Marriott International, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015 (365 days); comparable 2014 fiscal year also had 365 days. The filing also reports unaudited fourth-quarter results. Marriott operates, franchises, and licenses hotels globally, primarily under a low-property-ownership model. At year-end, its system comprised 4,424 properties and 759,330 rooms.
Financial performance and liquidity
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Revenue | $14.486 billion | $13.796 billion | +5% |
| Operating income | $1.350 billion | $1.159 billion | +16% |
| Net income | $859 million | $753 million | +14% |
| Diluted EPS | $3.15 | $2.54 | +24% |
| Cash from operations | $1.430 billion | $1.224 billion | +17% |
| Long-term debt, including current portion | $4.107 billion | $3.771 billion | +$336 million |
Operating margin was approximately 9.3%, up from 8.4%; net margin was approximately 5.9%, up from 5.5%. Adjusted EBITDA, a company-defined non-GAAP measure, was $1.718 billion versus $1.524 billion. Total revenue includes $11.630 billion of cost reimbursements, matched by reimbursed costs and with no operating- or net-income impact.
Comparable systemwide worldwide RevPAR rose 5.2% to $112.25, with ADR up 4.1% to $152.30 and occupancy up 0.8 percentage points to 73.7%. Company-operated house profit margins increased 80 basis points worldwide.
Cash and equivalents were $96 million. The company reported $1.158 billion of available borrowing capacity, including $1.062 billion under its $2.0 billion revolving credit facility; commercial paper outstanding was $938 million. The current ratio was 0.4. Long-term debt averaged 2.9% interest and approximately 4.6 years to maturity. Shareholders’ deficit widened to $3.590 billion from $2.200 billion, amid substantial share repurchases.
Fourth-quarter snapshot
Q4 2015 revenue was $3.706 billion, operating income $310 million, net income $202 million, and diluted EPS $0.77. Compared with Q4 2014, these were increases of approximately 4%, 7%, 3%, and 13%, respectively.
Material changes versus 2014
- Fee growth was led by franchise fees, up $108 million to $853 million, reflecting room growth, stronger RevPAR, and higher relicensing and application fees. Base management fees rose 4% and incentive management fees rose 6%.
- Total segment profits increased 8% to $1.504 billion. North American Limited-Service segment profits rose 13%; North American Full-Service rose 7%; International segment profits declined 1%, with foreign exchange and lower gains and equity earnings among the factors.
- Interest expense increased 45% to $167 million, mainly due to lower capitalized interest and additional note issuance. Debt increased by $336 million.
- Cash from operations increased, while capital expenditures declined to $305 million from $411 million. Dispositions generated $673 million of cash proceeds, contributing to positive investing cash flow.
Outlook, commentary, risks, and unusual items
- Management expected gross open-room growth of approximately 8% in 2016, excluding any Starwood additions. The year-end development pipeline exceeded 270,000 rooms, including nearly 27,000 approved but not yet under contract.
- Planned 2016 investment spending was approximately $450 million to $550 million, including about $100 million for maintenance. This estimate excluded potential additional Starwood-related investment.
- Marriott agreed in November 2015 to acquire Starwood; closing was expected in mid-2016, subject to shareholder and regulatory approvals and disposition of Starwood’s vacation-ownership business. The transaction consideration included 0.920 Marriott shares and $2 cash per Starwood share. Risks include delay or failure to close, litigation, integration costs and disruption, dilution, and failure to realize anticipated benefits.
- 2015 included a $41 million gain on redemption of preferred equity, $15 million of real-estate disposition losses, and $12 million of EDITION-related impairment charges. Adjusted EBITDA excludes specified items, including these gains, losses, impairments, and share-based compensation.
- Other risks include economic and travel-demand changes, competition (including home-sharing and online intermediaries), foreign exchange, owner financing and contract termination, development and guarantee exposure, cyber and privacy threats, and disasters or geopolitical instability. Marriott disclosed $320 million of total guarantee commitments and a $315 million contingent purchase option related to the Times Square EDITION hotel; management said it did not expect the option to be exercised.
- The filing describes pending regulatory inquiries and other legal matters; management did not believe ordinary-course proceedings would materially harm the company, while noting that outcomes are uncertain. The Starwood-related lawsuits against Marriott were dismissed without prejudice by February 2016.
Most important facts for investors to verify
- Starwood transaction status, closing conditions, financing needs, dilution, integration costs, and realized synergies.
- Whether RevPAR, room growth, and fee growth persist, particularly in International markets and amid new hotel supply.
- Debt and liquidity after the transaction, including commercial-paper refinancing capacity, covenant headroom, and cash requirements.
- The assumptions and potential cash sensitivity in the $2.574 billion guest-loyalty-program liability; a 10% reduction in estimated point breakage would have increased it by $164 million.
- Realization of the 2016 investment and development outlook, plus exposure to guarantees, loans, property dispositions, and the contingent Times Square EDITION purchase obligation.