SARs on the November 10, 2011 record date of record for the spin-off received MVW RSUs, MVW stock options and/or MVW SARs, as applicable, consistent with the distribution ratio of one share of MVW common stock for every ten shares of Marriott common stock, with terms and conditions substantially similar to the terms and conditions applicable to the Marriott RSUs. Also, effective with the spin-off, the holders of Marriott stock options and SARs on the date of record received MVW stock options and SARs, consistent with the distribution ratio, with terms and conditions substantially similar to the terms and conditions applicable to the MarriottRSUs, stock options and SARs. In order to preserve the aggregate intrinsic value of the Marriott stock options and SARs those persons held, by such persons,we adjusted the exercise prices of suchour awards were adjusted by using the proportion of the Marriott ex-distribution closing stock price to the sum of the total of the Marriott ex-distribution and MVW when issued closing stock prices on the distribution date. All ofWe accounted for these adjustments, which were designed to equalize the fair value of each award before and after spin-off. These adjustments were accounted forspin-off, as modifications to the original awards. A comparison ofComparing the fair value of the modified awards with the fair value of the original awards immediately before the modification did not yield incremental value. Accordingly,Marriott we did not record any incremental compensation expense as a result of the modifications to the awards on the spin-off date.
Marriott's future share-based compensation expense will not be significantly impacted by the
The equity award adjustments that occurred as a result of the spin-off.spin-off also did not significantly impact our share-based compensation expense. Deferred compensation costs as of the date of spin-off reflected the unamortized balance of the original grant date fair value of the equity awards held by Marriott employees (regardless of whether those awards are linked to Marriott stock or MVW stock). Following the spin-off, MVW employees who participated in the ComprehensiveStock Plan prior tobefore the spin-off may continuecontinued to hold suchtheir Marriott granted awards as non-employees. Marriott willnon-employees after the spin-off. We do not record any share-based compensation expense related tofor these unvested awards held by MVW employees after the spin-off.
During 2011, we granted 2.6 million RSUs, 0.7 million SARs, and 29,000 deferred stock units.
We recorded share-based compensation expense related to award grants of $86 million in 2011, $90 million in 2010, and $85 million in 2009. Deferred compensation costs related to unvested awards totaled $101 million and $113 million at year-end 2011 and 2010, respectively. As of year-end 2011, we expect to recognize these deferred compensation expenses over a
weighted average period of two years.
For awards granted after 2005, we recognize share-based compensation expense over the period from the grant date to the date on which the award is no longer contingent on the employee providing additional service (the “substantive vesting period”). We continue to follow the stated vesting period for the unvested portion of awards granted prior to 2006 and the adoption of the current guidance for share-based compensation and follow the substantive vesting period for awards granted after 2005.
In accordance with the guidance for share-based compensation, we present the tax benefits and costs resulting from the exercise or vesting of share-based awards as financing cash flows. The exercise of share-based awards in 2010 and 2009 resulted in tax benefits of $51 million in 2010 and tax costs of $8 million in 2009. Due to current year tax losses, we recorded no tax benefit in 2011.
We received cash from the exercise of Marriott stock options of $124 million in 2011, $147 million in 2010, and $35 million in 2009.
RSUs
We issue Marriott RSUs under the Comprehensive Plan to certain officers and key employees and those units vest generally over four years in equal annual installments commencing one year after the date of grant. We recognize compensation expense for RSUs over the service period equal to the fair market value of the stock units on the date of issuance. Upon vesting, Marriott RSUs convert to shares and are distributed from treasury shares. At year-end 2011 and year-end 2010, we had deferred compensation associated with RSUs of approximately $94 million and $103 million, respectively. The weighted average remaining term for RSU grants outstanding at year-end 2011 was two years.
The following table provides additional information on RSUs for the last three fiscal years:
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Share-based compensation expense (in millions) | $ | 73 |
| | $ | 76 |
| | $ | 71 |
|
| Weighted average grant-date fair value (per Marriott RSU) | $ | 40 |
| | $ | 27 |
| | $ | 19 |
|
| Aggregate intrinsic value of converted and distributed Marriott RSUs (in millions) | $ | 113 |
| | $ | 79 |
| | $ | 39 |
|
The following table shows the 2011 changes in our outstanding Marriott RSU grants and the associated weighted average grant-date fair values:
|
| | | | | | |
| | Number of Marriott RSUs (in millions) | | Weighted Average Grant-Date Fair Value (per RSU) |
| Outstanding at year-end 2010 | 7.9 |
| | $ | 30 |
|
| Granted during 2011 | 2.6 |
| | 40 |
|
| Distributed during 2011 | (2.9 | ) | | 29 |
|
| Forfeited during 2011 | (0.3 | ) | | 32 |
|
Outstanding at year-end 2011 (1) | 7.3 |
| | 33 |
|
(1) Includes 0.7 million Marriott RSUs held by MVW employees.
Stock Options and SARs
We may grant employee stock options to officers and key employees at exercise prices or strike prices equal to the market price of our Class A Common Stock on the date of grant. Non-qualified options generally expire ten years after the date of grant, except those issued from 1990 through 2000, which expire 15 years after the date of the grant. Most stock options under the Stock Option Program are exercisable in cumulative installments of one quarter at the end of each of the first four years following the date of grant.
We recognized compensation expense associated with employee stock options of less than $1 million in 2011, less than $1 million in 2010, and $1 million in 2009. We had approximately $1 million in deferred compensation costs related to
employee stock options at both year-end 2011 and year-end 2010. Upon the exercise of Marriott stock options, we issue shares from treasury shares.
The following table shows the 2011 changes in our outstanding Marriott Stock Option Program awards and the associated weighted average exercise prices:
|
| | | | | | |
| | Number of Marriott Options (in millions) | | Weighted Average Exercise Price (per Option) |
| Outstanding at year-end 2010 | 24.1 |
| | $ | 18 |
|
| Granted during 2011 | — |
| | — |
|
| Exercised during 2011 | (7.6 | ) | | 17 |
|
| Forfeited during 2011 | (0.1 | ) | | 30 |
|
Outstanding at year-end 2011 (1) | 16.4 |
| | 17 |
|
(1) Includes 0.4 million Marriott options held by MVW employees.
The following table shows the Marriott stock options issued under the Stock Option Program awards outstanding at year-end 2011:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Outstanding | | Exercisable |
Range of Exercise Prices | | Number of Stock Options (in millions) | | Weighted Average Exercise Price (per Option) | | Weighted Average Remaining Life (in years) | | Number of Stock Options (in millions) | | Weighted Average Exercise Price (per Option) | | Weighted Average Remaining Life (in years) |
| 13 |
| | to | | 17 |
| | 11.7 |
| | 15 |
| | 2 |
| | 11.7 |
| | 15 |
| | 2 |
|
| 18 |
| | to | | 22 |
| | 3.3 |
| | 21 |
| | 3 |
| | 3.3 |
| | 21 |
| | 3 |
|
| 23 |
| | to | | 49 |
| | 1.4 |
| | 31 |
| | 5 |
| | 1.3 |
| | 31 |
| | 4 |
|
| 8 |
| | to | | 49 |
| | 16.4 |
| | 17 |
| | 2 |
| | 16.3 |
| | 17 |
| | 2 |
|
The following table shows the number of Marriott options we granted in the last three years and the associated weighted average grant-date fair values and weighted average exercise prices:
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Options granted | 19,192 |
| | 53,304 |
| | — |
|
| Weighted average grant-date fair value (per option) | $ | 15 |
| | $ | 10 |
| | $ | — |
|
| Weighted average exercise price (per option) | $ | 38 |
| | $ | 25 |
| | $ | — |
|
The following table shows the intrinsic value of outstanding Marriott stock options and exercisable Marriott stock options at year-end 2011 and 2010:
|
| | | | | | | |
| ($ in millions) | 2011 | | 2010 |
| Outstanding stock options | $ | 211 |
| | $ | 580 |
|
| Exercisable stock options | 211 |
| | 578 |
|
The total intrinsic value of Marriott stock options exercised during 2011, 2010, and 2009 was approximately $124 million, $149 million, and $30 million, respectively.
We may grant Marriott SARs to officers and key employees ("Employee SARs") at base values (exercise prices or strike prices) equal to the market price of our Class A Common Stock on the date of grant. Employee SARs expire ten years after the date of grant and both vest and may be exercised in cumulative installments of one quarter at the end of each of the first four years following the date of grant. We may grant Marriott SARs to directors ("Director SARs") at exercise prices or strike prices equal to the market price of our Class A Common Stock on the date of grant. Director SARs generally expire ten years after the
date of grant and vest upon grant; however, they are generally not exercisable until one year after grant. On exercise of Marriott SARs, holders receive the number of shares of our Class A Common Stock equal to the number of SARs that are being exercised multiplied by the quotient of (a) the final value minus the base value, divided by (b) the final value.
We recognized compensation expense associated with Employee SARs and Director SARs of $12 million in 2011, $12 million in 2010, and $11 million in 2009. At year-end 2011 and year-end 2010, we had approximately $6 million and $9 million, respectively, in deferred compensation costs related to SARs. Upon the exercise of Marriott SARs, we issue shares from treasury shares.
The following table shows the 2011 changes in our outstanding Marriott SARs and the associated weighted average exercise prices:
|
| | | | | | |
| | Number of SARs (in millions) | | Weighted Average Exercise Price |
| Outstanding at year-end 2010 | 4.8 |
| | $ | 31 |
|
| Granted during 2011 | 0.7 |
| | 38 |
|
| Exercised during 2011 | — |
| | — |
|
| Forfeited during 2011 | (0.1 | ) | | 31 |
|
Outstanding at year-end 2011 (1) | 5.4 |
| | 30 |
|
(1) Includes 0.3 million Marriott SARs held by MVW employees.
The following tables show the number of Employee Marriott SARs and Director Marriott SARs granted in the last three years, the associated weighted average exercise prices, and the associated weighted average grant-date fair values:
|
| | | | | | | | | | | |
| Employee Marriott SARs | 2011 | | 2010 | | 2009 |
| Employee Marriott SARs granted (in millions) | 0.7 |
| | 1.1 |
| | 0.5 |
|
| Weighted average exercise price (per SAR) | $ | 38 |
| | $ | 27 |
| | $ | 15 |
|
| Weighted average grant-date fair value (per SAR) | $ | 14 |
| | $ | 10 |
| | $ | 5 |
|
| Director Marriott SARs | 2011 | | 2010 | | 2009 |
| Director Marriott SARs granted | — |
| | — |
| | 5,600 |
|
| Weighted average exercise price (per SAR) | $ | — |
| | $ | — |
| | $ | 23 |
|
| Weighted average grant-date fair value (per SAR) | $ | — |
| | $ | — |
| | $ | 10 |
|
The number of Marriott SARs forfeited in 2011 and 2010 was 63,000 and 79,000, respectively. Outstanding Marriott SARs at year-end 2011 and year-end 2010 had total intrinsic values of less than $1 million and $54 million, respectively. Exercisable Marriott SARs at year-end 2011 and year-end 2010 had total intrinsic values of zero and $13 million, respectively. Marriott SARs exercised during 2011 and 2010 had total intrinsic values of $280,000 and $402,000, respectively. No SARs were exercised in 2009.
We use a binomial method to estimate the fair value of each SAR granted, under which we calculate the weighted average expected SARs terms as the product of a lattice-based binomial valuation model that uses suboptimal exercise factors. We use historical data to estimate exercise behaviors and terms to retirement for separate groups of retirement eligible and non-retirement eligible employees. The following table shows the assumptions we used for stock options and Employee SARs for 2011, 2010, and 2009:
|
| | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Expected volatility | 32 | % | | 32 | % | | 32 | % |
| Dividend yield | 0.73 | % | | 0.71 | % | | 0.95 | % |
| Risk-free rate | 3.4 | % | | 3.3 | % | | 2.2 | % |
| Expected term (in years) | 8.0 |
| | 7.0 |
| | 7.0 |
|
In making these assumptions, we based risk-free rates on the corresponding U.S. Treasury spot rates for the expected
duration at the date of grant, which we converted to a continuously compounded rate. We based expected volatility on the weighted-average historical volatility, with periods with atypical stock movement given a lower weight to reflect stabilized long-term mean volatility. We generally valued Director SARs using assumptions consistent with those shown above for Employee SARs, except that we used an expected term of ten years and risk-free rate of 3.2 percent for 2009 rather than that shown in the foregoing table. There were no Director SARs granted during 2010 and 2011.
Deferred Stock Units
We also issue Marriott deferred stock units to Non-employee directors. These Non-employee director deferred stock units vest within one year and are distributed upon election. At year-end 2011 and year-end 2010, there was approximately $279,000 and $313,000, respectively, in deferred costs related to Non-employee director deferred stock units.
The following table shows share-based compensation expense, number of deferred stock units granted, weighted average grant-date fair value, and aggregate intrinsic value of Non-employee director Marriott deferred stock units:
|
| | | | | | | | | | | |
| | 2011 | | 2010 | | 2009 |
| Share-based compensation expense (in millions) | $ | 1.1 |
| | $ | 1.1 |
| | $ | 0.9 |
|
| Non-employee director deferred stock units granted | 29,000 |
| | 34,000 |
| | 39,000 |
|
| Weighted average grant-date fair value (per share) | $ | 36 |
| | $ | 35 |
| | $ | 23 |
|
| Aggregate intrinsic value of shares distributed (in millions) | $ | 1.4 |
| | $ | 1.2 |
| | $ | 0.5 |
|
At year-end 2011 and year-end 2010, 247,000 and 252,000, respectively, of Non-employee Marriott deferred stock units were outstanding. The weighted average grant-date fair value of those outstanding deferred stock units was $25 for 2011 and $26 for 2010.
Other Information
Although the Comprehensive Plan also provides for issuance of deferred stock bonus awards, deferred stock awards, and restricted stock awards, our Compensation Policy Committee indefinitely suspended the issuance of deferred bonus stock beginning in 2001 and the issuance of both deferred stock awards and restricted stock awards beginning in 2003. At year-end 2011 and year-end 2010, we had zero and less than $1 million, respectively, in deferred compensation costs related to these suspended award programs. We had share-based compensation expense associated with these suspended award programs of less than $1 million in 2011, $1 million in 2010, and $1 million in 2009.
At year-end 20112013, we reserved 4932 million shares under the ComprehensiveStock Plan, including 2211 million shares under the Stock Option Program and the SAR Program.
| |
| 4. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. We show the carrying values and the fair values of non-currentnoncurrent financial assets and liabilities that qualify as financial instruments, determined in accordance withunder current guidance for disclosures on the fair value of financial instruments, in the following table. On November 21, 2011, we transferred all balances related to Loans to timeshare owners (both securitized and non-securitized) and non-recourse debt associated with securitized notes receivable to MVW as part of the spin-off. See Footnote No. 17, "Spin-off" for additional information.table:
| | | | At Year-End 2011 | | At Year-End 2010 | At Year-End 2013 | | At Year-End 2012 |
| ($ in millions) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Cost method investments | $ | 31 |
| | $ | 25 |
| | $ | 60 |
| | $ | 63 |
| $ | 16 |
| | $ | 17 |
| | $ | 21 |
| | $ | 23 |
|
| Loans to timeshare owners – securitized | — |
| | — |
| | 910 |
| | 1,097 |
| |
| Loans to timeshare owners – non-securitized | — |
| | — |
| | 170 |
| | 176 |
| |
| Senior, mezzanine, and other loans – non-securitized | 298 |
| | 252 |
| | 184 |
| | 130 |
| |
| Restricted cash | 16 |
| | 16 |
| | 30 |
| | 30 |
| |
| Marketable securities | 50 |
| | 50 |
| | 18 |
| | 18 |
| |
| Senior, mezzanine, and other loans | | 142 |
| | 145 |
| | 180 |
| | 172 |
|
| Marketable securities and other debt securities | | 111 |
| | 111 |
| | 56 |
| | 56 |
|
| Total long-term financial assets | | $ | 269 |
| | $ | 273 |
| | $ | 257 |
| | $ | 251 |
|
| | | | | | | | | | | | | | | |
| Total long-term financial assets | $ | 395 |
| | $ | 343 |
| | $ | 1,372 |
| | $ | 1,514 |
| |
| Non-recourse debt associated with securitized notes receivable | $ | — |
| | $ | — |
| | $ | (890 | ) | | $ | (921 | ) | |
| Senior Notes | (1,286 | ) | | (1,412 | ) | | (1,631 | ) | | (1,771 | ) | $ | (2,185 | ) | | $ | (2,302 | ) | | $ | (1,833 | ) | | $ | (2,008 | ) |
| Commercial paper | (331 | ) | | (331 | ) | | — |
| | — |
| (834 | ) | | (834 | ) | | (501 | ) | | (501 | ) |
| Other long-term debt | (137 | ) | | (137 | ) | | (142 | ) | | (138 | ) | (123 | ) | | (124 | ) | | (130 | ) | | (139 | ) |
| Other long-term liabilities | (77 | ) | | (77 | ) | | (71 | ) | | (67 | ) | (50 | ) | | (50 | ) | | (69 | ) | | (69 | ) |
| Long-term derivative liabilities | — |
| | — |
| | (1 | ) | | (1 | ) | |
| | | | | | | | | |
| Total long-term financial liabilities | $ | (1,831 | ) | | $ | (1,957 | ) | | $ | (2,735 | ) | | $ | (2,898 | ) | $ | (3,192 | ) | | $ | (3,310 | ) | | $ | (2,533 | ) | | $ | (2,717 | ) |
At year-end 2010, we estimated the fair value83
At year-end 2010, we estimated the fair value of the portion of our non-securitized notes receivable that we believed will ultimately be securitized in the same manner as securitized notes receivable. We valued the remaining non-securitized notes receivable at their carrying value, rather than using our pricing model. We believed that the carrying value of such notes receivable approximated fair value because the stated interest rates of these loans were consistent with current market rates and the reserve for these notes receivable appropriately accounted for risks in default rates, prepayment rates, and loan terms.
We estimate the fair value of our senior, mezzanine, and other loans by discounting cash flows using risk-adjusted rates. We estimate the fair value of our cost method investments by applying a cap rate to stabilized earnings (a market approach)approach using Level 3 inputs). The carryingDuring the 2012 third quarter, we determined that a cost method investment was other-than-temporarily impaired and, accordingly, we recorded the investment at its fair value as of the end of the 2012 third quarter ($12 million) and reflected a $7 million loss in the "Gains (losses) and other income" caption of our restricted cash approximates its fair value.
At year-end 2010, weIncome Statement. We estimated the fair value of our non-recourse debt associated with securitized notes receivablethe investment using internally generated cash flow estimates derived by modeling all bond tranchesprojections discounted at risk premiums commensurate with market conditions. We used Level 3 inputs for these discounted cash flow analyses and our active notes receivable securitization transactions, with consideration forassumptions included revenue forecasts, cash flow projections, and timing of the collateral specific tosale of each tranche. The key drivers in our analysis included default rates, prepayment rates, bond interest rates and other structural factors, which we used to estimate the projected cash flows. In order to estimate market credit spreads by rating, we reviewed market spreads from timeshare notes receivable securitizations and other asset-backed transactions that occurredhotel in the market during fiscal year 2010. We then applied those estimated market spreads to swap rates in order to estimate an underlying discount rate for calculating the fair value of the active bonds payable.investment.
We estimate the fair value of our senior, mezzanine, and other long-term debt, excluding leases,loans, including the current portion, by discounting cash flows using expected future payments discounted at risk-adjusted rates, and we determine the fair valueboth of our senior notes using quoted market prices. At year-end 2011 the carrying value of our commercial paper approximated its fair value due to the short maturity. Other long-term liabilities represent guarantee costs and reserves and deposit liabilities. The carrying values of our guarantee costs and reserves
approximate their fair values. We estimate the fair value of our deposit liabilities primarily by discounting future payments at a risk-adjusted rate.which are Level 3 inputs.
We are required to carry our marketable securities at fair value. We value these securities using directly observable Level 1 inputs. The carrying value of ourOur marketable securities at year-end 2011 was $50 million, which includedinclude debt securities of the U.S. Government, its sponsored agencies and other U.S. corporations invested for our self-insurance programs, as well as shares of a publicly traded company. During 2011, a company, in which we ownedvalue using directly observable Level 1 inputs. The carrying value of these marketable securities at year-end 2013 was $41 million.
