10-Q 1 mar-q12013x10q.htm 10-Q MAR-Q1.2013-10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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
(Address of principal executive offices)
 
20817
(Zip Code)
(301) 380-3000
(Registrant’s telephone number, including area code) 
_______________________________________
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  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller 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
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller Reporting Company
 
¨
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 307,129,596 shares of Class A Common Stock, par value $0.01 per share, outstanding at April 19, 2013.




MARRIOTT INTERNATIONAL, INC.
FORM 10-Q TABLE OF CONTENTS
 
 
 
Page No.
 
 
 
Part I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows - 93 Days Ended March 31, 2013 and 84 Days Ended March 23, 2012
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 



1


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
($ in millions, except per share amounts)
(Unaudited)
 
 
93 Days Ended March 31, 2013
 
84 Days Ended March 23, 2012
REVENUES
 
 
 
Base management fees
$
153

 
$
124

Franchise fees
151

 
126

Incentive management fees
66

 
50

Owned, leased, corporate housing, and other revenue
224

 
217

Cost reimbursements
2,548

 
2,035

 
3,142

 
2,552

OPERATING COSTS AND EXPENSES
 
 
 
Owned, leased, and corporate housing-direct
188

 
195

Reimbursed costs
2,548

 
2,035

General, administrative, and other
180

 
147

 
2,916

 
2,377

OPERATING INCOME
226

 
175

Gains and other income
3

 
2

Interest expense
(31
)
 
(33
)
Interest income
3

 
4

Equity in earnings (losses)

 
(1
)
INCOME BEFORE INCOME TAXES
201

 
147

Provision for income taxes
(65
)
 
(43
)
NET INCOME
$
136

 
$
104

EARNINGS PER SHARE-Basic
 
 
 
Earnings per share
$
0.44

 
$
0.31

EARNINGS PER SHARE-Diluted
 
 
 
Earnings per share
$
0.43

 
$
0.30

CASH DIVIDENDS DECLARED PER SHARE
$
0.1300

 
$
0.1000

See Notes to Condensed Consolidated Financial Statements

2


MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
(Unaudited)

 
 
93 Days Ended March 31, 2013
 
84 Days Ended March 23, 2012
Net income
 
$
136

 
$
104

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustments
 
(13
)
 
11

Other derivative instrument adjustments, net of tax
 
7

 
(3
)
Unrealized gain on available-for-sale securities, net of tax
 
4

 
2

Reclassification of losses, net of tax
 

 

Total other comprehensive (loss) income, net of tax
 
(2
)
 
10

Comprehensive income
 
$
134

 
$
114


See Notes to Condensed Consolidated Financial Statements


3


MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
 
 
(Unaudited)
 
 
 
March 31,
2013
 
December 28,
2012
ASSETS
 
 
 
Current assets
 
 
 
Cash and equivalents
$
221

 
$
88

Accounts and notes receivable
1,080

 
1,028

Inventory
11

 
10

Current deferred taxes, net
247

 
280

Prepaid expenses
56

 
57

Other
11

 
12

 
1,626

 
1,475

Property and equipment
1,574

 
1,539

Intangible assets
 
 
 
Goodwill
874

 
874

Contract acquisition costs and other
1,119

 
1,115

 
1,993

 
1,989

Equity and cost method investments
230

 
216

Notes receivable
170

 
180

Deferred taxes, net
673

 
676

Other
257

 
267

 
$
6,523

 
$
6,342

LIABILITIES AND SHAREHOLDERS’ DEFICIT
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
49

 
$
407

Accounts payable
517

 
569

Accrued payroll and benefits
698

 
745

Liability for guest loyalty programs
590

 
593

Other
504

 
459

 
2,358

 
2,773

Long-term debt
3,206

 
2,528

Liability for guest loyalty programs
1,440

 
1,428

Other long-term liabilities
896

 
898

Shareholders’ deficit
 
 
 
Class A Common Stock
5

 
5

Additional paid-in-capital
2,542

 
2,585

Retained earnings
3,549

 
3,509

Treasury stock, at cost
(7,427
)
 
(7,340
)
Accumulated other comprehensive loss
(46
)
 
(44
)
 
(1,377
)
 
(1,285
)
 
$
6,523

 
$
6,342


See Notes to Condensed Consolidated Financial Statements

4


MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited)
 
 
93 Days Ended March 31, 2013
 
84 Days Ended March 23, 2012
OPERATING ACTIVITIES
 
 
 
Net income
$
136

 
$
104

Adjustments to reconcile to cash provided by operating activities:
 
 
 
Depreciation and amortization
37

 
29

Income taxes
33

 
70

Liability for guest loyalty programs
8

 
14

Asset impairments and write-offs
2

 
1

Working capital changes and other
(98
)
 
(93
)
Net cash provided by operating activities
118

 
125

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(70
)
 
(197
)
Loan advances
(3
)
 
(1
)
Loan collections and sales
20

 
83

Equity and cost method investments
(14
)
 
(2
)
Contract acquisition costs
(14
)
 
(10
)
Other
(7
)
 
(8
)
Net cash used in investing activities
(88
)
 
(135
)
FINANCING ACTIVITIES
 
 
 
