Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MAR > SEC Filings for MAR > Form 10-Q on 2-May-2013All Recent SEC Filings

Show all filings for MARRIOTT INTERNATIONAL INC /MD/ | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MARRIOTT INTERNATIONAL INC /MD/


2-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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.
Any number of risks and uncertainties could cause actual results to differ materially from those we express in our forward-looking statements, including the risks and uncertainties we describe below and other factors we describe from time to time in our periodic filings with the U.S. Securities and Exchange Commission (the "SEC"). We therefore caution you not to rely unduly on any forward-looking 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.
In addition, see the "Item 1A. Risk Factors" caption in the "Part II-OTHER INFORMATION" section of this report.
BUSINESS AND OVERVIEW
Change in Reporting Cycle
As further detailed in Footnote No. 1 "Basis of Presentation," 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 (the day after the end of the 2012 fiscal year) and will end on December 31, 2013, and our 2013 first quarter is the period from December 29, 2012 through March 31, 2013 (93 days), while our 2012 first quarter is the period from December 31, 2011 through March 23, 2012 (84 days). As a result, we had nine more days of activity in the 2013 first quarter than we had in the 2012 first quarter, which we estimate resulted in $37 million of additional combined base management fee, franchise fee, and incentive management fee revenues and $23 million of additional operating income. We discuss the estimated impacts in more detail in the following sections beginning with "Revenues," to the extent significant. Lodging Business
We are a worldwide operator, franchisor, and licensor of hotels and timeshare properties in 74 countries and territories under numerous brand names. We also develop, operate, and market residential properties and provide services to home/condominium owner associations. At the end of the 2013 first quarter, we had 3,822 properties (663,163 rooms) in our system, including 37 home and condominium products (4,067 units) for which we manage the related owners' associations.
We earn base management fees and in some cases incentive management fees from the properties that we manage, and we earn franchise fees on the properties that others operate under franchise agreements with us. Base fees typically consist of a percentage of property-level revenue while incentive fees typically consist of a 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 the like.
We use or license our trademarks for the sale of residential real estate, either in conjunction with hotel development or on a stand-alone basis, under our The Ritz-Carlton, EDITION, JW Marriott, Autograph Collection, and Marriott brand names. Third-party developers typically build and sell residences with little, if any, of our capital at risk. While 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 services that we provide, all serve to make our residential properties distinctive.


Table of Contents

Under our business model, we typically manage or franchise hotels, rather than own them. At March 31, 2013, we operated 43 percent of the hotel rooms in our worldwide system under management agreements, our franchisees operated 54 percent under franchise agreements, unconsolidated joint ventures that we have an interest in held management and provided services to franchised hotels for 1 percent, and we owned or leased only 2 percent.
Our emphasis on long-term management contracts and franchising 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 risk in a cyclical industry. In addition, we believe minimizing our capital investments and adopting a strategy of recycling the investments that we do make maximizes and maintains our financial flexibility.
We remain focused on doing the things that we do well; that is, selling rooms, taking care of our guests, and making sure we control costs both at company-operated properties and at the corporate level ("above-property"). Our brands remain strong as a result of skilled management teams, dedicated associates, superior customer service with an emphasis on guest and associate satisfaction, significant distribution, our Marriott Rewards and The Ritz-Carlton Rewards loyalty programs, a multichannel 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 address, through various means, hotels in the system that do not meet 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.
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. Lodging Performance Measures
We believe Revenue per Available Room ("RevPAR"), which we calculate by dividing room sales for comparable properties by room nights available to guests for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties. RevPAR may not be comparable to similarly titled measures, such as revenues. References to RevPAR statistics, including occupancy and average daily rate, throughout this report are in constant dollars, unless otherwise noted, and reflect the three calendar months ended March 31, 2013 or March 31, 2012, as applicable. We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period.
Lodging Results
Conditions for our lodging business continued to improve in the first quarter of 2013, and comparable worldwide systemwide average daily rates for the three months ended March 31, 2013 increased 3.8 percent on a constant dollar basis to $144.50, RevPAR increased 4.6 percent to $97.48, and occupancy increased 0.6 percentage points to 67.5 percent, as compared to the same period a year ago. The improvement in the lodging business reflected generally low supply growth, a favorable 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. However, uncertainty in the United States, particularly associated with government austerity and its impact on the overall economy, had a dampening effect on short-term corporate group customer demand. Government and government-related demand was constrained due to government spending restrictions, including in Washington D.C. and the surrounding areas. For full year 2012, we estimate that government and government-related business made up 5 percent of room nights across our North American system.