In the 2013 second quarter, we acquired a $65 million mandatorily redeemable preferred equity ownership interest in an investmententity that owns three hotels that we accountedmanage. We account for this investment as a debt security (with an amortized cost of $70 million at year-end 2013, including accrued interest income), and we include it in the "Marketable securities and other debt securities" caption in the preceding table. We estimated the $70 million fair value of this security by discounting cash flows using risk-adjusted rates, both of which are Level 3 inputs. This security matures in 2015 subject to annual extensions through 2018. We do not intend to sell this security and it is not more likely than not that we will be required to sell the investment before recovery of the amortized cost method becamebasis, which may be at maturity.
In the 2013 second quarter, we received $22 millionin net cash proceeds for the sale of a portion of our shares of a publicly traded company. Accordingly, we reclassifiedcompany (with an amortized cost of $14 million at the investment to marketable securitiesdate of sale) and now record our investment at fair value. We determined that this security was other-than-temporarily impaired as of the end of the 2011 third quarter and, correspondingly, we recognized an $18$8 million loss gain in the 2011 third quarter which we reflected in the "(Losses) gains"Gains (losses) and other income" caption of our Income Statement. This lossgain included $10 millionrecognition of lossesunrealized gains that had beenwe previously recorded in other comprehensive income as of the end of the 2011 second quarter.
We are also required to carry our derivative assets and liabilities at fair value. As of year-end 2011, we had no derivative instruments in a long-term asset or long-term liability position. On November 21, 2011, we transferred the long-term asset position of our derivative instruments to MVW in conjunction with the spin-off.income. See Footnote No. 17, “Spin-off”12, "Comprehensive Income and Shareholders' (Deficit) Equity" for additional information. Priorinformation on the reclassification of these unrealized gains from accumulated other comprehensive income.
We estimate the fair value of our other long-term debt, including the current portion and excluding leases, using expected future payments discounted at risk-adjusted rates, both of which are Level 3 inputs. We determine the fair value of our senior notes using quoted market prices, which are directly observable Level 1 inputs. As noted in Footnote No. 10, "Long-term Debt," even though our commercial paper borrowings generally have short-term maturities of 30 days or less, we classify outstanding commercial paper borrowings as long-term based on our ability and intent to refinance them on a long-term basis. As we are a frequent issuer of commercial paper, we use pricing from recent transactions as Level 2 inputs in estimating fair value. At year-end 2013 and year-end 2012, we determined that the carrying value of our commercial paper approximated its fair value due to the spin-off,short maturity. Our other long-term liabilities largely consist of guarantees. As noted in the "Guarantees" caption of Footnote No. 1, "Summary of Significant Accounting Policies," we usedmeasure our liability for guarantees at fair value on a nonrecurring basis that is when we issue or modify a guarantee, using Level 3 inputs to value these derivatives, using valuationsinternally developed inputs. At year-end 2013 and year-end 2012, we determined that we calibrated to the initial trade prices, with subsequent valuationscarrying values of our guarantee liabilities approximated their fair values based on unobservable inputs to the valuation model, including interest rates and volatilities.Level 3 inputs.
See the “Fair Value Measurements” caption of Footnote No. 1, “Summary of Significant Accounting Policies” for additional information.more information on the input levels we use in determining fair value.
Prior to the spin-off, in preparing our former Timeshare segment to operate as an independent, publicly traded company following our spin-off of MVW (see Footnote No. 17, "Spin-off" for additional information), management assessed the Timeshare segment's intended use of excess undeveloped land and built inventory and the current market conditions for those assets. During the third quarter of 2011, in conjunction with our evaluation of these specific Timeshare assets and our resulting decisions to accelerate cash flow through the monetization of certain excess undeveloped land and to offer incentives to accelerate sales of excess built luxury fractional and residential inventory, we recorded $324 million ($234 million after-tax) of impairment charges, reflected in our 2011 Income Statement in the “Timeshare Strategy - Impairment Charges” caption, to write down the carrying amounts of inventory and property and equipment to their respective fair values. For additional information, see Footnote No. 18, “Timeshare Strategy - Impairment Charges.”
The table below illustrates the reconciliation of the earnings (losses) and number of shares used in our calculations of basic and diluted earnings (losses) per share attributable to Marriott shareholders.share:
| | | | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| (in millions, except per share amounts) | | | | | | | | | | |
| Computation of Basic Earnings Per Share Attributable to Marriott Shareholders | | | | | | |
| Net income (loss) | $ | 198 |
| | $ | 458 |
| | $ | (353 | ) | |
| Net losses attributable to noncontrolling interests | — |
| | — |
| | 7 |
| |
| Net income (loss) attributable to Marriott shareholders | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | |
| Computation of Basic Earnings Per Share | | | | | | |
| Net income | | $ | 626 |
| | $ | 571 |
| | $ | 198 |
|
| Weighted average shares outstanding | 350.1 |
| | 362.8 |
| | 356.4 |
| 305.0 |
| | 322.6 |
| | 350.1 |
|
| Basic earnings (losses) per share attributable to Marriott shareholders | $ | 0.56 |
| | $ | 1.26 |
| | $ | (0.97 | ) | |
| Computation of Diluted Earnings Per Share Attributable to Marriott Shareholders | | | | | | |
| Net income (loss) attributable to Marriott shareholders | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | |
| Basic earnings per share | | $ | 2.05 |
| | $ | 1.77 |
| | $ | 0.56 |
|
| Computation of Diluted Earnings Per Share | | | | | | |
| Net income | | $ | 626 |
| | $ | 571 |
| | $ | 198 |
|
| Weighted average shares outstanding | 350.1 |
| | 362.8 |
| | 356.4 |
| 305.0 |
| | 322.6 |
| | 350.1 |
|
| Effect of dilutive securities | | | | | | | | | | |
| Employee stock option and SARs plans | 8.0 |
| | 11.0 |
| | — |
| 4.0 |
| | 6.1 |
| | 8.0 |
|
| Deferred stock incentive plans | 0.9 |
| | 1.1 |
| | — |
| 0.8 |
| | 0.9 |
| | 0.9 |
|
| Restricted stock units | 3.3 |
| | 3.4 |
| | — |
| 3.2 |
| | 3.3 |
| | 3.3 |
|
| Shares for diluted earnings per share | 362.3 |
| | 378.3 |
| | 356.4 |
| 313.0 |
| | 332.9 |
| | 362.3 |
|
| Diluted earnings (losses) per share attributable to Marriott shareholders | $ | 0.55 |
| | $ | 1.21 |
| | $ | (0.97 | ) | |
| Diluted earnings per share | | $ | 2.00 |
| | $ | 1.72 |
| | $ | 0.55 |
|
We compute the effect of dilutive securities using the treasury stock method and average market prices during the period. We determine dilution based on earnings. As we recorded a loss in 2009, we did not includehave excluded the following shares in the “Effect of dilutive securities” caption in the preceding table, because it would have been antidilutive to do so: 7.5 million employee stock option and SARs plan shares, 1.4 million deferred stock incentive plans shares, and 2.1 million RSU shares.
In accordance with the applicable accounting guidance for calculating earnings per share, we have not included the following stock options and SARs in our calculation of diluted earnings per share because thetheir exercise prices were greater than the average market prices for the applicable periods:
| |
| (a) | for 20112013, 4.10.4 million options and SARs, with exercise prices ranging from $30.31 to $46.21;SARs; |
| |
| (b) | for 20102012, 2.41.0 million options and SARs, with exercise prices ranging from $34.11 to $49.03;SARs; and |
| |
| (c) | for 20092011, 12.34.1 million options and SARs, with exercise prices ranging from $22.30 to $49.03.SARs. |
Inventory, totaling $11 million as of year-end 2011, primarily consists of hotel operating supplies for the limited number of properties we own or lease. Inventory totaling $1,489 million as of year-end 2010, consisted primarily of Timeshare segment interval, fractional ownership, and residential products totaling $1,472 million and hotel operating supplies of $17 million. Interest capitalized as a cost of Timeshare segment interval, fractional ownership, and residential products totaled $6 million in 2011 and $3 million in 2010. On November 21, 2011, we transferred all Timeshare segment inventory balances (including the capitalized interest) to MVW as part of the spin-off. See Footnote No. 17, "Spin-off" for additional information.
We generally value operating supplies at the lower of cost (using the first-in, first-out method) or market. Prior to the spin-off date, we primarily recorded Timeshare segment interval, fractional ownership, and residential products at the lower of cost or fair market value, in accordance with applicable accounting guidance. Consistent with recognized industry practice, we classified Timeshare segment interval, fractional ownership, and residential products inventory as of year-end 2010 (which had an operating cycle that exceeds 12 months) as a current asset.
Prior to the spin-off, in preparing our former Timeshare segment to operate as an independent, publicly traded company (see Footnote No. 17, "Spin-off" for additional information), management assessed the Timeshare segment's intended use of excess undeveloped land and built inventory and the current market conditions for those assets. On September 8, 2011,
management approved a plan for the Timeshare segment to accelerate cash flow through the monetization of certain excess undeveloped land and to offer incentives to accelerate sales of excess built luxury fractional and residential inventory. As the fair values of the undeveloped land and the excess built luxury fractional and residential inventory were less than their respective carrying values, we recorded an inventory impairment charge in 2011 of $256 million to adjust the carrying value of the inventory to its fair value. Additionally, upon the approval of the plan in 2011, we reclassified $57 million of this undeveloped land previously in our development plans from inventory to property and equipment. See Footnote No. 18, “Timeshare Strategy-Impairment Charges,” for additional information.
We show the composition of our former Timeshare segment inventory balances as of year-end 2010 in the following table:
|
| | | |
| ($ in millions) | At Year-End 2010 |
| Finished goods | $ | 732 |
|
| Work-in-process | 101 |
|
| Land and infrastructure | 639 |
|
| | $ | 1,472 |
|
We showThe following table shows the composition of our property and equipment balances in the following table:at year-end 2013 and 2012:
| | | ($ in millions) | 2011 | | 2010 | At Year-End 2013 | | At Year-End 2012 |
| Land | $ | 454 |
| | $ | 514 |
| $ | 535 |
| | $ | 590 |
|
| Buildings and leasehold improvements | 667 |
| | 854 |
| 786 |
| | 703 |
|
| Furniture and equipment | 810 |
| | 984 |
| 789 |
| | 854 |
|
| Construction in progress | 164 |
| | 204 |
| 338 |
| | 383 |
|
| | 2,095 |
| | 2,556 |
| 2,448 |
| | 2,530 |
|
| Accumulated depreciation | (927 | ) | | (1,249 | ) | (905 | ) | | (991 | ) |
| | $ | 1,168 |
| | $ | 1,307 |
| $ | 1,543 |
| | $ | 1,539 |
|
In theThe following table we showshows the composition of our assets recorded under capital leases, which we have included in ourthese property and equipment total balances in the preceding table:that we recorded as capital leases:
| | | ($ in millions) | 2011 | | 2010 | At Year-End 2013 | | At Year-End 2012 |
| Land | $ | 30 |
| | $ | 8 |
| $ | 8 |
| | $ | 30 |
|
| Buildings and leasehold improvements | 128 |
| | 59 |
| 68 |
| | 143 |
|
| Furniture and equipment | 34 |
| | 32 |
| 37 |
| | 38 |
|
| Construction in progress | 3 |
| | 1 |
| 1 |
| | 4 |
|
| | 195 |
| | 100 |
| 114 |
| | 215 |
|
| Accumulated depreciation | (76 | ) | | (70 | ) | (83 | ) | | (82 | ) |
| | $ | 119 |
| | $ | 30 |
| $ | 31 |
| | $ | 133 |
|
We record property and equipment at cost, including interest and real estate taxes incurredwe incur during development and construction. Interest we capitalized as a cost of property and equipment totaled $31 million in 2013, $27 million in 2012, and $12 million in 2011, $10 million in 2010, and $8 million in 2009.2011. We capitalize the cost of improvements that extend the useful life of property and equipment when incurred.we incur them. These capitalized costs may include structural costs, equipment, fixtures, floor, and wall coverings. We expense all
repair and maintenance costs as incurred.when we incur them. We compute depreciation using the straight-line method over the estimated useful lives of the assets (three to 40 years), and we amortize leasehold improvements over the shorter of the asset life or lease term. DepreciationOur depreciation expense totaled $127107 million in 2013, $93 million in 2012, and $130 million in 2011 $138(including reimbursed costs of $48 million in 2010,2013, $45 million in 2012, and $151$43 million in 2009, and2011). We included amortization of assets recorded under capital leases.leases in depreciation expense.
As noted inSee Footnote No. 6, "Inventory," management approved a plan,15, "Spin-off" for additional information on September 8,the $68 million property and equipment impairment charge we recorded in 2011 foras part of the Timeshare segmentstrategy-impairment charges.
| |
| 7. | ACQUISITIONS AND DISPOSITIONS |
2013 Acquisition
On October 4, 2013, we acquired a North American Full-Service managed property which we plan to accelerate cash flow through the monetization of certain excess undeveloped land and to offer incentives to accelerate sales of excess built luxury fractional and residential inventory. As the nominal cash flows from the planned land sales and their estimated fair values were less than their carrying values, we recorded an impairment charge in the 2011 third quarterrenovate for a total of $68115 million in cash and recognized the related property and equipment.
Planned Acquisition as of Year-End 2013
Late in the 2013 fourth quarter, we entered into a definitive agreement with Protea Hospitality Holdings ("Protea Hospitality") of Cape Town, South Africa to acquire Protea Hotels' brands and hotel management business for approximately $186 million (2.02 billion rand). As part of the transaction, Protea Hospitality will create a property ownership company to retain ownership of the hotels it currently owns, and it will enter into long-term management and lease agreements with Marriott for these hotels. It would also retain a number of minority interests in other Protea-managed hotels. Once the transaction closes, we expect to add over 100 hotels (over 10,000 rooms) across three brands in South Africa and six other Sub-Saharan African countries to our International full-service portfolio. We expect to manage approximately 45 percent of the rooms, franchise approximately 39 percent of the rooms, and lease approximately 16 percent of the rooms. The transaction, which we expect will close at the beginning of the 2014 second quarter, remains subject to regulatory approvals and other customary closing conditions.
Planned Dispositions as of Year-End 2013
In the beginning of the 2014 first quarter, we sold The London EDITION to a third party, received approximately $240 million in cash, and simultaneously entered into definitive agreements to sell The Miami and The New York EDITION hotels that we are currently developing to the same third party. The total sales price for the three EDITION hotels will be $815 million, approximately equal to the aggregate estimated development costs of the three hotels. At year-end 2013, we had $244 million in Luxury segment assets related to The London EDITION ($236 million in property and equipment and $8 million in current assets) classified in the "Assets held for sale" caption and $13 million in Luxury segment liabilities classified in liabilities held for sale within the "Other current liabilities" caption of the Balance Sheet. We expect to sell The Miami EDITION in the second half of 2014 and The New York EDITION in the first half of 2015, when we anticipate that construction will be complete. We will retain long-term management agreements for each of the three hotels sold. We did not reclassify The Miami EDITION or The New York EDITION assets and liabilities as held for sale because the hotels are under construction and not available for immediate sale in their present condition.
In the 2013 fourth quarter, we entered into an agreement to sell our right to acquire the landlord’s interest in a leased real estate property and certain attached assets of the property. We subsequently reclassified the related $106 million (€77 million) in International segment assets ($105 million (€76 million) in property and equipment and $1 million (€1 million) in current assets) to the "Assets held for sale" caption of the Balance Sheet and $48 million (€35 million) in International segment liabilities to liabilities held for sale within the "Other current liabilities" caption of the Balance Sheet as of year-end 2013. We recognized an impairment loss of $2 million (€2 million) in the "Gains (losses) and other income" caption of our Income Statement as a result of measuring the assets at fair value less costs to sell. After year-end 2013, we sold the right and attached assets for $62 million (€45 million) in cash and the assumption of $45 million (€33 million) of related obligations. We will continue to operate the property under a long-term management agreement.
2012 Acquisitions
In 2012, we entered into a definitive agreement with Gaylord Entertainment Company (subsequently renamed Ryman Hospitality Properties, Inc.) ("Ryman Hospitality") to acquire the Gaylord brand and hotel management company. On September 25, 2012, Ryman Hospitality's shareholders approved its conversion into a real estate investment trust. On October 1, 2012, we acquired the Gaylord Hotels brand and hotel management company for $210 million in cash and recognized $210 million in intangible assets at the acquisition date, primarily reflecting deferred contract acquisition costs. Ryman Hospitality continues to own the Gaylord hotels, which we manage under the Gaylord brand under long-term management agreements.
millionThis transaction added four hotels and approximately 7,800 rooms to adjustour North American Full-Service segment, and included our entering into management agreements for several attractions at the carrying value of the property and equipment to its fair value. Additionally, upon the approval of the plan, we reclassified $57 million of this undeveloped land previouslyGaylord Opryland in our development plans from inventory to property and equipment in 2011. See Footnote No. 18, “Timeshare Strategy-Impairment Charges,” for additional information.
In 2010, we determined that we would not be able to fully recover the carrying amountNashville, consisting of a capitalized software asset from an existing group of property owners. In accordance with the guidance for the impairment of long-lived assets, we evaluated the asset for recovery and as a result of a negotiated agreement with the property owners, we recorded an impairment charge of $84 million in 2010 to adjust the carrying value of the asset to our estimate of its fair value. We estimated that 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. The impairment charge impacted the general, administrative, and other expense line in our Income Statement. We did not allocate that charge to any of our segments.
In 2010, we decided to pursue the disposition ofshowboat, a golf course, and related assets from our former Timeshare segment. a saloon. As part of the transaction, on December 1, 2012 we also assumed management of another hotel owned by Ryman Hospitality, the Inn at Opryland, with approximately 300 rooms.
In accordance with the guidance2012 fourth quarter, we acquired land for the impairment of long-lived assets, we evaluated the property and related assets for recovery and we recorded an impairment charge of $1332 million in 2010cash that we expect will be developed into a hotel. Earlier in 2012, we also acquired land and a building we plan to adjust the carrying value of the assets to our estimate of fair value. We estimated that fair value using an income approach reflecting internally developed Level 3 discounted cash flows based on negotiations withdevelop into a qualified prospective third-party purchaser of the asset. The impairment charge impacted the general, administrative, and other expense line in our Income Statement, and we allocated the charge to our former Timeshare segment.
In 2010, we decided to pursue the disposition of a land parcel. In accordance with the guidancehotel for the impairment of long-lived assets, we evaluated the property for recovery and we recorded an impairment charge of $14160 million in 2010 to adjustcash. In conjunction with the carrying valuelatter acquisition, we had also made a cash deposit of $6 million late in 2011.
2012 Dispositions
In 2012, we completed the property tosale of our estimate of fair value. We estimated that fair value using an income approach reflecting internally developed Level 3 cash flows that included, among other things, our expectations about the eventual disposition of the property based on discussions with potential third-party purchasers. The impairment charge impacted the general, administrative, and other expense lineequity interest in our Income Statement, and we allocated that charge to oura North American Limited-Service segment.joint venture (formerly two joint ventures which were merged before the sale) and we amended certain provisions of the management agreements for the underlying hotel portfolio. As a result of this transaction, we received cash proceeds of $96 million, including $30 million of proceeds which is refundable by us over the term of the management agreements if the hotel portfolio does not meet certain quarterly hotel performance thresholds. To the extent the hotel portfolio meets the quarterly hotel performance thresholds, we will recognize the $30 million of proceeds over the remaining term of the management agreements as base fee revenue. In 2012, we recognized a gain of $41 million, which consisted of: (1) $20 million of gain that we deferred in 2005 because we retained the equity interest following the original sale of land to one of the joint ventures and because there were contingencies for the 2005 transaction that expired with this sale; and (2) $21 million of gain on the sale of the equity interest. We also recognized base management fee revenue totaling $7 million, most of which we had deferred in earlier periods, but which we earned in conjunction with the sale.
