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Basis of Presentation
 9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
BASIS OF PRESENTATION
The condensed consolidated financial statements present the results of operations, financial position, and cash flows of Marriott International, Inc. and subsidiaries (referred to in this report as “we,” “us,” “Marriott,” or “the Company”). In order to make this report easier to read, we also 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 Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (v) our properties, brands, or markets in the United States (“U.S.”) and Canada as “North America” or “North American,” and (vi) our properties, brands, or markets in our Caribbean and Latin America, Europe, and Middle East and Africa regions as “Other International,” and together with those in our Asia Pacific segment, 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 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”). The financial statements in this report should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (“2017 Form 10-K”). Certain terms not otherwise defined in this Form 10-Q have the meanings specified in our 2017 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.
The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of September 30, 2018 and December 31, 2017, the results of our operations for the three and nine months ended September 30, 2018 and September 30, 2017, and cash flows for the nine months ended September 30, 2018 and September 30, 2017. 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.
The accompanying Financial Statements also reflect our adoption of several new accounting standards. See the “New Accounting Standards Adopted” caption below for additional information.
New Accounting Standards Not Yet Adopted
Accounting Standards Update (“ASU”) 2016-02 “Leases” (Topic 842). ASU 2016-02 introduces a lessee model that brings substantially all leases onto the balance sheet. Under the new standard, a lessee will recognize on its balance sheet a lease liability and a right-of-use asset for most leases, including operating leases. The new standard will also distinguish leases as either finance leases or operating leases. This distinction will affect how leases are measured and presented in the income statement and statement of cash flows. We will adopt the standard using the modified retrospective transition method as of January 1, 2019, and we will not apply the standard to the comparative periods presented in the year of adoption.
We are still assessing the potential impact that ASU 2016-02 will have on our financial statements and disclosures, but we expect that we will recognize right-of-use lease assets and related lease liabilities for operating leases in the range of $1.0 billion to $1.2 billion, with no impact to our Income Statements or Statements of Cash Flows. Our estimate represents the net present value of lease payments from leases that we had entered into as of September 30, 2018, and that are scheduled to commence by January 1, 2019. The actual impact may differ from our estimate depending on our lease portfolio and discount rates on the adoption date. We do not expect any changes related to our current capital lease portfolio, which will be titled “finance leases” under ASU 2016-02.
New Accounting Standards Adopted
ASU 2016-18 “Restricted Cash” (Topic 230). ASU 2016-18 requires companies to include restricted cash with cash and cash equivalents when reconciling beginning and ending amounts shown on the statement of cash flows. We adopted ASU 2016-18 in the 2018 first quarter using the retrospective transition method, and accordingly, we revised prior period amounts, as shown in the “Statements of Cash Flows” table below.
ASU 2016-16 “Accounting for Income Taxes: Intra-Entity Transfers of Assets Other than Inventory” (Topic 740). ASU 2016-16 requires companies to recognize the income tax effects of intercompany sales of assets other than inventory when the transfer occurs. We adopted ASU 2016-16 in the 2018 first quarter using the modified retrospective transition method and recorded an adjustment of $372 million for the cumulative effect to retained earnings at January 1, 2018.
ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments” (Topic 230). ASU 2016-15 specifies how certain cash receipts and payments are to be classified in the statement of cash flows and primarily impacts our presentation of cash outflows for commercial paper. Under ASU 2016-15, we are required to attribute a portion of the payments to accreted interest and classify that portion as cash outflows for operating activities. We adopted ASU 2016-15 in the 2018 first quarter using the retrospective transition method, and accordingly, we revised prior period amounts, as shown in the “Statements of Cash Flows” table below.
ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” (Topic 825). ASU 2016-01 eliminates the available-for-sale classification for equity investments and requires companies to measure equity investments at fair value and recognize any changes in the fair value in net income. We adopted ASU 2016-01 in the 2018 first quarter using the modified retrospective transition method and recorded a cumulative-effect adjustment of $4 million to retained earnings at January 1, 2018.
ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606). ASU 2014-09 and several related ASUs (collectively referred to as “ASU 2014-09”) supersede the revenue recognition requirements in Topic 605, Revenue Recognition, as well as most industry-specific guidance, and provide a principles-based, comprehensive framework in Topic 606, Revenue Recognition. ASU 2014-09 also specifies the accounting for certain costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements. We adopted ASU 2014-09 in the 2018 first quarter using the full retrospective transition method. See Footnote 2. Revenues for disclosures required by ASU 2014-09, including our revenue recognition accounting policies.
When we adopted ASU 2014-09, we applied the following expedients and exemptions, which are allowed by the standard, to our prior period Financial Statements and disclosures:
•
We used the transaction price at the date of contract completion for our contracts that had variable consideration and were completed before January 1, 2018.
•
We considered the aggregate effect of all contract modifications that occurred before January 1, 2016 when: (1) identifying satisfied and unsatisfied performance obligations; (2) determining the transaction price; and (3) allocating the transaction price to the satisfied and unsatisfied performance obligations.
•
We did not: (1) disclose the amount of the transaction price that we allocated to remaining performance obligations; or (2) include an explanation of when we expect to recognize the revenue allocated to remaining performance obligations.
The cumulative effect of adopting ASU 2014-09 was a decrease in 2016 retained earnings of $264 million.
The following tables present the effect of the adoption of ASUs 2014-09, 2016-15, and 2016-18 on our 2017 Financial Statements. Throughout this report, our 2017 financial results reflect the “As Adjusted” amounts shown in the tables below.
Income Statements
 