Commercial paper/credit facility, net
722

 
(240
)
Issuance of long-term debt

 
590

Repayment of long-term debt
(402
)
 
(2
)
Issuance of Class A Common Stock
41

 
30

Dividends paid
(41
)
 
(34
)
Purchase of treasury stock
(217
)
 
(136
)
Other

 
(10
)
Net cash provided by financing activities
103

 
198

INCREASE IN CASH AND EQUIVALENTS
133

 
188

CASH AND EQUIVALENTS, beginning of period
88

 
102

CASH AND EQUIVALENTS, end of period
$
221

 
$
290

See Notes to Condensed Consolidated Financial Statements


5


MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
Basis of Presentation
The condensed 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 Condensed Consolidated Financial Statements as our “Financial Statements,” (ii) our Condensed Consolidated Statements of Income as our “Income Statements,” (iii) our Condensed 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.” In addition, references throughout to numbered "Footnotes" refer to the numbered Notes in these Notes to Condensed Consolidated Financial Statements, unless otherwise noted.
These condensed consolidated Financial Statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Although we believe our disclosures are adequate to make the information presented not misleading, you should read the financial statements in this report in conjunction with the consolidated financial statements and notes to those financial statements in our Annual Report on Form 10-K for the fiscal year ended December 28, 2012, (“2012 Form 10-K”). Certain terms not otherwise defined in this Form 10-Q have the meanings specified in our 2012 Form 10-K.
Preparation of financial statements that conform with 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.
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 quarters will include the three month periods ended March 31, June 30, September 30, and December 31, except that the period ended March 31, 2013 also includes December 29, 2012 through December 31, 2012. Our future fiscal years will begin on January 1 and end on December 31. Historically, our fiscal year was a 52-53 week fiscal year that ended on the Friday nearest to December 31, and our quarterly reporting cycle included twelve week periods for the first, second, and third quarters and a sixteen week period (or in some cases a seventeen week period) for the fourth quarter. We have not restated and do not plan to restate historical results.
As a result of the change in our calendar, our 2013 first quarter, which began on December 29, 2012 and ended on March 31, 2013 (our "2013 first quarter"), had 93 days of activity, 9 more days than our 2012 first quarter, which began on December 31, 2011, ended on March 23, 2012 (our "2012 first quarter"), and had 84 days of activity. While our 2013 full fiscal year will have only 4 more days (368 days in 2013 versus 364 days in 2012), our 2013 second quarter will have 7 additional days, our 2013 third quarter will have 8 additional days, and our 2013 fourth quarter will have 20 fewer days than the corresponding periods in 2012.
In our opinion, our Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of March 31, 2013, and December 28, 2012, the results of our operations for the 93 days ended March 31, 2013, and 84 days ended March 23, 2012, and cash flows for the 93 days ended March 31, 2013, and 84 days ended March 23, 2012. Interim results may not be indicative of fiscal year performance because of seasonal and short-term variations. We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements.

6


2.
New Accounting Standards
Accounting Standards Update No. 2013-02 - “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU No. 2013-02”)
ASU No. 2013-02, which we adopted in our 2013 first quarter, amends existing guidance by requiring disclosure of the changes in the components of accumulated other comprehensive income for the current period and additional information about items reclassified out of accumulated other comprehensive income. Our adoption of this update required additional disclosures but did not have a material impact on our Financial Statements. Please see Footnote No. 10, "Comprehensive Income and Capital Structure" for those additional disclosures.
3.
Income Taxes
We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. The Internal Revenue Service ("IRS") has examined our federal income tax returns, and we have settled all issues for tax years through 2009. We participated in the IRS Compliance Assurance Program ("CAP"), which accelerates IRS examination of key transactions with the goal of resolving any issues before the taxpayer files its return, for the 2010, 2011, and 2012 tax years, and are also participating in the program for 2013. For the 2010 and 2011 tax years all but one issue, which we are appealing, has been resolved, including all matters that could affect the Company's cash tax benefits related to our spin-off in 2011 of our timeshare operations and timeshare development business. The audit for the 2012 tax year is currently ongoing. Various foreign, state, and local income tax returns are also under examination by the applicable taxing authorities.
For the 2013 first quarter, we decreased our unrecognized tax benefits by $1 million from $29 million at year-end 2012 chiefly due to new information related to a federal issue and expiring statutes of limitation in several foreign jurisdictions. The unrecognized tax benefits balance of $28 million at the end of the 2013 first quarter included $13 million of tax positions that, if recognized, would impact our effective tax rate.
As a large taxpayer, the IRS and other taxing authorities continually audit us. We anticipate resolving an international issue related to financing activity during the next 12 months for which we have an unrecognized tax benefit of $5 million. Although the resolution of this issue could have a significant impact on our unrecognized tax balance, we do not anticipate that it will have a material impact on our Financial Statements.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (the "Act") was signed into law. Some of the provisions contained in the Act were retroactive, and we recognized a $3 million benefit related to the Act in the 2013 first quarter.
4.
Share-Based Compensation
Under our Stock and Cash Incentive Plan (the “Stock Plan”), we award: (1) stock options (our "Stock Option Program") to purchase our Class A Common Stock (our “common stock”); (2) stock appreciation rights (“SARs”) for our common stock (our “SAR Program”); (3) restricted stock units (“RSUs”) of our common stock; and (4) deferred stock units. We grant awards at exercise prices or strike prices that equal the market price of our common stock on the date of grant.
We recorded share-based compensation expense for award grants of $22 million for the 2013 first quarter and $19 million for the 2012 first quarter. Deferred compensation costs related to unvested awards totaled $200 million at March 31, 2013 and $122 million at December 28, 2012.
RSUs
We granted 2.5 million RSUs during the 2013 first quarter 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 also granted 0.2 million service and performance RSUs ("S&P RSUs") during the 2013 first quarter to certain named executive officers. In addition to generally being subject to pro-rata annual vesting conditioned on continued service consistent with the standard form of RSU, these S&P RSUs are also subject to the satisfaction of a