We also sold our ExecuStay corporate housing business in 2012. Neither the sales price nor the gain we recognized was material to our results of operations and cash flows. The revenues, results of operations, assets, and liabilities of our ExecuStay business also were not material to our financial position, results of operations or cash flows for any of the periods presented, and accordingly we have not reflected ExecuStay as a discontinued operation.
| |
8. | ACQUISITIONS AND DISPOSITIONS |
2011 Acquisitions
In 2011,, we contributed approximately $51 million (€37 million) in cash for the intellectual property and associated 50 percent interests in two new joint ventures formed for the operation, management, and development of AC Hotels by Marriott, initially in Europe but eventually in other parts of the world. The hotels will beare managed by the joint ventures or franchised at the direction of the joint ventures. As notedwe note in Footnote No. 15,13, “Contingencies,” we have a right and, in some circumstances, an obligation to acquire the remaining interest in the joint ventures over the next nineseven years.
In 2011,, we acquired certain assets and a leasehold on a hotel for an initial payment of $34 million (€25 million) in cash plus fixed annual rent. See Footnote No. 21,17, “Leases,” for additionalmore information. As notedwe note in Footnote No. 15,13, “Contingencies,” we also havehad a right and, in some circumstances, an obligation to acquire the landlord’s interest in the real estate property and certain attached assets of this hotel for $58$45 million (€4533 million) during. As discussed in the next "threePlanned Dispositions as of Year-End 2013 years.
Late in 2011," caption, after year-end 2013, we paid cash deposits of $6 million on a property we planned to develop into a hotel. Subsequent to fiscal year-end 2011, we acquired the associated landsold that right and a building for $160 million in cash.certain attached assets.
2011 Dispositions
On November 21, 2011, we completed the spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of MVW, our then wholly owned subsidiary. We madesubsidiary MVW. The dividend consisted of a pro rata distribution to our shareholders of record as of the close of business on November 10, 2011 of one share of MVW common stock for every ten shares of Marriott common stock.stock to our shareholders of record at the close of business on November 10, 2011. We recognized no gain or loss as a result of the spin-off transaction. Please seespin-off. See Footnote No. 17, "Spin-off"15, "Spin-off," for additionalmore information.
In 2011, we completed a bulk sale of land and developed inventory for net cash proceeds of $17 million and recorded a net gain of $2 million, which waswe included in the results of our former Timeshare segment.
In 2011, we also sold our 11 percent interest in one hotel, concurrently terminated the associated lease agreement, and entered into a long-term management agreement. Cash proceeds totaled $1 million, and we recognized a $2 million loss. OurWe accounted for our sale of the
89 percent interest in 1999 was accounted for under the financing method withand reflected the sales proceeds reflectedreceived in 1999 as long-term debt. In conjunction with the 2011 sale of the remaining 11 percent interest, in 2011,our assets decreased by $19 million and liabilities decreased by $17 million.
��
2010 Acquisitions
In 2010, we acquired one land parcel for hotel development and one hotel for cash considerationTable of $175 million. We also acquired timeshare and fractional units for use in The Ritz-Carlton Destination Club program for cash consideration of $112 million, which included a deposit of $11 million, paid in 2009.Contents
2010 Dispositions
In 2010, we sold two limited-service properties, one full-service property, and one land parcel for cash proceeds of $114 million and recorded a net gain of $27 million. We accounted for each of the sales under the full accrual method in accordance with accounting for sales of real estate. We will continue to operate the one full-service property and one of the limited-service properties under management agreements. The one other limited-service property left our system.
2009 Acquisitions and Dispositions
We made no significant acquisitions or dispositions in 2009.
| |
9.8. | GOODWILL AND INTANGIBLE ASSETS |
The following table details the composition of our other intangible assets:assets at year-end 2013 and 2012:
| | | ($ in millions) | At Year-End 2011 | | At Year-End 2010 | At Year-End 2013 | | At Year-End 2012 |
| Contract acquisition costs and other | $ | 1,239 |
| | $ | 1,145 |
| $ | 1,554 |
| | $ | 1,512 |
|
| Accumulated amortization | (393 | ) | | (377 | ) | (423 | ) | | (397 | ) |
| | $ | 846 |
| | $ | 768 |
| $ | 1,131 |
| | $ | 1,115 |
|
We capitalize both direct and incremental costs incurredthat we incur to acquire management, franchise, and license agreements that are both direct and incremental.agreements. We amortize these costs on a straight-line basis over the initial term of the agreements, ranging from 15 to 30 years. AmortizationOur amortization expense totaled $4168 million in 2011,2013, $4054 million in 2010,2012, and $3457 million in 2009.2011. Our estimated aggregate amortization expense for each of the next five fiscal years is as follows: $41 million for 2012; $37 million for 2013; $3659 million for 2014; $3659 million for 2015; and $3659 million for 2016.2016; $59 million for 2017; and $59 million for 2018.
The following table details the carrying amount of goodwill:our goodwill at year-end 2013 and 2012:
| | | ($ in millions) | At Year-End 2011 | | At Year-End 2010 | At Year-End 2013 | | At Year-End 2012 |
| Goodwill | $ | 929 |
| | $ | 929 |
| $ | 928 |
| | $ | 928 |
|
| Accumulated impairment losses | (54 | ) | | (54 | ) | (54 | ) | | (54 | ) |
| | $ | 875 |
| | $ | 875 |
| $ | 874 |
| | $ | 874 |
|
We showThe following table shows the composition of our notes receivable balances (net of reserves and unamortized discounts) in the following table:at year-end 2013 and 2012:
|
| | | | | | | |
| ($ in millions) | At Year-End 2011 | | At Year-End 2010 |
| Loans to timeshare owners – securitized | $ | — |
| | $ | 1,028 |
|
| Loans to timeshare owners – non-securitized | — |
| | 225 |
|
| Senior, mezzanine, and other loans – non-securitized | 382 |
| | 191 |
|
| | 382 |
| | 1,444 |
|
| Less current portion | | | |
| Loans to timeshare owners – securitized | — |
| | (118 | ) |
| Loans to timeshare owners – non-securitized | — |
| | (55 | ) |
| Senior, mezzanine, and other loans – non-securitized | (84 | ) | | (7 | ) |
| | $ | 298 |
| | $ | 1,264 |
|
|
| | | | | | | |
| ($ in millions) | At Year-End 2013 | | At Year-End 2012 |
| Senior, mezzanine, and other loans | $ | 178 |
| | $ | 242 |
|
| Less current portion | (36 | ) | | (62 | ) |
| | $ | 142 |
| | $ | 180 |
|
We classify notes receivable due within one year as current assets in the caption “Accounts and notes receivable” in our Balance Sheets. We show the composition of our long-term notes receivable balances (net of reserves and unamortized discounts) in the following table:
|
| | | | | | | |
| ($ in millions) | At Year-End 2011 | | At Year-End 2010 |
| Loans to timeshare owners | $ | — |
| | $ | 1,080 |
|
| Loans to equity method investees | 2 |
| | 2 |
|
| Other notes receivable | 296 |
| | 182 |
|
| | $ | 298 |
| | $ | 1,264 |
|
The following tables showtable shows the expected future principal payments (net of reserves and unamortized discounts) as well as interest rates reserves and unamortized discounts for our securitized and non-securitized notes receivable.receivable as of year-end 2013:
Notes Receivable Principal Payments (net of reserves and unamortized discounts) and Interest Rates
|
| | | |
| ($ in millions) | Amount |
| 2012 | $ | 84 |
|
| 2013 | 50 |
|
| 2014 | 35 |
|
| 2015 | 23 |
|
| 2016 | 44 |
|
| Thereafter | 146 |
|
| Balance at year-end 2011 | $ | 382 |
|
| Weighted average interest rate at year-end 2011 | 4.3 | % |
| Range of stated interest rates at year-end 2011 | 0 to 12.9% |
|
|
| | | |
Notes Receivable Principal Payments (net of reserves and unamortized discounts) and Interest Rates ($ in millions) | Amount |
| 2014 | $ | 36 |
|
| 2015 | 85 |
|
| 2016 | 4 |
|
| 2017 | 3 |
|
| 2018 | 5 |
|
| Thereafter | 45 |
|
| Balance at year-end 2013 | $ | 178 |
|
| Weighted average interest rate at year-end 2013 | 4.6 | % |
| Range of stated interest rates at year-end 2013 | 0 to 8.0% |
|
The following table shows the unamortized discounts for our notes receivable as of year-end 2013 and 2012:
Notes Receivable Reserves |
| | | |
Notes Receivable Unamortized Discounts ($ in millions) | Amount |
| Balance at year-end 2012 | $ | 11 |
|
| Balance at year-end 2013 | $ | 12 |
|
|
| | | | | | | | | | | |
| ($ in millions) | Non-Securitized Notes Receivable | | Securitized Notes Receivable | | Total |
| Balance at year-end 2010 | $ | 203 |
| | $ | 89 |
| | $ | 292 |
|
| Balance at year-end 2011 | $ | 78 |
| | $ | — |
| | $ | 78 |
|
Notes Receivable Unamortized Discounts (1)
|
| | | |
| ($ in millions) | Amount |
| Balance at year-end 2010 | $ | 13 |
|
| Balance at year-end 2011 | $ | 12 |
|
| |
(1)
| The discounts for both year-end 2011 and 2010 relate entirely to our Senior, Mezzanine, and Other Loans.
|
Senior, Mezzanine, and Other Loans
Generally, all of the loans we make have similar characteristics in that they are loans to owners and operators of hotels and hospitality properties. We reflect interest income associated withfor “Senior, mezzanine, and other loans” in the “Interest income” caption in our Income Statements. At year-end 20112013, our recorded investment in impaired “Senior, mezzanine, and other loans” was $9699 million. We had a $78 million notes receivable reserve representing an allowance for credit losses, leaving $18 million of our investment in impaired loans, for which we had no related allowance for credit losses. At year-end 2010, our recorded investment in impaired “Senior, mezzanine, and other loans” was $83 million, and we had a $7490 million notes receivable reserve representing an allowance for credit losses, leaving $9 million of our investment in impaired loans, for which we had no related allowance for credit losses. DuringAt year-end 2011 and 20102012, our recorded investment in impaired “Senior, mezzanine, and other loans” was $93 million, and we had a $79 million notes receivable reserve representing an allowance for credit losses, leaving $14 million of our investment in impaired loans, for which we had no related allowance for credit losses. Our average investment in impaired “Senior, mezzanine, and other loans” totaled $96 million during 2013, $94 million during 2012, and $89 million and $137 million, respectively.during 2011.
The following table summarizes the activity related tofor our “Senior, mezzanine, and other loans” notes receivable reserve for 2009, 2010,2011, 2012, and 2011:2013:
| | | ($ in millions) | Notes Receivable Reserve | Notes Receivable Reserve |
| Balance at year-end 2008 | $ | 113 |
| |
| Balance at year-end 2010 | | $ | 74 |
|
| Additions | 84 |
| 2 |
|
| Write-offs | (28 | ) | (7 | ) |
| Transfers and other | 14 |
| 9 |
|
| Balance at year-end 2009 | $ | 183 |
| |
| Balance at year-end 2011 | | 78 |
|
| Additions | 4 |
| 2 |
|
| Reversals | | (1 | ) |
| Write-offs | (120 | ) | (1 | ) |
| Transfers and other | 7 |
| 1 |
|
| Balance at year-end 2010 | $ | 74 |
| |
| Additions | 2 |
| |
| Balance at year-end 2012 | | 79 |
|
| Reversals | (7 | ) | (2 | ) |
| Transfers and other | 9 |
| 13 |
|
| Balance at year-end 2011 | $ | 78 |
| |
| Balance at year-end 2013 | | $ | 90 |
|
As of year-end 2011, pastPast due senior, mezzanine, and other loans totaled $8 millionzero.
Loans to Timeshare Owners
On November 21, 2011, we transferred all balances related to loans to timeshare owners (both securitized and non-securitized) to MVW as part of the spin-off. See Footnote No. 17, "Spin-off" for additional information. Prior to the spin-off date, we reflected interest income associated with “Loans to timeshare owners” of $143 million, $187 million, and $46 million for 2011, 2010 and 2009, respectively, in our Income Statements in the “Timeshare sales and services” revenue caption. Of the
$143 million of interest income we recognized in 2011, $116 million was associated with securitized loans and $27 million was associated with non-securitized loans, compared with $147 million associated with securitized loans and $40 million associated with non-securitized loans in 2010. The interest income we recognized in 2009 related solely to non-securitized loans.
The following table summarizes the activity related to our “Loans to timeshare owners” notes receivable reserve for 2009, 2010, and 2011 prior to the spin-off date:
|
| | | | | | | | | | | |
| ($ in millions) | Non-Securitized Notes Receivable Reserve | | Securitized Notes Receivable Reserve | | Total |
| Balance at year-end 2008 | $ | 35 |
| | $ | — |
| | $ | 35 |
|
| Additions for current year securitizations | 5 |
| | — |
| | 5 |
|
| Write-offs | (13 | ) | | — |
| | (13 | ) |
| Balance at year-end 2009 | $ | 27 |
| | $ | — |
| | $ | 27 |
|
| Additions for current year securitizations | 32 |
| | — |
| | 32 |
|
| Additions for new securitizations, net of clean-up call | (18 | ) | | 18 |
| | — |
|
| Write-offs | (79 | ) | | — |
| | (79 | ) |
One-time impact of the new Transfers of Financial Assets and Consolidation standards (1) | 84 |
| | 135 |
| | 219 |
|
Defaulted note repurchase activity(2) | 68 |
| | (68 | ) | | — |
|
| Other | 15 |
| | 4 |
| | 19 |
|
| Balance at year-end 2010 | $ | 129 |
| | $ | 89 |
| | $ | 218 |
|
| Additions for current year contract sales | 26 |
| | — |
| | 26 |
|
| Additions for new securitizations, net of unwind | (12 | ) | | 12 |
| | — |
|
| Write-offs | (67 | ) | | — |
| | (67 | ) |
Defaulted note repurchase activity(2) | 43 |
| | (43 | ) | | — |
|
Other(3) | (12 | ) | | 12 |
| | — |
|
| Transfer due to spin-off | (107 | ) | | (70 | ) | | (177 | ) |
| Balance at year-end 2011 | $ | — |
| | $ | — |
| | $ | — |
|
| |
(1)
| The non-securitized notes receivable reserve related to the implementation of the new Transfers of Financial Assets and Consolidation standards, which required us to establish reserves for certain previously securitized and subsequently repurchased notes held at January 2, 2010. |
| |
(2)
| Decrease in securitized reserve and increase in non-securitized reserve was attributable to the transfer of the reserve when we repurchased the notes. |
| |
(3)
| Consisted of static pool and default rate assumption changes. |
We show our recorded investment in nonaccrual “Loans to timeshare owners” loans at year-end 2010 (which were loans that were 90 days or more past due) as well as our average investment in these loans during 2010 in the following table:
|
| | | | | | | | | | | |
| ($ in millions) | Non-Securitized Notes Receivable | | Securitized Notes Receivable | | Total |
| Investment in loans on nonaccrual status | $ | 113 |
| | $ | 15 |
| | $ | 128 |
|
| Average investment in loans on nonaccrual status | $ | 113 |
| | $ | 8 |
| | $ | 121 |
|
Prior to the spin-off date (see Footnote No. 17, "Spin-off" for additional information on the spin-off), we periodically securitized, without recourse, through special purpose entities, notes receivable originated by our former Timeshare segment in connection with the sale of timeshare interval and fractional products. We continued to service the notes and transferred all proceeds collected to special purpose entities. We retained servicing agreements and other interests in the notes. The executed transactions typically included minimal cash reserves established at time of securitization, as well as default and delinquency triggers, which we monitored on a monthly basis. See Footnote No. 1, “Summary of Significant Accounting Policies” for information on the impact of our 2010 adoption of the new Transfers of Financial Assets and Consolidation standards on our timeshare note securitizations, including the elimination of residual interests and the accounting for note receivable securitizations as secured borrowings, rather than sales.
The following table shows cash flows between us and investors during 2009. In 2010, we consolidated the entities that
facilitated our notes receivable securitizations. See Footnote No. 20, “Variable Interest Entities” for discussion of the impact of our involvement with these entities on our financial position, financial performance, and cash flows for 2010 and 2011.
|
| | | |
| ($ in millions) | 2009 |
| Net proceeds to us from timeshare note securitizations | $ | 349 |
|
| Voluntary repurchases by us of defaulted notes (over 150 days overdue) | $ | 81 |
|
| Servicing fees received by us | $ | 6 |
|
| Cash flows received from our retained interests | $ | 75 |
|
In 2010 and 2009, we securitized notes receivable originated by our Timeshare segment in connection with the sale of timeshare interval and fractional ownership products of $229 million2013 and $4467 million, respectively. During 2010, we entered into at year-end 2012.one note securitization transaction for $229 million. The note securitization was made to a transaction-specific trust that, simultaneously with its purchase of the notes receivable, issued $218 million of the trust’s notes. During 2009, we entered into two note securitization transactions for $284 million and $380 million. The second of these transactions included our reacquisition and securitization of $218 million of notes that were previously securitized in the first transaction. Each note securitization in 2009 was made to a transaction-specific trust that, simultaneously with its purchase of the notes receivable, issued $522 million of the trust’s notes. In connection with the securitization of the notes receivable, we received proceeds, net of costs and reserves, of $215 million in 2010 and $349 million in 2009. We included gains from the sales of timeshare notes receivable totaling $37 million in 2009 in the “Timeshare sales and services” revenue caption in our Income Statement. In 2010, we accounted for the note securitization transaction under the new Transfers of Financial Assets and Consolidation standards. Accordingly, no gain or loss was recorded in conjunction with the 2010 note securitization transaction.
We provide detail on our long-term debt balances at year-end 2013 and 2012 in the following table:
|
| | | | | | | |
| ($ in millions) | 2011 | | 2010 |
| Non-recourse debt associated with securitized notes receivable | $ | — |
| | $ | 1,016 |
|
| Less current portion | — |
| | (126 | ) |
| | — |
| | 890 |
|
| Senior Notes: | | | |
Series F, interest rate of 4.625%, face amount of $348, maturing June 15, 2012 (effective interest rate of 5.01%)(1) | 348 |
| | 348 |
|
Series G, interest rate of 5.810%, face amount of $316, maturing November 10, 2015 (effective interest rate of 6.52%)(1) | 307 |
| | 304 |
|
Series H, interest rate of 6.200%, face amount of $289, maturing June 15, 2016 (effective interest rate of 6.28%)(1) | 289 |
| | 289 |
|
Series I, interest rate of 6.375%, face amount of $293, maturing June 15, 2017 (effective interest rate of 6.43%)(1) | 291 |
| | 291 |
|
Series J, interest rate of 5.625%, face amount of $400, maturing February 15, 2013 (effective interest rate of 5.69%)(1) | 399 |
| | 399 |
|
| Commercial paper, average interest rate of 0.4407% at December 30, 2011 | 331 |
| | — |
|
| $1,750 Credit Facility | — |
| | — |
|
| Other | 206 |
| | 182 |
|
| | 2,171 |
| | 1,813 |
|
| Less current portion | (355 | ) | | (12 | ) |
| | 1,816 |
| | 1,801 |
|
| | $ | 1,816 |
| | $ | 2,691 |
|
|
| | | | | | | |
| ($ in millions) | At Year-End 2013 | | At Year-End 2012 |
| Senior Notes: | | | |
Series G, interest rate of 5.8%, face amount of $316, maturing November 10, 2015 (effective interest rate of 6.7%)(1) | $ | 312 |
| | $ | 309 |
|
Series H, interest rate of 6.2%, face amount of $289, maturing June 15, 2016 (effective interest rate of 6.4%)(1) | 289 |
| | 289 |
|
Series I, interest rate of 6.4%, face amount of $293, maturing June 15, 2017 (effective interest rate of 6.5%)(1) | 292 |
| | 292 |
|
| Series J, matured February 15, 2013 | — |
| | 400 |
|
Series K, interest rate of 3.0%, face amount of $600, maturing March 1, 2019 (effective interest rate of 4.4%)(1) | 595 |
| | 594 |
|
Series L, interest rate of 3.3%, face amount of $350, maturing September 15, 2022 (effective interest rate of 3.4%)(1) | 349 |
| | 349 |
|
Series M, interest rate of 3.4%, face amount of $350, maturing October 15, 2020 (effective interest rate of 3.6%)(1) | 348 |
| | — |
|
| Commercial paper, average interest rate of 0.4% at December 31, 2013 | 834 |
| | 501 |
|
| $2,000 Credit Facility | — |
| | 15 |
|
| Other | 180 |
| | 186 |
|
| | 3,199 |
| | 2,935 |
|
| Less current portion classified in: | | | |
| Other current liabilities (liabilities held for sale) | (46 | ) | | — |
|
| Current portion of long-term debt | (6 | ) | | (407 | ) |
| | $ | 3,147 |
| | $ | 2,528 |
|
| |
(1) | Face amount and effective interest rate are as of year-end 20112013. |
On November 21, 2011, all balances related to non-recourse debt associated with securitized notes receivable were transferred to MVW as part of the spin-off. See Footnote No. 17, "Spin-off" for additional information. The non-recourse debt associated with securitized notes receivable, prior to the spin-off, was secured by the related notes receivable. All of our other long-term debt was, and to the extent currently outstanding is, recourse to us but unsecured. Other debt in the preceding table includes capital leases, among other items.
