Marriott International, Inc. (MAR, NASDAQ)
Industry: Lodging
Annual report, fiscal year 2013


# Marriott \( ^{®} $ 

2013 ANNUAL REPORT

FIND YOUR WORLD \( ^{SM} \)  ONLINE.

TOUR OUR INTERACTIVE ANNUAL REPORT AT MARRIOTT.COM/INVESTOR.

MARRIOTT INTERNATIONAL, INC.



# A MESSAGE FROM OUR EXECUTIVE CHAIRMAN

J.W. MARRIOTT, JR.
Executive Chairman
and Chairman of the Board



There are so many ways to Find Your World at Marriott International. Our more than 3,900 hotels in more than 70 countries provide the stage for you to close that important business deal, take your loved ones on a beach vacation, or explore new destinations on a journey of personal discovery. For our guests and approximately 325,000 associates at headquarters and our managed and franchised hotels, we are working hard to help you meet your goals, whether it's creating lasting memories or building on life's successes.

I am so proud of our company. Something I've noticed even more in my role as Executive Chairman is that Marriott's history and culture are the foundation for our future. Our stakeholders recognize this, too.

I am confident we’ll continue our success and come even closer to realizing our vision of being the best lodging company in the world. In 2013, our strategy delivered great results. We grew our portfolio, and had more hotels in the pipeline than any time in Marriott’s history. Our leadership teams created new opportunities for growth across the globe, from opening one of every five new rooms in the U.S. and setting us up for growth in Africa, to accelerating our growth in Asia and creating and launching new brands in Europe. We’ve also designed new hotels for our Indian and Brazilian guests, and our lifestyle and luxury brands are industry leaders. The Autograph Collection \( ^{®} \)  and EDITION \( ^{®} \)  brands are the trendiest hotels in our portfolio and we’re also designing new ways for our flagship brand, Marriott Hotels \( ^{®} \) , to capture the next generation of travelers.
We also know that people care who they do business with—they want to know it’s someone who shares their values and takes action on important global issues they care about. For our part, we take pride in making investments in the communities where we do business. For example, we’re offering a “World of Opportunity” for unemployed youth so they can receive the education and skills they need in today’s economy. We’re also working with small and growing companies we do business with, especially women-owned enterprises in emerging markets around the world. Finally, we’re protecting our natural resources both in our hotels and far beyond, from the Amazon rainforest to Thailand’s mangroves to the fresh water of China’s mighty rivers.

At Marriott, one of our core values is to support our associates, who are our strongest link to our customers. I’m proud that we were again named as one of the best places to work in surveys all over the world, from FORTUNE \( ^{®} \)  to Working Mother to the World’s Best Multinational Workplaces by Great Place to Work \( ^{®} \) , and to once again be among FORTUNE’s World’s Most Admired Companies.

We invite you to Find Your World with us. Wherever your journeys take you, we’ll be there to welcome you at one of our many exciting brands around the world. Wishing you great travels!



Follow Bill Marriott’s blog at MarriottOnTheMove.com



# TO OUR SHAREHOLDERS

ARNE M. SORENSON
President and
Chief Executive Officer



In 2013, Marriott International charted new territory.

We had a record year in hotel development, signing more than one hotel a day, positioning us to add 67,000 rooms to our system over the next few years and boosting our development pipeline to a record 195,000 rooms by year-end. Our worldwide management and franchise fees reached a record $1.5 billion. We accelerated our global expansion, in 2014 expecting to become the largest hotel company in Africa with our planned acquisition of Protea, and growing our footprint in Asia, Europe, The Americas and across the Middle East.

We launched new brands such as Moxy Hotels \( ^{SM} \) , designed to attract the expanding Millennial generation as well as the young at heart, and introduced AC Hotels by Marriott \( ^{®} \)  in North America, a design-focused brand inspired by the fashion houses of Europe that appeals to younger business travelers. At the same time, we invested significantly in our flagship brand, Marriott Hotels, and in the EDITION brand, with its newest location opening recently to great fanfare in London. Future EDITION destinations include Miami, Fla.; New York, N.Y.; West Hollywood, Calif.; Gurgaon, India; Abu Dhabi in the United Arab Emirates; Sanya, China; Shanghai, China; Wuhan, China and Bangkok, Thailand.

These accomplishments are rooted in our core values and 86-year history as a successful hospitality company that welcomes everyone. We’ve learned that if we deploy the enthusiasm and skill of the best and brightest associates in the industry to innovate with an eye on tomorrow, we will continue to delight guests as the world’s most preferred lodging company.
This is an exciting time to be in the hotel business. Travel is expanding around the world, providing an economic boost and higher employment. In 2012, the United Nations’ World Tourism Organization reported that 1 billion trips were taken by people who traveled outside their borders, and our vision as an industry is to achieve 2 billion. One in 11 jobs globally (260 million) is supported by travel and tourism \( ^{1} \)  and in the next 10 years the sector will account for 10 percent of global GDP. World and industry leaders, including those who sit on the World Economic Forum’s Governors of Aviation, Travel and Tourism Committee with me, increasingly see travel as a key to economic mobility and opportunity leading to prosperity. For our part, we recently signed onto President Obama’s initiative to help the long-term unemployed find jobs in the U.S. We think that more travel will create more jobs.

In the developed world, Marriott is creating new product niches and entering new markets and customer segments, expanding our share of rooms in both North America and Europe. At the same time, growth in new hotel supply in the developed world is very low, which we expect means strong occupancy and room rate improvement in the years ahead. With the increase in travel, new hotel development is accelerating in many emerging markets around the world. Marriott is pursuing growth in these rapidly expanding markets with our existing brands as well as new brands tailored for the local market, such as Courtyard \( ^{®} \)  in China and Fairfield by Marriott \( ^{SM} \)  in India and Brazil.

## 2013 PERFORMANCE HIGHLIGHTS

Here are some of the highlights from our successful 2013 efforts:



For the full year 2013, diluted earnings per share (EPS) totaled $2.00 and EPS increased 16 percent over the prior year. Adjusted for the Courtyard joint venture gain in 2012, EPS increased 22 percent over the prior year. Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization (EBITDA) rose 9 percent. Adjusted operating income margins reached a record 40 percent and return on invested capital reached 32 percent in 2013. \( ^{2} \) 

Revenue Per Available Room (RevPAR) for the company’s worldwide comparable systemwide properties increased 4.6 percent in 2013 on a constant dollar basis, and average daily rates rose more than 3 percent. In North America, systemwide RevPAR rose 5 percent, with nearly 4 percent higher average daily rates.

Marriott Rewards \( ^{®} \) , our award-winning guest loyalty program, and The Ritz-Carlton Rewards \( ^{®} \)  program, now in its fourth year, together surpassed 45 million members, accounting for more than half of our room nights worldwide. Our members are committed to us. Over the past seven years, the most active 1 percent of Marriott’s customers accounted for more than 30 percent of room nights.

One-quarter of our worldwide booked room nights in 2013 came through Marriott.com, our most cost-effective channel, and more than 13 percent of those were generated through a mobile device. The Marriott Mobile app also allows Marriott Rewards members to check in or check out at 329 North American and 20 international Marriott Hotels and in 2014 nearly all 500 Marriott Hotels worldwide plan to offer mobile check-in and checkout. To date, the Marriott Mobile app has been downloaded more than 2.8 million times.

During 2013, Marriott had the fastest-growing new-construction pipeline in the industry, worldwide. \( ^{3} \)  We opened nearly 26,000 rooms and signed more than one new hotel project per day, totaling a record 387 hotels. Given our strong pipeline and anticipated addition of the Protea hotel chain, we expect new hotel openings to accelerate in 2014 and 2015, and expect our system to grow by approximately 5 percent net of deletions in 2014.

Our portfolio of luxury brands—BVLGARI \( ^{®} \)  Hotels & Resorts, The Ritz-Carlton \( ^{®} \) , JW Marriott \( ^{®} \) , and our latest luxury lifestyle brand, EDITION, together reached more than 170 properties and nearly 45,000 rooms worldwide.

We repurchased 20 million shares in 2013 for approximately $829 million. Including nearly $200 million in dividends, we returned more than $1 billion to shareholders during the year. We’re stepping up returns in 2014 and expect to return $1.25 to $1.5 billion in share repurchases and dividends to shareholders.

## ACHIEVING OUR VISION

We are now more global than ever. We’ve grown our system outside the U.S. by 46 percent in the past seven years—and added five new brands. We are in major destination cities and small towns across Asia, the Middle East and Africa. Our continental operating structure gives us close-to-market leadership, speeds innovation, and makes us more efficient and insightful about customers and cultures around the world.

In the Asia Pacific region, we expect to open a hotel every week across 10 different brands, doubling in size, reaching 330 hotels with more than 96,000 rooms across 16 countries by 2016. In 2013, Marriott signed agreements to add 78 new hotels and more than 22,000 rooms in the region, an industry-leading pace among upper-upscale and luxury operators. In 2013, we welcomed the first Fairfield by Marriott in Bengaluru, India and have 12 additional Fairfield by Marriott hotels in development in India. China remains our biggest market in the region with 67 open hotels and signed contracts for more than 80 hotels under development, which will take us to more than 150 hotels there in the next three years.

In Africa, our growth is being propelled by our planned Protea acquisition. With Protea, Marriott expects to nearly double our distribution in the Middle East and Africa to more than 23,000 rooms. The acquisition will also provide us with a proven operational platform and leadership team to accelerate Marriott’s growth and solidify our leadership position in the dynamic and growing African hotel market.

In Europe, we opened The London EDITION in 2013. In early 2014, we demonstrated the value of this new brand and our consistent asset-light strategy by selling The London EDITION and entering into definitive agreements to sell two others under development



in New York and Miami while maintaining long-term management contracts. We are committed to our management and franchise business model which helps us deliver value to shareholders through predictable, strong earnings growth and high return on invested capital.

In the United States, we ended 2013 with more than 22,000 hotel rooms under construction, representing the largest hotel construction pipeline in the industry. \( ^{4} \)  Marriott operates or franchises one of every five new hotel rooms that opened in the U.S. in 2013. The recently opened combination Courtyard/Residence Inn \( ^{®} \)  New York Manhattan/Central Park, dubbed the tallest hotel in New York City, was recently honored with the Development of the Year Award at the Americas Lodging Investment Summit. That hotel and the Courtyard/Residence Inn in Los Angeles (scheduled to open in June 2014) are standouts in our efforts to develop multi-brand and multi-use properties. More than 70 percent of the hotels in our North American pipeline are located outside the largest 25 U.S. metropolitan markets. In 2013, we added 90 new owners or franchisees to our system.

We’ve proven that growing distribution increases guest satisfaction and loyalty. It also drives owner preference, efficiency and profitability. Marriott’s distinguished brand lineup, the broadest in the industry, drives our distribution. AC Hotels by Marriott will open its first hotel in the U.S. in 2014, with 16 other projects under contract (totaling 3,215 rooms) around the globe.

Our new brand, Moxy Hotels, is on track to open its first hotel in Milan, Italy, in August 2014, and we plan to open additional properties in six other European markets in 2015. The brand, expected to reach 150 hotels in the next 10 years, combines contemporary design and approachable service at an affordable price. It’s an example of how we envision strategic growth, working closely with our partners, our owners and franchisees.

The fastest hotel brand launch in the industry, the Autograph Collection, has added nearly 60 hotels since its 2010 introduction. The Autograph Collection is a portfolio of unique hotels that harnesses the power of Marriott’s global sales, marketing and revenue engines for independent hotel owners. Forty percent of this brand’s U.S. reservations are driven by Marriott Rewards members.

We are also focusing on new development that can provide sustainable economic activity and local employment. In the coming years, more than half of Marriott’s new hotels will be located in emerging markets where tourism is a major driver of new jobs and economic growth. Two major sustainable development projects include our first ground-up hotel in Sub-Saharan Africa, in Rwanda, which is the largest in that country. The hotel, located in Kigali, is expected to open in 2016, and represents the start of our aggressive growth plans in that region. We intend to help fuel the Rwandan travel industry and train young women for professional hotel careers through our partnership with Rwandan-based Akilah Institute for Women.

In addition, the Marriott Port-au-Prince in Haiti is scheduled to open in early 2015. The hotel is expected to help boost the local economy by supporting local vendors, hospitality training and generating more than 200 new hospitality jobs, in addition to the 300 \( ^{5} \)  jobs generated by the hotel’s construction.