7


performance condition, expressed as an EBITDA goal. RSUs, including S&P RSUs, granted in the 2013 first quarter had a weighted average grant-date fair value of $37.
SARs and Stock Options
We granted 0.7 million SARs and 0.1 million stock options to officers and key employees during the 2013 first quarter. These SARs and options generally 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. The weighted average grant-date fair value of SARs granted in the 2013 first quarter was $13 and the weighted average exercise price was $39. The weighted average grant-date fair value of stock options granted in the 2013 first quarter was $13 and the weighted average exercise price was $39.
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 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 during the 2013 first quarter:
Expected volatility
31
%
Dividend yield
1.17
%
Risk-free rate
1.8
%
Expected term (in years)
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.
Other Information
As of the end of the 2013 first quarter, we had reserved 36 million shares under the Stock Plan, including 14 million shares under the Stock Option Program and the SAR Program.

8


5.
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 noncurrent financial assets and liabilities that qualify as financial instruments, determined under current guidance for disclosures on the fair value of financial instruments, in the following table:
 
At March 31, 2013
 
At December 28, 2012
($ in millions)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Senior, mezzanine, and other loans
$
170

 
$
171

 
$
180

 
$
172

Marketable securities
57

 
57

 
56

 
56

 
 
 
 
 
 
 
 
Total long-term financial assets
$
227

 
$
228

 
$
236

 
$
228

Senior Notes
$
(1,835
)
 
$
(1,999
)
 
$
(1,833
)
 
$
(2,008
)
Commercial paper
(1,238
)
 
(1,238
)
 
(501
)
 
(501
)
Other long-term debt
(128
)
 
(138
)
 
(130
)
 
(139
)
Other long-term liabilities
(61
)
 
(61
)
 
(69
)
 
(69
)
 
 
 
 
 
 
 
 
Total long-term financial liabilities
$
(3,262
)
 
$
(3,436
)
 
$
(2,533
)
 
$
(2,717
)
We estimate the fair value of our senior, mezzanine, and other loans, including the current portion, by discounting cash flows using risk-adjusted rates, both of 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 our marketable securities at the end of our 2013 first quarter was $57 million, which included 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.
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. 9, "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 the end of the 2013 first quarter and year-end 2012, we determined that the carrying value of our commercial paper approximated its fair value due to the short maturity. Our other long-term liabilities largely consist of guarantee costs. As noted in Footnote No. 11, "Contingencies," we measure our liability for guarantees at fair value on a nonrecurring basis, that is when we issue or modify a guarantee, using Level 3 internally developed inputs. At the end of the 2013 first quarter and year-end 2012, we determined that the carrying values of our guarantee costs approximated their fair values based on Level 3 inputs.
See the “Fair Value Measurements” caption of Footnote No. 1, “Summary of Significant Accounting Policies” of our 2012 Form 10-K for more information on the input levels we use in determining fair value.

9



6.
Earnings Per Share
The table below illustrates the reconciliation of the earnings and number of shares used in our calculations of basic and diluted earnings per share:
 
 
 
93 Days Ended March 31, 2013
 
84 Days Ended March 23, 2012
(in millions, except per share amounts)
 
 
 
 
Computation of Basic Earnings Per Share
 
 
 
 
Net income
 
$
136

 
$
104

Weighted average shares outstanding
 
311.8

 
333.7

Basic earnings per share
 
$
0.44

 
$
0.31

Computation of Diluted Earnings Per Share
 
 
 
 
Net income
 
$
136

 
$
104

Weighted average shares outstanding
 
311.8

 
333.7

Effect of dilutive securities
 
 
 
 
Employee stock option and SARs plans
 
4.3

 
6.8

Deferred stock incentive plans
 
0.8

 
0.9

Restricted stock units
 
3.1

 
3.2

Shares for diluted earnings per share
 
320.0

 
344.6

Diluted earnings per share
 
$
0.43

 
$
0.30

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.
Pursuant to 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 the exercise prices were greater than the average market prices for the applicable periods:
(a)
for the 2013 first quarter, 0.4 million options and SARs; and
(b)
for the 2012 first quarter, 1.0 million options and SARs.