In the 2013 third quarter, we issued $350 million aggregate principal amount of 3.4 percent Series M Notes due 2020 (the "Series M Notes"). We received net proceeds of approximately $345 million from the offering, after deducting the underwriting discount and estimated expenses. We will pay interest on the Series M Notes on April 15 and October 15 of each year, commencing on April 15, 2014. The Notes will mature on October 15, 2020, and we may redeem them, in whole or in part, at our option.
TableIn 2012, we issued $350 million aggregate principal amount of Contents3.3 percent Series L Notes due 2022 (the "Series L Notes"). We received net proceeds of approximately $346 million from the offering, after deducting the underwriting discount and estimated expenses. We pay interest on the Series L Notes on March 15 and September 15 of each year, and we made our first interest payment on March 15, 2013. The Notes will mature on September 15, 2022, and we may redeem them, in whole or in part, at our option.In 2012, we also issued $600 million aggregate principal amount of 3.0 percent Series K Notes due 2019 (the "Series K Notes") in two offerings, one for $400 million and a follow on for $200 million. We received total net proceeds of approximately $590 million from these offerings, after deducting underwriting discounts and estimated expenses. We pay interest on the Series K Notes on March 1 and September 1 of each year, and we made our first interest payment on September 1, 2012. The Notes will mature on March 1, 2019, and we may redeem them, in whole or in part, at our option.
We issued the Series M Notes, Series L Notes, and the Series K Notes under an indenture dated as of November 16, 1998 with The Bank of New York Mellon, as successor to JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan Bank), as trustee.
In the 2013 first quarter, we made a $411 million cash payment of principal and interest to retire, at maturity, all of our outstanding Series J Notes. In 2012, we made a $356 million cash payment of principal and interest to retire, at maturity, all of our outstanding Series F Notes.
We are party to a multicurrency revolving credit agreement (the “Credit Facility”) that provides for $1.75 billion2,000 million of aggregate borrowings to support general corporate needs, including working capital, capital expenditures, and letters of credit. The Credit Facility expires on June 23, 2016.July 18, 2018. The availability of the Credit Facility also supports our commercial paper program. 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 also based on our public debt
rating. While any outstanding commercial paper borrowings and/or borrowings under our Credit Facility generally have short-term maturities, we classify the outstanding borrowings as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis.
Each of our securitized notes receivable pools (all of which we transferred to MVW on November 21, 2011 in conjunction with the spin-off of our timeshare operations and timeshare development business) contained various triggers relating to the performance of the underlying notes receivable. If a pool of securitized notes receivable failed to perform within the pool’s established parameters (default or delinquency thresholds by deal) transaction provisions effectively redirected the monthly excess spread we typically received from that pool (related to the interests we retained), to accelerate the principal payments to investors based on the subordination of the different tranches until the performance trigger was cured. As a result of performance triggers, a total of $2 million, $6 million, and $17 million in cash of excess spread was used to pay down debt during 2011, 2010, and 2009, respectively.
We show future principal payments (net of unamortized discounts) and unamortized discounts for our debt in the following tables:table:
Debt Principal Payments (net of unamortized discounts)
|
| | | |
| ($ in millions) | Amount |
| 2012 | $ | 355 |
|
| 2013 | 409 |
|
| 2014 | 62 |
|
| 2015 | 316 |
|
| 2016 | 629 |
|
| Thereafter | 400 |
|
| Balance at year-end 2011 | $ | 2,171 |
|
Unamortized Debt Discounts
|
| | | | |
| ($ in millions) | | Amount |
| Balance at year-end 2010 | | $ | 16 |
|
| Balance at year-end 2011 | | $ | 12 |
|
|
| | | |
Debt Principal Payments (net of unamortized discounts) ($ in millions) | Amount |
| 2014 | $ | 52 |
|
| 2015 | 319 |
|
| 2016 | 297 |
|
| 2017 | 301 |
|
| 2018 | 843 |
|
| Thereafter | 1,387 |
|
| Balance at year-end 2013 | $ | 3,199 |
|
In 2009, we repurchased $122 million principal amount of our Senior Notes in the open market, across multiple series. We recorded a gain of $21 million for the debt extinguishment representing the difference between the acquired debt’s purchase price of $98 million and its carrying amount of $119 million. The weighted average interest rate on the senior debt that was paid down in 2009 was 6.8 percent.
We did not repurchase any of our Senior Notes in 2011 or 2010.
We paid cash for interest, net of amounts capitalized, of $83 million in 2013, $83 million in 2012, and $130 million in 2011, $148 million in 2010, and $96 million in 2009.2011.
| |
13.11. | SELF-INSURANCE RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES |
The following table summarizes the activity in theour self-insurance reserve for losses and loss adjustment expenses is summarized as follows:for the last two fiscal years:
| | | ($ in millions) | 2011 | | 2010 | 2013 | | 2012 |
| Balance at beginning of year | $ | 313 |
| | $ | 304 |
| $ | 342 |
| | $ | 330 |
|
| Less: reinsurance recoverable | (7 | ) | | (9 | ) | (5 | ) | | (5 | ) |
| Net balance at beginning of year | 306 |
| | 295 |
| 337 |
| | 325 |
|
| Incurred related to: | | | | | | |
| Current year | 117 |
| | 114 |
| 116 |
| | 108 |
|
| Prior year | (9 | ) | | (8 | ) | 8 |
| | (11 | ) |
| Total incurred | 108 |
| | 106 |
| 124 |
| | 97 |
|
| Paid related to: | | | | | | |
| Current year | (32 | ) | | (38 | ) | (25 | ) | | (28 | ) |
| Prior year | (57 | ) | | (57 | ) | (79 | ) | | (57 | ) |
| Total paid | (89 | ) | | (95 | ) | (104 | ) | | (85 | ) |
| Net balance at end of year | 325 |
| | 306 |
| 357 |
| | 337 |
|
| Add: reinsurance recoverable | 5 |
| | 7 |
| 5 |
| | 5 |
|
| Balance at end of year | $ | 330 |
| | $ | 313 |
| $ | 362 |
| | $ | 342 |
|
TheOur provision for unpaid lossincurred losses relating to the current year increased by $8 million over 2012 primarily due to an increase in medical benefit costs and loss adjustment expenses decreasedgrowth in business activity. Our provision for incurred losses relating to prior years increased by$9 million in 2011 and $8 million in 20102013 and decreased by $11 million in 2012 as a result of changes in estimates from insured events of thefrom prior years due to changes in underwriting experience and frequency and severity trends. Our year-end 20112013 self-insurance reserve of $330362 million consisted of a current portion of $99120 million and long-term portion of $231242 million. Our year-end 20102012 self-insurance reserve of $313342 million consisted of a current portion of $98103 million and long-term portion of $215239 million.
| |
14.12. | COMPREHENSIVE INCOME AND SHAREHOLDERS’ (DEFICIT) EQUITY |
The following table details the accumulated other comprehensive income (loss) activity for 2013, 2012, and 2011:
|
| | | | | | | | | | | | | | | |
| ($ in millions) | Foreign Currency Translation Adjustments | | Other Derivative Instrument Adjustments (1) | | Unrealized Gains (Losses) on Available-For-Sale Securities (2) | | Accumulated Other Comprehensive Loss |
| Balance at year-end 2010 | $ | (4 | ) | | $ | 2 |
| | $ | — |
| | $ | (2 | ) |
| Other comprehensive loss before reclassifications | (31 | ) | | (20 | ) | | (3 | ) | | (54 | ) |
| Amounts reclassified from accumulated other comprehensive loss | (2 | ) | | — |
| | 10 |
| | 8 |
|
| Net other comprehensive (loss) income | (33 | ) | | (20 | ) | | 7 |
| | (46 | ) |
| Balance at year-end 2011 | $ | (37 | ) | | $ | (18 | ) | | $ | 7 |
| | $ | (48 | ) |
| Other comprehensive income (loss) before reclassifications | 4 |
| | (2 | ) | | — |
| | 2 |
|
| Amounts reclassified from accumulated other comprehensive loss | 1 |
| | 1 |
| | — |
| | 2 |
|
| Net other comprehensive income (loss) | 5 |
| | (1 | ) | | — |
| | 4 |
|
| Balance at year-end 2012 | $ | (32 | ) | | $ | (19 | ) | | $ | 7 |
| | $ | (44 | ) |
| Other comprehensive income before reclassifications | 1 |
| | — |
| | 5 |
| | 6 |
|
| Amounts reclassified from accumulated other comprehensive loss | — |
| | — |
| | (6 | ) | | (6 | ) |
| Net other comprehensive loss | 1 |
| | — |
| | (1 | ) | | — |
|
| Balance at year-end 2013 | $ | (31 | ) | | $ | (19 | ) | | $ | 6 |
| | $ | (44 | ) |
| |
(1) | We present the portions of other comprehensive income (loss) before reclassifications that relate to other derivative instrument adjustments net of deferred taxes of $1 million for 2012 and deferred tax benefits of $14 million for 2011. |
| |
(2) | We present the portions of other comprehensive income (loss) before reclassifications that relate to unrealized gains (losses) on available-for-sale securities net of deferred taxes of $2 million for 2013 and $4 million for 2012. |
The following table details the effect on net income of significant amounts reclassified out of accumulated other comprehensive loss for 2013:
|
| | | | | | |
| ($ in millions) | | Amounts Reclassified from Accumulated Other Comprehensive Loss | | |
| Accumulated Other Comprehensive Loss Components | | 2013 | | Income Statement Line(s) Item Affected |
| Other derivative instrument adjustments | | | | |
| Gains (losses) on cash flow hedges | | | | |
| Foreign exchange contracts | | $ | 3 |
| | Base management and franchise fees |
| Interest rate contracts | | (5 | ) | | Interest expense |
| | | (2 | ) | | Income before income taxes |
| | | 2 |
| | Provision for income taxes |
| Other, net | | $ | — |
| | Net income |
| Unrealized gains on available-for-sale securities | | | | |
| Sale of an available-for-sale security | | $ | 10 |
| | Gains and other income |
| | | 10 |
| | Income before income taxes |
| | | (4 | ) | | Provision for income taxes |
| | | $ | 6 |
| | Net income |
Eight hundredOur restated certificate of incorporation authorizes 800 million shares of our Class A Common Stock,common stock, with a par value of $.01 per share and ten10 million shares of preferred stock, without par value, are authorized under our restated certificate of incorporation. As ofvalue. At year-end 20112013, of those authorized shareswe had 333298 million of these authorized shares of our Class A Common Stockcommon stock and no shares of our preferred stock were outstanding.
Accumulated other comprehensive loss92
Guarantees
We issue guarantees to certain lenders and hotel owners, primarilychiefly to obtain long-term management contracts. The guarantees generally have a stated maximum funding amount of funding and a term of four to ten years. The terms of guarantees to lenders generally require us to fund if cash flows from hotel operations are inadequate to cover annual debt service or to repay the loan at the end of the term. The terms of the guarantees to hotel owners generally require us to fund if the hotels do not attain specified levels of operating profit. Guarantee fundings to lenders and hotel owners are generally recoverable as loans repayable to us out of future hotel cash flows and/or proceeds from the sale of hotels. We also enter into project completion guarantees with certain lenders in conjunction with hotels that we or our joint venture partners are building.
We show the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for guarantees wherefor which we are the primary obligor and the carrying amount of the liability for expected future fundings at year-end 20112013 in the following table.
table:
| | ($ in millions) Guarantee Type | Maximum Potential Amount of Future Fundings |
| | Liability for Expected Future Fundings |
| Maximum Potential Amount of Future Fundings | | Liability for Guarantees |
| Debt service | $ | 74 |
| | $ | 7 |
| $ | 83 |
| | $ | 4 |
|
| Operating profit | 119 |
| | 48 |
| 99 |
| | 40 |
|
| Other | 17 |
| | 4 |
| 17 |
| | 2 |
|
| Total guarantees where we are the primary obligor | $ | 210 |
| | $ | 59 |
| $ | 199 |
| | $ | 46 |
|
We included our liability for expected future fundings at year-end 20112013 for guarantees for which we are the primary obligor in our Balance Sheet as follows: $92 million in the “Other current liabilities” and $5044 million in the “Other long-term liabilities.”
Our guarantees listed in the preceding table include $11 million of operating profit guarantees and $1620 million of debt service guarantees, all$11 million of whichoperating profit guarantees, and $1 million of other guarantees that will not be in effect until either the underlying properties open and we begin to operate the properties or certain other events occur.
The guarantees in the preceding table dodoes not include the following:
following guarantees:
$171102 million of guarantees related tofor Senior Living Services lease obligations of $13275 million (expiring in 2018) and lifecare bonds of $3927 million (estimated to expire in 2016), for which we are secondarily liable. Sunrise Senior Living, Inc. (“Sunrise”) is the primary obligor on both the leases and $64 million of the lifecare bonds; Health Care Property Investors,HCP, Inc., as successor by merger to CNL Retirement Properties, Inc. (“CNL”), is the primary obligor on $3222 million of the lifecare bonds,bonds; and Five Star Senior Living is the primary obligor on the remaining $1 million of lifecare bonds. Before we sold the Senior Living Services business in 2003, these were our guarantees of obligations of our then consolidated Senior Living Services subsidiaries. Sunrise and CNL have indemnified us for any fundings we may be called upon to make under these guarantees. While we currently do not expect to fund under theOur liability for these guarantees Sunrise’s SEC filings suggest that Sunrise’s continued ability to meet these guarantee obligations cannot be assured given Sunrise’s financial position and limited access to liquidity.had a carrying value of $3 million at year-end 2013. In 2011 Sunrise provided us with $3 million of cash collateral to cover potential exposure under the existing lease and bond obligations for 2012 and 2013. In conjunction with our consent of the extension in 2011 of certain lease obligations for an additional five-year term until 2018, Sunrise provided us an additional $1 million cash collateral and an $85 million letter of credit issued by Key Bank to secure our exposure under the lease guarantees for the continuing leases during the extension term and certain other obligations of Sunrise. During the extension term, Sunrise agreed to make an annual payment to us with respect tofrom the cash flow of the continuing lease facilities, subject to a $1 million annual minimum. In the 2013 first quarter, Sunrise merged with Health Care REIT, Inc., and Sunrise's management business was acquired by an entity formed by affiliates of Kohlberg Kravis Roberts & Co. LP, Beecken Petty O'Keefe & Co., Coastwood Senior Housing Partners LLC, and Health Care REIT. In conjunction with this acquisition, Sunrise funded an additional $2 million cash collateral and certified that the $85 million letter of credit remains in full force and effect.
Lease obligations, for which we became secondarily liable when we acquired the Renaissance Hotel Group N.V. in 1997, consisting of annual rent payments of approximately $6 million and total remaining rent payments through the initial term of approximately $4535 million. Most of these obligations expire by the end of 2020. CTF Holdings Ltd. (“CTF”) had originally provided €35 million in cash collateral in the event that we are required to fund under such guarantees, approximately $65 million (€54 million) of which remained at year-end 20112013. Our exposure for the remaining rent payments through the initial term will decline to the extent that CTF obtains releases from the landlords or these hotels exit the system. Since the time we assumed these guarantees, we have not funded any amounts, and we do not expect to fund any amounts under these guarantees in the future.
See Footnote No. 17, "Spin-off" for additional information on the spin-off of our timeshare operations and timeshare development business. Prior to the spin-off, we had certainCertain guarantees and commitments relating to the timeshare business, which were outstanding related to this business. In conjunction withat the time of the 2011 Timeshare spin-off and for which we became secondarily liable as part of the spin-off. These MVW payment
obligations, for any payments that may be required underwhich we currently have a project completion guarantee,total exposure of $17 million, relate to various letters of credit and several guarantees with a total exposure of $41 million, for whichother guarantees. MVW has executed documents indemnifying us. Most ofindemnified us for these obligations expire in 2012 andobligations. At year-end 2013, except forwe expect these obligations will expire as follows: $2 million in one2014 guarantee, $3 million in the amount of2017, and $2712 million (3516 million SGD) that expiresSingapore Dollars) in 20212022. We have not funded any amounts under these obligations.obligations, and do not expect to do so in the future. Our liability associated withfor these guaranteesobligations had a carrying value of $2 million at year-end 20112013. See Footnote No. 15 "Spin-off," for more information on the spin-off of our timeshare operations and timeshare development business.
A project completion guarantee that we provided to another lender for a joint venture project with an estimated aggregate total costlease, originally entered into in 2000, for which we became secondarily liable in 2012 as a result of $498 million (Canadian $508 millionour sale of the ExecuStay corporate housing business to Oakwood Worldwide ("Oakwood"). The associated joint venture will satisfy payments for cost overruns for this project through contributions from the partners or from borrowings, and we are liable
on a several basis with our partners in an amount equal to our 20 percent pro rata ownership in the joint venture. In 2010, our partners executed documents indemnifyingOakwood has indemnified us for any payments that may be requiredthe obligations under this guarantee. Our total exposure at year-end 2013 for this guarantee obligation.is $6 million in future rent payments through the end of the lease in 2019. Our liability associated withfor this project completion guarantee had a carrying value of $31 million at year-end 20112013.
A guarantee for two adjoining leases, originally entered into in 2000 and 2006, for which we became secondarily liable in the 2013 third quarter as a result of our assignment of the leases to Accenture LLP. Accenture is the primary obligor and has indemnified us for the obligations under these leases and the guarantee. Our total exposure at year-end 2013 is $6 million related to future rent payments through the end of the leases in 2017. After year-end 2013, we were released from this guarantee and are no longer secondarily liable.
In addition to the guarantees described in the preceding paragraphs, in conjunction with financing obtained for specific projects or properties owned by 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.
Commitments and Letters of Credit
In addition to the guarantees notedwe note in the preceding paragraphs, as ofat year-end 20112013, we had the following commitments outstanding:
A commitment to invest up to $710 million of equity for a noncontrolling interestsinterest in partnershipsa partnership that planplans to purchase North American full-service and limited-service properties, or purchase or develop hotel-anchored mixed-use real estate projects. We expect to fund $8 million of this commitment withinas follows: three$6 million years.in 2014 and $2 million in 2015. We do not expect to fund the remaining $2 million of this commitment.
A commitment to invest up to $2423 million of equity for noncontrolling interests in partnerships that plan to purchase or develop limited-service properties.properties in Asia. We expect to fund this commitment as follows: $2015 million withinin 2014 and three years. We do not expect to fund $48 million of this commitment.
A commitment, with no expiration date, to invest up to $26 million (€20 million) in a joint venture in which we are a partner. We do not expect to fund under this commitment.2015.
A commitment, with no expiration date, to invest up to $11 million in a joint venture for development of a new property that weproperty. We expect to fund within two years,this commitment as follows: $7$8 million in 20122014 and $4$3 million in 2013.2015.
A commitment with no expiration date, to invest up to $718 million in the renovation of a joint venture that we do not expect to fund.
$5 million of loan commitments that we have extended to owners of lodging properties.leased hotel. We do not expect to fund these commitments of which $4 million will expire within three years and $1 million will expire after five years.
A $1 million commitment, with no expiration date, to a hotel real estate investment trust in which we have an ownership interest. We do not expect to fund this commitment. The commitment is pledged as collateral for certain trust investments.by the end of 2014.
We have a right and under certain circumstances an obligation to acquire our joint venture partner’s remaining 5045 percent interest in two joint ventures over the next nineseven years at a price based on the performance of the ventures. We made a $12 million (€9 million) deposit in conjunction with this contingent obligation in 2011 and expect to make the remaining deposit of €$8 million (€6 million) in fiscal year 2012, after certain conditions are met.deposits in 2012. In 2013, we acquired an additional five percent noncontrolling interest in each venture, applying $5 million (€4 million) of those deposits. The remaining deposits are refundable to the extent we do not acquire our joint venture partner’s remaining interests.