We believe responsible hotel and resource management creates economic opportunities and can be a positive force for the environment. From our associates worldwide to an array of external business and community partners, we have engaged the resources needed to help us accomplish our goals, which include efforts to reduce energy and water consumption 20 percent by 2020 and develop green hotels—we have more than 100 properties LEED \( ^{®} \)  (Leadership in Energy and Environmental Design) certified with the U.S. Green Building Council. Our objectives also include greening our multi-billion dollar supply chain; in 2013, Marriott achieved its goal of spending 75 percent of our furniture, fixtures and equipment dollars on suppliers who are in MindClick’s Hospitality Sustainability Performance Index. We are also engaged in educating and inspiring associates and guests to conserve and preserve natural resources as well as addressing environmental challenges through innovative conservation initiatives including rainforest protection and water conservation.



## LOOKING AHEAD TO A BRIGHT FUTURE

We are investing in effective marketing and social media platforms to deliver what next generation guests want. Today, more than half of the world’s population is under the age of 25. \( ^{6} \)  In 2013, the Generation Y population accounted for 19 percent of total room nights in U.S. business travel and we expect that to nearly double to 34 percent by 2020 \( ^{7} \)  as these Millennials graduate and start traveling for work. We are attracting this growing demographic segment by introducing new brands tailored to their needs, along with updating existing brands with the technology, design, wellness, and food and beverage experiences that are important to them.

Our flagship brand, Marriott Hotels, launched the multi-year ‘Travel Brilliantly \( _{SM} \) ’ global marketing campaign—a bold effort amplifying the brand’s dedication to leading the future of travel. Using social media and online, broadcast and cable TV spots, the campaign engaged younger travelers to share their best ideas with us to reimagine the future of travel.

Our company is investing in mobile-booking technologies and is ensuring that the Wi-Fi in our properties meets the demands of today’s tech-savvy consumer. Greater Wi-Fi speed and reliability will increase our appeal and boost Marriott’s relevance, preference and revenue.

In addition to our mobile app, we created new guest service applications for our Marriott Hotels brand such as Red Coat \( ^{SM} \)  Direct, giving meeting organizers the ability to adjust their requests and preferences with a touch of a button on their devices, without ever leaving the meeting room. With our Workplace on Demand app, powered by LiquidSpace \( ^{®} \) , guests can book both free and paid meeting spaces as easily as they book guest rooms.
As we grow around the world, more than 100,000 people will begin their Marriott career in 2014, including thousands of Millennials. So, we launched “Mobile Apply,”—an industry first—giving job seekers an easy way to find and apply for jobs from their smart phones. This engages candidates across the globe on their terms and recognizes that in the developing world, candidates are often more likely to have a smart phone than a computer.

We live the motto “success is never final.” In the past five years, despite a significant economic downturn, we grew our system by more than 20 percent, while also returning 4 billion to shareholders in dividends and share repurchases, reducing diluted shares outstanding by 16 percent.

We are proud of our performance. On behalf of our team around the world, thank you for helping us to achieve great heights in 2013. We look forward to helping you Find Your World when you stay, work and do business with us.



For real-time updates from Arne Sorenson, follow him on LinkedIn where he is a Thought Influencer.

March 14, 2014



## FISCAL YEAR ENDED DECEMBER 31, 2013

Risk Factors 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations 8
Quantitative and Qualitative Disclosures About Market Risk 41
Management's Reports 43
Reports of Independent Registered Public Accounting Firm 44
Financial Statements 46
Shareholder Return Performance Graph 86
Quarterly Financial Data 87
Selected Historical Financial Data 88
Non-GAAP Financial Measures Reconciliations 89



## Risk Factors.

## 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.

## Risks and Uncertainties

We are subject to various risks that could have a negative effect on us or on our financial condition. You should understand that these risks could cause results to differ materially from those expressed in forward-looking statements contained in this report or in other Company communications. Because there is no way to determine in advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give equal weight to each of the following:

Our industry is highly competitive, which may impact our ability to compete successfully with other hotel properties for customers. We generally operate in markets that contain numerous competitors. Each of our hotel brands competes with major hotel chains in national and international venues and with independent companies in regional markets. Our ability to remain competitive and to attract and retain business and leisure travelers depends on our success in distinguishing the quality, value, and efficiency of our lodging products and services, including our loyalty programs and consumer-facing technology platforms and services, from those offered by others. If we cannot compete successfully in these areas, our operating margins could contract, our market share could decrease, and our earnings could decline.

Economic uncertainty could continue to impact our financial results and growth. Weak economic conditions in Europe and other parts of the world, the strength or continuation of recovery in countries that have experienced improved economic conditions, potential disruptions in the U.S. economy as a result of governmental action or inaction on the federal deficit, budget, and related issues, including the recent U.S. federal government shutdown, political instability in some areas, and the uncertainty over how long any of these conditions will continue, could continue to have a negative impact on the lodging industry. U.S. government travel is also a significant part of our business, and this aspect of our business will likely continue to suffer due to recent U.S. federal spending cuts and any further limitations that may result from congressional action or inaction. As a result of such current economic conditions and uncertainty, we continue to experience weakened demand for our hotel rooms in some markets. Recent improvements in demand trends in other markets may not continue, and our future financial results and growth could be further harmed or constrained if the recovery stalls or conditions worsen.

## Operational Risks

Premature termination of our management or franchise agreements could hurt our financial performance. Our hotel management and franchise agreements may be subject to premature termination in certain circumstances, such as the bankruptcy of a hotel owner or franchisee, or a failure under some agreements to meet specified financial or performance criteria that are subject to the risks described in this section, which the Company fails or elects not to cure. In addition, some courts have applied principles of agency law and related fiduciary standards to managers of third-party hotel properties, including us (or have interpreted hotel management agreements as “personal services contracts”). This means, among other things, that property owners may assert the right to terminate management agreements even where the agreements provide otherwise, and some courts have upheld such assertions regarding our management agreements and may do so in the future. In the event of any such termination, we may need to enforce our right to damages for breach of contract and related claims, which may cause us to incur significant legal fees and expenses. Any damages we ultimately collect could be less than the projected future value of the fees and other amounts we would have otherwise collected under the management agreement. A significant loss of agreements due to premature terminations could hurt our financial performance or our ability to grow our business.



Our lodging operations are subject to global, regional, and national conditions. Because we conduct our business on a global platform, our activities are affected by changes in global and regional economies. In recent years, our business has been hurt by decreases in travel resulting from weak economic conditions and the heightened travel security measures that have resulted from the threat of further terrorism. Our future performance could be similarly affected by the economic environment in each of the regions in which we operate, the resulting unknown pace of business travel, and the occurrence of any future incidents in those regions.

The growing significance of our operations outside of the United States also makes us increasingly susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits, or disrupt our business. We currently operate or franchise hotels and resorts in 72 countries, and our operations outside the United States represented approximately 17 percent of our revenues in 2013. We expect that the international share of our total revenues will continue to increase in future years. As a result, we are increasingly exposed to the challenges and risks of doing business outside the United States, which could reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, or otherwise disrupt our business. These challenges include: (1) compliance with complex and changing laws, regulations and policies of governments that may impact our operations, such as foreign ownership restrictions, import and export controls, and trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as anti-corruption laws, competition laws, currency regulations, and laws affecting dealings with certain nations; (3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (6) rapid changes in government policy, political or civil unrest in the Middle East and elsewhere, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott legislation; and (7) currency exchange rate fluctuations.

Our new programs and new branded products may not be successful. We cannot assure you that recently launched, newly acquired or recently announced brands, such as EDITION, Autograph Collection, AC Hotels by Marriott, Gaylord Hotels, Moxy Hotels, or any other new programs or products we may launch in the future will be accepted by hotel owners, potential franchisees, or the traveling public or other customers. We also cannot be certain that we will recover the costs we incurred in developing or acquiring the brands or any new programs or products, or that the brands or any new programs or products will be successful. In addition, some of our new brands involve or may involve cooperation and/or consultation with one or more third parties, including some shared control over product design and development, sales and marketing, and brand standards. Disagreements with these third parties could slow the development of these new brands and/or impair our ability to take actions we believe to be advisable for the success and profitability of such brands.

Risks relating to natural or man-made disasters, contagious disease, terrorist activity, and war could reduce the demand for lodging, which may adversely affect our revenues. So called “Acts of God,” such as hurricanes, earthquakes, tsunamis, and other natural disasters and man-made disasters in recent years, such as Hurricane Sandy in the Northeastern United States, the earthquake and tsunami in Japan, and the spread of contagious diseases in locations where we own, manage, or franchise significant properties and areas of the world from which we draw a large number of customers, could cause a decline in the level of business and leisure travel and reduce the demand for lodging. Actual or threatened war, terrorist activity, political unrest, or civil strife, such as recent events in Syria, Egypt, Libya, and Bahrain, and other geopolitical uncertainty could have a similar effect. Any one or more of these events may reduce the overall demand for hotel rooms and corporate apartments or limit the prices that we can obtain for them, both of which could adversely affect our profits.

Disagreements with the owners of the hotels that we manage or franchise may result in litigation or may delay implementation of product or service initiatives. Consistent with our focus on management and franchising, we own very few of our lodging properties. The nature of our responsibilities under our management agreements to manage each hotel and enforce the standards required for our brands under both management and franchise agreements may be subject to interpretation and will from time to time give rise to disagreements, which may include disagreements over the need for or payment for new product or service initiatives. Such disagreements may be more likely when hotel returns are weaker. We seek to resolve any disagreements in order to develop and maintain positive relations with current and potential hotel owners and joint venture partners but are not always able to do so. Failure to resolve such disagreements has resulted in litigation, and could do so in the future. If any such litigation results in a significant adverse judgment, settlement, or court order, we could suffer significant losses, our profits could be reduced, or our future ability to operate our business could be constrained.

Our business depends on the quality and reputation of our brands, and any deterioration in the quality or reputation of these brands could have an adverse impact on our market share, reputation, business, financial condition, or results of operations. Events that may be beyond our control could affect the reputation of one or more of our properties or more generally impact the reputation of our brands. If the reputation or perceived quality of our brands declines, our market share, reputation, business, financial condition, or results of operations could be affected.



Actions by our franchisees and licensees could adversely affect our image and reputation. We franchise and license many of our brand names and trademarks to third parties in connection with lodging, timeshare, and residential services. Under the terms of their agreements with us, our franchisees and licensees interact directly with customers and other third parties under our brand and trade names. If these franchisees or licensees fail to maintain or act in accordance with applicable brand standards, experience operational problems, or project a brand image inconsistent with ours, our image and reputation could suffer. Although our franchise and license agreements provide us with recourse and remedies in the event of a breach by the franchisee or licensee, including termination of the agreements under certain circumstances, pursuing any such recourse, remedy, or termination could be expensive and time consuming. In addition, we cannot assure you that a court would ultimately enforce our contractual termination rights in every instance.

Damage to, or losses involving, properties that we own, manage, or franchise may not be covered by insurance. We have comprehensive property and liability insurance policies with coverage features and insured limits that we believe are customary. Market forces beyond our control may nonetheless limit the scope of the insurance coverage we can obtain or our ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, or terrorist acts, or liabilities that result from breaches in the security of our information systems may be uninsurable or too expensive to justify obtaining insurance. As a result, we may not be successful in obtaining insurance without increases in cost or decreases in coverage levels. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our lost investment or that of hotel owners or in some cases could result in certain losses being totally uninsured. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated for guarantees, debt, or other financial obligations for the property.

## Development and Financing Risks

While we are predominantly a manager and franchisor of hotel properties, our hotel owners depend on capital to buy, develop, and improve hotels, and our hotel owners may be unable to access capital when necessary. In order to fund new hotel investments, as well as refurbish and improve existing hotels, both the Company and current and potential hotel owners must periodically spend money. The availability of funds for new investments and improvement of existing hotels by our current and potential hotel owners depends in large measure on capital markets and liquidity factors, over which we can exert little control. The difficulty of obtaining financing on attractive terms can, at times, be constrained by the capital markets for hotel and real estate investments. In addition, owners of existing hotels that we franchise or manage may have difficulty meeting required debt service payments or refinancing loans at maturity.

Our growth strategy depends upon third-party owners/operators, and future arrangements with these third parties may be less favorable. Our growth strategy for development of additional lodging facilities entails entering into and maintaining various arrangements with property owners. The terms of our management agreements, franchise agreements, and leases for each of our lodging facilities are influenced by contract terms offered by our competitors, among other things. We cannot assure you that any of our current arrangements will continue or that we will be able to enter into future collaborations, renew agreements, or enter into new agreements in the future on terms that are as favorable to us as those that exist today.