Table of Contents

Transient demand was strong in most North American markets, as we continued to eliminate discounts, pushed business into higher rated price categories, and raised room prices. Our markets in Florida, New York, California, and Texas experienced particularly strong RevPAR increases. Resort demand was very strong, including at ski resorts, Florida destinations, and resorts in the Caribbean and Mexico. In Europe, many economies continue to struggle, demand remained weak in markets more dependent on regional travel, and new supply constrained RevPAR growth in a few markets. Gateway cities in Europe, particularly London, also experienced less robust demand in the 2013 first quarter than in recent quarters. Demand was strong in the United Arab Emirates and Qatar, but remained weak in Egypt, although improving, and Jordan. Demand in the Asia Pacific region continued to moderate, and RevPAR in Greater China was flat in the 2013 first quarter, compared to the year-ago quarter, reflecting declines in government related travel due to the country's recent change in leadership, moderating economic growth, and new supply in several markets. Thailand and Indonesia had strong demand and RevPAR in the 2013 first quarter.
We monitor market conditions and carefully price our rooms daily in accordance with individual property demand levels, generally increasing room rates as demand increases. We also modify the mix of our business to increase revenue as demand changes. Demand for higher rated rooms improved in most markets in the first quarter of 2013, which allowed us to reduce discounting and special offers for transient business in many markets. This mix improvement benefited average daily rates. For our company-operated properties, we continue to focus on enhancing property-level house profit margins and actively pursue productivity improvements.
The properties in our system serve both transient and group customers. Business transient and leisure transient demand were very strong in the first quarter of 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. In the 2013 first quarter, the year-over-year timing of Easter reduced the number of days available for group business. In addition, in-the-quarter for-the-quarter group demand was weaker than in recent quarters, attendance was below meeting planner expectations for some government or government-related group events that took place, and we also saw a decline in new bookings for group stays later in 2013. This weakness in short-term group demand was largely related to weak corporate business customer demand and to a lesser extent government customers. Association group business for company-operated Marriott Hotels and Resorts brand properties was very strong in the 2013 first quarter. While the short-term group demand shortfalls were somewhat mitigated by strong transient demand and occupancy rates in most areas of the United States are at very high levels, property-level food and beverage revenues declined as compared to the year-ago quarter because transient customers typically spend less on food and beverage and because groups were more conservative with their food and beverage expenditures.
Group booking pace for company-operated Marriott Hotels and Resorts brand properties in North America for the remainder of 2013 is up 4 percent as compared to full-year pace up 6 percent one quarter ago for the 2013 full year, reflecting somewhat more cautious short-term corporate group demand. At the same time, our 2014 group booking pace has improved dramatically, now up 5 percent compared to a 4 percent decline a year ago, reflecting strong long-term group demand and correspondingly less availability. Lodging System Growth and Pipeline
During the first quarter of 2013, we added 5,257 rooms (gross) to our system. Approximately 57 percent of new rooms are located outside the United States and 22 percent of the room additions are conversions from competitor brands. At the end of the 2013 first quarter, we have over 135,000 rooms in our lodging development pipeline. For the 2013 full year, we expect to add approximately 30,000 to 35,000 rooms (gross) to our system. We expect approximately 10,000 rooms to exit the system during the 2013 full year, largely due to financial and quality issues. The figures in this paragraph do not include residential and timeshare units.