We havehad a right and under certain circumstances an obligation to acquire, for approximately $45 million (€33 million), the landlord’s interest in the real estate property and certain attached assets of a hotel that we lease. After year-end 2013, we sold that right and certain attached assets. See Footnote No. 7, "Acquisitions and Dispositions" for additional information on the sale and reclassification of the capital lease to assets held for approximately $58 million (€45 million) during the next three years.sale as of year-end 2013.
Various commitments for the purchase of information technology hardware, software, as well as accounting, finance, and maintenance services in the normal course of business totaling $95152 million. We expect to fund these commitments withinas follows: $107 million in 2014, $32 million in 2015, and $13 million in 2016. The majority of these commitments will be recovered through cost reimbursement charges to properties in our system.
Several commitments aggregating $35 million with no expiration date and which we do not expect to fund.
A commitment to invest up to $10 million under certain circumstances for additional mandatorily redeemable preferred equity ownership interest in an entity that owns three hotels. We may fund this commitment, which expires
in 2015 subject to annual extensions through 2018; however, we have not yet determined the amount or timing of any potential funding.
A "put option" agreement we entered into after year-end 2013 with the lenders of a construction loan. On January 14, 2014, in conjunction with entering into a management agreement for the Times Square EDITION hotel in New York City (currently projected to open in 2017), and the hotel's ownership group obtaining acquisition financing and entering into agreements concerning future construction financing for the mixed use project (which includes both the hotel and adjacent retail space), we agreed to provide credit support to the lenders through a "put option" agreement. Under this agreement, we have 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 during the first two years after opening for $315 million. The lenders may extend this period for up to three years as follows: $47 millionto complete foreclosure if the loan has been accelerated and certain other conditions are met. While we cannot assure you that the lenders will not exercise this "put option," we believe that the likelihood of any exercise is remote. We do not have an ownership interest in 2012, $46 million in 2013, and $2 million in 2014.this EDITION hotel.
At year-end 20112013, we had $6580 million of letters of credit outstanding ($6479 million outside the Credit Facility and $1 million under our Credit Facility), the majority of which related towere for our self-insurance programs. Surety bonds issued as of year-end 20112013, totaled $108122 million, the majority of which federal, state and local governments requested in connection with our lodging operationsself-insurance programs.
Legal Proceedings
On January 19, 2010, several former Marriott employees (the "plaintiffs") filed a putative class action complaint against us and self-insurance programs.the Stock Plan (the "defendants"), alleging that certain equity awards of deferred bonus stock granted to the plaintiffs and other current and former employees for fiscal years 1963 through 1989 are subject to vesting requirements under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that are in certain circumstances more rapid than those set forth in the awards. The plaintiffs seek damages, class attorneys' fees and interest, with no amounts specified. The action is proceeding in the United States District Court for the District of Maryland (Greenbelt Division) and Dennis Walter Bond Sr. and Michael P. Steigman are the current named plaintiffs. The parties completed limited discovery concerning Marriott's defense of statute of limitations with respect to Mr. Bond and Mr. Steigman and completed discovery concerning class certification. We opposed plaintiffs' motion for class certification and sought summary judgment on the issue of statute of limitations in 2012. On August 9, 2013, the court denied our motion for summary judgment on the issue of statute of limitations and deferred its ruling on class certification. We moved to amend the court's judgment on our motion for summary judgment in order to certify an interlocutory appeal, which was denied. On January 7, 2014, the court denied plaintiffs' motion for class certification, and issued a Scheduling Order for full discovery of the remaining issues in this case. We and the Stock Plan have denied all liability, and while we intend to vigorously defend against the claims being made by the plaintiffs, we can give you no assurance about the outcome of this lawsuit. We currently cannot estimate the range of any possible loss to the Company because an amount of damages is not claimed, there is uncertainty as to the number of parties for whom the claims may be pursued, and the possibility of our prevailing on our statute of limitations defense on appeal may significantly limit any claims for damages.
In March 2012, the Korea Fair Trade Commission ("KFTC") obtained documents from two of our managed hotels in Seoul, Korea in connection with an investigation which we believe is focused on pricing of hotel services within the Seoul region. Since then, the KFTC has conducted additional fact-gathering at those two hotels and also has collected information from another Marriott managed hotel located in Seoul. We understand that the KFTC also has sought documents from numerous other hotels in Seoul and other parts of Korea that we do not operate, own or franchise. We have not yet received a complaint or other legal process. We are cooperating with this investigation.
We are a diversified hospitalitylodging company with operations in four business segments:
North American Full-Service Lodging, which includes the Marriott Hotels, & Resorts, Marriott Conference Centers, JW Marriott, Renaissance Hotels, Renaissance ClubSport, Gaylord Hotels, and Autograph Collection properties located in the United States and Canada;
North American Limited-Service Lodging, which includes the Courtyard, Fairfield Inn & Suites, SpringHill Suites, Residence Inn, and TownePlace Suites and Marriott ExecuStay properties, located in the United States and Canada;Canada, and, before its sale in the 2012 second quarter, our Marriott ExecuStay corporate housing business;
International Lodging, which includes the Marriott Hotels, & Resorts, JW Marriott, Renaissance Hotels, Autograph Collection, Courtyard, AC Hotels by Marriott, Fairfield Inn & Suites, Residence Inn, and Marriott Executive Apartments properties located outside the United States and Canada; and
Luxury Lodging, which includes The Ritz-Carlton, Bulgari Hotels & Resorts, and EDITION properties worldwide (together with residential properties associated with some of The Ritz-Carlton hotels).
In addition, prior tobefore the spin-off, our former Timeshare segment consisted of the timeshare operations and timeshare development business that we transferred to MVW in conjunction with the spin-off. OurWe continue to include our former Timeshare segment's historical financial results for periods prior tobefore the spin-off continue to be included in Marriott'sour historical financial results as a component of continuing operations as reflected in the tables that follow. See Footnote No. 17,15, "Spin-off" for additionalmore information regardingon the spin-off.
In 2011, we changed the management reporting structure for properties located in Hawaii. In conjunction with that change, we now report revenues, financial results, assets, and liabilities for properties located in Hawaii in our North American segments rather than in our International segment. In addition, we recognized in our Timeshare segment some management fees we previously recognized in our International segment. For comparability, we have reclassified prior year segment revenues, segment financial results, and segment assets to reflect these changes. These reclassifications only affect our segment reporting, and do not change our total consolidated revenue, operating income, or net income or our total segment revenues or total segment financial results.
We evaluate the performance of our segments based primarilylargely on the results of the segment without allocating corporate expenses, income taxes, or indirect general, administrative, and other expenses. With the exception of our former Timeshare segment, we do not allocate interest income or interest expense to our segments. We allocate gains and losses, equity in earnings or losses from our joint ventures, and divisional general, administrative, and other expenses and income or losses attributable to noncontrolling interests to each of our segments. Prior to the spin-off date, we included interest income and interest expense associated with our former Timeshare segment notes in our Timeshare segment results because financing sales and securitization transactions were an integral part of that segment’s business. “Other unallocated corporate” represents that portion of our revenues, general, administrative, and other expenses, equity in earnings or losses, and other gains or losses that we do not allocate to our segments. "Other unallocated corporate" includes license fees we receive from our credit cardscard programs and following the spin-off, also includes license fees associated withfrom MVW, after the timeshare brands.spin-off.
We aggregate the brands presented within our segments considering their similar economic characteristics, types of customers, distribution channels, regulatory business environments and operations within each segment and our organizational and management reporting structure.
Revenues
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| North American Full-Service Segment | $ | 5,450 |
| | $ | 5,159 |
| | $ | 4,892 |
| $ | 6,601 |
| | $ | 5,965 |
| | $ | 5,450 |
|
| North American Limited-Service Segment | 2,358 |
| | 2,150 |
| | 1,986 |
| 2,601 |
| | 2,466 |
| | 2,358 |
|
| International Segment | 1,278 |
| | 1,188 |
| | 1,096 |
| 1,522 |
| | 1,330 |
| | 1,278 |
|
| Luxury Segment | 1,673 |
| | 1,563 |
| | 1,413 |
| 1,794 |
| | 1,765 |
| | 1,673 |
|
| Former Timeshare Segment | 1,438 |
| | 1,551 |
| | 1,444 |
| — |
| | — |
| | 1,438 |
|
| Total segment revenues | 12,197 |
| | 11,611 |
| | 10,831 |
| 12,518 |
| | 11,526 |
| | 12,197 |
|
| Other unallocated corporate | 120 |
| | 80 |
| | 77 |
| 266 |
| | 288 |
| | 120 |
|
| | $ | 12,317 |
| | $ | 11,691 |
| | $ | 10,908 |
| $ | 12,784 |
| | $ | 11,814 |
| | $ | 12,317 |
|
Net Income (Loss) Attributable to Marriott
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| North American Full-Service Segment | $ | 351 |
| | $ | 317 |
| | $ | 268 |
| $ | 451 |
| | $ | 407 |
| | $ | 351 |
|
| North American Limited-Service Segment | 382 |
| | 298 |
| | 265 |
| 478 |
| | 472 |
| | 382 |
|
| International Segment | 175 |
| | 165 |
| | 128 |
| 160 |
| | 192 |
| | 175 |
|
| Luxury Segment | 74 |
| | 77 |
| | 17 |
| 108 |
| | 102 |
| | 74 |
|
| Former Timeshare Segment | (217 | ) | | 126 |
| | (674 | ) | — |
| | — |
| | (217 | ) |
| Total segment financial results | 765 |
| | 983 |
| | 4 |
| 1,197 |
| | 1,173 |
| | 765 |
|
| Other unallocated corporate | (302 | ) | | (326 | ) | | (318 | ) | (203 | ) | | (204 | ) | | (302 | ) |
Interest expense and interest income(1) | (107 | ) | | (106 | ) | | (93 | ) | (97 | ) | | (120 | ) | | (107 | ) |
Income taxes(2) | (158 | ) | | (93 | ) | | 61 |
| (271 | ) | | (278 | ) | | (158 | ) |
| | $ | 198 |
| | $ | 458 |
| | $ | (346 | ) | $ | 626 |
| | $ | 571 |
| | $ | 198 |
|
| |
(1) | Of theThe $164 million of interest expense shown on the Income Statement for year-end 2011 we allocatedincludes $43 million, respectively, to our former Timeshare Segment. Of the $180 million of interest expense shown on the Income Statement for year-end 2010 that we allocated$55 million to our former Timeshare segment.
|
| |
(2)
| The $61 million of income tax benefits for year-end 2009 included our benefit for income taxes of $65 million as shown in the Income Statements and taxes attributable to noncontrolling interests of $4 million.
|
Net Losses Attributable to Noncontrolling Interests
|
| | | | | | | | | | | |
| ($ in millions) | 2011 | | 2010 | | 2009 |
| Former Timeshare Segment | — |
| | — |
| | 11 |
|
| Provision for income taxes | — |
| | — |
| | (4 | ) |
| | $ | — |
| | $ | — |
| | $ | 7 |
|
Equity in Losses of Equity Method Investees
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| North American Full-Service Segment | $ | 1 |
| | $ | 2 |
| | $ | 1 |
| $ | 4 |
| | $ | 2 |
| | $ | 1 |
|
| North American Limited-Service Segment | (2 | ) | | (13 | ) | | (9 | ) | 3 |
| | 2 |
| | (2 | ) |
| International Segment | (4 | ) | | (7 | ) | | (11 | ) | (6 | ) | | (2 | ) | | (4 | ) |
| Luxury Segment | (10 | ) | | (2 | ) | | (32 | ) | (4 | ) | | (13 | ) | | (10 | ) |
| Former Timeshare Segment | — |
| | (8 | ) | | (12 | ) | — |
| | — |
| | — |
|
| Total segment equity in losses | (15 | ) | | (28 | ) | | (63 | ) | (3 | ) | | (11 | ) | | (15 | ) |
| Other unallocated corporate | 2 |
| | 10 |
| | (3 | ) | (2 | ) | | (2 | ) | | 2 |
|
| | $ | (13 | ) | | $ | (18 | ) | | $ | (66 | ) | $ | (5 | ) | | $ | (13 | ) | | $ | (13 | ) |
Depreciation and Amortization
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| North American Full-Service Segment | $ | 28 |
| | $ | 31 |
| | $ | 33 |
| $ | 45 |
| | $ | 38 |
| | $ | 31 |
|
| North American Limited-Service Segment | 22 |
| | 19 |
| | 18 |
| 21 |
| | 16 |
| | 23 |
|
| International Segment | 22 |
| | 24 |
| | 25 |
| 31 |
| | 24 |
| | 26 |
|
| Luxury Segment | 19 |
| | 19 |
| | 17 |
| 23 |
| | 17 |
| | 28 |
|
| Former Timeshare Segment | 28 |
| | 36 |
| | 42 |
| — |
| | — |
| | 29 |
|
| Total segment depreciation and amortization | 119 |
| | 129 |
| | 135 |
| 120 |
| | 95 |
| | 137 |
|
| Other unallocated corporate | 49 |
| | 49 |
| | 50 |
| 7 |
| | 7 |
| | 7 |
|
| | $ | 168 |
| | $ | 178 |
| | $ | 185 |
| $ | 127 |
| | $ | 102 |
| | $ | 144 |
|
Assets
|
| | | | | | | |
| ($ in millions) | At Year-End 2013 | | At Year-End 2012 |
| North American Full-Service Segment | $ | 1,662 |
| | $ | 1,517 |
|
| North American Limited-Service Segment | 470 |
| | 492 |
|
| International Segment | 1,154 |
| | 1,056 |
|
| Luxury Segment | 1,440 |
| | 1,174 |
|
| Total segment assets | 4,726 |
| | 4,239 |
|
| Other unallocated corporate | 2,068 |
| | 2,103 |
|
| | $ | 6,794 |
| | $ | 6,342 |
|
Equity Method Investments
|
| | | | | | | |
| ($ in millions) | At Year-End 2013 | | At Year-End 2012 |
| North American Full-Service Segment | $ | 13 |
| | $ | 13 |
|
| North American Limited-Service Segment | 44 |
| | 44 |
|
| International Segment | 113 |
| | 100 |
|
| Luxury Segment | 29 |
| | 29 |
|
| Total segment equity method investments | 199 |
| | 186 |
|
| Other unallocated corporate | 8 |
| | 9 |
|
| | $ | 207 |
| | $ | 195 |
|
Assets
|
| | | | | | | |
| ($ in millions) | At Year-End 2011 | | At Year-End 2010 |
| North American Full-Service Segment | $ | 1,241 |
| | $ | 1,221 |
|
| North American Limited-Service Segment | 497 |
| | 465 |
|
| International Segment | 1,026 |
| | 822 |
|
| Luxury Segment | 931 |
| | 871 |
|
| Former Timeshare Segment | — |
| | 3,310 |
|
| Total segment assets | 3,695 |
| | 6,689 |
|
| Other unallocated corporate | 2,215 |
| | 2,294 |
|
| | $ | 5,910 |
| | $ | 8,983 |
|
Equity Method Investments
|
| | | | | | | |
| ($ in millions) | At Year-End 2011 | | At Year-End 2010 |
| North American Full-Service Segment | $ | 13 |
| | $ | 14 |
|
| North American Limited-Service Segment | 84 |
| | 87 |
|
| International Segment | 92 |
| | 38 |
|
| Luxury Segment | 38 |
| | 44 |
|
| Former Timeshare Segment | — |
| | 1 |
|
| Total segment equity method investments | 227 |
| | 184 |
|
| Other unallocated corporate | 7 |
| | 6 |
|
| | $ | 234 |
| | $ | 190 |
|
Goodwill
| | | ($ in millions) | North American Full-Service Segment | | North American Limited-Service Segment | | International Segment | | Luxury Segment | | Total Goodwill | North American Full-Service Segment | | North American Limited-Service Segment | | International Segment | | Luxury Segment | | Total Goodwill |
| Year-end 2009 balance: | | | | | | | | | | |
| Goodwill | $ | 335 |
| | $ | 126 |
| | $ | 298 |
| | $ | 170 |
| | $ | 929 |
| |
| Accumulated impairment losses | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) | |
| | $ | 335 |
| | $ | 72 |
| | $ | 298 |
| | $ | 170 |
| | $ | 875 |
| |
| Year-end 2010 balance: | | | | | | | | | | |
| Goodwill | $ | 335 |
| | $ | 126 |
| | $ | 298 |
| | $ | 170 |
| | $ | 929 |
| |
| Accumulated impairment losses | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) | |
| | $ | 335 |
| | $ | 72 |
| | $ | 298 |
| | $ | 170 |
| | $ | 875 |
| |
| Year-end 2011 balance: | | | | | | | | | | | | | | | | | | |
| Goodwill | $ | 335 |
| | $ | 126 |
| | $ | 298 |
| | $ | 170 |
| | $ | 929 |
| $ | 335 |
| | $ | 126 |
| | $ | 298 |
| | $ | 170 |
| | $ | 929 |
|
| Accumulated impairment losses | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) |
| | $ | 335 |
| | $ | 72 |
| | $ | 298 |
| | $ | 170 |
| | $ | 875 |
| $ | 335 |
| | $ | 72 |
| | $ | 298 |
| | $ | 170 |
| | $ | 875 |
|
| Year-end 2012 balance: | | | | | | | | | | |
| Goodwill | | $ | 335 |
| | $ | 125 |
| | $ | 298 |
| | $ | 170 |
| | $ | 928 |
|
| Accumulated impairment losses | | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) |
| | | $ | 335 |
| | $ | 71 |
| | $ | 298 |
| | $ | 170 |
| | $ | 874 |
|
| Year-end 2013 balance: | | | | | | | | | | |
| Goodwill | | $ | 335 |
| | $ | 125 |
| | $ | 298 |
| | $ | 170 |
| | $ | 928 |
|
| Accumulated impairment losses | | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) |
| | | $ | 335 |
| | $ | 71 |
| | $ | 298 |
| | $ | 170 |
| | $ | 874 |
|
Capital Expenditures
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| North American Full-Service Segment | $ | 8 |
| | $ | 7 |
| | $ | 18 |
| $ | 128 |
| | $ | 9 |
| | $ | 8 |
|
| North American Limited-Service Segment | 11 |
| | 13 |
| | 9 |
| 8 |
| | 19 |
| | 11 |
|
| International Segment | 52 |
| | 35 |
| | 33 |
| 37 |
| | 38 |
| | 52 |
|
| Luxury Segment | 40 |
| | 168 |
| | 1 |
| 181 |
| | 306 |
| | 40 |
|
| Former Timeshare Segment | 13 |
| | 24 |
| | 28 |
| — |
| | — |
| | 13 |
|
| Total segment capital expenditures | 124 |
| | 247 |
| | 89 |
| 354 |
| | 372 |
| | 124 |
|
| Other unallocated corporate | 59 |
| | 60 |
| | 58 |
| 50 |
| | 65 |
| | 59 |
|
| | $ | 183 |
| | $ | 307 |
| | $ | 147 |
| $ | 404 |
| | $ | 437 |
| | $ | 183 |
|
Segment expenses include selling expenses directly related to the operations of the businesses, aggregating $49 million in 2013, $53 million in 2012, and $354 million in 2011, $419 million in 2010, and $440 million in 2009. Approximately (approximately 82 percent for 2011 (prior to the spin-off date), 85 percent for 2010 and 86 percent for 2009of the selling expenses are related towhich were for our former Timeshare segment.segment for the period before the spin-off).