7.
Property and Equipment
The following table shows the composition of our property and equipment balances at the end of the 2013 first quarter and year-end 2012:
 
 
At Period End
($ in millions)
March 31,
2013
 
December 28,
2012
Land
$
587

 
$
590

Buildings and leasehold improvements
696

 
703

Furniture and equipment
861

 
854

Construction in progress
428

 
383

 
2,572

 
2,530

Accumulated depreciation
(998
)
 
(991
)
 
$
1,574

 
$
1,539



10


The following table shows the composition of these property and equipment balances that we recorded as capital leases:
 
At Period End
($ in millions)
March 31,
2013
 
December 28,
2012
Land
$
29

 
$
30

Buildings and leasehold improvements
141

 
143

Furniture and equipment
38

 
38

Construction in progress
5

 
4

 
213

 
215

Accumulated depreciation
(84
)
 
(82
)
 
$
129

 
$
133


8.
Notes Receivable
The following table shows the composition of our notes receivable balances (net of reserves and unamortized discounts) at the end of the 2013 first quarter and year-end 2012:
 
At Period End
($ in millions)
March 31,
2013
 
December 28,
2012
Senior, mezzanine, and other loans
$
223

 
$
242

Less current portion
(53
)
 
(62
)
 
$
170

 
$
180


The following table shows the expected future principal payments (net of reserves and unamortized discounts) as well as interest rates for our notes receivable as of the end of the 2013 first quarter:
 
Notes Receivable Principal Payments (net of reserves and unamortized discounts) and Interest Rates ($ in millions)
 
Amount
2013
 
$
44

2014
 
52

2015
 
66

2016
 
1

2017
 

Thereafter
 
60

Balance at March 31, 2013
 
$
223

Weighted average interest rate at March 31, 2013
 
5.0
%
Range of stated interest rates at March 31, 2013
 
0 to 12.7%


The following table shows the unamortized discounts for our notes receivable at the end of the 2013 first quarter and year-end 2012:

Notes Receivable Unamortized Discounts ($ in millions)
 
Total
Balance at year-end 2012
 
$
11

Balance at March 31, 2013
 
$
12



11


At the end of the 2013 first quarter, our recorded investment in impaired “Senior, mezzanine, and other loans” was $96 million, and we had an $81 million notes receivable reserve representing an allowance for credit losses, leaving $15 million of our investment in impaired loans, for which we had no related allowance for credit losses. At year-end 2012, 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 $94 million for both the 2013 first quarter and 2012 first quarter.
The following table summarizes the activity related to our “Senior, mezzanine, and other loans” notes receivable reserve for the 2013 first quarter:
 
($ in millions)
Notes  Receivable
Reserve
Balance at year-end 2012
$
79

Transfers and other
2

Balance at March 31, 2013
$
81

Past due senior, mezzanine, and other loans totaled $7 million at the end of the 2013 first quarter.

9.
Long-term Debt
We provide detail on our long-term debt balances in the following table as of the end of the 2013 first quarter and year-end 2012:
 
 
At Period End
($ in millions)
March 31,
2013
 
December 28,
2012
Senior Notes:
 
 
 
Series G, interest rate of 5.810%, face amount of $316, maturing November 10, 2015 (effective interest rate of 6.58%)(1)
$
310

 
$
309

Series H, interest rate of 6.200%, face amount of $289, maturing June 15, 2016 (effective interest rate of 6.35%)(1)
289

 
289

Series I, interest rate of 6.375%, face amount of $293, maturing June 15, 2017 (effective interest rate of 6.51%)(1)
292

 
292

Series J, matured February 15, 2013

 
400

Series K, interest rate of 3.000%, face amount of $600, maturing March 1, 2019 (effective interest rate of 4.17%)(1)
595

 
594

Series L, interest rate of 3.250%, face amount of $350, maturing September 15, 2022 (effective interest rate of 3.32%)(1)
349

 
349

Commercial paper, average interest rate of 0.3781% at March 31, 2013
1,238

 
501

$1,750 Credit Facility

 
15

Other
182

 
186

 
3,255

 
2,935

Less current portion
(49
)
 
(407
)
 
$
3,206

 
$
2,528

 
(1) 
Face amount and effective interest rate are as of March 31, 2013.

All of our 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.

12


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.
We are party to a multicurrency revolving credit agreement (the “Credit Facility”) that provides for $1,750 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. 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 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.
We show future principal payments for our debt as of the end of the 2013 first quarter in the following table :

Debt Principal Payments ($ in millions)
 
Amount
2013
 
$
48

2014
 
7

2015
 
317

2016
 
1,535

2017
 
300

Thereafter
 
1,048

Balance at March 31, 2013
 
$
3,255

We paid cash for interest, net of amounts capitalized, of $21 million in the 2013 first quarter and $10 million in the 2012 first quarter.