Three Months Ended
 
Nine Months Ended
($ in millions, except per share amounts)
September 30, 2017
(As Previously Reported)
 
Adoption of ASU 2014-09
 
September 30, 2017
(As Adjusted)
 
September 30, 2017
(As Previously Reported)
 
Adoption of ASU 2014-09
 
September 30, 2017
(As Adjusted)
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Base management fees
$
269

 
$
—

 
$
269

 
$
818

 
$
—

 
$
818

Franchise fees
426

 
(7
)
 
419

 
1,207

 
(25
)
 
1,182

Incentive management fees
136

 
2

 
138

 
437

 
(4
)
 
433

Gross fee revenues
831

 
(5
)
 
826

 
2,462

 
(29
)
 
2,433

Contract investment amortization
—

 
(11
)
 
(11
)
 
—

 
(34
)
 
(34
)
Net fee revenues
831

 
(16
)
 
815

 
2,462

 
(63
)
 
2,399

Owned, leased, and other revenue
452

 
(19
)
 
433

 
1,349

 
(40
)
 
1,309

Cost reimbursement revenue
4,380

 
(550
)
 
3,830

 
13,208

 
(1,715
)
 
11,493

 
5,663

 
(585
)
 
5,078

 
17,019

 
(1,818
)
 
15,201

OPERATING COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Owned, leased, and other-direct
356

 
(5
)
 
351

 
1,069

 
(12
)
 
1,057

Depreciation, amortization, and other
68

 
(14
)
 
54

 
218

 
(42
)
 
176

General, administrative, and other
199

 
6

 
205

 
635

 
16

 
651

Merger-related costs and charges
28

 
—

 
28

 
100

 
—

 
100

Reimbursed expenses
4,380

 
(730
)
 
3,650

 
13,208

 
(2,071
)
 
11,137

 
5,031

 
(743
)
 
4,288

 
15,230

 
(2,109
)
 
13,121

OPERATING INCOME
632

 
158

 
790

 
1,789

 
291

 
2,080

Gains and other income, net
6

 
—

 
6

 
31

 
—

 
31

Interest expense
(73
)
 
—

 
(73
)
 
(216
)
 
—

 
(216
)
Interest income
9

 
—

 
9

 
24

 
—

 
24

Equity in earnings
6

 
—

 
6

 
29

 
—

 
29

INCOME BEFORE INCOME TAXES
580

 
158

 
738

 
1,657

 
291

 
1,948

Provision for income taxes
(188
)
 
(65
)
 
(253
)
 
(486
)
 
(117
)
 
(603
)
NET INCOME
$
392

 
$
93

 
$
485

 
$
1,171

 
$
174

 
$
1,345

EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
Earnings per share - basic
$
1.05

 
$
0.25

 
$
1.30

 
$
3.09

 
$
0.46

 
$
3.55

Earnings per share - diluted
$
1.04

 
$
0.25

 
$
1.29

 
$
3.06

 
$
0.45

 
$
3.51

Statements of Comprehensive Income
 
Three Months Ended
 
Nine Months Ended
($ in millions)
September 30, 2017
(As Previously Reported)
 
Adoption of ASU 2014-09
 
September 30, 2017
(As Adjusted)
 
September 30, 2017
(As Previously Reported)
 
Adoption of ASU 2014-09
 
September 30, 2017
(As Adjusted)
Net income
$
392

 
$
93

 
$
485

 
$
1,171

 
$
174

 
$
1,345

Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
107

 
—

 
107

 
457

 
—

 
457

Derivative instrument adjustments, net of tax
(5
)
 
—

 
(5
)
 
(13
)
 
—

 
(13
)
Unrealized gain (loss) on available-for-sale securities, net of tax
1

 
—

 
1

 
(1
)
 
—

 
(1
)
Pension and postretirement adjustments, net of tax
—

 
—

 
—

 
—

 
—

 
—

Reclassification of losses, net of tax
4

 
—

 
4

 
5

 
—

 
5

Total other comprehensive income, net of tax
107

 
—

 
107

 
448

 
—

 
448

Comprehensive income
$
499

 
$
93

 
$
592

 
$
1,619

 
$
174

 
$
1,793

Balance Sheets
($ in millions)
December 31, 2017
(As Previously Reported) (1)
 