Our Financial Statements include the following related to operations located outside the United States (which are predominately related tofor our International lodging segment):segments:
| |
| 1. | Revenues of $2,149 million in 2013, $1,912 million in 2012, and $1,945 million in 2011, $1,841 million in 2010, and $1,700 million in 2009; |
| |
| 2. | Segment financial results of $269 million in 2013, $283 million in 2012, and $172 million in 2011, segment financial results of. The $252 million2013 in 2010, and segment financial losses of $26 million in 2009. 2011 segment financial results consisted of segment income of $7691 million from Asia, $4484 million from the Americas (excluding the United States), $50 million from Continental Europe, $26 million from the United Kingdom and Ireland, and $42 million from Continental Europe, $1918 million from the Middle East and Africa, and $3 million from Australia, partially offset by a segment loss of $12 million from the Americas (excluding the United States). Segment results for 2011 included timeshare-strategy impairment charges for our former Timeshare segment, totaling $86 million associated with the Americas (excluding the United States) and Europe of $84 million and $2 million, respectively. Segment losses for 2009 reflected timeshare-strategy impairment charges and restructuring costs, both for our former Timeshare segment, totaling $176 million associated with the Americas (excluding the United States), Europe, Asia and the United Kingdom and Ireland of $100 million, $47 million, $22 million, and $7 million, respectively;Africa; and |
| |
| 3. | Fixed assets of $402238 million in 20112013 and $350491 million in 20102012. At year-end 2011 and year-end 2010,We include fixed assets located outside the United States are included withinat year-end 2013 and year-end 2012 in the “Property and equipment” caption in our Balance Sheets. Also, we had $341 million of fixed assets in 2013 classified in the "Assets held for sale" caption in our Balance Sheet. See Footnote No. 7, "Acquisitions and Dispositions" for more information. |
On November 21, 2011, we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our then wholly owned subsidiary MVW. Marriott shareholders of record as of the close of business on November 10, 2011 received one share of MVW common stock for every ten shares of Marriott common stock. Neither we nor our shareholders recognize income, gain, or loss for federal income tax purposes as a result of the distribution of MVW common stock, except in the case of our shareholders for cash they received in lieu of fractional shares. As a result of the spin-off, MVW is an independent company
whose common shares are listed on the New York Stock Exchange under symbol "VAC," and we no longer beneficially own any shares of MVW.
In connection with the spin-off, we entered into several agreements with MVW, and, in some cases, certain of its subsidiaries, that govern our post-spin-off relationship with MVW, including a Separation and Distribution Agreement, two License Agreements for the use of Marriott and Ritz-Carlton marks and intellectual property, an Employee Benefits and Other Employment Matters Allocation Agreement, a Tax Sharing and indemnificationIndemnification Agreement, a Marriott Rewards Affiliation Agreement, and a Non-Competition Agreement. Under license agreements with us, MVW is both the exclusive developer and operator of timeshare, fractional, and related products under the Marriott brand and the exclusive developer of fractional and related products under The Ritz-Carlton brand.
MVW filed a Form 10 registration statement with the SEC which, as amended, describes the spin-off and was declared effective on October 27, 2011. As a result of the spin-off, MVW is an independent company whose common shares are listed on the New York Stock Exchange under the symbol "VAC." On the spin-off date, Marriott shareholders of record as of the close of business on November 10, 2011 received one share of MVW common stock for every ten shares of Marriott common stock. Fractional shares of MVW common stock to which Marriott shareholders of record would have otherwise been entitled were aggregated and sold in the open market, and shareholders received cash payments in lieu of those fractional shares. The distribution of shares of MVW common stock did not result in the recognition, for U.S. federal income tax purposes, of income, gain or loss by us or our shareholders, except, in the case of our shareholders, for cash received in lieu of fractional shares.
As of the spin-off date, Marriott does not beneficially own any shares of MVW common stock and does not consolidate MVW's financial results for periods after the spin-off date as part of its financial reporting. However, because of Marriott's significant continuing involvement in MVW future operations (by virtue of the license and other agreements between Marriott and MVW), our former Timeshare segment's historical financial results for periods prior to the spin-off date continue to be included in Marriott's historical financial results as a component of continuing operations.
Under the license agreements we receive license fees consisting of a fixed annual fee of $50 million plus two percent of the gross sales price paid to MVW for initial developer sales of interestsinterest in vacation ownership units and residential real estate units and one percent of the gross sales price paid to MVW for resales of interests in vacation ownership units and residential real estate units, in each case that are identified with or use the Marriott or Ritz-Carlton marks.
The license fee also includes a periodic inflation adjustment.
Following the spin-off, we no longer consolidate MVW's financial results as part of our financial reporting. However, because of our significant continuing involvement in MVW operations after the spin-off (by virtue of the license and other agreements between us and MVW), we continue to include our former Timeshare segment's historical financial results for periods before the spin-off in our historical financial results as a component of continuing operations.
Our shareholders' equity decreased by $1,162 million as a result of the spin-off of MVW. We show in the following table the components of the decrease, which was primarily noncash and principally comprisedconsisted of the net book value of the net assets that we contributed to MVW in connection with the spin-off, in the following table:spin-off:
|
| | | |
| ($ in millions) | 2011 |
| Cash and equivalents | $ | 52 |
|
| Accounts and notes receivable | 247 |
|
| Inventory | 982 |
|
| Other current assets | 293 |
|
| Property and equipment and other | 284 |
|
| Loans to timeshare owners | 987 |
|
| | |
| Other current liabilities | (533 | ) |
| Current portion of long-term debt | (122 | ) |
| Long-term debt | (773 | ) |
| Other long-term liabilities | (255 | ) |
| SPIN-OFF OF MVW | $ | 1,162 |
|
ForIn 2011, we recognized $34 million of transaction-related expenses associated withfor the spin-off. While MVW did not complete its typical notes securitization inDuring the 2011 prior tofourth quarter before the spin-off we also received net cash proceeds ofof: (1) approximately $122 million prior to the spin-off underfrom a $300 million secured warehouse credit facility that MVW put in place during the third quarter of 2011 to provide short-term financing for receivables originated in connection with the sale of timeshare interests. Also, on October 26, 2011, MVW US Holdings, Inc.,interests, and (2) $38 million from our sale to third-party investors of preferred stock that a wholly owned subsidiary of MVW issued $40 million of its cumulative redeemable Series A preferred stock ("Preferred Stock") to Marriott as part of Marriott's internal reorganization completed in preparation for the spin-off. On October 28, 2011, Marriott sold all of the Preferred Stock to third-party investors, resulting in $38 million in net proceeds to Marriott, and when combined with the cash under the MVW warehouse facility, Marriott received a totalus. This distribution of approximately $160 million in a cash distribution prior to thebefore completion of the spin-off. Thisspin-off had no impact to Marriott'son our earnings.
| |
18. | TIMESHARE STRATEGY-IMPAIRMENT CHARGES |
2011 Charges
Prior toBefore the spin-off, of our Timeshare segment, management assessed the Timeshare segment's intended use of excess undeveloped land and built inventory and the then current market conditions for those assets. On September 8, 2011, management approved a plan for theour former Timeshare segment to accelerate cash flow through the monetization of certain excess undeveloped land in the U.S., Mexico, and the Bahamas over the next 18 to 24 months and to accelerate sales of excess built luxury fractional and residential inventory over the next three years. As a result, in accordance withunder the guidance for accounting for the impairment or disposal of long-lived assets, because the nominal cash flows from the planned land sales and the estimated fair values of the land and excess built luxury inventory were less than their respective carrying values, we recorded a pre-tax non-cashnoncash impairment charge of $324 million ($234 million after-tax) in theour 2011 third quarterIncome Statement under the “Timeshare"Timeshare strategy-impairment charges”charges" caption which we allocated to our former Timeshare segment. The pre-tax noncash impairment charge consisted of our Income Statement.a
$256 million inventory impairment and a $68 million property and equipment impairment.
We estimated the fair value of the land by using recent comparable sales data for the land parcels, which we determined were Level 3 inputs. We estimated the fair value of the excess built luxury fractional and residential inventory using cash flow
projections discounted at risk premiums commensurate with the market conditions of the related projects. We used Level 3 inputs for these discounted cash flow analyses and our assumptions included: growth rate and sales pace projections, additional sales incentives such as pricing discounts, and marketing and sales cost estimates.
2009 Charges
In response to the difficult business conditions that the Timeshare segment’s timeshare, luxury residential, and luxury fractional real estate development businesses experienced, we evaluated our entire Timeshare portfolio in the 2009 third quarter. In order to adjust the business strategy to reflect current market conditions at that time, we approved plans for our Timeshare segment to take the following actions: (1) for our luxury residential projects, reduce prices, convert certain proposed projects to other uses, sell some undeveloped land, and not pursue further Marriott-funded residential development projects; (2) reduce prices for existing luxury fractional units; (3) continue short-term promotions for our U.S. timeshare business and defer the introduction of new projects and development phases; and (4) for our European timeshare and fractional resorts, continue promotional pricing and marketing incentives and not pursue further development. We designed these plans, which primarily related to luxury residential and fractional resorts, to stimulate sales, accelerate cash flow, and reduce investment spending.
Composition of 2011 and 2009 Charges and Other Information
As a result of the actions (described in preceding paragraphs) in 2011 and 2009, we recorded the charges shown in the following table in our Income Statements, with charges that impacted operating income under the “Timeshare strategy-impairment charges” caption and charges that impacted non-operating income under the “Timeshare strategy-impairment charges (non-operating)” caption:
|
| | | | | | | | |
| ($ in millions) | | Amount |
| Operating Income Impairment Charges | | 2011 | | 2009 |
| Inventory impairment | | $ | 256 |
| | $ | 529 |
|
| Property and equipment impairment | | 68 |
| | 64 |
|
| Other impairments | | — |
| | 21 |
|
| Total operating income charge | | $ | 324 |
| | $ | 614 |
|
| | | | | |
| Non-Operating Income Impairment Charges | | | | |
| Joint venture impairment | | — |
| | 71 |
|
| Loan impairment | | — |
| | 40 |
|
| Funding liability | | — |
| | 27 |
|
| Total non-operating income charge | | — |
| | 138 |
|
| Total | | $ | 324 |
| | $ | 752 |
|
| Total (after-tax) | | $ | 234 |
| | $ | 502 |
|
Grouped by product type and/or geographic location, the 2011 impairment charges consisted of $203 million associated with undeveloped land parcels in North America associated with five timeshare properties, $113 million associated with nine North American luxury fractional and mixed use properties, $2 million related to one project in our European timeshare business, and $6 million of software previously under development that would not be completed and used under the new strategy. The 2009 impairment charges consisted of $295 million associated with five luxury residential projects, $299 million associated with nine North American luxury fractional projects, $93 million related to one North American timeshare project, $51 million related to the four projects in our European timeshare and fractional business, and $14 million associated with two Asia Pacific timeshare resorts.
Additionally, upon the approval of the plan in 2011 to dispose of certain undeveloped land parcels, we reclassified $57 million of these land parcels previously in our development plans from inventory to property and equipment. We also reviewed the remainder of our 2011 Timeshare segment inventory assets prior to the spin-off date and determined that there were no other adjustments needed to their carrying values.
Both the 2011 and 2009 impairment charges were non-cash, other than the following 2009 charges: $27 million of charges associated with then projected mezzanine loan fundings and $21 million of charges for purchase commitments. Except for the $40 million loan impairment and the $27 million funding liability recorded in 2009, we allocated the remaining 2009
pretax charges totaling $685 million and the 2011 pretax charges totaling $324 million to our Timeshare segment.
For additional information on the 2009 impairment charges, including how we determined these impairments and the inputs we used in calculating fair value, please seeSee Footnote No. 20, “Timeshare18, "Timeshare Strategy-Impairment Charges,” inCharges" of the Notes to theour Financial Statements of our 2009 Form 10-K.
In 2011 and 2010, we reversed (based on facts and circumstances surrounding the project, including progress on certain construction-related legal claims and potential funding of certain costs by one of our partners) $3 million and $11 million, respectively, of the $27 million funding liability we originally recorded in 2009. We recorded the reversals of the funding liability in the equity in (losses) earnings line in our Income Statements, but did not allocate it to any of our segments. We transferred the remaining balance of the funding liability2011 Form 10-K for more information on the spin-off date to MVW as part of the spin-off.these charges.
| |
19. | RESTRUCTURING COSTS AND OTHER CHARGES |
During the latter part of 2008, we experienced a significant decline in demand for hotel rooms worldwide based in part on the failures and near failures of a number of large financial service companies in the fourth quarter of 2008 and the dramatic downturn in the economy. Our capital-intensive Timeshare business was also hurt globally by the downturn in market conditions and particularly the significant deterioration in the credit markets. These declines resulted in reduced management and franchise fees, cancellation of development projects, reduced timeshare contract sales, and anticipated losses under guarantees and loans. In the fourth quarter of 2008, we put company-wide cost-saving measures in place in response to these declines, with individual company segments and corporate departments implementing further cost-saving measures. Upper-level management responsible for the former Timeshare segment, hotel operations, development, and above-property level management of the various corporate departments and brand teams individually led these decentralized management initiatives.
As part of the restructuring actions we began in 2008, we initiated further cost-saving measures in 2009 associated with our former Timeshare segment, hotel development, and above-property level management that resulted in additional restructuring costs of $51 million in 2009. We completed this restructuring in 2009 and have not incurred additional expenses in connection with these initiatives. We also recorded $162 million of other charges in 2009. The total cumulative restructuring costs incurred through the end of the restructuring in 2009 totaled $106 million. For information on the 2009 restructuring costs and other charges, see Footnote No. 21, “Restructuring Costs and Other Charges,” in the Notes to the Financial Statements of our 2009 Form 10-K.
| |
20.16. | VARIABLE INTEREST ENTITIES |
In accordance withUnder the applicable accounting guidance for the consolidation of variable interest entities, we analyze our variable interests, including loans, guarantees, and equity investments, to determine if an entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability, and relevant financial agreements. We also use our qualitative analysesanalysis to determine if we must consolidate a variable interest entity as its primary beneficiary.
Variable interest entities related to our timeshare note securitizations
Prior toBefore the spin-off, date, we periodically securitized, without recourse, through special purpose entities, notes receivable originated by our former Timeshare segment in connection with the sale of timeshare interval and fractional products. These securitizations provided funding for us and transferred the economic risks and substantially all the benefits of the loans to third parties. In a securitization, various classes of debt securities that the special purpose entities issued were generally collateralized by a single tranche of transferred assets, which consisted of timeshare notes receivable. We serviced the notes receivable. With each securitization, we retained a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized receivables or, in some cases, overcollateralization and cash reserve accounts. As a result of our involvement with these entities in 2011 prior tobefore the spin-off, date, we recognized $116 million of interest income, partially offset by $39 million of interest expense to investors and $3 million in debt issuance cost amortization. Similarly for 2010, we recognized $147 million of interest income, partially offset by $51 million of interest expense to investors, and $4 million in debt issuance cost amortization.
We show our cash flows to and from the timeshare notes securitization variable interest entities in the following table for 2011 prior tobefore the spin-off date and for 2010:spin-off:
| | | ($ in millions) | 2011 | | 2010 | 2011 |
| Cash inflows: | | | | |
| Proceeds from securitization | $ | 122 |
| | $ | 215 |
| $ | 122 |
|
| Principal receipts | 188 |
| | 231 |
| 188 |
|
| Interest receipts | 112 |
| | 142 |
| 112 |
|
| Reserve release | — |
| | 3 |
| |
| | | | | |
| Total | 422 |
| | 591 |
| 422 |
|
| Cash outflows: | | | | |
| Principal to investors | (185 | ) | | (230 | ) | (185 | ) |
| Repurchases | (64 | ) | | (93 | ) | (64 | ) |
| Interest to investors | (39 | ) | | (53 | ) | (39 | ) |
| Total | (288 | ) | | (376 | ) | (288 | ) |
| Net Cash Flows | $ | 134 |
| | $ | 215 |
| $ | 134 |
|
Under the terms of our timeshare note securitizations, we had the right at our option to repurchase defaulted mortgage notes at the outstanding principal balance. The transaction documents typically limited such repurchases to 10 to 20 percent of the transaction’s initial mortgage balance. We made voluntary repurchases of defaulted notes ofvoluntarily repurchased $43 million during 2011, $68 million during 2010,of defaulted notes and $81 million during 2009. We also made voluntary repurchases of $21 million and $25 million of other non-defaulted notes during 2011 and 2010, respectively.2011.
Other variable interest entities
In the 2013 second quarter, we purchased a $65 million mandatorily redeemable preferred equity ownership interest in an entity that owns three hotels, which we also manage. See Footnote No. 4, "Fair Value of Financial Instruments" for further information on the purchase and Footnote No. 13, "Contingencies" for information on the commitment we entered into as part of this transaction. Based on qualitative and quantitative analyses, we concluded that the entity in which we invested is a
variable interest entity because it is capitalized primarily with debt. 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. Inclusive of our contingent future funding commitment, our maximum exposure to loss at year-end 2013 is $80 million.
In conjunction with the transaction with CTF describedthat we describe more fully in our Annual Report on Form 10-K for 2007 in Footnote No. 8, “Acquisitions and Dispositions,” of our Annual Report on Form 10-K for 2007, under the caption “2005 Acquisitions,” we manage hotels on behalf of tenant entities that are 100 percent percent owned by CTF, which lease the hotels from third-party owners. Due to certain provisions in the management agreements, we account for these contracts as operating leases. At the end of 2011,year-end 2013, we managed eightfour hotels on behalf of three tenant entities. The entities have minimal equity and minimal assets, comprisedconsisting of hotel working capital and furniture, fixtures, and equipment. In conjunction withAs part of the 2005 transaction, CTF had placed money in a trust account to cover cash flow shortfalls and to meet rent payments. In turn, we released CTF from its guarantees fully in connection withfor fivetwo of these properties and partially in connection withfor the other threetwo properties. As of year-end 2011, theThe trust account had beenwas fully depleted.depleted prior to year-end 2011. The tenant entities are variable interest entities because the holder of the equity investment at risk, CTF, lacks the ability through voting rights to make key decisions about the entities’ activities that have a significant effect on the success of the entities. We do not consolidate the entities because we do not have: (1)have the power to direct the activities that most significantly impact the entities' economic performance or (2) the obligation to absorb losses of the entities or the right to receive benefits from the entities that could potentially be significant.performance. We are liable for rent payments (totaling $5 million) for fivetwo of the eightfour hotels if there are cash flow shortfalls. Future minimumThese two hotels have lease payments through the endterms of the lease term for these hotels totaled approximately $20 million at year-end 2011.less than one year. In addition, as of year-end 20112013 we are liable for rent payments of up to an aggregate cap of $114 million for the threetwo other hotels if there are cash flow shortfalls. Our maximum exposure to loss is limited to the rent payments and certain other tenant obligations under the lease, for which we are secondarily liable.
We have summarized below our future obligations under operating leases at year-end 2011, below:2013:
| | | ($ in millions) | Minimum Lease Payments | Minimum Lease Payments |
| Fiscal Year | | |
| 2012 | $ | 136 |
| |
| 2013 | 125 |
| |
| 2014 | 115 |
| $ | 134 |
|
| 2015 | 115 |
| 130 |
|
| 2016 | 100 |
| 118 |
|
| 2017 | | 103 |
|
| 2018 | | 86 |
|
| Thereafter | 734 |
| 583 |
|
| Total minimum lease payments where we are the primary obligor | $ | 1,325 |
| $ | 1,154 |
|
Most leases have initial terms of up to 20 years and contain one or more renewal options, generally for five- or 10-year periods. These leases provide for minimum rentals and additional rentals based on our operations of the leased property. The total minimum lease payments above include $266264 million, representing of obligations of our consolidated subsidiaries that are non-recourse to us.
The foregoing table does not reflect the following $314 million in aggregate minimum lease payments, for which we are secondarily liable, relating to the CTF leases further discussed in Footnote No. 20,16, “Variable Interest Entities,Entities.”$12 million in 2012; $11 million in 2013; and $8 million in 2014.