Table of Contents

CONSOLIDATED RESULTS
The following discussion presents an analysis of the significant items of the results of our operations for the 2013 first quarter (93 days ended March 31, 2013), compared to the 2012 first quarter (84 days ended March 23, 2012). Revenues
Revenues increased by $590 million (23 percent) to $3,142 million in the 2013 first quarter from $2,552 million in the 2012 first quarter as a result of:
higher cost reimbursements revenue ($513 million), higher base management fees ($29 million), higher franchise fees ($25 million), higher incentive management fees ($16 million (comprised of a $12 million increase for North America and a $4 million increase outside of North America)), and higher owned, leased, and other revenue ($7 million). We estimate that the $590 million increase in revenues included $37 million of combined base management fee, franchise fee, and incentive management fee revenues due to the additional nine days of activity in the 2013 first quarter compared to the 2012 first quarter. Cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed, franchised, and licensed properties and relates, predominantly, to payroll costs at managed properties where we are the employer, but also includes reimbursements for other costs, such as those associated with our Marriott Rewards and Ritz-Carlton Rewards programs. 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 $513 million increase in total cost reimbursements revenue, to $2,548 million in the 2013 first quarter from $2,035 million in the 2012 first quarter, reflected the impact of higher property-level demand and growth across the system. Since the end of the 2012 first quarter, our managed rooms increased by 8,582 rooms and our franchised rooms increased by 10,780 rooms, net of hotels exiting the system.
The $29 million increase in total base management fees, to $153 million in the 2013 first quarter from $124 million in the 2012 first quarter, mainly reflected the additional nine days of activity in the 2013 first quarter (approximately $15 million), stronger RevPAR due to increased demand ($5 million), the impact of unit growth across the system ($5 million), which included the Gaylord brand properties we began managing in the 2012 fourth quarter, and a favorable variance from fee reversals in the 2012 first quarter to reflect contract revisions ($3 million). The $25 million increase in total franchise fees, to $151 million in the 2013 first quarter from $126 million in the 2012 first quarter, primarily reflected the additional nine days of activity in the 2013 first quarter (approximately $16 million), stronger RevPAR due to increased demand ($4 million), and the impact of unit growth across the system ($3 million). The $16 million increase in incentive management fees from $50 million in the first quarter of 2012 to $66 million in the first quarter of 2013 largely reflected higher net property-level revenue, particularly for full-service hotels in North America, which resulted in higher property-level income and margins ($10 million) and fees for the additional nine days of activity in the 2013 first quarter (approximately $6 million).
The $7 million increase in owned, leased, corporate housing, and other revenue, to $224 million in the 2013 first quarter, from $217 million in the 2012 first quarter, predominantly reflected $9 million of higher branding fees, $7 million of higher owned and leased revenue due to strong demand and the additional nine days of activity in the 2013 first quarter, $3 million of higher hotel agreement termination fees, and $3 million of higher other revenue, partially offset by $16 million of lower corporate housing revenue due to the sale of the ExecuStay corporate housing business in the 2012 second quarter. Combined branding fees for credit card endorsements and the sale of branded residential real estate by others totaled $25 million in the 2013 first quarter and $16 million in the 2012 first quarter.


Table of Contents

Operating Income
Operating income increased by $51 million to $226 million in the 2013 first quarter from $175 million in the 2012 first quarter. The $51 million increase in operating income reflected a $29 million increase in base management fees, a $25 million increase in franchise fees, a $16 million increase in incentive management fees, and $14 million of higher owned, leased, corporate housing, and other revenue net of direct expenses, partially offset by a $33 million increase in general, administrative and other expenses. Approximately $23 million of the net increase in operating income was due the additional nine days of activity in the 2013 first quarter. We discuss the reasons for the increases in base management fees, franchise fees, and incentive management fees compared to the 2012 first quarter in the preceding "Revenues" section.
The $14 million (64 percent) increase in owned, leased, corporate housing, and other revenue net of direct expenses was largely attributable to $9 million of higher branding fees, $3 million of higher hotel agreement termination fees, and $3 million of higher other revenue, partially offset by $3 million of lower owned and leased revenue, net of direct expenses primarily due to weaker results primarily at two International segment leased properties.
General, administrative, and other expenses increased by $33 million (22 percent) to $180 million in the 2013 first quarter from $147 million in the 2012 first quarter. The increase largely reflected approximately $15 million of expenses related to the additional nine days of activity in the 2013 first quarter, $6 million of higher compensation and other overhead expenses (including $2 million associated with a change in estimate for incentive compensation paid in 2013 related to 2012), $4 million of increased other expenses primarily associated with higher costs in international markets and branding and service initiatives to enhance and grow our brands globally, $3 million of increased expenses due to unfavorable foreign exchange rates, $3 million of increased amortization of deferred contract acquisition costs, primarily related to the Gaylord brand and hotel management company acquisition, and an unfavorable variance from a $2 million guarantee accrual reversal in the 2012 first quarter for a Luxury segment property. The $33 million increase in total general, administrative, and other expenses included $18 million that we did not allocate to any of our segments, and $15 million that we allocated as follows: $6 million to our International segment, $5 million to our Luxury segment, $2 million to our North American Full-Service segment, and $2 million to our North American Limited-Service segment. Interest Expense
Interest expense decreased by $2 million (6 percent) to $31 million in the 2013 first quarter compared to $33 million in the 2012 first quarter. This decrease in interest expense principally reflected $4 million of increased capitalized interest associated with construction projects largely to develop four EDITION hotels.
Income Tax
Our tax provision increased by $22 million (51 percent) to $65 million in the 2013 first quarter compared to $43 million in the 2012 first quarter. The increase over the year-ago quarter, resulted from higher income before income taxes, principally due to increased demand, a higher effective tax rate (32 percent in 2013 and 29 percent in 2012) due to a 2012 tax provision to tax return true-up benefit that did not recur in 2013. Net Income
Net income increased by $32 million to $136 million in the 2013 first quarter from $104 million in the 2012 first quarter, and diluted earnings per share increased by $0.13 per share (43 percent) to $0.43 per share from $0.30 per share in the 2012 first quarter. As discussed in more detail in the preceding sections beginning with "Revenues" or as shown in the Consolidated Statements of Income, the $32 million increase in net income compared to the year-ago quarter was due to higher base management fees ($29 million), higher franchise fees ($25 million), higher incentive management fees ($16 million), higher owned, leased, corporate housing, and other revenue net of direct expenses ($14 million), lower interest expense ($2 million), higher gains and other income ($1 million), and lower equity in losses ($1 million). These increases were partially offset by higher general, administrative, and other expenses ($33 million), higher income taxes ($22 million), and lower interest income ($1 million).


