Marriott International, Inc. — FY2009 Form 10-K
Reporting period: Fiscal year ended January 1, 2010 (52 weeks). The filing also reports fourth-quarter results; FY2008 included 53 weeks, and its fourth quarter was 17 weeks versus 16 weeks in FY2009. Unless indicated otherwise, amounts are in U.S. dollars.
Business context
Marriott operates and franchises hotels and lodging facilities and develops and sells vacation-ownership products. At year-end it had 3,420 properties and 595,461 rooms in 68 countries and territories. Approximately 46% of its hotel rooms were managed, 52% franchised, and 2% owned or leased. Cost reimbursements—matched by reimbursed costs—are pass-through revenue and do not affect operating or net income.
Financial performance and liquidity
| Metric | FY2009 | FY2008 |
|---|---|---|
| Revenue | $10.908 billion | $12.879 billion |
| Operating income (loss) | $(152) million | $765 million |
| Income (loss) from continuing operations attributable to Marriott | $(346) million | $359 million |
| Diluted EPS from continuing operations | $(0.97) | $0.97 |
| Cash from operations | $868 million | $641 million |
| Capital expenditures | $147 million | $357 million |
| Long-term debt at year-end | $2.234 billion | $2.975 billion |
| Total assets / shareholders’ equity at year-end | $7.933 billion / $1.142 billion | $8.903 billion / $1.380 billion |
FY2009 revenue fell 15%; base management fees declined to $530 million from $635 million, franchise fees to $400 million from $451 million, and incentive management fees to $154 million from $311 million. Worldwide comparable systemwide RevPAR decreased 17.3% (18.4% in actual dollars); comparable company-operated house profit margins contracted 380 basis points. The Timeshare segment reported a $679 million loss, compared with $28 million of income in FY2008.
For FY2009’s fourth quarter, revenue was $3.380 billion versus $3.784 billion in the prior-year quarter; operating income was $215 million versus $52 million; net income attributable to Marriott was $106 million versus a $10 million loss; and diluted EPS was $0.28 versus $(0.03). Quarter lengths differ.
Year-end cash was $115 million. Available borrowing capacity, including cash, was $1.978 billion; this included $1.863 billion of unused capacity under a $2.4 billion credit facility. The current-assets-to-current-liabilities ratio was approximately 1.2:1. Debt declined by $797 million during the year. Long-term public debt ratings were BBB- (S&P) and Baa3 (Moody’s), both described as the lowest investment-grade level.
Material changes, outlook, and risks
- Timeshare charges: Marriott recorded $752 million of pretax impairment charges ($502 million after tax), chiefly following a strategy reset to reduce prices, alter or exit projects, defer development, and reduce investment. The charges were largely noncash; $48 million related to expected funding and purchase commitments. Timeshare contract sales fell 38% to $665 million.
- Cost actions: FY2009 restructuring costs were $51 million, and other charges were $162 million. Management projected FY2010 annual savings of $112–$117 million from Timeshare restructuring, approximately $12 million from hotel-development actions, and $10–$11 million from overhead reductions.
- Growth and investment: Management expected 25,000–30,000 gross room additions in 2010 and cited a pipeline of approximately 100,000 rooms under construction, awaiting conversion, or approved. Near-term capital expenditures were expected to be consistent with FY2009 levels.
- Demand and operating conditions: Management described lodging and Timeshare demand as weak amid the global downturn, with business transient and group demand under pressure. It reported some improvement in leisure, government, and discounted transient business later in the year, alongside continuing cost controls.
- Accounting change: Adoption of new securitization and consolidation standards in FY2010 was expected to consolidate 13 existing special-purpose entities and produce a one-time noncash after-tax charge of approximately $105 million. The company estimated assets would rise about $1.010 billion and liabilities about $1.115 billion.
- Key risks: Further demand weakness, hotel-owner financing constraints, timeshare loan defaults and securitization-market volatility, property and investment impairments, debt-rating downgrades, foreign exchange and geopolitical events, litigation with owners, and uncertain tax examinations. Unrecognized tax benefits were $249 million; the company said pending federal appeals could materially affect that balance.
The Board substituted stock dividends for cash dividends in the second through fourth quarters of 2009; a $0.04-per-share cash dividend was declared in February 2010. The filing states that the financial statements received an unqualified audit opinion and management and the auditor considered internal control over financial reporting effective.
Important facts for investors to verify
- How much of FY2009’s loss reflects the $752 million Timeshare impairment and whether further project, inventory, or loan write-downs arise.
- Whether RevPAR, occupancy, pricing, and group bookings recover—and how recovery translates into management and incentive fees.
- Timeshare loan delinquency, default, residual-interest valuation assumptions, and the effect of the FY2010 accounting consolidation.
- Execution of the stated restructuring savings, room additions, and capital-spending plans.
- Liquidity and refinancing capacity, including the credit-facility leverage covenant, debt maturities, ratings, guarantees, and other commitments.
- Outcomes of IRS appeals and other tax matters, and the level and timing of any resulting cash tax payments.