The following table details the composition of rent expense associated withfor operating leases for the last three years:
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| Minimum rentals | $ | 240 |
| | $ | 252 |
| | $ | 262 |
| $ | 159 |
| | $ | 188 |
| | $ | 240 |
|
| Additional rentals | 66 |
| | 67 |
| | 63 |
| 56 |
| | 62 |
| | 66 |
|
| | $ | 306 |
| | $ | 319 |
| | $ | 325 |
| $ | 215 |
| | $ | 250 |
| | $ | 306 |
|
We have summarized our
Our future obligationsobligation under capital leases at year-end 20112013 was $53 million with a present value of net minimum lease payments of $51 million. In conjunction with the sale of our right to acquire the landlord’s interest in a leased real estate property and certain attached assets of the property after year-end 2013, $46 million of the $51 million originally classified in the following table:“Long-term debt” caption was reclassified to liabilities held for sale within the "Other current liabilities" caption of the accompanying Balance Sheet as of year-end 2013. See Footnote No. 7, "Acquisitions and Dispositions" for more information.
|
| | | |
| ($ in millions) | Minimum Lease Payments |
| Fiscal Year | |
| 2012 | $ | 3 |
|
| 2013 | 3 |
|
| 2014 | 59 |
|
| 2015 | 1 |
|
| 2016 | 1 |
|
| Thereafter | 4 |
|
| Total minimum lease payments | 71 |
|
| Less: amount representing interest | (7 | ) |
| Present value of net minimum lease payments | $ | 64 |
|
TheAccordingly, the “Long-term debt” caption in the accompanying Balance Sheets includes the remaining $5 million for year-end 2013 and $6450 million for year-end 2011 and $6 million for year-end 20102012 that represents the present value of net minimum lease payments associated withfor capital leases.
| |
22.18. | RELATED PARTY TRANSACTIONS |
Equity Method Investments
We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive fees. We also have equity method investments in entities that provide management and/or franchise service to hotels and receive fees. In addition, in some cases we provide loans, preferred equity or guarantees to these entities. We
generally own between 10 and 49 percent of these equity method investments. Undistributed earnings attributable to our equity method investments represented approximately $42 million of our consolidated retained earnings at year-end 2011.2013.
The following tables present financial data resulting from transactions with these related parties:
Income Statement Data
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| Base management fees | $ | 37 |
| | $ | 35 |
| | $ | 44 |
| $ | 17 |
| | $ | 26 |
| | $ | 37 |
|
| Franchise fees | — |
| | — |
| | — |
| |
| Incentive management fees | — |
| | 3 |
| | 2 |
| 1 |
| | 5 |
| | — |
|
| Cost reimbursements | 383 |
| | 328 |
| | 321 |
| 236 |
| | 315 |
| | 383 |
|
| Owned, leased, corporate housing, and other | 8 |
| | 4 |
| | — |
| 1 |
| | 3 |
| | 8 |
|
| Total revenue | $ | 428 |
| | $ | 370 |
| | $ | 367 |
| $ | 255 |
| | $ | 349 |
| | $ | 428 |
|
| General, administrative, and other | $ | (5 | ) | | $ | (1 | ) | | $ | (1 | ) | $ | (5 | ) | | $ | — |
| | $ | (5 | ) |
| Reimbursed costs | (383 | ) | | (328 | ) | | (321 | ) | (236 | ) | | (315 | ) | | (383 | ) |
| Gains and other income | 4 |
| | 6 |
| | 6 |
| — |
| | 43 |
| | 4 |
|
| Interest expense-capitalized | 2 |
| | 5 |
| | 4 |
| — |
| | 1 |
| | 2 |
|
| Interest income | 3 |
| | 3 |
| | 8 |
| 4 |
| | 3 |
| | 3 |
|
| Equity in (losses) earnings | (13 | ) | | (18 | ) | | (66 | ) | |
| Timeshare strategy-impairment charges (non-operating) | — |
| | — |
| | (138 | ) | |
| Provision for income taxes | — |
| | — |
| | — |
| |
| Equity in losses | | (5 | ) | | (13 | ) | | (13 | ) |
Balance Sheet Data
| | | ($ in millions) | At Year-End 2011 | | At Year-End 2010 | At Year-End 2013 | | At Year-End 2012 |
| Current assets-accounts and notes receivable | $ | 12 |
| | $ | 9 |
| $ | 22 |
| | $ | 18 |
|
| Contract acquisition costs and other | 28 |
| | 30 |
| 20 |
| | 21 |
|
| Equity and cost method investments | 234 |
| | 190 |
| 207 |
| | 195 |
|
| Notes receivable | 2 |
| | 2 |
| |
| Deferred taxes, net asset | 16 |
| | 22 |
| 16 |
| | 17 |
|
| Other | 13 |
| | — |
| 16 |
| | 20 |
|
| Current liabilities: |
| |
|
| |
|
| Other | (6 | ) | | (25 | ) | (13 | ) | | (2 | ) |
| Other long-term liabilities | (30 | ) | | (34 | ) | (2 | ) | | (2 | ) |
Summarized information for the entities in which we have equity method investments is as follows:
Income Statement Data
| | | ($ in millions) | 2011 | | 2010 | | 2009 | 2013 | | 2012 | | 2011 |
| Sales | $ | 1,215 |
| | $ | 914 |
| | $ | 850 |
| $ | 721 |
| | $ | 902 |
| | $ | 1,215 |
|
| Net (loss) income | $ | (39 | ) | | $ | (77 | ) | | $ | (241 | ) | |
| Net income (loss) | | $ | 15 |
| | $ | (4 | ) | | $ | (58 | ) |
Balance Sheet Summary
| | | ($ in millions) | At Year-End 2011 | | At Year-End 2010 | At Year-End 2013 | | At Year-End 2012 |
| Assets (primarily comprised of hotel real estate managed by us) | $ | 3,159 |
| | $ | 3,186 |
| $ | 1,832 |
| | $ | 1,486 |
|
| Liabilities | $ | 2,532 |
| | $ | 2,446 |
| $ | 1,482 |
| | $ | 1,245 |
|
| |
23.19. | RELATIONSHIP WITH MAJOR CUSTOMER |
At year-end 2011 and 2010, Host Hotels & Resorts, Inc., formerly known as Host Marriott Corporation, and its affiliates (“Host”) owned or leased 12766 lodging properties at year-end 2013 and 146124 lodging properties at year-end 2012 that we operated under long-term agreements, respectively. Weagreements. Over the last three years, we recognized the following revenues (which areof $1,957 million in 2013, $2,226 million in 2012, and $2,210 million in 2011 from those lodging properties, and included those revenues in our North American Full-Service, North American Limited-Service, Luxury, and International segments) from lodging properties owned or leased over the last three years: $2,207 million in 2011, $2,036 million in 2010, and $2,096 million in 2009.segments.
Host is also a partner in certain unconsolidated partnerships that own lodging properties that we operate under long-term agreements. As of year-end 2011 and 2010, Host was affiliated with fiveten such properties.properties at year-end 2013, ten such properties at year-end 2012, and five such properties at year-end 2011. We recognized the following revenues (which areof $87 million in 2013, $75 million in 2012, and $59 million in 2011 from those lodging properties, and included those revenues in our North American Full-Service, Luxury, and International segments) from lodging properties associated with Host partnerships over the last three years: $106 million in 2011, $112 million in 2010, and $104 million in 2009.segments.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA – UNAUDITED
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions, except per share data) | Fiscal Year 2011 (1),(2) |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year |
| Revenues | $ | 2,778 |
| | $ | 2,972 |
| | $ | 2,874 |
| | $ | 3,693 |
| | $ | 12,317 |
|
| Operating income (loss) | $ | 191 |
| | $ | 232 |
| | $ | (144 | ) | | $ | 247 |
| | $ | 526 |
|
| Net income (loss) | $ | 101 |
| | $ | 135 |
| | $ | (179 | ) | | $ | 141 |
| | $ | 198 |
|
| Diluted earnings (losses) per share | $ | 0.26 |
| | $ | 0.37 |
| | $ | (0.52 | ) | | $ | 0.41 |
| | $ | 0.55 |
|
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions, except per share data) | Fiscal Year 2013 (1),(3) |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year |
| Revenues | $ | 3,142 |
| | $ | 3,263 |
| | $ | 3,160 |
| | $ | 3,219 |
| | $ | 12,784 |
|
| Operating income | $ | 226 |
| | $ | 279 |
| | $ | 245 |
| | $ | 238 |
| | $ | 988 |
|
| Net income | $ | 136 |
| | $ | 179 |
| | $ | 160 |
| | $ | 151 |
| | $ | 626 |
|
| Diluted earnings per share | $ | 0.43 |
| | $ | 0.57 |
| | $ | 0.52 |
| | $ | 0.49 |
| | $ | 2.00 |
|
| | | ($ in millions, except per share data) | Fiscal Year 2010 (1) | Fiscal Year 2012 (2) |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year |
| Revenues | $ | 2,630 |
| | $ | 2,771 |
| | $ | 2,648 |
| | $ | 3,642 |
| | $ | 11,691 |
| $ | 2,552 |
| | $ | 2,776 |
| | $ | 2,729 |
| | $ | 3,757 |
| | $ | 11,814 |
|
| Operating income | $ | 180 |
| | $ | 226 |
| | $ | 167 |
| | $ | 122 |
| | $ | 695 |
| $ | 175 |
| | $ | 243 |
| | $ | 213 |
| | $ | 309 |
| | $ | 940 |
|
| Net income | $ | 83 |
| | $ | 119 |
| | $ | 83 |
| | $ | 173 |
| | $ | 458 |
| $ | 104 |
| | $ | 143 |
| | $ | 143 |
| | $ | 181 |
| | $ | 571 |
|
| Diluted earnings per share | $ | 0.22 |
| | $ | 0.31 |
| | $ | 0.22 |
| | $ | 0.46 |
| | $ | 1.21 |
| $ | 0.30 |
| | $ | 0.42 |
| | $ | 0.44 |
| | $ | 0.56 |
| | $ | 1.72 |
|
| |
(1) | Beginning with our 2013 fiscal year, we changed our financial reporting cycle to a calendar year-end reporting cycle and an end-of-month quarterly reporting cycle. Accordingly, our 2013 first quarter included the period from December 29, 2012 through March 31, 2013, and our 2013 second, third, and fourth quarters included the three month periods ended June 30, September 30, and December 31, respectively. |
| |
(2) | The 2012 quarters consisted of 12 weeks, except for the fourth quartersquarter of 2011 and 2010,2012, which consisted of 16 weeks. |
| |
(2)(3) | The sum of the earnings per share for the four quarters differs from annual earnings per share due to the required method of computing the weighted average shares in interim periods. |
| |
| Item 9. | Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure. |
None.
| |
| Item 9A. | Controls and Procedures. |
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)), and management. Management necessarily applied its judgment in assessing the costs and benefits of suchthose controls and procedures, which by their nature, can provide only reasonable assurance about management’s control objectives. You should note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon the foregoingthis evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective and operating to provide reasonable assurance that we record, process, summarize and report the information we are required to disclose in the reports that we file or submit under the Exchange Act within the time periods specified in the rules and forms of the SEC, and to provide reasonable assurance that we accumulate and communicate such information to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions about required disclosure.
Internal Control Over Financial Reporting
We have set forth management's report on internal control over financial reporting and the attestation report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting in Item 8 of this Form 10-K, and we incorporate those reports here by reference.
We made no changes in internal control over financial reporting during the fourth quarter of 20112013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, in the first quarter of 2013,
we began the phased implementation of an enterprise-wide financial systems project to upgrade our general ledger and reporting tools. In conjunction with that effort, we converted to a calendar year-end reporting cycle and an end-of-month quarterly reporting cycle. We are performing the implementation in the ordinary course of business to increase efficiency and align our processes on a global basis, and we expect to continue the implementation over the next several quarters.
| |
| Item 9B. | Other Information. |
None.
PART III
Items 10, 11, 12, 13, 14.
As described below, we incorporate certain information appearing in the Proxy Statement we will furnish to our shareholders in connection with the 20122014 Annual Meeting of Shareholders by reference in this Annual Report on Form 10-K.
|
| |
| Item 10. Directors, Executive Officers and Corporate Governance. | We incorporate this information by reference to “Our Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Audit Committee,” “Transactions with Related Persons,” and “Selection of Director Nominees” sections of our Proxy Statement. We have included information regarding our executive officers and our Code of Ethics below. |
| | |
| Item 11. Executive Compensation. | We incorporate this information by reference to the “Executive and Director Compensation” and “Compensation Committee Interlocks and Insider Participation” sections of our Proxy Statement. |
| | |
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | We incorporate this information by reference to the “Securities Authorized for Issuance Under Equity Compensation Plans” and the “Stock Ownership” sections of our Proxy Statement. |
| | |
| Item 13. Certain Relationships and Related Transactions, and Director Independence. | We incorporate this information by reference to the “Transactions with Related Persons,” and “Director Independence” sections of our Proxy Statement. |
| | |
| Item 14. Principal Accounting Fees and Services. | We incorporate this information by reference to the “Independent Registered Public Accounting Firm Fee Disclosure” and the “Pre-Approval of Independent Auditor Fees and Services Policy” sections of our Proxy Statement. |
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to our executive officers. The information set forth below is as of February 1, 2012,2014, except where indicated.
|
| | | | | |
| Name and Title | | Age | | Business Experience |
J.W. Marriott, Jr. Executive Chairman and Chairman of the Board and Chief Executive Officer
| | 7981 |
| | J.W. Marriott, Jr. was elected Executive Chairman effective March 31, 2012, having decided to relinquish his position as Chief Executive Officer. He served as Chief Executive Officer of the Company and its predecessors since 1972. He will continuecontinues to serve as Chairman of the Board, a position he has held since 1985. He joined Marriott Corporation (now known as Host Hotels & Resorts, Inc.) in 1956, became President and a Director in 1964. Mr. Marriott serves on the Board of The J. Willard & Alice S. Marriott Foundation. He is a member of the National Business Council and the Executive Committee of the World Travel & Tourism Council. Mr. Marriott has served as a Director of the Company and its predecessors since 1964. He is the father of John W. Marriott III, the non-employeenonemployee Vice Chairman of the Company's Board of Directors.
|
| | | | |
Arne M. Sorenson President and Chief Executive Officer | | 55 |
| | Arne M. Sorenson became President and Chief Executive Officer of the Company on March 31, 2012 and was appointed to the Board of Directors in February 2011. Mr. Sorenson joined Marriott in 1996 as Senior Vice President of Business Development, was named Executive Vice President and Chief Financial Officer in 1998, assumed the additional title of President, Continental European Lodging, in 2003 and was appointed Marriott's President and Chief Operating Officer in 2009. Before joining Marriott, he was a Partner in the law firm of Latham & Watkins in Washington, D.C. Mr. Sorenson serves on the Board of Directors for Brand USA, the Board of Regents of Luther College and is a member of the President of the United States' Export Council. |
| | | | | |
Carl T. Berquist Executive Vice President and Chief Financial Officer | | 6062 |
| | Carl T. Berquist isbecame our Executive Vice President and Chief Financial Officer of Marriott International,in April 2009, with responsibility for global finance, including financial reporting, project finance, mergers and acquisitions, global treasury, corporate tax, internal audit, and investor relations. FromHe joined the Company in December 2002 to April 2009,where he wasserved as Executive Vice President of Financial Information and Enterprise Risk Management. Prior toManagement until assuming his current position. Before joining Marriott, in December 2002, Mr. Berquist was a partner at Arthur Andersen LLP. During his 28-year career with Arthur Andersen, Mr. Berquist held numerous leadership positions covering the management of the business as well as market facing operational roles, including managing partner of the worldwide real estate and hospitality practice. Mr. Berquist holds a B.S.bachelor of science degree in accounting from Penn State University and is a member of Penn State’s Smeal Business School’s Board of Visitors. He is also a member of the Board of Directors of Hertz Global Holdings, Inc. |
| | | | | |
Anthony G. Capuano Executive Vice President and Global Chief Development Officer | | 4648 |
| | Anthony G. Capuano assumed responsibility for Global Development in early 2009. He began his Marriott career in 1995 as a part of the Market Planning and Feasibility team. Between 1997 and 2005, he led Marriott’s Full-Service Development efforts in the Western U.S. and Canada. In 2005, he assumed responsibility for Full-Service Development in North America. In 2008, his responsibilities expanded to include the Caribbean and Latin America. In early 2009, Mr. Capuano assumed responsibility for Global Development. Mr. Capuano began his professional career in Laventhol and Horwath’s Leisure Time Advisory Group. He then joined Kenneth Leventhal and Company’s hospitality consulting group in Los Angeles, CA. Mr. Capuano is an activea member of the American Hotel & Lodging Association's Industry Real Estate Financial Advisory Council, the Hotel Development Council of the Urban Land Institute and the Dean's Advisory Council at the Cornell SocietyUniversity School of Hotelmen.Hotel Administration. |
| | | | |
|
| | | | | |
| Name and Title | | Age | | Business Experience |
Simon F. Cooper President & Managing Director Asia Pacific | | 6668 |
| | Simon F. Cooper isbecame President and Managing Director, Asia Pacific.Pacific in September 2010. He oversees the operation, development and strategic positioning of the brands and luxury groups in Asia Pacific. Mr. Cooper served as President and Chief Operating Officer of The Ritz-Carlton Hotel Company, L.L.C. from February 2001 until September 2010,he assumed his current position, after a distinguished career with Marriott International, where he servedLodging, including serving three years as President of Marriott Lodging Canada. His first hospitality job was with Canadian Pacific Hotels & Resorts. Among his many professional honors, Mr. Cooper has served on the Woodrow Wilson International Centre for Scholars, Canada Institute Advisory Board and as Chairman of the Board of Governors for the prestigiousCanada's University of Guelph. While he was President and COO at Theof Ritz-Carlton, Hotel Company, L.L.C., Mr. Cooper presided over a major expansion of the brand which now numbers 78 hotels in countries around the world.brand. In 2008 Mr. Cooper was named “Corporate Hotelier of the World” by HOTELS Magazine. In June of 2010, he received an Honorary Degree of Doctor of Laws from Canada’sthe University of Guelph. Born and educated in England, he earned an MBA from the University of Toronto. |
| | | | | |
Edwin D. Fuller
David Grissen
Group President & Managing Director International Lodging
| | 6656 |
| | Edwin D. Fuller joined MarriottDavid Grissen became Group President effective February 2014, assuming additional responsibility for The Ritz-Carlton and Global Operations Services. He became the Group President for The Americas in 1972 and held numerous positions of increasing marketing, sales and operationalNovember 2012, with responsibility for all business activities including Director of National and International Sales and Reservations, before being appointed Vice President and Chief Marketing and Sales Officer in 1979. Early in his career, Mr. Fuller established Marriott International’s original international reservations network and itsoperations, sales and marketing, organization in Europerevenue management, human resources, engineering, rooms operations, food and the Middle East. He became Regionalbeverage, retail, spa, information resources and development. Prior to this, he served as President, Americas from January 2010; Executive Vice President of the MidwestEastern Region in 1985 and Regionalfrom April 2005; Senior Vice President of the WesternMid-Atlantic Region in 1989. In 1990, he assumed leadership of Marriott’s international lodging operations asand Senior Vice President of Finance and Managing Director.Business Development from April 2000. Mr. Grissen is chair of the Americas’ Hotel Development Committee and a member of the Lodging Strategy Group and Corporate Growth Committee. He was named Executiveis a member of the Board of Directors of Regis Corporation and also Vice President and Managing Director of International Lodging in 1994 and was promoted to his current position in 1997. Mr. Fuller currently serves on the advisory boards of Boston University’s hotel and business schools where he is Chairman of the Hospitality Board; he was recently appointed to the university’s Board of Overseers. He also serves as Trustee of theDirectors for Back on My Feet, an organization that helps individuals experiencing homelessness. Mr. Grissen holds a bachelor’s degree from Michigan State University of California, Irvine, and Chairman of UCI's Advisory Board of the Merage School of Business, chairs the Governing Council of the International Tourism Partnership, is a commissioner of the California Travel & Tourism Commission, and serves on the Safe Kids Worldwide Board. Mr. Fuller is retiringmaster’s degree from Marriott on March 31, 2012. |
|
| | | | Loyola University in Chicago. |
| | | | | |
Alex Kyriakidis President & Managing Director Middle East & Africa |
| 5961 |
|
| Alex Kyriakidis isjoined Marriott in January 2012 as President and Managing Director, Middle East and Africa for Marriott International, with responsibility for all business activities for the Middle East and Africa Region (MEA), including operations, sales and marketing, finance and hotel development. Prior toBefore joining Marriott, in January 2012, Mr. Kyriakidis served for ten10 years as Global Managing Director - Travel, Hospitality and Leisure for Deloitte LLP. In this role, Mr. Kyriakidis led the Global Travel, Hospitality and Leisure Industry team, where he was responsible for a team of 4,500 professionals that generated $700 million in revenues. Mr. Kyriakidis has 38 years of experience providing strategic, financial, M&A, operational, asset management and integration services to the travel, hospitality and leisure sectors. He has served clients in 25 countries, predominantly in the EMEAEurope, MEA and Asia Pacific regions. He is a fellow of the Arab Society of Certified Accountants, the British Association of Hotel Accountants and the Institute of Chartered Accountants in England and Wales. Mr. Kyriakidis holds a bachelor of science degree in computer science and mathematics from Leeds University in the United Kingdom. He is based in Dubai, United Arab Emirates. |
| | | | | |
Stephanie Linnartz Executive Vice President and Chief Marketing and Commercial Officer | | 45 |
| | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | Stephanie Linnartz became the Chief Marketing and Commercial Officer on March 30, 2013 and was named an executive officer on February 14, 2014. She has responsibility for the Company's brand management, marketing, eCommerce, sales, reservations, revenue management, and consumer insight functions and information technology functions. Prior to assuming her current position, Stephanie served as Global Officer, Sales and Revenue Management from July 2009 to February 2013; Senior Vice President, Global Sales from August 2008 to July 2009; and Senior Vice President, Sales and Marketing Planning and Support from December 2005 to August 2008. Ms. Linnartz holds a master of business administration from the College of William and Mary. |
| | | | | |
|
| | | | |
| | | | |
| | | | |
| Name and Title | | Age | | Business Experience |
Robert J. McCarthy Group PresidentChief Operations Officer
| | 5860 |
| | Robert J. “Bob” McCarthy was appointedbecame Chief Operations Officer in February, 2012, with responsibility for Marriott International, Inc. effective March 31, 2012. Since February 2011,Global Lodging Services and The Ritz-Carlton. In addition, he hasshares reporting responsibilities for the presidents of Marriott's four continental operating divisions with President and Chief Executive Officer Arne Sorenson. Before he assumed his current position, Mr. McCarthy served as Group President and hasfrom 2011, with overall responsibility for the financial management and leadership of over 3,000 hotels in the Americas spanning multiple lodging brands and a work force of 120,000 associates. In addition, Mr. McCarthy oversees The Ritz-Carlton, as well as staff support services to Marriott’s continental organizations around the globe in sales, revenue management, marketing, brand management, and operations. From May 2009 to February 2011, Mr. McCarthy served asassociates, Group President, The Americas and Global Lodging Services and from January 2007 to April 2009, he served as President, North American Lodging Operations and Global Brand Management. From January 2003 to December 2006, Mr. McCarthy served asManagement from 2007, and Executive Vice President, North American Lodging Operations. He chairs Marriott’s Lodging Strategy Group.Operations from 2003. Mr. McCarthy is a member of the Dean’s Advisory Board of Trustees at both the Villanova University School of Business and the Cornell University School of Hotel Administration.University. He serves as a board member of the Autism Learning Center as well as the ServiceSource Foundation, an organization supporting people with disabilities. Mr. McCarthy holds a bachelor’sbachelor's degree in Business Administration from Villanova University in Villanova, PA. Mr. McCarthy will retire from Marriott on February 28, 2014. |
| | | | | |
Amy C. McPherson President & Managing Director Europe | | 5052 |
| | Amy C. McPherson was appointed President and Managing Director of Europe, a Division within Marriottdivision that encompasses Continental Europe, the United Kingdom, and Ireland, in July 2009. Ms. McPherson joined Marriott in 1986 and most recently served as Executive Vice President of Global Sales and Marketing responsible for the Company’s global and field sales, marketing, Marriott Rewards program, revenue management and eCommerce from January 2005 until she was named to her current position. Other key positions held by Ms. McPherson include Senior Vice President of Business Transformation and Integration, and Vice President of Finance and Business Development. Prior toBefore joining Marriott, she worked for Air Products & Chemicals in Allentown, PA. |
| | | | | |
David A. Rodriguez Executive Vice President Globaland Chief Human Resources Officer
| | 5355 |
| | David A. Rodriguez was appointed Executive Vice President and Chief Human Resources Officer in 2006. Mr. Rodriguez joined Marriott International and assumed the role ofas Senior Vice President-Staffing & Development in 1998. In 2003, he1998 and was appointed Executive Vice President-Human Resources for Marriott Lodging and in 2006 he assumed his current role of Executive Vice President-Global Human Resources for Marriott. Prior to2003. Before joining Marriott, he held several senior roles in human resources at Citicorp (now Citigroup) from 1989-1998. |
| | | | | |
Edward A. Ryan Executive Vice President and General Counsel | | 5860 |
| | Edward A. Ryan was named Executive Vice President and General Counsel in November 2006. He joined Marriott in 1996 as Assistant General Counsel, was promoted to Senior Vice President and Associate General Counsel in 1999, when he had responsibility for all new management agreements and real estate development worldwide for full-service and limited-service hotels; in 2005 he also assumed responsibility for all corporate transactions and corporate governance. Prior toBefore joining Marriott, Mr. Ryan was a Partner at the law firm of Hogan & Hartson (now Hogan Lovells) in Washington, D.C. |
|
| | | | |
Name and Title | | Age | | Business Experience |
Arne M. Sorenson
President and Chief Operating Officer
| | 53 | | Mr. Sorenson was named President and Chief Executive Officer of the company, effective March 31, 2012. He has served as President and Chief Operating Officer since May 2009. He was appointed to the Board of Directors in February 2011. Mr. Sorenson joined Marriott in 1996 as Senior Vice President of Business Development, was named Executive Vice President and Chief Financial Officer in 1998 and assumed the additional title of President, Continental European Lodging, in January 2003. Prior to joining Marriott, he was a Partner in the law firm of Latham & Watkins in Washington, D.C. Mr. Sorenson serves on the Board of Directors of Wal‑Mart Stores, Inc. He also serves on the Board of Regents of Luther College.