Adoption of ASU 2014-09
 
December 31, 2017
(As Adjusted)
ASSETS
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and equivalents
$
383

 
$
—

 
$
383

Accounts and notes receivable, net
1,999

 
(26
)
 
1,973

Prepaid expenses and other
216

 
19

 
235

Assets held for sale
149

 
—

 
149

 
2,747

 
(7
)
 
2,740

Property and equipment, net
1,793

 
—

 
1,793

Intangible assets
 
 
 
 
 
Brands
5,922

 
—

 
5,922

Contract acquisition costs and other
2,884

 
(262
)
 
2,622

Goodwill
9,207

 
—

 
9,207

 
18,013

 
(262
)
 
17,751

Equity method investments
735

 
(1
)
 
734

Notes receivable, net
142

 
—

 
142

Deferred tax assets
93

 
—

 
93

Other noncurrent assets
426

 
167

 
593

 
$
23,949

 
$
(103
)
 
$
23,846

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
Current liabilities
 
 
 
 
 
Current portion of long-term debt
$
398

 
$
—

 
$
398

Accounts payable
783

 
—

 
783

Accrued payroll and benefits
1,214

 
—

 
1,214

Liability for guest loyalty program
2,064

 
57

 
2,121

Accrued expenses and other
1,541

 
(250
)
 
1,291

 
6,000

 
(193
)
 
5,807

Long-term debt
7,840

 
—

 
7,840

Liability for guest loyalty program
2,876

 
(57
)
 
2,819

Deferred tax liabilities
604

 
1

 
605

Deferred revenue
145

 
438

 
583

Other noncurrent liabilities
2,753

 
(143
)
 
2,610

Shareholders' equity
 
 
 
 
 
Class A Common Stock
5

 
—

 
5

Additional paid-in-capital
5,770

 
—

 
5,770

Retained earnings
7,391

 
(149
)
 
7,242

Treasury stock, at cost
(9,418
)
 
—

 
(9,418
)
Accumulated other comprehensive loss
(17
)
 
—

 
(17
)
 
3,731

 
(149
)
 
3,582

 
$
23,949

 
$
(103
)
 
$
23,846

(1) 
Includes reclassifications among various captions, including Deferred revenue and Other noncurrent liabilities, to conform to current period presentation.
Statements of Cash Flows
 
Nine Months Ended
 
 
 
 
 
Nine Months Ended
($ in millions)
September 30, 2017
(As Previously Reported)
 
Adoption of ASU 2014-09
 
Adoption of ASUs 2016-18 and 2016-15
 
September 30, 2017
(As Adjusted)
OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net income
$
1,171

 
$
174

 
$
—

 
$
1,345

Adjustments to reconcile to cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation, amortization, and other
218

 
(8
)
 
—

 
210

Share-based compensation
139

 
—

 
—

 
139

Income taxes
73

 
117

 
—

 
190

Liability for guest loyalty program
236

 
(80
)
 
—

 
156

Contract acquisition costs
—

 
(126
)
 
—

 
(126
)
Merger-related charges
(117
)
 
—

 
—

 
(117
)
Working capital changes
98

 
(219
)
 
(3
)
 
(124
)
Gain on asset dispositions
(30
)
 
—

 
—

 
(30
)
Other
128

 
5

 
(25
)
 
108

Net cash provided by (used in) operating activities
1,916

 
(137
)
 
(28
)
 
1,751

INVESTING ACTIVITIES
 
 
 
 
 
 
 
Capital expenditures
(155
)
 
—

 
—

 
(155
)
Dispositions
482

 
—

 
—

 
482

Loan advances
(85
)
 
—

 
—

 
(85
)
Loan collections
91

 
—

 
—

 
91

Contract acquisition costs
(129
)
 
129

 
—

 
—

Other
(14
)
 
8

 
—

 
(6
)
Net cash provided by investing activities
190

 
137

 
—

 
327

FINANCING ACTIVITIES
 
 
 
 
 
 
 
Commercial paper/Credit Facility, net
455

 
—

 
25

 
480

Issuance of long-term debt
1

 
—

 
—

 
1

Repayment of long-term debt
(305
)
 
—

 
—

 
(305
)
Issuance of Class A Common Stock
4

 
—

 
—

 
4

Dividends paid
(362
)
 
—

 
—

 
(362
)
Purchase of treasury stock
(2,105
)
 
—

 
—

 
(2,105
)
Share-based compensation withholding taxes
(144
)
 
—

 
—

 
(144
)
Net cash (used in) provided by financing activities
(2,456
)
 
—

 
25

 
(2,431
)
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
(350
)
 
—

 
(3
)
 
(353
)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period
858

 
—

 
29

 
887

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period
$
508

 
$
—

 
$
26

 
$
534


See Footnote 10. Accumulated Other Comprehensive Loss and Shareholders’ Equity for the impact of the adoption of new accounting standards on our shareholders’ equity.