Marriott International, Inc. — 2013 Form 10-K
Business context and reporting period. Marriott operates, franchises and licenses hotels globally, with limited direct ownership. At year-end 2013, its system included 3,916 properties and 675,623 rooms in 72 countries and territories. The year ended December 31, 2013; following a change to calendar-year reporting, it contained 368 days, four more than 2012. The filing is an annual report, not a standalone fourth-quarter report.
Key financial results
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Revenue | $12.784 billion | $11.814 billion | +8% |
| Operating income | $988 million | $940 million | +$48 million |
| Net income | $626 million | $571 million | +$55 million |
| Diluted EPS | $2.00 | $1.72 | +16% |
| Cash from operations | $1.140 billion | $989 million | +$151 million |
| Capital expenditures | $404 million | $437 million | -$33 million |
Reported revenue growth included $886 million more in cost-reimbursement revenue, which is recorded with matching expense and does not affect operating or net income. Excluding that pass-through effect, revenue growth was principally supported by higher franchise, base management and incentive management fees. Operating income rose despite an $81 million increase in general, administrative and other expenses; the increase included development, compensation, brand initiatives and contract-cost impairments.
- Hotel performance: Comparable worldwide systemwide RevPAR rose 4.6% to $102.46, with ADR up 3.4% to $143.33 and occupancy up 0.9 percentage points to 71.5%. Comparable company-operated house profit margin increased 90 basis points worldwide.
- Segment results: North American Full-Service financial results rose 11% to $451 million; North American Limited-Service rose 1% to $478 million; International fell 17% to $160 million; and Luxury rose 6% to $108 million.
- Liquidity and debt: Year-end cash was $126 million. Total debt was $3.199 billion, including $834 million of commercial paper; the balance sheet reported $3.147 billion of long-term debt. Available borrowing capacity, including cash, was $1.291 billion. The current ratio was 0.7, versus 0.5 in 2012. The company reported shareholders’ deficit of $1.415 billion.
- Cash uses: Operating cash flow less capital expenditures was approximately $736 million. Marriott repurchased 20.0 million shares for $834 million and paid $196 million in dividends during 2013.
Material changes and unusual items
- Revenue rose 8% year over year, but the 2013 period had four additional days; management attributed approximately $8 million of fee revenue growth and $7 million of operating-income growth to those extra days.
- 2012 included a $41 million gain from selling a joint-venture interest, contributing to the decline in gains and other income in 2013. 2013 also included an $8 million gain on a partial sale of publicly traded shares and a $2 million asset impairment.
- In early 2014, Marriott sold The London EDITION for approximately $240 million and agreed to sell the Miami and New York EDITION hotels upon completion, for total proceeds of $815 million. Marriott retains long-term management agreements for all three hotels.
- The 2013 fourth-quarter results were revenue of $3.219 billion, operating income of $238 million, net income of $151 million and diluted EPS of $0.49. The comparable 2012 fourth quarter contained 16 weeks, versus three months in 2013, limiting direct comparison.
Outlook, risks and contingencies
- Management expected gross room count to increase approximately 6% in 2014 and forecast investment spending of $800 million to $1 billion, including approximately $186 million for the planned Protea acquisition. The acquisition, expected to close in 2014’s second quarter, remained subject to approvals and customary conditions.
- Demand improved overall, but management cited weak U.S. government and group demand, economic uncertainty, softer conditions in parts of Europe and the Middle East, and moderating demand and new supply in China. North American group booking pace for 2014 stays was up over 4% at year-end.
- Key risks include economic and travel disruptions, competition, owner or franchisee financing constraints, early termination of management agreements, brand or service issues, cybersecurity and privacy incidents, foreign exchange and regulatory exposure, and delays or cost overruns in development.
- At year-end, guarantee commitments totaled $365 million, including $199 million where Marriott was primary obligor. Marriott also disclosed a post-year-end put option related to the Times Square EDITION: lenders may require it to purchase the hotel component for $315 million under specified default conditions. Management considered exercise remote.
- Host Hotels & Resorts-owned or leased properties generated $1.957 billion of Marriott revenue in 2013, a material operating relationship to monitor. The filing also describes pending litigation and a Korean competition investigation; the company could not estimate a possible loss for the class action.
Important facts for investors to verify
- Compare operating trends using period-aligned results, accounting for the 368-day 2013 year and the 16-week 2012 fourth quarter.
- Assess recurring fee growth separately from pass-through cost reimbursements and one-time gains, impairments and termination fees.
- Review debt maturities, commercial-paper access, liquidity and the company’s capacity to fund planned investment and shareholder returns.
- Track the Protea acquisition, the EDITION hotel sales, development-pipeline conversion and associated capital commitments.
- Evaluate International segment weakness, Host-related revenue concentration, guarantee exposure and the potential Times Square EDITION put obligation.