|
Code of Ethics and Business Conduct Guide
The Company hasWe have long maintained and enforced an Ethical Conduct Policya Code of Ethics that applies to all Marriott associates, including our Chairman of the Board, Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer, and to each member of our Board of Directors. We have posted ourOur Code of Ethics (“Ethicalis encompassed in our Business Conduct Policy”)Guide, which you can find in the Investor Relations section of our website (Marriott.com/investor) by clicking on “Corporate Governance” section,and then “Governance Documents” subsectionDocuments.” We will post on the Investor Relations section of our Investor Relations website Marriott.com/investor. Anyany future changes or amendments to our Ethical Conduct PolicyCode of Ethics and any waiver of our Ethical Conduct PolicyCode of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer,Chairman of the Board, any of our executive officers, or member of the Board of Directors, will be posted to Marriott.com/investor.Directors.
PART IV
| |
| Item 15. | Exhibits and Financial Statement Schedules. |
LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The response toWe include this portion of Item 15 is submitted under Item 8 of this Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES
Information relating toWe include the financial statement schedules for which provision is made inrequired by the applicable accounting regulations of the SEC is included in the notes to theour financial statements and is incorporated hereinincorporate that information in this Item 15 by reference.
(3) EXHIBITS
Any shareholder who wants a copy of the following Exhibits may obtain one from us upon request at a charge that reflects the reproduction cost of such Exhibits. Requests should be made to the Secretary, Marriott International, Inc., 10400 Fernwood Road, Department 52/862, Bethesda, MD 20817.
|
| | | | |
| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
| | | |
| 2.1 | | Separation and Distribution Agreement entered into on November 17, 2011, with Marriott Vacations Worldwide Corporation and certain of its subsidiaries. | | Exhibit No. 2.1 to our Form 8-K filed November 21, 2011 (File No. 001-13881). |
| | | | | |
| 3.1 | | Restated Certificate of Incorporation. | | Exhibit No. 3.(i) to our Form 8-K filed August 22, 2006 (File No. 001-13881). |
| | | |
| 3.2 | | Amended and Restated Bylaws. | | Exhibit No. 3.(i) to our Form 8-K filed November 12, 2008 (File No. 001-13881). |
| | | |
| 4.1 | | Form of Common Stock Certificate. | | Exhibit No. 4.5 to our Form S-3ASR filed December 8, 2005 (File No. 333-130212). |
| | | |
| 4.2 | | Indenture dated as of November 16, 1998, between the Company and The Bank of New York Mellon, as successor to JPMorgan Chase Bank, N.A., formerly known as The Chase Manhattan Bank. | | Exhibit No. 4.1 to our Form 10-K for the fiscal year ended January 1, 1999 (File No. 001-13881). |
| | | |
| 4.3 | | Form of 4.625% Series F Note due 2012. | | Exhibit No. 4.2 to our Form 8-K filed
June 14, 2005 (File No. 001-13881).
|
| | |
4.4 | | Form of 5.810% Series G Note due 2015. | | Exhibit No. 4.1 to our Form 10-Q for the fiscal quarter ended June 16, 2006 (File No. 001-13881). |
| | | |
4.54.4 | | Form of 6.200% Series H Note due 2016. | | Exhibit No. 4.2 to our Form 8-K filed June 14, 2006 (File No. 001-13881). |
| | | |
4.64.5 | | Form of 6.375% Series I Note due 2017. | | Exhibit No. 4.2 to our Form 8-K filed June 25, 2007 (File No. 001-13881). |
| | | |
| 4.6 | | Form of 3.000% Series K Note No. R-1 due 2019. | | Exhibit No. 4.1 to our Form 8-K filed February 27, 2012 (File No. 001-13881). |
| | | | |
| 4.7 | | Form of 5.625%3.000% Series JK Note No. R-2 due 2013.2019. | | Exhibit No. 4.24 to our Form 8-K filed October 19, 2007March 14, 2012 (File No. 001-13881). |
| | | | |
| 4.8 |
| Form of 3.250% Series L Note due 2022. |
| Exhibit No. 4.1 to our Form 8-K filed September 10, 2012 (File No. 001-13881). |
| | | | |
| 4.9 | | Form of 3.375% Series M Note due 2020. | | Exhibit No. 4.1 to our Form 8-K filed September 27, 2013 (File No. 001-13881). |
| | | | |
| 10.1 | | U.S. $1.75 billion Second$2,000,000,000 Third Amended and Restated Credit Agreement dated as of June 23, 2011,July 18, 2013 with Bank of America, N.A., as Administrative Agentadministrative agent and certain banks. | | Exhibit No. 10 to our Form 8-K filed June 27, 2011July 19, 2013 (File No. 001-13881). |
| | | |
| *10.2 | | Marriott International, Inc. Stock and Cash Incentive Plan, Asas Amended Effective May 1, 2009. | | Exhibit No. 10.1 to our Form 10-Q filed July 17, 2009 (File No. 001-13881). |
| | | | | |
| *10.2.1 | | Amendment to the Marriott International, Inc. Stock and Cash Incentive Plan, dated as of May 7, 2010. | | Exhibit No. 10.3 to our Form 8-K filed February 13, 2012 (File No. 001-13881). |
|
| | | | |
| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
| | | |
| *10.3 | | Marriott International, Inc. Executive Deferred Compensation Plan, Amended and Restated as of January 1, 2009. | | Exhibit No. 99 to our Form 8-K filed August 6, 2009 (File No. 001-13881). |
| | | |
| *10.4 | | Form of Employee Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10.4 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
| | | |
| *10.5 | | Form of Employee Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Off-Cycle Grants). | | Exhibit No. 10.5 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
| | | |
| *10.6 | | Form of Employee Non-Qualified Stock Option Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Annual Grants). | | Exhibit No. 10.6 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
| | | |
| *10.7 | | Form of Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10.5 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
| | | |
| *10.8 | | Form of Executive Restricted Stock Unit Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan, Asas Amended as of May 1, 2009. | | Exhibit No. 10.2 to our Form 10-Q filed July 17, 2009 (File No. 001-13881). |
| | | |
| *10.9 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10.6 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
| | | |
| *10.10 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Off-Cycle Grants). | | Exhibit No. 10.9 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
| | | |
| *10.11 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Annual Grants). | | Exhibit No. 10.10 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
| | | |
| *10.12 | | Form of MI Shares Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Annual Grants), Asas Amended as of May 1, 2009. | | Exhibit No. 10.3 to our Form 10-Q filed July 17, 2009 (File No. 001-13881). |
| | | | | |
| *10.12.1 | | Form of MI Shares Agreement (EBITDA version) under the Marriott International, Inc. Stock and Cash Incentive Plan, as amended and restated as of May 1, 2009 and amended as of May 7, 2010. | | Exhibit No. 10.1 to our Form 8-K filed February 13, 2012 (File No. 001-13881). |
| | | |
| *10.13 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan. | | Exhibit No. 10.7 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
| | | |
| *10.14 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Off-Cycle Grants). | | Exhibit No. 10.12 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
| | | |
| *10.15 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (Annual Grants). | | Exhibit No. 10.13 to our Form 10-K filed February 12, 2009 (File No. 001-13881). |
| | | |
| *10.16 | | Form of Stock Appreciation Right Agreement for the Marriott International, Inc. Stock and Cash Incentive Plan (For Non-Employee Directors). | | Exhibit No. 10.8 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
|
| | | | |
| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
| | | |
| *10.17 | | Summary of Marriott International, Inc. Director Compensation. | | Exhibit No. 10.9 to our Form 10-K filed February 15, 2008 (File No. 001-13881).Filed with this report. |
| | | |
| *10.18 | | Marriott International, Inc. Executive Officer Incentive Plan and Executive Officer Individual Performance Plan. | | Exhibit No. 10.10 to our Form 10-K filed February 15, 2008 (File No. 001-13881). |
| | | | | |
| 10.19 | | License, Services and Development Agreement entered into on November 17, 2011, among Marriott International, Inc., Marriott Worldwide Corporation, Marriott Vacations Worldwide Corporation and the other signatories thereto. | | Exhibit No. 10.1 to our Form 8-K filed November 21, 2011 (File No. 001-13881). |
| | | | | |
| 10.20 | | License, Services and Development Agreement entered into on November 17, 2011, among The Ritz-Carlton Hotel Company, L.L.C., Marriott Vacations Worldwide Corporation and the other signatories thereto. | | Exhibit No. 10.2 to our Form 8-K filed November 21, 2011 (File No. 001-13881). |
| | | | | |
| *10.21 | | Employee Benefits and Other Employment Matters Allocations Agreement entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation. | | Exhibit No. 10.3 to our Form 8-K filed November 21, 2011 (File No. 001-13881). |
| | | | | |
| 10.22 | | Tax Sharing and Indemnification Agreement entered into on November 17, 2011, with Marriott Vacations Worldwide Corporation. | | Exhibit No. 10.4 to our Form 8-K filed November 21, 2011 (File No. 001-13881). |
| | | | | |
| 10.22.1 | | Amendment dated August 2, 2012 to the Tax Sharing and Indemnification Agreement entered into on November 17, 2011, with Marriott Vacations Worldwide Corporation. | | Exhibit No. 10 to our Form 10-Q filed October 4, 2012 (File No. 001-13881). |
| | | | |
| 10.23 | | Marriott Rewards Affiliation Agreement entered into on November 17, 2011, among Marriott International, Inc., Marriott Rewards, LLC,L.L.C., Marriott Vacations Worldwide Corporation and certain of its subsidiaries, Marriott Ownership Resorts, Inc. and the other signatories thereto. | | Exhibit No. 10.5 to our Form 8-K filed November 21, 2011 (File No. 001-13881). |
| | | | | |
| 10.24 | | Non-Competition Agreement entered into on November 17, 2011, with Marriott Vacations Worldwide Corporation. | | Exhibit No. 10.6 to our Form 8-K filed November 21, 2011 (File No. 001-13881). |
| | | |
| 10.25 | | Asset Purchase and Sale Agreement for The New York EDITION between MI NY Clock Tower, LLC (a wholly-owned subsidiary of Marriott International, Inc.) and Black Slate B 2013, LLC, dated January 7, 2014. | | Exhibit No. 10.1 to our Form 8-K filed January8, 2014 (File No. 001-13881). |
| 12 | | Statement of Computation of Ratio of Earnings to Fixed Charges. | | Filed with this report. |
| | | |
| 21 | | Subsidiaries of Marriott International, Inc. | | Filed with this report. |
| | | |
| 23 | | Consent of Ernst & Young LLP. | | Filed with this report. |
| | | |
| 31.1 | | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a). | | Filed with this report. |
| | | |
|
| | | | |
| Exhibit No. | | Description | | Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) |
| 31.2 | | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a). | | Filed with this report. |
| | | |
| 32 | | Section 1350 Certifications. | | Furnished with this report. |
| | | |
| 101.INS | | XBRL Instance Document. | | Submitted electronically with this report. |
| | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. | | Submitted electronically with this report. |
| | | |
| 101.CAL | | XBRL Taxonomy Calculation Linkbase Document. | | Submitted electronically with this report. |
| | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase. | | Submitted electronically with this report. |
| | | |
| 101.LAB | | XBRL Taxonomy Label Linkbase Document. | | Submitted electronically with this report. |
|
| | | | |
| | | |
| 101.PRE | | XBRL Taxonomy Presentation Linkbase Document. | | Submitted electronically with this report. |
| |
| * | Denotes management contract or compensatory plan. |
We have attachedsubmitted electronically the following documents formatted in XBRL (Extensible Business Reporting Language) as Exhibit 101 to this report: (i) the Consolidated Statements of Income for the fifty-two weeks368 days ended December 31, 2013, 364 days ended December 28, 2012, and 364 days ended December 30, 2011, fifty-two weeks ended December 31, 2010, and fifty-two weeks ended January 1, 2010;2011; (ii) the Consolidated Balance Sheets at December 30, 2011,31, 2013, and December 31, 2010;28, 2012; (iii) the Consolidated Statements of Cash Flows for the fifty-two weeks368 days ended December 31, 2013, 364 days ended December 28, 2012, and 364 days ended December 30, 2011, fifty-two weeks ended December 31, 2010, and fifty-two weeks ended January 1, 2010;2011; (iv) the Consolidated Statements of Comprehensive Income for the fifty-two weeks368 days ended December 31, 2013, 364 days ended December 28, 2012, and 364 days ended December 30, 2011, fifty-two weeks ended December 31, 2010, and fifty-two weeks ended January 1, 2010; and2011; (v) the Consolidated Statements of Shareholders’ (Deficit) Equity for the fifty-two weeks368 days ended December 31, 2013, 364 days ended December 28, 2012, and 364 days ended December 30, 2011, fifty-two weeks ended December 31, 2010,2011; and fifty-two weeks ended January 1, 2010.(vi) Notes to Consolidated Financial Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this Form 10-K to be signed on our behalf by the undersigned, thereunto duly authorized, on this 16th20th day of February 20122014.
MARRIOTT INTERNATIONAL, INC.
|
| | |
| By: | | /s/ J.W. Marriott, Jr. Arne M. Sorenson |
| | | J.W. Marriott, Jr.Arne M. Sorenson |
| | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons on our behalf in the capacities indicated and on the date indicated above.
|
| | |
| PRINCIPAL EXECUTIVE OFFICER: | | |
| | | |
/s/ J.W. Marriott, Jr. Arne M. Sorenson | | Chairman of the Board,President, Chief Executive Officer and Director |
J.W. Marriott, Jr.Arne M. Sorenson | | |
| | | |
| PRINCIPAL FINANCIAL OFFICER and PRINCIPAL ACCOUNTING OFFICER: | | |
| | | |
| /s/ Carl T. Berquist | | Executive Vice President, Chief Financial Officer and Principal Accounting Officer |
| Carl T. Berquist | |
| | | |
| DIRECTORS: | | |
| | | |
| /s/ J.W. Marriott, Jr. | | /s/ George Muñoz |
| J.W. Marriott, Jr., Chairman of the Board | | George Muñoz, Director |
| | |
| /s/ John W. Marriott III | | /s/ Harry J. Pearce |
| John W. Marriott III, Vice Chairman of the Board | | Harry J. Pearce, Director |
| | | |
| /s/ Mary K. Bush | | /s/ Steven S Reinemund |
| Mary K. Bush, Director | | Steven S Reinemund, Director |
| | | |
| /s/ Frederick A. Henderson | | /s/ W. Mitt Romney |
| Frederick A. Henderson, Director | | W. Mitt Romney, Director |
| | |
| /s/ Lawrence W. Kellner | | /s/ Lawrence M. Small |
| Lawrence W. Kellner, Director | | Lawrence M. Small, Director |
| | | |
| /s/ Debra L. Lee | | /s/ Arne M. Sorenson |
Debra L. Lee, Director | | Arne M. Sorenson, Director |
| | |
/s/ George Muñoz | | |
George Muñoz, Director | | |