Our ability to grow our management and franchise systems is subject to the range of risks associated with real estate investments. Our ability to sustain continued growth through management or franchise agreements for new hotels and the conversion of existing facilities to managed or franchised Marriott brands is affected, and may potentially be limited, by a variety of factors influencing real estate development generally. These include site availability, financing, planning, zoning and other local approvals, and other limitations that may be imposed by market and submarket factors, such as projected room occupancy, changes in growth in demand compared to projected supply, territorial restrictions in our management and franchise agreements, costs of construction, and anticipated room rate structure.

Our development activities expose us to project cost, completion, and resale risks. We develop new hotel and residential properties, and previously developed timeshare interval and fractional ownership properties, both directly and through partnerships, joint ventures, and other business structures with third parties. As demonstrated by the 2009 and 2011 impairment charges for our former Timeshare business, our ongoing involvement in the development of properties presents a number of risks, including that: (1) continued weakness in the capital markets may limit our ability, or that of third parties with whom we do business, to raise capital for completion of projects that have commenced or for development of future properties; (2) properties that we develop could become less attractive due to decreases in demand for hotel and residential properties, market absorption or oversupply, with the result that we may not be able to sell such properties for a profit or at the prices or selling pace we anticipate, potentially requiring additional changes in our pricing strategy that could result in further charges; (3) construction delays, cost overruns, lender financial defaults, or so called “Acts of God” such as earthquakes, hurricanes, floods, or fires may increase overall project costs or result in project cancellations; and (4) we may be unable to recover development costs we incur for any projects that we do not pursue to completion.



Development activities that involve our co-investment with third parties may result in disputes that could increase project costs, impair project operations, or increase project completion risks. Partnerships, joint ventures, and other business structures involving our co-investment with third parties generally include some form of shared control over the operations of the business and create added risks, including the possibility that other investors in such ventures could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies, or objectives that are inconsistent with ours. Although we actively seek to minimize such risks before investing in partnerships, joint ventures, or similar structures, actions by another investor may present additional risks of project delay, increased project costs, or operational difficulties following project completion. Such disputes may also be more likely in difficult business environments.

Risks associated with development and sale of residential properties associated with our lodging properties or brands may reduce our profits. In certain hotel and timeshare projects we participate, directly or through noncontrolling interests and/or licensing agreements, in the development and sale of residential properties associated with our brands, including residences and condominiums under our The Ritz-Carlton, EDITION, JW Marriott, Autograph Collection, and Marriott brand names and trademarks. Such projects pose further risks beyond those generally associated with our lodging businesses, which may reduce our profits or compromise our brand equity, including the following: (1) the continued weakness in residential real estate and demand generally may continue to reduce our profits and could make it more difficult to convince future hotel development partners of the value added by our brands; (2) increases in interest rates, reductions in mortgage availability, or increases in the costs of residential ownership could prevent potential customers from buying residential products or reduce the prices they are willing to pay; and (3) residential construction may be subject to warranty and liability claims, and the costs of resolving such claims may be significant.

Some hotel openings in our existing development pipeline and approved projects may be delayed or not result in new hotels, which could adversely affect our growth prospects. At year-end 2013 we reported approximately 1,165 hotels in our development pipeline, which includes hotels under construction and under signed contracts, as well as over 170 hotels approved for development but not yet under signed contracts. The eventual opening of the hotels in our development pipeline and, in particular, the hotels approved for development that are not yet under contract, is subject to numerous risks, including in some cases the owner’s or developer’s ability to obtain adequate financing or governmental or regulatory approvals. Accordingly, we cannot assure you that our development pipeline, and in particular hotels approved for development, will result in new hotels that enter our system, or that those hotels will open when we anticipate.

Planned transactions that we announce may be delayed, not occur at all, or involve unanticipated costs. From time to time we announce transactions that we expect will close at a future date, such as the recently announced acquisition of Protea Hotel Group’s brands and management business and disposition of our EDITION hotels in Miami Beach and New York upon completion of construction. If the conditions to consummating these transactions are neither satisfied nor waived by the time we expect, the closings could be delayed or not occur at all. In addition, the EDITION contracts are for a fixed purchase price based upon the estimated total development costs for the hotels and we will not recover any development costs in excess of the agreed purchase price, so we will bear those development costs to the extent that they are higher than we anticipated when we agreed to the transaction.

## Technology, Information Protection, and Privacy Risks

A failure to keep pace with developments in technology could impair our operations or competitive position. The lodging industry continues to demand the use of sophisticated technology and systems, including those used for our reservation, revenue management, and property management systems, our Marriott Rewards and The Ritz-Carlton Rewards programs, and technologies we make available to our guests. These technologies and systems must be refined, updated, and/or replaced with more advanced systems on a regular basis, and if we cannot do so as quickly as our competitors or within budgeted costs and time frames, our business could suffer. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could impair our operating results.

An increase in the use of third-party Internet services to book online hotel reservations could adversely impact our business. Some of our hotel rooms are booked through Internet travel intermediaries such as Expedia.com \( ^{®} \) , Travelocity.com \( ^{®} \) , and Orbitz.com \( ^{®} \) , as well as lesser-known online travel service providers. These intermediaries initially focused on leisure travel, but now also provide offerings for corporate travel and group meetings. Although Marriott’s Look No Further \( ^{®} \)  Best Rate Guarantee has helped prevent customer preference shift to the intermediaries and greatly reduced the ability of intermediaries to undercut the published rates at our hotels, intermediaries continue to use a variety of aggressive online marketing methods to attract customers, including the purchase, by certain companies, of trademarked online keywords such as “Marriott” from Internet search engines such as Google \( ^{®} \) , Bing \( ^{®} \) , Yahoo \( ^{®} \) , and Baidu \( ^{®} \)  to steer customers toward their websites (a practice that has been challenged by various trademark owners in federal court). Although Marriott has successfully limited these practices through contracts with key online intermediaries, the number of intermediaries and related companies that drive



traffic to intermediaries’ websites is too large to permit us to eliminate this risk entirely. In addition, recent class action litigation against several online travel intermediaries and lodging companies, including Marriott, challenges the legality under antitrust law of contract provisions that support programs such as Marriott’s Look No Further \( ^{®} \)  Best Rate Guarantee, and we cannot assure you that the courts will ultimately uphold such provisions. Our business and profitability could be harmed if online intermediaries succeed in significantly shifting loyalties from our lodging brands to their travel services, diverting bookings away from Marriott.com, or through their fees increasing the overall cost of Internet bookings for our hotels.

Failure to maintain the integrity of internal or customer data could result in faulty business decisions, operational inefficiencies, damage to our reputation and/or subject us to costs, fines, or lawsuits. Our businesses require collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of our customers in various information systems that we maintain and in those maintained by third parties with whom we contract to provide services, including in areas such as human resources outsourcing, website hosting, and various forms of electronic communications. We and third parties who provide services to us also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee, and company data is critical to us. If that data is inaccurate or incomplete, we could make faulty decisions. Our customers and employees also have a high expectation that we and our service providers will adequately protect their personal information. The information, security, and privacy requirements imposed by governmental regulation and the requirements of the payment card industry are also increasingly demanding, in both the United States and other jurisdictions where we operate. Our systems or our franchisees' systems may not be able to satisfy these changing requirements and employee and customer expectations, or may require significant additional investments or time in order to do so. Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error, or inadvertent releases of data may materially impact our and our service providers' information systems and records. Our reliance on computer, Internet-based and mobile systems and communications and the frequency and sophistication of efforts by hackers to gain unauthorized access to such systems have increased significantly in recent years. A significant theft, loss, or fraudulent use of customer, employee, or company data could adversely impact our reputation and could result in remedial and other expenses, fines, or litigation. Breaches in the security of our information systems or those of our franchisees or service providers or other disruptions in data services could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.

Changes in privacy law could adversely affect our ability to market our products effectively. We rely on a variety of direct marketing techniques, including email marketing, online advertising, and postal mailings. Any further restrictions in laws such as the CANSPAM Act, and various U.S. state laws, or new federal laws on marketing and solicitation or international data protection laws that govern these activities could adversely affect the continuing effectiveness of email, online advertising, and postal mailing techniques and could force further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of certain products. We also obtain access to potential customers from travel service providers or other companies with whom we have substantial relationships and market to some individuals on these lists directly or by including our marketing message in the other company’s marketing materials. If access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce them to our products could be impaired.

## Other Risks

Changes in laws and regulations could reduce our profits or increase our costs. Our businesses are subject to a wide variety of laws, regulations, and policies in jurisdictions around the world, including those for financial reporting, taxes, healthcare, and the environment. Changes to these laws, regulations, and policies, including those associated with health care, tax or financial reforms, could reduce our profits. Further, we anticipate that many of the jurisdictions in which we do business will continue to review tax and other revenue raising laws, regulations, and policies, and any resulting changes could impose new restrictions, costs, or prohibitions on our current practices and reduce our profits. In particular, governments may revise tax laws, regulations, or official interpretations in ways that could have a significant impact on us, including modifications that could reduce the profits that we can effectively realize from our non-U.S. operations, or that could require costly changes to those operations, or the way in which they are structured. For example, most U.S. company effective tax rates reflect the fact that income earned and reinvested outside the United States is generally taxed at local rates, which are often much lower than U.S. tax rates. If changes in tax laws, regulations, or interpretations significantly increase the tax rates on non-U.S. income, our effective tax rate could increase and our profits could be reduced. If such increases resulted from our status as a U.S. company, those changes could place us at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax rates.

If we cannot attract and retain talented associates, our business could suffer. We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit, train, develop, and retain sufficient numbers of talented associates, we could experience increased associate turnover, decreased guest satisfaction, low morale, inefficiency, or internal control failures. Insufficient numbers of talented associates could also limit our ability to grow and expand our



businesses. Any shortage of skilled labor could also require higher wages that would increase our labor costs, which could reduce our profits of our third-party owners.

Delaware law and our governing corporate documents contain, and our Board of Directors could implement, anti-takeover provisions that could deter takeover attempts. Under the Delaware business combination statute, a stockholder holding 15 percent or more of our outstanding voting stock could not acquire us without Board of Director consent for at least three years after the date the stockholder first held 15 percent or more of the voting stock. Our governing corporate documents also, among other things, require supermajority votes for mergers and similar transactions. In addition, our Board of Directors could, without stockholder approval, implement other anti-takeover defenses, such as a stockholder’s rights plan.



## Management’s Discussion and Analysis of Financial Condition and Results of Operations.

## BUSINESS AND OVERVIEW

## Overview

We are a worldwide operator, franchisor, and licensor of hotels and timeshare properties in 72 countries and territories under numerous brand names. We also develop, operate, and market residential properties and provide services to home/condominium owner associations. Under our business model, we typically manage or franchise hotels, rather than own them. At year-end 2013, of the total population of hotel rooms in our system worldwide, we operated 42 percent under management agreements; our franchisees operated 55 percent under franchise agreements; and we owned or leased only two percent. The remainder represented our interest in unconsolidated joint ventures that manage hotels and provide services to franchised properties. We group our operations into four business segments: North American Full-Service, North American Limited-Service, International, and Luxury.

We earn base management fees and in many 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.

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. In 2013, we successfully launched Mobile Check-In at 350 Marriott Hotels both in North America and select international locations.

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.



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. We also believe occupancy and average daily rate (“ADR”), which both correlate with RevPAR, are meaningful indicators of our performance. Occupancy, which we calculate by dividing occupied rooms by total rooms available, measures the utilization of a property’s available capacity. ADR, which we calculate by dividing property room revenue by total rooms sold, measures average room price and is useful in assessing pricing levels.

References to year-end 2013 RevPAR statistics, including occupancy and average daily rate, throughout this report reflect the twelve months ended December 31, 2013, as compared to the twelve months ended December 31, 2012. References to RevPAR statistics, including occupancy and average daily rate, have not been modified to a calendar basis for year-end 2012 compared to year-end 2011. Accordingly, these statistics reflect the 52-week period ended December 28, 2012 compared to the 52-week period ended December 30, 2011, with the exception of The Ritz-Carlton and Autograph Collection brand properties and properties located outside of the United States where statistics are for the twelve months ended for each year presented, consistent with historic presentation. 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. We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period.