10.
Comprehensive Income and Capital Structure
The following table details the changes in common shares outstanding and shareholders’ deficit for the 2013 first quarter:

(in millions, except per share amounts)
 
 
Common
Shares
Outstanding
 
 
Total
 
Class A
Common
Stock
 
Additional
Paid-in-
Capital
 
Retained
Earnings
 
Treasury Stock,
at Cost
 
Accumulated
Other
Comprehensive
Loss
310.9

 
Balance at year-end 2012
$
(1,285
)
 
$
5

 
$
2,585

 
$
3,509

 
$
(7,340
)
 
$
(44
)

 
Net income
136

 

 

 
136

 

 


 
Other comprehensive loss
(2
)
 

 

 

 

 
(2
)

 
Cash dividends ($0.1300 per share)
(41
)
 

 

 
(41
)
 

 

3.8

 
Employee stock plan issuance
27

 

 
(43
)
 
(55
)
 
125

 

(5.4
)
 
Purchase of treasury stock
(212
)
 

 

 

 
(212
)
 

309.3

 
Balance at March 31, 2013
$
(1,377
)
 
$
5

 
$
2,542

 
$
3,549

 
$
(7,427
)
 
$
(46
)



13


The following table details the accumulated other comprehensive income (loss) activity for the 2013 first quarter:

($ in millions)
Foreign Currency Translation Adjustments
 
Other Derivative Instrument Adjustments
 
Unrealized Gains on Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
Balance at year-end 2012
$
(32
)
 
$
(19
)
 
$
7

 
$
(44
)
Other comprehensive income (loss) before reclassifications (1)
(13
)
 
7

 
4

 
(2
)
Amounts reclassified from accumulated other comprehensive loss

 

 

 

Net other comprehensive income (loss)
(13
)
 
7

 
4

 
(2
)
Balance at March 31, 2013
$
(45
)
 
$
(12
)
 
$
11

 
$
(46
)
(1) 
We present the portions of other comprehensive income (loss) before reclassifications that relate to other derivative instrument adjustments net of $1 million of deferred taxes and the portions that relate to unrealized gains on available-for-sale securities net of $3 million of deferred taxes.
11.
Contingencies
Guarantees
We issue guarantees to certain lenders and hotel owners, chiefly to obtain long-term management contracts. The guarantees generally have a stated maximum funding amount 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 measure and record our liability for the fair value of a guarantee on a nonrecurring basis, that is when we issue or modify a guarantee, using Level 3 internally developed inputs. 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. We show the maximum potential amount of our future guarantee fundings and the carrying amount of our liability for guarantees for which we are the primary obligor at March 31, 2013 in the following table:
($ in millions)
Guarantee Type
Maximum Potential
Amount  of Future Fundings

 
Liability for  Guarantees
Debt service
$
88

 
$
7

Operating profit
106

 
51

Other
15

 
2

Total guarantees where we are the primary obligor
$
209

 
$
60


14


We included our liability at March 31, 2013 for guarantees for which we are the primary obligor in our Balance Sheet as follows: $5 million in the “Other current liabilities” and $55 million in the “Other long-term liabilities.”
Our guarantees listed in the preceding table include $34 million of debt service guarantees that will not be in effect until the underlying properties open and we begin to operate the properties or certain other events occur.
The preceding table does not include the following guarantees:
$114 million of guarantees for Senior Living Services lease obligations of $84 million (expiring in 2018) and lifecare bonds of $30 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 $5 million of the lifecare bonds; Health Care Property Investors, Inc., as successor by merger to CNL Retirement Properties, Inc. (“CNL”), is the primary obligor on $24 million of the lifecare 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. Our liability for these guarantees had a carrying value of $3 million at March 31, 2013. In 2011 Sunrise provided us $3 million 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 from 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 $37 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 $5 million (€4 million) of which remained at March 31, 2013. 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.
Certain guarantees and commitments relating to the timeshare business, which were outstanding at the time of the 2011 Timeshare spin-off and for which we became secondarily liable as part of the spin-off. These Marriott Vacations Worldwide Corporation ("MVW") payment obligations, for which we currently have a total exposure of $27 million, relate to a project completion guarantee, various letters of credit, and several guarantees. MVW has indemnified us for these obligations. Most of the obligations expire in 2013 and 2014, except for one guarantee in the amount of $16 million (20 million Singapore Dollars) that expires in 2022. We have not funded any amounts under these obligations, and do not expect to do so in the future. Our liability for these obligations had a carrying value of $2 million at March 31, 2013.
A guarantee for a lease, originally entered into in 2000, for which we became secondarily liable in 2012 as a result of our sale of the ExecuStay corporate housing business to Oakwood. Oakwood has indemnified us for the obligations under this guarantee. Our total exposure at the end of the 2013 first quarter for this guarantee is $11 million in future rent payments if the lease is terminated through 2013 and will be reduced

15


to $6 million if the lease is terminated from 2014 through the end of the lease in 2019. Our liability for this guarantee had a carrying value of $1 million at March 31, 2013.
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 we note in the preceding paragraphs, as of March 31, 2013, we had the following commitments outstanding:
A commitment to invest up to $12 million of equity for a noncontrolling interest in a partnership that plans 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 $10 million of this commitment as follows: $3 million in 2013, $6 million in 2014, and $1 million in 2015. We do not expect to fund the remaining $2 million of this commitment.
A commitment to invest up to $23 million of equity for noncontrolling interests in partnerships that plan to purchase or develop limited-service properties in Asia. We expect to fund $20 million of this commitment as follows: $7 million in 2013, $10 million in 2014, and $3 million in 2015. We do not expect to fund the remaining $3 million of this commitment.
A commitment, with no expiration date, to invest up to $11 million in a joint venture for development of a new property that we expect to fund in 2013.
A commitment to invest $20 million in the renovation of a leased hotel. We expect to fund this commitment by the end of 2015.
We have a right and under certain circumstances an obligation to acquire our joint venture partner’s remaining 45 percent interest in two joint ventures over the next eight 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, $8 million (€6 million) in deposits in 2012, and in the 2013 first quarter we acquired an additional five percent noncontrolling interest of 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 have a right and under certain circumstances an obligation during the next two years to acquire the landlord’s interest in the real estate property and attached assets of a hotel that we lease for approximately $42 million (€33 million), which we record as part of our capital lease liability.
Various commitments for the purchase of information technology hardware, software, and maintenance services in the normal course of business totaling $82 million. We expect to fund these commitments as follows: $70 million in 2013, $7 million in 2014, and $5 million in 2015.
Several commitments aggregating $33 million with no expiration date and which we do not expect to fund.
At March 31, 2013, we had $68 million of letters of credit outstanding ($67 million outside the Credit Facility and $1 million under our Credit Facility), the majority of which were for our self-insurance programs. Surety bonds issued as of March 31, 2013, totaled $125 million, the majority of which federal, state and local governments requested in connection with our self-insurance programs.
Legal Proceedings
On January 19, 2010, several former Marriott employees (the "plaintiffs") filed a putative class action complaint against us and 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