Table of Contents

Earnings Before Interest Expense, Taxes, Depreciation and Amortization
("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, depreciation and amortization. We believe that EBITDA is 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.
EBITDA has limitations and should not be considered in isolation or as a substitute for performance measures calculated under GAAP. This non-GAAP measure excludes certain cash expenses that we are obligated to make. Other companies in our industry may also calculate EBITDA differently than we do or may not calculate it at all, limiting EBITDA's usefulness as a comparative measure. We show our 2013 first quarter and 2012 first quarter EBITDA calculations and reconcile those measures with Net Income in the following table:

($ in millions)                                  93 Days Ended March 31, 2013      84 Days Ended March 23, 2012
Net Income                                      $                    136          $                    104
Interest expense                                                      31                                33
Tax provision                                                         65                                43
Depreciation and amortization                                         37                                29
Less: Depreciation reimbursed by third-party
owners                                                                (5 )                              (4 )
Interest expense from unconsolidated joint
ventures                                                               1                                 4
Depreciation and amortization from
unconsolidated joint ventures                                          3                                 6
EBITDA                                          $                    268          $                    215

BUSINESS SEGMENTS
We are a diversified lodging company with operations in four business segments:
North American Full-Service Lodging, North American Limited-Service Lodging, International Lodging, and Luxury Lodging. See Footnote No. 12, "Business Segments," to our Financial Statements for further information on our segments including how we aggregate our individual brands into each segment and other information about each segment, including revenues and assets, as well as a reconciliation of segment results to net income.
We added 130 properties (28,942 rooms) and 43 properties (9,737 rooms) exited our system since the end of the 2012 first quarter. These figures do not include residential units. During that time we also added 3 residential properties (229 units) and no residential properties exited the system.
See the "CONSOLIDATED RESULTS" caption earlier in this report for additional information.
Total segment financial results increased by $60 million to $289 million in the 2013 first quarter from $229 million in the 2012 first quarter, and total segment revenues increased by $578 million to $3,081 million in the 2013 first quarter, a 23 percent increase from revenues of $2,503 million in the 2012 first quarter.


Table of Contents

The quarter-over-quarter increase in segment revenues of $578 million was a result of a $509 million increase in cost reimbursements revenue, a $29 million increase in base management fees, a $24 million increase in franchise fees, and a $16 million increase in incentive management fees. The quarter-over-quarter increase in segment results of $60 million across our lodging business reflected a $29 million increase in base management fees, a $24 million increase in franchise fees, a $16 million increase in incentive management fees, and a $6 million increase in owned, leased, corporate housing, and other revenue net of direct expenses, partially offset by an increase of $15 million in general, administrative, and other expenses. For more information on the variances see the preceding sections beginning with "Revenues." In the 2013 first quarter, 33 percent of our managed properties paid incentive management fees to us versus 29 percent in the 2012 first quarter. In addition, . . .

  Add MAR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MAR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.