We define our comparable properties as those that were open and operating under one of our brands for at least one full calendar year as of the end of the current period and have not, in either the current or previous periods presented, (i) undergone significant room or public space renovations or expansions, (ii) been converted between company operated and franchised, or (iii) sustained substantial property damage or business interruption. Comparable properties represented the following percentage of our properties for the years ended 2013, 2012, and 2011, respectively: (1) 89%, 93%, and 94% of North American properties; (2) 75%, 78%, and 79% of International properties; and (3) 87%, 91%, and 92% of total properties.

We also believe company-operated house profit margin, which is the ratio of property-level gross operating profit (also known as house profit) to total property-level revenue, is a meaningful indicator of our performance because this ratio measures our overall ability as the operator to produce property-level profits by generating sales and controlling the operating expenses over which we have the most direct control. House profit includes room, food and beverage, and other revenue and the related expenses including payroll and benefits expenses, as well as repairs and maintenance, utility, general and administrative, and sales and marketing expenses. House profit does not include the impact of management fees, furniture, fixtures and equipment replacement reserves, insurance, taxes, or other fixed expenses.

## Results

Conditions for our business continued to improve in 2013, reflecting generally low supply growth in the United States ("U.S."), global improving 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.

Comparable worldwide systemwide average daily rates for the twelve months ended December 31, 2013 increased 3.4 percent on a constant dollar basis to $143.33, RevPAR increased 4.6 percent to $102.46, and occupancy increased 0.9 percentage points to 71.5 percent, compared to the same period a year ago.

Continuing economic uncertainty in the U.S. and U.S. government sequestration had a dampening effect on short-term group customer demand through the 2013 first half. Short-term group customer demand improved in the 2013 second half, benefiting from better attendance at group functions. Group bookings in the 2013 second half for future short-term group business also improved. Government and government-related demand was constrained due to government spending restrictions and the U.S. federal government shutdown in October, particularly in Washington, D.C. and the surrounding areas. Transient demand was particularly strong in the western U.S., which allowed us to continue eliminating discounts, shifting business into higher rated price categories, and raising room rates. In the northeast U.S., weak group demand in the region in the first half of 2013, new supply in the city of New York, and weak government and government-related business in Washington, D.C., further impacted by the government shutdown, constrained RevPAR improvement. Leisure destinations in the U.S. had strong demand.

The properties in our system serve both transient and group customers. Business transient and leisure transient demand in the U.S. was strong in 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. During the recent U.S. economic recession, organizers of large group meetings



scheduled smaller and fewer meetings to take place in 2013 than was previously typical. As the U.S. economy recovered, we replaced this lower level of large advance-purchase groups with smaller, last-minute group bookings and transient business. Last-minute group demand weakened during the first half of 2013, largely driven by weak corporate business and soft government demand at many properties, but corporate demand improved in the 2013 second half. U.S. government group demand weakened further as the year progressed, significantly impacted by the government shutdown in the 2013 fourth quarter.

Short-term group demand shortfalls in the 2013 first half were largely mitigated by strong transient demand leading to strong occupancy rates. At the same time, as transient guests typically spend less on food and beverage than group customers, property-level food and beverage revenues increased year-over-year more slowly than room revenue. In addition, spending on food and beverage in 2013 was constrained by the somewhat uncertain economic climate and government spending restrictions in the U.S.

As of year-end 2013, our group revenue booking pace for company-operated Marriott Hotels brand properties in North America is up over 4 percent for stays in 2014, compared to year-end 2012 booking pace for stays in 2013, reflecting improved group demand and greater pricing power.

Outside of North America, Eastern Europe, Russia, and Northern United Kingdom had strong demand in 2013 while Western Europe experienced moderate RevPAR growth. London RevPAR declined in the first three quarters of 2013, reflecting tough comparisons to last year's summer Olympic Games, but improved in the 2013 fourth quarter. Demand in France weakened as the year progressed. Demand remained weak in European markets more dependent on regional travel and new supply and weak economies constrained RevPAR growth in a few markets. In the Middle East, demand was strong in the United Arab Emirates, but weakened further in Egypt (particularly in the second half of 2013), Jordan, and Qatar. Demand in the Asia Pacific region continued to moderate, as our hotels in China experienced weaker government-related travel, moderating economic growth, and new supply in several markets. Thailand and Indonesia had higher demand and strong RevPAR growth in 2013.

We monitor market conditions and carefully price our rooms daily in accordance with individual property demand levels, generally adjusting room rates as demand changes. We also modify the mix of our business to increase revenue as demand changes. Demand for higher rated rooms improved in most markets in 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.

## CONSOLIDATED RESULTS

The following discussion presents an analysis of results of our operations for 2013, 2012, and 2011 (which included the results of the former Timeshare segment before the spin-off).

In late 2011, we completed the spin-off of our timeshare operations and timeshare development business. Accordingly, we no longer have a Timeshare segment and instead earn license fees that we do not allocate to any of our segments and include in "other unallocated corporate." See Footnote No. 15, "Spin-off" for additional information.

## Revenues

## 2013 Compared to 2012

Revenues increased by $970 million (8 percent) to $12,784 million in 2013 from $11,814 million in 2012 as a result of: higher cost reimbursements revenue ($886 million), higher franchise fees ($59 million), higher base management fees ($40 million), and higher incentive management fees ($24 million, comprised of a $27 million increase for North America and a $3 million decrease outside of North America), partially offset by lower owned, leased, and other revenue ($39 million). We estimate that the $970 million increase in revenues included $8 million of combined base management fee, franchise fee, and incentive management fee revenues due to the additional four days of activity in 2013 compared to 2012.

Cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer. 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 or net income. The $886 million increase in total cost reimbursements revenue, to $10,291 million in 2013 from $9,405 million in 2012, reflected the impact of higher property-level demand and growth across the system.



The $40 million increase in total base management fees, to $621 million in 2013 from $581 million in 2012, mainly reflected stronger RevPAR due to increased demand ($18 million), the impact of unit growth across the system ($18 million), primarily driven by Gaylord brand properties we began managing in the fourth quarter of 2012, and the additional four days of activity (approximately $3 million). The $59 million increase in total franchise fees, to $666 million in 2013 from $607 million in 2012, primarily reflected stronger RevPAR due to increased demand ($22 million), the impact of unit growth across the system ($23 million), increased relicensing fees primarily for certain North American Limited-Service properties ($8 million), and the additional four days of activity (approximately $5 million). The $24 million increase in incentive management fees from $232 million in 2012 to $256 million in 2013 largely reflected higher property-level income at managed hotels ($33 million), particularly full-service hotels in North America, partially offset by unfavorable foreign exchange rates ($3 million) and unfavorable variances from the following 2012 items: recognition of incentive management fees due to contract revisions for certain International segment properties ($3 million) and recognition of previously deferred fees in conjunction with an International segment property's change in ownership ($3 million).

The $39 million decrease in owned, leased, corporate housing, and other revenue, to $950 million in 2013 from $989 million in 2012, primarily reflected $35 million of lower corporate housing revenue due to the sale of the ExecuStay corporate housing business in the 2012 second quarter and $28 million of lower owned and leased revenue, partially offset by $12 million of higher branding fees, $8 million of higher hotel agreement termination fees, and $2 million of higher other revenue. Lower owned and leased revenue primarily reflected fewer International segment leased properties due to three leases that we terminated in 2013 and weaker demand at one leased property in London, as well as a $2 million business interruption payment received in the 2012 second quarter from a utility company. Combined branding fees for credit card endorsements and the sale of branded residential real estate by others totaled $118 million in 2013 and $106 million in 2012.

## 2012 Compared to 2011

Revenues decreased by $503 million (4 percent) to $11,814 million in 2012 from $12,317 million in 2011. As detailed later in this report in the table under the caption "Former Timeshare Segment - 2012 Compared to 2011," the spin-off contributed to a net $1,282 million decrease in revenues. This decrease was partially offset by a $779 million increase in revenues in our lodging business.

The $779 million increase in revenues for our lodging business was a result of: higher cost reimbursements revenue ($757 million), higher franchise fees ($44 million), higher incentive management fees ($37 million, comprised of an $18 million increase for North America and a $19 million increase outside of North America), and higher base management fees ($35 million), partially offset by lower owned, leased, corporate housing, and other revenue ($94 million, which includes a $70 million reduction from our sold corporate housing business as further discussed later in this section).

The $562 million increase in total cost reimbursements revenue, to $9,405 million in 2012 from $8,843 million in 2011, reflected a $757 million increase (allocated across our lodging business) resulting from higher property-level demand and growth across our system, partially offset by a net $195 million decline in timeshare-related cost reimbursements due to the spin-off.

The $21 million decrease in total base management fees, to $581 million in 2012 from $602 million in 2011, primarily reflected a decline of $56 million in former Timeshare segment ($51 million) and International segment ($5 million) base management fees due to the spin-off, partially offset by a net increase of $35 million across our lodging business. The $35 million net increase in base management fees across our lodging business primarily reflected stronger RevPAR ($24 million) and the impact of unit growth across the system ($9 million), as well as recognition in the 2012 third quarter of $7 million of previously deferred base management fees in conjunction with the sale of our equity interest in a North American-Limited Service joint venture, partially offset by unfavorable foreign exchange rates ($3 million) and the unfavorable impact of $3 million of fee reversals in 2012 for two properties to reflect contract revisions. The $101 million increase in total franchise fees, to $607 million in 2012 from $506 million in 2011, primarily reflected an increase of $57 million in license fees from MVW and an increase of $44 million across our lodging business primarily as a result of stronger RevPAR ($27 million) and the impact of unit growth across the system ($13 million). The $37 million increase in incentive management fees from $195 million in 2011 to $232 million in 2012 primarily reflected higher net property-level income ($30 million), new unit growth, net of terminations ($6 million), recognition of incentive management fees due to contract revisions for certain International segment properties ($3 million), and recognition of previously deferred fees in conjunction with an International segment property's change in ownership ($3 million), partially offset by unfavorable foreign exchange rates ($4 million).

The $94 million decrease in owned, leased, corporate housing, and other revenue, to $989 million in 2012 from $1,083 million in 2011, primarily reflected $70 million of lower corporate housing revenue due to the sale of the ExecuStay \( ^{\circledR} \)  corporate housing business in the 2012 second quarter, $29 million of lower owned and leased revenue, and $3 million of lower



termination fees, partially offset by $7 million of higher branding fees and $3 million of higher other revenue. The $29 million decrease in owned and leased revenue primarily reflected: (1) $34 million of lower revenue at several owned and leased properties in our International segment, primarily driven by three hotels that left the system ($18 million), weaker demand at three other hotels ($6 million), two hotels that are no longer leased but remain within our system as managed or franchised properties ($5 million), and unfavorable foreign exchange rates ($5 million); and (2) $23 million of lower revenue at a North American Full-Service segment property that converted from leased to managed at year-end 2011; partially offset by (3) $14 million of higher revenue at one leased property in London due to strong demand, in part associated with the 2012 third quarter Olympic Games; and (4) $10 million of higher revenue at one leased property in Japan. The property in Japan benefited from favorable comparisons with 2011 as a result of very weak demand due to the earthquake and tsunami as well as a $2 million business interruption payment received in 2012 from a utility company. Combined branding fees for credit card endorsements and the sale of branded residential real estate by others totaled $106 million in 2012 and $99 million in 2011.

## Operating Income

## 2013 Compared to 2012

Operating income increased by $48 million to $988 million in 2013 from $940 million in 2012. The $48 million increase in operating income reflected a $59 million increase in franchise fees, a $40 million increase in base management fees, a $24 million increase in incentive management fees, and $6 million of higher owned, leased, corporate housing, and other revenue net of direct expenses, partially offset by an $81 million increase in general, administrative and other expenses. Approximately $7 million of the net increase in operating income was due to the additional four days of activity in 2013. We discuss the reasons for the increases in base management fees, franchise fees, and incentive management fees compared to 2012 in the preceding “Revenues” section.

The $6 million (4 percent) increase in owned, leased, corporate housing, and other revenue, net of direct expenses was largely attributable to $12 million of higher branding fees, $8 million of higher hotel agreement termination fees, and $2 million of higher other revenue, partially offset by $17 million of lower owned and leased revenue, net of direct expenses. Lower owned and leased revenue, net of direct expenses was primarily due to $7 million in costs related to three International segment leases we terminated, $5 million in lower results at one leased property in London, $7 million in pre-opening expenses for the London and Miami EDITION hotels, and a $2 million business interruption payment received in the 2012 second quarter from a utility company for our leased property in Japan, partially offset by $4 million in net favorable results at several leased properties.