16


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, various other purported ERISA violations, and various breaches of contract in connection with 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 the issues of statute of limitations and class certification. We filed a motion for summary judgment on the issue of statute of limitations in December 2012, and a hearing on both issues is scheduled for June 7, 2013. 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 whether a class will be certified and if so as to the size of the class, and the possibility of our prevailing on our statute of limitations defense 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.

12.
Business Segments
We are a diversified lodging 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 properties located in the United States and 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 The Ritz-Carlton hotels).
We evaluate the performance of our segments based largely on the results of the segment without allocating corporate expenses, income taxes, or indirect general, administrative, and other expenses. We allocate gains and losses, equity in earnings or losses from our joint ventures, and divisional general, administrative, and other expenses to each of our segments. “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 card programs and license fees from MVW.
We aggregate the brands presented within our segments considering their similar economic characteristics, types of customers, distribution channels, the regulatory business environments and operations within each segment and our organizational and management reporting structure.

17


Revenues
 
($ in millions)
93 Days Ended March 31, 2013
 
84 Days Ended March 23, 2012
North American Full-Service Segment
$
1,662

 
$
1,301

North American Limited-Service Segment
612

 
532

International Segment
340

 
271

Luxury Segment
467

 
399

Total segment revenues
3,081

 
2,503

Other unallocated corporate
61

 
49

 
$
3,142

 
$
2,552

Net Income
 
($ in millions)
93 Days Ended March 31, 2013
 
84 Days Ended March 23, 2012
North American Full-Service Segment
$
116

 
$
89

North American Limited-Service Segment
105

 
84

International Segment
35

 
35

Luxury Segment
33

 
21

Total segment financial results
289

 
229

Other unallocated corporate
(60
)
 
(53
)
Interest expense and interest income
(28
)
 
(29
)
Income taxes
(65
)
 
(43
)
 
$
136

 
$
104

Assets
 
 
At Period End
($ in millions)
March 31,
2013
 
December 28,
2012
North American Full-Service Segment
$
1,560

 
$
1,517

North American Limited-Service Segment
508

 
492

International Segment
1,077

 
1,056

Luxury Segment
1,248

 
1,174

Total segment assets
4,393

 
4,239

Other unallocated corporate
2,130

 
2,103

 
$
6,523

 
$
6,342



18


13.
Variable Interest Entities
Under 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 analysis to determine if we must consolidate a variable interest entity as its primary beneficiary.
In conjunction with the transaction with CTF that we describe more fully in our Annual Report on Form 10-K for 2007 in Footnote No. 8, “Acquisitions and Dispositions,” under the caption “2005 Acquisitions,” we manage hotels on behalf of tenant entities that are 100 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 March 31, 2013, we managed five hotels on behalf of three tenant entities. The entities have minimal equity and minimal assets, consisting of hotel working capital and furniture, fixtures, and equipment. As part of the 2005 transaction, CTF 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 for three of these properties and partially for the other two properties. The trust account was fully 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) 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. We are liable for rent payments for three of the five hotels if there are cash flow shortfalls. Future minimum lease payments through the end of the lease term for these hotels totaled approximately $10 million at the end of the 2013 first quarter. In addition, as of the end of the 2013 first quarter we are liable for rent payments of up to an aggregate cap of $5 million for the two 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.

19


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.

20


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.

21


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.

22



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.

23


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).

24



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.

25


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, in the 2013 first quarter, 52 percent of our incentive fees came from properties outside the United States, versus 61 percent in the 2012 first quarter. In North America, 19 percent of managed properties paid incentive management fees to us in the 2013 first quarter, compared to 14 percent in the 2012 first quarter. Further, in North America, 17 North American Full-Service segment properties, 16 North American Limited-Service segment properties, and 3 Luxury segment properties earned a combined $6 million in incentive management fees in the 2013 first quarter, but did not earn any incentive management fees in the year ago quarter.
See “Statistics” below for detailed information on Systemwide RevPAR and Company-operated RevPAR by segment, region, and brand.