General, administrative, and other expenses increased by $81 million (13 percent) to $726 million in 2013 from $645 million in 2012. The $81 million increase largely reflected the following 2013 items: (1) $32 million increased other expenses primarily associated with higher costs in international markets, higher costs for hotel development, and higher costs for branding and service initiatives to enhance and grow our brands globally; (2) $26 million of higher compensation and other overhead expenses including increases in hotel development staffing and bonus compensation; (3) $18 million of impairment and accelerated amortization expense for deferred contract acquisition costs primarily for properties that left our system or which had cash flow shortfalls; (4) a $5 million performance cure payment for an International segment property; (5) $4 million of higher amortization expense year over year for deferred contract acquisition costs related to the 2012 Gaylord brand and hotel management company acquisition; and (6) a $4 million increase in legal expenses, primarily due to favorable litigation settlements in 2012. These increases were partially offset by a favorable variance from the accelerated amortization of $8 million of deferred contract acquisition costs in 2012 for a property that exited our system. The $81 million increase in total general, administrative, and other expenses included $27 million that we did not allocate to any of our segments, and $54 million that we allocated as follows: $18 million to our International segment, $19 million to our Luxury segment, $15 million to our North American Full-Service segment, and $2 million to our North American Limited-Service segment.

## 2012 Compared to 2011

Operating income increased by $414 million to $940 million in 2012 from $526 million in 2011. The $414 million increase in operating income reflected a net $265 million favorable variance due to the spin-off (which included $324 million of Timeshare strategy-impairment charges in 2011. See Footnote No. 15, "Spin-off" for additional information on these charges.), as detailed in the table under the caption "Former Timeshare Segment - 2012 Compared to 2011," and a $149 million increase across our lodging business. This $149 million increase across our lodging business reflected a $44 million increase in franchise fees, a $37 million increase in incentive management fees, a $35 million increase in base management fees, $25 million of higher owned, leased, corporate housing, and other revenue net of direct expenses, and an $8 million decrease in general, administrative and other expenses. We discuss the reasons for the increases in base management fees, franchise fees, and incentive management fees across our lodging business compared to 2011 in the preceding "Revenues" section.



The $25 million (18 percent) increase in owned, leased, corporate housing, and other revenue net of direct expenses was primarily attributable to $19 million of net stronger results, particularly at one leased property in Japan ($9 million) and one leased property in London ($8 million), $7 million of higher branding fees, and $3 million of higher other revenue, partially offset by $3 million of lower termination fees. Our leased property in London benefited from strong demand and higher property-level margins in 2012 in part associated with the 2012 third quarter Olympic Games, while our leased property in Japan experienced strong demand in 2012, benefiting from favorable comparisons with 2011 as a result of very weak demand due to the earthquake and tsunami as well as a $2 million business interruption payment received in 2012 from a utility company.

General, administrative, and other expenses decreased by $107 million (14 percent) to $645 million in 2012 from $752 million in 2011. The $107 million decrease reflected a decline of $99 million due to the spin-off (consisting of $63 million of former Timeshare segment general, administrative, and other expenses and $36 million of other expenses not previously allocated to the former Timeshare segment, including $34 million of Timeshare spin-off costs and $2 million of other expenses), and a decline of $8 million across our lodging business. The $8 million decrease across our lodging business was primarily a result of: (1) favorable variances from the following 2011 items: (a) a $5 million impairment of deferred contract acquisition costs and a $5 million accounts receivable reserve, both for one Luxury segment property whose owner filed for bankruptcy; (b) a $5 million performance cure payment for a North American Full-Service property; and (c) $8 million for a guarantee accrual for one North American Full-Service property and the write-off of contract acquisition costs for several other properties; and (2) $11 million of guarantee accrual reversals in 2012, primarily associated with four properties for which we either satisfied the related guarantee requirements or were otherwise released; (3) a favorable litigation settlement, partially offset by higher legal expenses, netting to a favorable $3 million; and (4) $2 million in decreased expenses due to favorable foreign exchange rates. These favorable items were partially offset by: (1) the following unfavorable 2012 items: (a) $20 million of increased compensation and other overhead expenses; and (b) the accelerated amortization of $8 million of deferred contract acquisitions costs for a North American Full-Service segment property (for which we earned a termination fee that we recorded in owned, leased, corporate housing, and other revenue); and (2) the unfavorable variance for a $5 million reversal in 2011 of a loan loss provision for one property with increased expected future cash flows. See "BUSINESS SEGMENTS: North American Full-Service Lodging" for more information on the termination fee and the related accelerated amortization of deferred contract acquisition costs recorded in 2012.

The $8 million decrease in total general, administrative, and other expenses across our lodging business consisted of a $21 million decrease allocated to our Luxury segment, partially offset by an $11 million increase that we did not allocate to any of our segments and a $2 million increase allocated to our North American Full-Service segment.

## Gains (Losses) and Other Income

We show our gains (losses) and other income for 2013, 2012, and 2011 in the following table:

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Gains on sales of real estate and other</td><td>$ 2</td><td>$ 27</td><td>$ 11</td></tr><tr><td>Gain on sale of joint venture and other investments</td><td>9</td><td>21</td><td>—</td></tr><tr><td>Income from cost method joint ventures</td><td>—</td><td>2</td><td>—</td></tr><tr><td>Impairment of cost method joint venture investments and equity securities</td><td>—</td><td>(8)</td><td>(18)</td></tr><tr><td></td><td>$ 11</td><td>$ 42</td><td>$ (7)</td></tr></table>

## 2013 Compared to 2012

Gains and other income decreased by $31 million (74 percent) to $11 million in 2013 compared to $42 million in 2012. This decrease in gains and other income principally reflected an unfavorable variance from the $41 million gain we recognized in 2012 on the sale of the equity interest in a North American Limited-Service joint venture which we discuss in the following "2012 Compared to 2011" discussion, and a $2 million impairment loss we recognized in 2013 as a result of measuring certain assets at fair value less the costs we incurred to sell those assets. See Footnote No. 7, "Acquisition and Dispositions" for more information on the reclassification of these assets to held for sale. The decrease in gains and other income was partially offset by a gain of $8 million we recognized in 2013 on the sale of a portion of our shares of a publicly traded company and a favorable variance from an other-than-temporary $7 million impairment we recorded in 2012 which we discuss in the following "2012 Compared to 2011" discussion.



In 2012, we recognized a total gain of $41 million on the sale of an equity interest in a North American Limited-Service joint venture (formerly two joint ventures which were merged before the sale) which consisted of: (1) a $21 million gain on the sale of this interest reflected in the "Gain on sale of joint venture and other investments" caption in the preceding table; and (2) recognition of the $20 million remaining gain we deferred in 2005 due to contingencies in the original transaction documents for the sale of land to one of the joint ventures, reflected in the "Gains on sales of real estate and other" caption in the preceding table. See Footnote No. 7, "Acquisitions and Dispositions" for more information on the sale of this equity interest.

The "Impairment of cost method joint venture investments and equity securities" line in the preceding table reflects the other-than-temporary impairment in 2012 of two cost method joint venture investments and the other-than-temporary impairment in 2011 of marketable equity securities. For more information on the $7 million impairment of one of the cost method joint venture investments in 2012, see Footnote No. 4, "Fair Value of Financial Instruments." For more information on the impairment of marketable equity securities in 2011, see Footnote No. 4, "Fair Value of Financial Instruments" of the 2012 Form 10-K.

## Interest Expense

## 2013 Compared to 2012

Interest expense decreased by $17 million (12 percent) to $120 million in 2013 compared to $137 million in 2012. This decrease in interest expense principally reflected a net $13 million decrease due to net Senior Note retirements and new Senior Note issuances at lower interest rates; and $3 million of increased capitalized interest primarily related to developing two EDITION hotels, partially offset by completion of The London EDITION in the 2013 fourth quarter.

## 2012 Compared to 2011

Interest expense decreased by $27 million (16 percent) to $137 million in 2012 compared to $164 million in 2011. This decrease reflected a $29 million decrease due to the spin-off, partially offset by a $2 million increase for our lodging business. The $29 million decrease in interest expense due to the spin-off consisted of interest expense in 2011 that was allocated to the former Timeshare segment ($43 million), partially offset by interest expense in 2012 for ongoing obligations for costs that were a component of "Timeshare-direct" expenses before the spin-off ($8 million) and the unfavorable variance to 2011 for capitalized interest expense for construction projects for our former Timeshare segment ($6 million). For the $8 million of interest expense in 2012 for ongoing spin-off obligations, we also recorded $8 million of "Interest income" in 2012 for the associated notes receivable. The $2 million increase in interest expense for our lodging business was primarily for the Series K Notes and the Series L Notes we issued in 2012 ($23 million) as well as increased interest expense for our Marriott Rewards program and our commercial paper program, reflecting higher average balances and interest rates ($2 million), partially offset by increased capitalized interest expense principally for lodging construction projects ($15 million) and the absence of interest expense for the Series F Senior Notes following our repayment of those notes in 2012 ($9 million). See the "LIQUIDITY AND CAPITAL RESOURCES" caption later in this report for more information on our credit facility.

## Interest Income and Income Tax

## 2013 Compared to 2012

Interest income increased by $6 million (35 percent) to $23 million in 2013 compared to $17 million in 2012, primarily reflecting $5 million earned on the $65 million mandatorily redeemable preferred equity ownership interest we acquired in the 2013 second quarter. See Footnote No. 4, "Fair Value of Financial Instruments" for more information on the acquisition.

Our tax provision decreased by $7 million (3 percent) to $271 million in 2013 from $278 million in 2012. The decrease resulted from a lower effective tax rate (30.2 percent in 2013 compared to 32.7 percent in 2012), favorable tax provision to tax return adjustments in 2013, favorable variance from a reserve recorded for an international tax issue in 2012, a favorable state tax adjustment in 2013, and higher income before income taxes in jurisdictions outside of the U.S. with lower tax rates, partially offset by higher income tax expense in the U.S.

## 2012 Compared to 2011

Interest income increased by $3 million (21 percent) to $17 million in 2012 compared to $14 million in 2011, primarily reflecting $9 million of increased interest income for two notes receivable issued to us in conjunction with the spin-off, partially offset by a $6 million decrease primarily from the repayment of certain loans. For $8 million of the $9 million increase



in interest income in 2012 for notes receivable issued to us in conjunction with the spin-off, we also recorded $8 million of "Interest expense" in 2012 for ongoing obligations for those notes.

Our tax provision increased by $120 million (76 percent) to $278 million in 2012 from $158 million in 2011. The increase was primarily due to the absence of timeshare pre-tax losses in 2012 due to the spin-off and the effect of higher pre-tax income from our lodging business, as well as a lower percentage of lodging pre-tax income in 2012 from jurisdictions outside the U.S. with lower tax rates. These increases in the provision were partially offset by a favorable variance from $34 million of income tax expense that we recorded in 2011 to write off certain deferred tax assets transferred to MVW in conjunction with the spin-off.

## Equity in Losses

## 2013 Compared to 2012

Equity in losses of $5 million in 2013 improved by $8 million from equity in losses of $13 million in 2012. The change primarily reflected a favorable variance from the following 2012 items: (1) $8 million in losses at a Luxury segment joint venture for the impairment of certain underlying residential properties; and (2) a $2 million loan loss provision for certain notes receivable due from another Luxury segment joint venture. These favorable variances were partially offset by a $4 million impairment charge in the 2013 second quarter associated with a corporate joint venture (not allocated to one of our segments) that we determined was fully impaired because we did not expect to recover the investment.

## 2012 Compared to 2011

Equity in losses of $13 million in 2012 was unchanged from equity in losses of $13 million in 2011, and reflected a $4 million decrease in equity in losses across our lodging business, entirely offset by a $4 million unfavorable variance due to the impact of the spin-off. The $4 million decrease in equity in losses across our lodging business primarily reflected $3 million of increased earnings at two International segment joint ventures, $3 million of decreased losses at two other joint ventures, and a $3 million favorable variance from the 2012 sale of an equity interest in a North American Limited-Service joint venture (formerly two joint ventures which were merged before the sale) which had losses in the prior year, partially offset by $3 million of increased losses at a Luxury segment joint venture, and a $2 million loan loss provision for certain notes receivable due from another Luxury segment joint venture. The $3 million of increased losses at a Luxury segment joint venture reflected increased losses of $8 million primarily from the impairment of certain underlying residential properties in 2012, partially offset by $5 million of decreased losses in 2012, after the impairment, as a result of decreased joint venture costs. The $4 million unfavorable variance due to the impact of the spin-off reflected the $4 million reversal in 2011 of the funding liability associated with Timeshare-strategy impairment charges we originally recorded in 2009. See Footnote No. 18, "Timeshare Strategy-Impairment Charges" of our 2011 Form 10-K for additional information on this reversal.

## Net Income

## 2013 Compared to 2012

Net income increased by $55 million to $626 million in 2013 from $571 million in 2012, and diluted earnings per share increased by $0.28 per share (16 percent) to $2.00 per share from $1.72 per share in 2012. As discussed in more detail in the preceding sections beginning with “Revenues,” or as shown in the Consolidated Statements of Income, the $55 million increase in net income was due to higher franchise fees ($59 million), higher base management fees ($40 million), higher incentive management fees ($24 million), lower interest expense ($17 million), lower equity in losses ($8 million), lower income taxes ($7 million), higher owned, leased, corporate housing, and other revenue, net of direct expenses ($6 million), and higher interest income ($6 million). These increases were partially offset by higher general, administrative, and other expenses ($81 million) and lower gains and other income ($31 million).

## 2012 Compared to 2011

Net income increased by $373 million to $571 million in 2012 from $198 million in 2011, and diluted earnings per share increased by $1.17 per share (213 percent) to $1.72 per share from $0.55 per share in 2011. As discussed in more detail in the preceding sections beginning with “Revenues,” or as shown in the Consolidated Statements of Income, the $373 million increase in net income was due to the impact of the spin-off ($296 million), as well as the following increases across our lodging business: higher gains and other income ($52 million), higher franchise fees ($44 million), higher incentive management fees ($37 million), higher base management fees ($35 million), higher owned, leased, corporate housing, and other revenue, net of direct expenses ($25 million), lower general, administrative, and other expenses ($8 million), and lower



equity in losses ($4 million). These increases were partially offset by higher income taxes ($120 million) as well as the following decreases across our lodging business: lower interest income ($6 million) and higher interest expense ($2 million).

## Former Timeshare Segment - 2012 Compared to 2011

The following tables facilitate the comparison of 2012 to 2011 by detailing the components of our former Timeshare segment revenues and results for 2011, as well as certain items that we did not allocate to our Timeshare segment for 2011 while also showing the components of revenue, interest income and interest expense we received from MVW for 2012.

<table><tr><td>($ in millions)</td><td>2012</td><td>2011</td><td>Change 2012/2011</td></tr><tr><td>Former Timeshare segment revenues</td><td></td><td></td><td></td></tr><tr><td>Base fee revenue</td><td>$ —</td><td>$ 51</td><td></td></tr><tr><td>Total sales and services revenue</td><td>—</td><td>1,088</td><td></td></tr><tr><td>Cost reimbursements</td><td>—</td><td>299</td><td></td></tr><tr><td>Former Timeshare segment revenues</td><td>—</td><td>1,438</td><td>$ (1,438)</td></tr><tr><td>Other base fee revenue</td><td>—</td><td>5</td><td>(5)</td></tr><tr><td>Other unallocated corporate revenues from MVW</td><td></td><td></td><td></td></tr><tr><td>Franchise fee revenue</td><td>61</td><td>4</td><td></td></tr><tr><td>Cost reimbursements</td><td>128</td><td>24</td><td></td></tr><tr><td>Revenues from MVW</td><td>189</td><td>28</td><td>161</td></tr><tr><td>Total revenue impact</td><td>$ 189</td><td>$ 1,471</td><td>$ (1,282)</td></tr></table>

<table><tr><td></td><td>2012</td><td>2011</td><td>Change 2012/2011</td></tr><tr><td>Former Timeshare segment results operating income impact</td><td></td><td></td><td></td></tr><tr><td>Base fee revenue</td><td>$ —</td><td>$ 51</td><td></td></tr><tr><td>Timeshare sales and services, net</td><td>—</td><td>159</td><td></td></tr><tr><td>Timeshare strategy-impairment charges</td><td>—</td><td>(324)</td><td></td></tr><tr><td>General, administrative, and other expense</td><td>—</td><td>(63)</td><td></td></tr><tr><td>Former Timeshare segment results operating income impact (1)</td><td>—</td><td>(177)</td><td>$ 177</td></tr><tr><td>Other base fee revenue</td><td>—</td><td>5</td><td>(5)</td></tr><tr><td>General, administrative, and other expenses</td><td></td><td></td><td></td></tr><tr><td>Timeshare spin-off costs</td><td>—</td><td>(34)</td><td>34</td></tr><tr><td>Other miscellaneous expenses</td><td>—</td><td>(2)</td><td>2</td></tr><tr><td>Other Unallocated corporate operating income impact from MVW</td><td></td><td></td><td></td></tr><tr><td>Franchise fee revenue</td><td>61</td><td>4</td><td>57</td></tr><tr><td>Total operating income (loss) impact</td><td>61</td><td>(204)</td><td>265</td></tr><tr><td>Gains (losses) and other income (1)</td><td>—</td><td>3</td><td>(3)</td></tr><tr><td>Interest expense (1)</td><td>(8)</td><td>(43)</td><td>35</td></tr><tr><td>Capitalized interest</td><td>—</td><td>6</td><td>(6)</td></tr><tr><td>Interest income</td><td>11</td><td>2</td><td>9</td></tr><tr><td>Equity in earnings (losses)</td><td>—</td><td>4</td><td>(4)</td></tr><tr><td>Income (loss) before income taxes spin-off impact</td><td>$ 64</td><td>$ (232)</td><td>$ 296</td></tr></table>

(1) Timeshare segment results for year-end 2011 totaled a segment loss of $217 million and consisted of $177 million of operating losses, $43 million of interest expense, and $3 million of gains and other income.



## Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted 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. We, therefore, exclude depreciation and amortization expense. Effective with this report, we have also modified our EBITDA calculation to exclude depreciation and amortization expense that we classify in the "Owned, leased, and corporate housing-direct expenses" and "General, administrative, and other expenses" captions of our Income Statements; as well as the depreciation expense that third party owners reimburse to us that we classify in the "Reimbursed costs" caption of our Income Statements.

We also believe that Adjusted EBITDA, another non-GAAP financial measure, is a meaningful indicator of operating performance. Our Adjusted EBITDA reflects: (1) an adjustment to exclude the $41 million pre-tax gain on the 2012 sale of an equity interest in a North American Limited-Service joint venture discussed earlier in the "Gains and Other Income" caption; and (2) beginning with this report, an adjustment to exclude share-based compensation expense for all years presented. Because companies use share-based payment awards differently, both in the type and quantity of awards granted, we excluded share-based compensation expense to address considerable variability among companies in recording compensation expense. We believe Adjusted EBITDA that excludes these items is a meaningful measure of our operating performance because it permits period-over-period comparisons of our ongoing core operations before these items and facilitates our comparison of results before these items with results from other lodging companies.

EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as substitutes for performance measures calculated under GAAP. Both of these non-GAAP measures exclude certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate EBITDA and in particular Adjusted EBITDA differently than we do or may not calculate them at all, limiting EBITDA's and Adjusted EBITDA's usefulness as comparative measures.

We show our 2013 and 2012 EBITDA and Adjusted EBITDA calculations that reflect the changes we describe above and reconcile those measures with Net Income in the following tables:



<table><tr><td colspan="2">(\( in millions)</td><td>2013</td></tr><tr><td>Net Income</td><td>$</td><td>626</td></tr><tr><td>Interest expense</td><td></td><td>120</td></tr><tr><td>Tax provision</td><td></td><td>271</td></tr><tr><td>Depreciation and amortization</td><td></td><td>127</td></tr><tr><td>Depreciation classified in Reimbursed costs</td><td></td><td>48</td></tr><tr><td>Interest expense from unconsolidated joint ventures</td><td></td><td>4</td></tr><tr><td>Depreciation and amortization from unconsolidated joint ventures</td><td></td><td>13</td></tr><tr><td>EBITDA</td><td>$</td><td>1,209</td></tr><tr><td>Share-based compensation (including share-based compensation reimbursed by third-party owners)</td><td></td><td>116</td></tr><tr><td>Adjusted EBITDA</td><td>$</td><td>1,325</td></tr></table>

<table><tr><td colspan="2">(\( in millions)</td><td>2012</td></tr><tr><td>Net Income</td><td>$</td><td>571</td></tr><tr><td>Interest expense</td><td></td><td>137</td></tr><tr><td>Tax provision</td><td></td><td>278</td></tr><tr><td>Depreciation and amortization</td><td></td><td>102</td></tr><tr><td>Depreciation classified in Reimbursed costs</td><td></td><td>45</td></tr><tr><td>Interest expense from unconsolidated joint ventures</td><td></td><td>11</td></tr><tr><td>Depreciation and amortization from unconsolidated joint ventures</td><td></td><td>20</td></tr><tr><td>EBITDA</td><td>$</td><td>1,164</td></tr><tr><td>Share-based compensation (including share-based compensation reimbursed by third-party owners)</td><td></td><td>94</td></tr><tr><td>Less: Gain on Courtyard JV sale, pre-tax</td><td></td><td>(41)</td></tr><tr><td>Adjusted EBITDA</td><td>$</td><td>1,217</td></tr></table>



## BUSINESS SEGMENTS

We are a diversified lodging company with operations in four business segments: North American Full-Service, North American Limited-Service, International, and Luxury. See Footnote No. 14, “Business Segments,” for further information.

In addition to our four current segments, on November 21, 2011 we spun off our former timeshare operations and timeshare development business, which had until that time been our Timeshare segment, as a new independent company, MVW. See Footnote No. 14, “Business Segments,” for historical financial results of our former Timeshare segment and Footnote No. 15, "Spin-off" for more information.



At year-end 2013, we operated, franchised, and licensed the following properties by segment:

Total Lodging and Timeshare Products

<table><tr><td rowspan="2"></td><td colspan="3">Properties</td><td colspan="3">Rooms</td></tr><tr><td>U.S.</td><td>Non-U.S.</td><td>Total</td><td>U.S.</td><td>Non-U.S.</td><td>Total</td></tr><tr><td>North American Full-Service Segment (1)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Marriott Hotels</td><td>312</td><td>15</td><td>327</td><td>123,296</td><td>5,355</td><td>128,651</td></tr><tr><td>Marriott Conference Centers</td><td>10</td><td>—</td><td>10</td><td>2,915</td><td>—</td><td>2,915</td></tr><tr><td>JW Marriott</td><td>22</td><td>1</td><td>23</td><td>12,649</td><td>221</td><td>12,870</td></tr><tr><td>Renaissance Hotels</td><td>74</td><td>2</td><td>76</td><td>26,840</td><td>790</td><td>27,630</td></tr><tr><td>Renaissance ClubSport</td><td>2</td><td>—</td><td>2</td><td>349</td><td>—</td><td>349</td></tr><tr><td>Gaylord Hotels</td><td>5</td><td>—</td><td>5</td><td>8,098</td><td>—</td><td>8,098</td></tr><tr><td>Autograph Collection</td><td>32</td><td>—</td><td>32</td><td>8,410</td><td>—</td><td>8,410</td></tr><tr><td></td><td>457</td><td>18</td><td>475</td><td>182,557</td><td>6,366</td><td>188,923</td></tr><tr><td>North American Limited-Service Segment (1)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Courtyard</td><td>836</td><td>21</td><td>857</td><td>117,693</td><td>3,835</td><td>121,528</td></tr><tr><td>Fairfield Inn &amp; Suites</td><td>691</td><td>14</td><td>705</td><td>62,921</td><td>1,562</td><td>64,483</td></tr><tr><td>SpringHill Suites</td><td>306</td><td>2</td><td>308</td><td>35,888</td><td>299</td><td>36,187</td></tr><tr><td>Residence Inn</td><td>629</td><td>20</td><td>649</td><td>76,056</td><td>2,928</td><td>78,984</td></tr><tr><td>TownePlace Suites</td><td>222</td><td>2</td><td>224</td><td>22,039</td><td>278</td><td>22,317</td></tr><tr><td></td><td>2,684</td><td>59</td><td>2,743</td><td>314,597</td><td>8,902</td><td>323,499</td></tr><tr><td>International Segment (1)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Marriott Hotels</td><td>—</td><td>159</td><td>159</td><td>—</td><td>45,858</td><td>45,858</td></tr><tr><td>JW Marriott</td><td>—</td><td>40</td><td>40</td><td>—</td><td>14,607</td><td>14,607</td></tr><tr><td>Renaissance Hotels</td><td>—</td><td>75</td><td>75</td><td>—</td><td>23,921</td><td>23,921</td></tr><tr><td>Autograph Collection</td><td>—</td><td>19</td><td>19</td><td>—</td><td>2,705</td><td>2,705</td></tr><tr><td>Courtyard</td><td>—</td><td>96</td><td>96</td><td>—</td><td>19,021</td><td>19,021</td></tr><tr><td>Fairfield Inn &amp; Suites</td><td>—</td><td>3</td><td>3</td><td>—</td><td>482</td><td>482</td></tr><tr><td>Residence Inn</td><td>—</td><td>4</td><td>4</td><td>—</td><td>421</td><td>421</td></tr><tr><td>Marriott Executive Apartments</td><td>—</td><td>27</td><td>27</td><td>—</td><td>4,295</td><td>4,295</td></tr><tr><td></td><td>—</td><td>423</td><td>423</td><td>—</td><td>111,310</td><td>111,310</td></tr><tr><td>Luxury Segment</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>The Ritz-Carlton</td><td>37</td><td>47</td><td>84</td><td>11,040</td><td>13,950</td><td>24,990</td></tr><tr><td>Bulgari Hotels &amp; Resorts</td><td>—</td><td>3</td><td>3</td><td>—</td><td>202</td><td>202</td></tr><tr><td>EDITION</td><td>—</td><td>2</td><td>2</td><td>—</td><td>251</td><td>251</td></tr><tr><td>The Ritz-Carlton-Residential(2)</td><td>30</td><td>10</td><td>40</td><td>3,598</td><td>630</td><td>4,228</td></tr><tr><td>The Ritz-Carlton Serviced Apartments</td><td>—</td><td>4</td><td>4</td><td>—</td><td>579</td><td>579</td></tr><tr><td></td><td>67</td><td>66</td><td>133</td><td>14,638</td><td>15,612</td><td>30,250</td></tr><tr><td>Unconsolidated Joint Ventures</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Autograph Collection</td><td>—</td><td>5</td><td>5</td><td>—</td><td>348</td><td>348</td></tr><tr><td>AC Hotels by Marriott</td><td>—</td><td>75</td><td>75</td><td>—</td><td>8,491</td><td>8,491</td></tr><tr><td></td><td>—</td><td>80</td><td>80</td><td>—</td><td>8,839</td><td>8,839</td></tr><tr><td>Timeshare (3)</td><td>47</td><td>15</td><td>62</td><td>10,506</td><td>2,296</td><td>12,802</td></tr><tr><td>Total</td><td>3,255</td><td>661</td><td>3,916</td><td>522,298</td><td>153,325</td><td>675,623</td></tr></table>

(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 fiscal year basis for the MVW year ended January 3, 2014.



The following discussion reflects all four of our Lodging segments and, for 2012 compared to 2011, our former Timeshare segment.

## 2013 Compared to 2012

We added 161 properties (25,420 rooms) and 51 properties (10,299 rooms) exited our system in 2013. These figures do not include residential units. During 2013, we also added five residential properties (301 units) and no residential properties or units exited the system.

Total segment financial results increased by $24 million to $1,197 million in 2013 from $1,173 million in 2012, and total segment revenues increased by $992 million to $12,518 million in 2013, a 9 percent increase from revenues of $11,526 million in 2012.

The year-over-year increase in segment revenues of $992 million was a result of a $923 million increase in cost reimbursements revenue, a $59 million increase in franchise fees, a $40 million increase in base management fees, and a $24 million increase in incentive management fees, partially offset by a $54 million decrease in owned, leased, corporate housing, and other revenue. The year-over-year increase of $24 million in segment results reflected a $59 million increase in franchise fees, a $40 million increase in base management fees, a $24 million increase in incentive management fees, and $8 million of lower joint venture equity losses, partially offset by a $54 million increase in general, administrative, and other expenses, $44 million of lower gains and other income, and a $9 million decrease in owned, leased, corporate housing, and other revenue net of direct expenses. For more information on the variances, see the preceding sections beginning with “Revenues.”

In 2013, 39 percent of our managed properties paid incentive management fees to us versus 33 percent in 2012. In addition, in 2013, 58 percent of our incentive fees came from properties outside the United States versus 65 percent in 2012. In North America, 22 percent of managed properties paid incentive management fees to us in 2013, compared to 15 percent in 2012. Further, in North America, 20 North American Limited-Service segment properties, 19 North American Full-Service segment properties, and two Luxury segment properties earned a combined $8 million in incentive management fees in 2013, but did not earn any incentive management fees in 2012.

See “Statistics” below for detailed information on Systemwide RevPAR and Company-operated RevPAR by segment, region, and brand.

Compared to 2012, worldwide comparable company-operated house profit margins in 2013 increased by 90 basis points and worldwide comparable company-operated house profit per available room (“HP-PAR”) increased by 6.2 percent on a constant U.S. dollar basis, reflecting higher occupancy, rate increases, improved productivity, and lower energy costs. These same factors contributed to North American company-operated house profit margins increasing by 130 basis points compared to 2012. HP-PAR at those same properties increased by 8.3 percent. International company-operated house profit margins increased by 40 basis points, and HP-PAR at those properties increased by 3.4 percent reflecting increased demand and higher RevPAR in most locations and improved productivity. Note that 2013 had four additional days of activity.

## 2012 Compared to 2011

We added 122 properties (27,059 rooms) and 42 properties (8,883 rooms) exited our system in 2012. These figures do not include residential or ExecuStay units. During 2012, we added three residential properties (89 units), and no residential properties or units exited the system.

Total segment financial results increased by $408 million to $1,173 million in 2012 from $765 million in 2011, and total segment revenues decreased by $671 million to $11,526 million in 2012, a 6 percent decrease from revenues of $12,197 million in 2011. The $408 million increase in segment results reflected a $212 million favorable variance from the spin-off (which included $324 million of Timeshare strategy-impairment charges in 2011) and a net $196 million increase in segment results across our lodging business. The $671 million decrease in total segment revenues reflected a $1,443 million decrease due to the impact of the spin-off that was partially offset by a net $772 million increase across our lodging business.

The year-over-year net increase in segment revenues across our lodging business of $772 million resulted from a $757 million increase in cost reimbursements revenue which does not impact operating income or net income, a $44 million increase in franchise fees, a $35 million increase in base management fees, and a $37 million increase in incentive management fees, partially offset by a $101 million decrease in owned, leased, corporate housing, and other revenue. The $196 million year-over-year increase in segment results across our lodging business reflected a $44 million increase in franchise fees, $39 million of higher gains and other income, a $37 million increase in incentive management fees, a $35 million increase in base management fees, a $19 million decrease in general, administrative, and other expenses, an $18 million increase in owned,



leased, corporate housing, and other revenue net of direct expenses, and $4 million of lower joint venture equity losses. For more detailed information on the variances, see the preceding sections beginning with “Revenues.”

In 2012, 33 percent of our managed properties paid incentive management fees to us versus 29 percent in 2011. In addition, in 2012, 65 percent of our incentive fees came from properties outside the United States versus 67 percent in 2011. In North America, 15 percent of managed properties paid incentive management fees to us in 2012, compared to 13 percent in 2011. Further, in North America, 14 North American Full-Service segment properties, seven North American Limited-Service segment properties, and two Luxury segment properties earned a combined $13 million in incentive management fees in 2012, but did not earn any incentive management fees in 2011.

See “Statistics” below for detailed information on Systemwide RevPAR and Company-operated RevPAR by segment, region, and brand.

Compared to 2011, worldwide comparable company-operated house profit margins in 2012 increased by 120 basis points and worldwide comparable company-operated house profit per available room (“HP-PAR”) increased by 9.0 percent on a constant U.S. dollar basis, reflecting higher occupancy, rate increases, improved productivity, and lower energy costs. These same factors contributed to North American company-operated house profit margins increasing by 140 basis points compared to 2011. HP-PAR at those same properties increased by 9.9 percent. International company-operated house profit margins increased by 90 basis points, and HP-PAR at those properties increased by 7.3 percent reflecting increased demand and higher RevPAR in most locations and improved productivity.

## Development

We added 161 properties, totaling 25,420 rooms, across our brands in 2013 and 51 properties (10,299 rooms) left the system, not including residential products. We also added five residential properties (301 units) and no residential properties left the system. Highlights of the year included:

• Converting 36 properties (6,266 rooms), or 24 percent of our gross room additions for the year, to our brands, including eight properties joining our Autograph Collection brand in the United States. Twenty-three of the properties converted were located in the United States;

• Adding approximately 41 percent of all the new rooms outside the United States; and

• Adding 108 properties (12,927 rooms) to our North American Limited-Service brands.

We currently have over 195,000 hotel rooms in our development pipeline, which includes hotel rooms under construction and under signed contracts, as well as nearly 30,000 hotel rooms approved for development but not yet under signed contracts. We expect the number of our hotel rooms (gross) to increase approximately six percent in 2014.

We believe that we have access to sufficient financial resources to finance our growth, as well as to support our ongoing operations and meet debt service and other cash requirements. Nonetheless, our ability to develop and update our brands and the ability of hotel developers to build or acquire new Marriott-branded properties, both of which are important parts of our growth plan, depend in part on capital access, availability and cost for other hotel developers and third-party owners. These growth plans are subject to numerous risks and uncertainties, many of which are outside of our control. See the “Forward-Looking Statements” and “Risks and Uncertainties” captions earlier in this report and the “Liquidity and Capital Resources” caption later in this report.



## Statistics

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.



<table><tr><td rowspan="2"></td><td colspan="2">Comparable Company-Operated
North American Properties (1)</td><td colspan="2">Comparable Systemwide
North American Properties (1)</td></tr><tr><td>Twelve Months Ended
December 31, 2013</td><td>Change vs.
Twelve Months
Ended
December 31, 2012</td><td>Twelve Months Ended
December 31, 2013</td><td>Change vs.
Twelve Months
Ended
December 31, 2012</td></tr><tr><td>Marriott Hotels</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.6%</td><td>0.8 % pts.</td><td>71.3%</td><td>1.0 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 179.44</td><td>4.3 %</td><td>$ 164.37</td><td>4.0 %</td></tr><tr><td>RevPAR</td><td>$ 132.03</td><td>5.4 %</td><td>$ 117.20</td><td>5.4 %</td></tr><tr><td>Renaissance Hotels</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.4%</td><td>0.4 % pts.</td><td>71.3%</td><td>0.7 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 170.98</td><td>3.1 %</td><td>$ 153.33</td><td>3.2 %</td></tr><tr><td>RevPAR</td><td>$ 125.55</td><td>3.6 %</td><td>$ 109.30</td><td>4.2 %</td></tr><tr><td>Autograph Collection Hotels</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>*</td><td>* pts.</td><td>76.6%</td><td>1.7 % pts.</td></tr><tr><td>Average Daily Rate</td><td>*</td><td>*</td><td>$ 207.34</td><td>6.4 %</td></tr><tr><td>RevPAR</td><td>*</td><td>*</td><td>$ 158.87</td><td>8.8 %</td></tr><tr><td>Composite North American Full-Service</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.6%</td><td>0.7 % pts.</td><td>71.5%</td><td>0.9 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 178.29</td><td>4.1 %</td><td>$ 164.24</td><td>4.0 %</td></tr><tr><td>RevPAR</td><td>$ 131.15</td><td>5.2 %</td><td>$ 117.39</td><td>5.4 %</td></tr><tr><td>The Ritz-Carlton North America</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>71.3%</td><td>1.4 % pts.</td><td>71.3%</td><td>1.4 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 323.83</td><td>6.6 %</td><td>$ 323.83</td><td>6.6 %</td></tr><tr><td>RevPAR</td><td>$ 230.82</td><td>8.7 %</td><td>$ 230.82</td><td>8.7 %</td></tr><tr><td>Composite North American Full-Service and Luxury</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.3%</td><td>0.8 % pts.</td><td>71.5%</td><td>1.0 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 192.70</td><td>4.6 %</td><td>$ 173.37</td><td>4.3 %</td></tr><tr><td>RevPAR</td><td>$ 141.30</td><td>5.7 %</td><td>$ 123.89</td><td>5.7 %</td></tr><tr><td>Residence Inn</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>76.2%</td><td>0.7 % pts.</td><td>77.4%</td><td>0.4 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 127.35</td><td>2.3 %</td><td>$ 125.04</td><td>3.5 %</td></tr><tr><td>RevPAR</td><td>$ 97.09</td><td>3.2 %</td><td>$ 96.79</td><td>3.9 %</td></tr><tr><td>Courtyard</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>68.6%</td><td>0.9 % pts.</td><td>70.2%</td><td>0.9 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 122.07</td><td>3.8 %</td><td>$ 123.07</td><td>3.6 %</td></tr><tr><td>RevPAR</td><td>$ 83.75</td><td>5.3 %</td><td>$ 86.35</td><td>4.9 %</td></tr><tr><td>Fairfield Inn &amp; Suites</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>nm</td><td>nm pts.</td><td>67.9%</td><td>0.6 % pts.</td></tr><tr><td>Average Daily Rate</td><td>nm</td><td>nm</td><td>$ 98.58</td><td>3.3 %</td></tr><tr><td>RevPAR</td><td>nm</td><td>nm</td><td>$ 66.95</td><td>4.3 %</td></tr><tr><td>TownePlace Suites</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>68.7%</td><td>(1.9)% pts.</td><td>71.5%</td><td>(0.5)% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 88.37</td><td>6.4 %</td><td>$ 91.64</td><td>2.4 %</td></tr><tr><td>RevPAR</td><td>$ 60.74</td><td>3.6 %</td><td>$ 65.50</td><td>1.8 %</td></tr><tr><td>SpringHill Suites</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>71.9%</td><td>1.2 % pts.</td><td>72.2%</td><td>1.3 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 106.75</td><td>2.4 %</td><td>$ 107.42</td><td>3.3 %</td></tr><tr><td>RevPAR</td><td>$ 76.73</td><td>4.1 %</td><td>$ 77.57</td><td>5.2 %</td></tr><tr><td>Composite North American Limited-Service</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>71.0%</td><td>0.8 % pts.</td><td>71.8%</td><td>0.7 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 120.98</td><td>3.5 %</td><td>$ 115.00</td><td>3.4 %</td></tr><tr><td>RevPAR</td><td>$ 85.85</td><td>4.7 %</td><td>$ 82.52</td><td>4.4 %</td></tr><tr><td>Composite North American - All</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>72.3%</td><td>0.8 % pts.</td><td>71.6%</td><td>0.8 % pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 163.24</td><td>4.2 %</td><td>$ 136.05</td><td>3.8 %</td></tr><tr><td>RevPAR</td><td>$ 118.08</td><td>5.4 %</td><td>$ 97.48</td><td>5.0 %</td></tr></table>