Summary of Properties by Brand
Including residential properties, we added 32 lodging properties (5,257 rooms) during the 2013 first quarter, while 11 properties (2,322 rooms) exited the system, increasing our total properties to 3,822 (663,163 rooms). These figures include 37 home and condominium products (4,067 units), for which we manage the related owners’ associations.
Unless otherwise indicated, our references to Marriott Hotels & Resorts throughout this report include JW Marriott and Marriott Conference Centers, references to Renaissance Hotels include Renaissance ClubSport, and references to Fairfield Inn & Suites include Fairfield Inn.

26


At March 31, 2013, we operated, franchised, and licensed the following properties by brand:
 
 
Company-Operated
 
Franchised
 
Other (3)
Brand
Properties
 
Rooms
 
Properties
 
Rooms
 
Properties
 
Rooms
U.S. Locations
 
 
 
 
 
 
 
 
 
 
 
Marriott Hotels & Resorts
135

 
69,936

 
181

 
55,129

 

 

Marriott Conference Centers
10

 
2,915

 

 

 

 

JW Marriott
15

 
9,735

 
7

 
2,914

 

 

Renaissance Hotels
35

 
16,059

 
41

 
11,801

 

 

Renaissance ClubSport

 

 
2

 
349

 

 

Gaylord Hotels
5

 
8,098

 

 

 

 

Autograph Collection

 

 
26

 
6,910

 

 

The Ritz-Carlton
38

 
11,357

 

 

 

 

The Ritz-Carlton-Residential (1)
30

 
3,598

 

 

 

 

Courtyard
278

 
43,712

 
542

 
71,383

 

 

Fairfield Inn & Suites
3

 
1,055

 
676

 
60,611

 

 

SpringHill Suites
29

 
4,545

 
268

 
30,299

 

 

Residence Inn
128

 
18,704

 
479

 
54,545

 

 

TownePlace Suites
22

 
2,440

 
190

 
18,678

 

 

Timeshare (2)

 

 
50

 
10,706

 

 

Total U.S. Locations
728

 
192,154

 
2,462

 
323,325

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Non-U.S. Locations
 
 
 
 
 
 
 
 
 
 
 
Marriott Hotels & Resorts
139

 
40,860

 
33

 
9,972

 

 

JW Marriott
34

 
12,544

 
4

 
1,016

 

 

Renaissance Hotels
53

 
17,682

 
22

 
6,718

 

 

Autograph Collection
1

 
308

 
9

 
915

 
5

 
348

The Ritz-Carlton
43

 
13,120

 

 

 

 

The Ritz-Carlton-Residential (1)
7

 
469

 

 

 

 

The Ritz-Carlton Serviced Apartments
4

 
579

 

 

 

 

EDITION
1

 
78

 

 

 

 

AC Hotels by Marriott

 

 

 

 
79

 
8,819

Bulgari Hotels & Resorts
2

 
117

 
1

 
85

 

 

Marriott Executive Apartments
26

 
4,140

 

 

 

 

Courtyard
58

 
12,447

 
56

 
9,797

 

 

Fairfield Inn & Suites

 

 
13

 
1,568

 

 

SpringHill Suites

 

 
2

 
299

 

 

Residence Inn
6

 
749

 
17

 
2,480

 

 

TownePlace Suites

 

 
2

 
278

 

 

Timeshare (2)

 

 
15

 
2,296

 

 

Total Non-U.S. Locations
374

 
103,093

 
174

 
35,424

 
84

 
9,167

 
 
 
 
 
 
 
 
 
 
 
 
Total
1,102

 
295,247

 
2,636

 
358,749

 
84

 
9,167

 
(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 period-end basis for the MVW quarter ended March 22, 2013.
(3)
Properties operated by or franchised in connection with unconsolidated joint ventures that hold management agreements and also provide services to franchised properties.


27


Total Lodging and Timeshare Products by Segment
At March 31, 2013, we operated, franchised, and licensed the following properties by segment:
 
 
Total Lodging and Timeshare Products
 
Properties
 
Rooms
 
U.S.
 
Non-U.S.
 
Total
 
U.S.
 
Non-U.S.
 
Total
North American Full-Service Lodging Segment (1)
 
 
 
 
 
 
 
 
 
 
 
Marriott Hotels & Resorts
316

 
14

 
330

 
125,065

 
5,244

 
130,309

Marriott Conference Centers
10

 

 
10

 
2,915

 

 
2,915

JW Marriott
22

 
1

 
23

 
12,649

 
221

 
12,870

Renaissance Hotels
76

 
2

 
78

 
27,860

 
790

 
28,650

Renaissance ClubSport
2

 

 
2

 
349

 

 
349

Gaylord Hotels
5

 

 
5

 
8,098

 

 
8,098

Autograph Collection
26

 

 
26

 
6,910

 

 
6,910

 
457

 
17

 
474

 
183,846

 
6,255

 
190,101

North American Limited-Service Lodging Segment (1)
 
 
 
 
 
 
 
 
 
 
 
Courtyard
820

 
21

 
841

 
115,095

 
3,734

 
118,829

Fairfield Inn & Suites
679

 
11

 
690

 
61,666

 
1,234

 
62,900

SpringHill Suites
297

 
2

 
299

 
34,844

 
299

 
35,143

Residence Inn
607

 
19

 
626

 
73,249

 
2,808

 
76,057

TownePlace Suites
212

 
2

 
214

 
21,118

 
278

 
21,396

 
2,615

 
55

 
2,670

 
305,972

 
8,353

 
314,325

International Lodging Segment (1)
 
 
 
 
 
 
 
 
 
 
 
Marriott Hotels & Resorts

 
158

 
158

 

 
45,588

 
45,588

JW Marriott

 
37

 
37

 

 
13,339

 
13,339

Renaissance Hotels

 
73

 
73

 

 
23,610

 
23,610

Autograph Collection

 
10

 
10

 

 
1,223

 
1,223

Courtyard

 
93

 
93

 

 
18,510

 
18,510

Fairfield Inn & Suites

 
2

 
2

 

 
334

 
334

Residence Inn

 
4

 
4

 

 
421

 
421

Marriott Executive Apartments

 
26

 
26

 

 
4,140

 
4,140

 

 
403

 
403

 

 
107,165

 
107,165

Luxury Lodging Segment
 
 
 
 
 
 
 
 
 
 
 
The Ritz-Carlton
38

 
43

 
81

 
11,357

 
13,120

 
24,477

Bulgari Hotels & Resorts

 
3

 
3

 

 
202

 
202

EDITION

 
1

 
1

 

 
78

 
78

The Ritz-Carlton-Residential (2)
30

 
7

 
37

 
3,598

 
469

 
4,067

The Ritz-Carlton Serviced Apartments

 
4

 
4

 

 
579

 
579

 
68

 
58

 
126

 
14,955

 
14,448

 
29,403

Unconsolidated Joint Ventures
 
 
 
 
 
 
 
 
 
 
 
Autograph Collection

 
5

 
5

 

 
348

 
348

AC Hotels by Marriott

 
79

 
79

 

 
8,819

 
8,819

 

 
84

 
84

 

 
9,167

 
9,167

 
 
 
 
 
 
 
 
 
 
 
 
Timeshare (3)
50

 
15

 
65

 
10,706

 
2,296

 
13,002

 


 


 


 


 


 


Total
3,190

 
632

 
3,822

 
515,479

 
147,684

 
663,163

 
(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 period-end basis for the MVW quarter ended March 22, 2013.



28


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 our Luxury segment. Systemwide statistics include data from our franchised properties, in addition to our owned, leased, and managed properties.
Reporting periods and currency. The RevPAR statistics, including occupancy and average daily rate, we use throughout this report reflect the three calendar months ended March 31, 2013 or March 31, 2012, as applicable. 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.

29


 
Comparable Company-Operated
North American Properties (1)
 
Comparable Systemwide
North American Properties (1)
 
 
Three Months Ended March 31, 2013
 
Change vs.
Three Months Ended March 31, 2012
 
Three Months Ended March 31, 2013
 
Change vs.
Three Months Ended March 31, 2012
 
Marriott Hotels & Resorts
 
 
 
 
 
 
 
 
Occupancy
70.8
%
 
0.5
 %
pts. 
68.5
%
 
0.8
 %
pts. 
Average Daily Rate
$
177.68

 
4.7
 %
 
$
164.21

 
3.7
 %
 
RevPAR
$
125.81

 
5.5
 %
 
$
112.43

 
4.9
 %
 
Renaissance Hotels
 
 
 
 
 
 
 
 
Occupancy
72.7
%
 
0.3
 %
pts. 
69.5
%
 
0.8
 %
pts. 
Average Daily Rate
$
180.16

 
6.2
 %
 
$
159.09

 
4.6
 %
 
RevPAR
$
130.91

 
6.7
 %
 
$
110.49

 
5.8
 %
 
Autograph Collection
 
 
 
 
 
 
 
 
Occupancy
*

 
*

 
74.1
%
 
 %
pts.
Average Daily Rate
*

 
*

 
$
205.05

 
5.6
 %
 
RevPAR
*

 
*

 
$
151.98

 
5.6
 %
 
Composite North American Full-Service
 
 
 
 
 
 
 
 
Occupancy
71.1
%
 
0.5
 %
pts. 
68.8
%
 
0.8
 %
pts. 
Average Daily Rate
$
178.03

 
4.9
 %
 
$
164.83

 
3.9
 %
 
RevPAR
$
126.53

 
5.7
 %
 
$
113.40

 
5.1
 %
 
The Ritz-Carlton North America
 
 
 
 
 
 
 
 
Occupancy
71.7
%
 
1.3
 %
pts. 
71.7
%
 
1.3
 %
pts. 
Average Daily Rate
$
341.79

 
6.9
 %
 
$
341.79

 
6.9
 %
 
RevPAR
$
245.10

 
8.9
 %
 
$
245.10

 
8.9
 %
 
Composite North American Full-Service and Luxury 
 
 
 
 
 
 
 
 
Occupancy
71.1
%
 
0.6
 %
pts. 
69.0
%
 
0.8
 %
pts. 
Average Daily Rate
$
194.87

 
5.4
 %
 
$
175.53

 
4.3
 %
 
RevPAR
$
138.63

 
6.2
 %
 
$
121.06

 
5.5
 %
 
Residence Inn
 
 
 
 
 
 
 
 
Occupancy
72.3
%
 
1.2
 %
pts. 
73.3
%
 
0.1