 \( ^{*} \)  There are no company-operated properties.

nm means not meaningful as the brand is predominantly franchised.

(1) Statistics include only properties located in the United States.



<table><tr><td rowspan="2"></td><td colspan="2">Comparable Company-Operated Properties</td><td colspan="2">Comparable Systemwide Properties</td></tr><tr><td>Twelve Months Ended December 31, 2013</td><td>Change vs. Twelve Months Ended December 31, 2012</td><td>Twelve Months Ended December 31, 2013</td><td>Change vs. Twelve Months ended December 31, 2012</td></tr><tr><td>Caribbean and Latin America</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.5%</td><td>0.5 % pts.</td><td>72.0%</td><td>1.5 % pts.</td></tr><tr><td>Average Daily Rate</td><td>209.79</td><td>6.2 %</td><td>181.95</td><td>4.0 %</td></tr><tr><td>RevPAR</td><td>154.28</td><td>7.0 %</td><td>130.98</td><td>6.2 %</td></tr><tr><td>Europe</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.5%</td><td>1.7 % pts.</td><td>72.5%</td><td>1.7 % pts.</td></tr><tr><td>Average Daily Rate</td><td>172.01</td><td>(1.5)%</td><td>167.33</td><td>(1.0)%</td></tr><tr><td>RevPAR</td><td>126.47</td><td>0.8 %</td><td>121.34</td><td>1.5 %</td></tr><tr><td>Middle East and Africa</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>55.7%</td><td>(2.5)% pts.</td><td>56.3%</td><td>(2.1)% pts.</td></tr><tr><td>Average Daily Rate</td><td>147.63</td><td>2.0 %</td><td>144.18</td><td>2.2 %</td></tr><tr><td>RevPAR</td><td>82.22</td><td>(2.4)%</td><td>81.20</td><td>(1.5)%</td></tr><tr><td>Asia Pacific</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.0%</td><td>1.5 % pts.</td><td>73.4%</td><td>1.6 % pts.</td></tr><tr><td>Average Daily Rate</td><td>142.76</td><td>0.9 %</td><td>146.49</td><td>1.1 %</td></tr><tr><td>RevPAR</td><td>104.27</td><td>3.0 %</td><td>107.59</td><td>3.4 %</td></tr><tr><td>Regional Composite (1)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>71.4%</td><td>1.0 % pts.</td><td>71.2%</td><td>1.3 % pts.</td></tr><tr><td>Average Daily Rate</td><td>163.13</td><td>0.7 %</td><td>160.84</td><td>0.8 %</td></tr><tr><td>RevPAR</td><td>116.40</td><td>2.2 %</td><td>114.56</td><td>2.7 %</td></tr><tr><td>International Luxury (2)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>65.6%</td><td>1.7 % pts.</td><td>65.6%</td><td>1.7 % pts.</td></tr><tr><td>Average Daily Rate</td><td>367.86</td><td>3.9 %</td><td>367.86</td><td>3.9 %</td></tr><tr><td>RevPAR</td><td>241.31</td><td>6.8 %</td><td>241.31</td><td>6.8 %</td></tr><tr><td>Total International (3)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>70.7%</td><td>1.1 % pts.</td><td>70.7%</td><td>1.3 % pts.</td></tr><tr><td>Average Daily Rate</td><td>185.74</td><td>1.5 %</td><td>179.28</td><td>1.4 %</td></tr><tr><td>RevPAR</td><td>131.27</td><td>3.2 %</td><td>126.72</td><td>3.4 %</td></tr></table>

(1) Company-operated statistics include properties located outside of the United States and Canada for the Marriott Hotels, Renaissance Hotels, Courtyard, and Residence Inn brands. In addition to the foregoing brands, systemwide statistics also include properties located outside of the United States and Canada for Autograph Collection and Fairfield Inn & Suites brands.

(2) International Luxury includes The Ritz-Carlton properties located outside the United States and Canada, as well as Bulgari Hotels & Resorts and EDITION properties.

(3) Total International includes Regional Composite statistics and International Luxury statistics.



<table><tr><td rowspan="2"></td><td colspan="2">Comparable Company-Operated Properties</td><td colspan="2">Comparable Systemwide Properties</td></tr><tr><td>Twelve Months Ended December 31, 2013</td><td>Change vs. Twelve Months Ended December 31, 2012</td><td>Twelve Months Ended December 31, 2013</td><td>Change vs. Twelve Months ended December 31, 2012</td></tr><tr><td>Composite Luxury (1)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>68.5%</td><td>1.6% pts.</td><td>68.5%</td><td>1.6% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 344.38</td><td>5.3%</td><td>$ 344.38</td><td>5.3%</td></tr><tr><td>RevPAR</td><td>$ 235.94</td><td>7.7%</td><td>$ 235.94</td><td>7.7%</td></tr><tr><td>Total Worldwide (2)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>71.8%</td><td>0.9% pts.</td><td>71.5%</td><td>0.9% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 170.35</td><td>3.3%</td><td>$ 143.33</td><td>3.4%</td></tr><tr><td>RevPAR</td><td>$ 122.32</td><td>4.6%</td><td>$ 102.46</td><td>4.6%</td></tr></table>

(1) Composite Luxury includes worldwide properties for The Ritz-Carlton, Bulgari Hotels & Resorts, and EDITION brands.

(2) Company-operated statistics include properties worldwide for Marriott Hotels, Renaissance Hotels, The Ritz-Carlton, Bulgari Hotels & Resorts, EDITION, Residence Inn, Courtyard, Fairfield Inn & Suites, TownlePlace Suites, and SpringHill Suites brands. In addition to the foregoing brands, systemwide statistics also include properties worldwide for the Autograph Collection brand.



<table><tr><td rowspan="2"></td><td colspan="2">Comparable Company-Operated North American Properties (1)</td><td colspan="2">Comparable Systemwide North American Properties (1)</td></tr><tr><td>2012</td><td>Change vs. 2011</td><td>2012</td><td>Change vs. 2011</td></tr><tr><td>Marriott Hotels</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>72.7%</td><td>1.8 % pts.</td><td>70.1%</td><td>1.8% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 171.48</td><td>3.5 %</td><td>$ 157.17</td><td>3.6%</td></tr><tr><td>RevPAR</td><td>$ 124.72</td><td>6.1 %</td><td>$ 110.19</td><td>6.4%</td></tr><tr><td>Renaissance Hotels</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.6%</td><td>2.1 % pts.</td><td>71.2%</td><td>1.4% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 167.67</td><td>4.5 %</td><td>$ 150.53</td><td>4.7%</td></tr><tr><td>RevPAR</td><td>$ 123.38</td><td>7.5 %</td><td>$ 107.18</td><td>6.8%</td></tr><tr><td>Autograph Collection Hotels</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>*</td><td>* pts.</td><td>76.1%</td><td>3.6% pts.</td></tr><tr><td>Average Daily Rate</td><td>*</td><td>*</td><td>$ 176.61</td><td>1.6%</td></tr><tr><td>RevPAR</td><td>*</td><td>*</td><td>$ 134.36</td><td>6.6%</td></tr><tr><td>Composite North American Full-Service</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>72.9%</td><td>1.8 % pts.</td><td>70.3%</td><td>1.8% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 170.92</td><td>3.6 %</td><td>$ 156.30</td><td>3.8%</td></tr><tr><td>RevPAR</td><td>$ 124.52</td><td>6.3 %</td><td>$ 109.93</td><td>6.4%</td></tr><tr><td>The Ritz-Carlton North America</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>69.9%</td><td>0.8 % pts.</td><td>69.9%</td><td>0.8% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 319.57</td><td>4.9 %</td><td>$ 319.57</td><td>4.9%</td></tr><tr><td>RevPAR</td><td>$ 223.51</td><td>6.1 %</td><td>$ 223.51</td><td>6.1%</td></tr><tr><td>Composite North American Full-Service and Luxury</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>72.6%</td><td>1.7 % pts.</td><td>70.3%</td><td>1.7% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 185.57</td><td>3.8 %</td><td>$ 166.02</td><td>3.8%</td></tr><tr><td>RevPAR</td><td>$ 134.64</td><td>6.3 %</td><td>$ 116.72</td><td>6.4%</td></tr><tr><td>Residence Inn</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>75.4%</td><td>0.3 % pts.</td><td>77.2%</td><td>0.6% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 123.55</td><td>4.3 %</td><td>$ 120.66</td><td>4.2%</td></tr><tr><td>RevPAR</td><td>$ 93.14</td><td>4.7 %</td><td>$ 93.10</td><td>5.0%</td></tr><tr><td>Courtyard</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>67.7%</td><td>0.5 % pts.</td><td>69.2%</td><td>1.2% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 117.11</td><td>4.9 %</td><td>$ 118.68</td><td>4.6%</td></tr><tr><td>RevPAR</td><td>$ 79.32</td><td>5.6 %</td><td>$ 82.15</td><td>6.5%</td></tr><tr><td>Fairfield Inn &amp; Suites</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>nm</td><td>nm pts.</td><td>67.3%</td><td>1.7% pts.</td></tr><tr><td>Average Daily Rate</td><td>nm</td><td>nm</td><td>$ 94.49</td><td>4.8%</td></tr><tr><td>RevPAR</td><td>nm</td><td>nm</td><td>$ 63.56</td><td>7.5%</td></tr><tr><td>TownePlace Suites</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>70.8%</td><td>(0.4)% pts.</td><td>72.3%</td><td>0.6% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 83.04</td><td>5.6 %</td><td>$ 89.07</td><td>5.0%</td></tr><tr><td>RevPAR</td><td>$ 58.76</td><td>5.1 %</td><td>$ 64.39</td><td>5.9%</td></tr><tr><td>SpringHill Suites</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>70.5%</td><td>2.8 % pts.</td><td>71.0%</td><td>2.6% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 103.04</td><td>2.7 %</td><td>$ 103.81</td><td>3.8%</td></tr><tr><td>RevPAR</td><td>$ 72.63</td><td>7.0 %</td><td>$ 73.74</td><td>7.8%</td></tr><tr><td>Composite North American Limited-Service</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>70.2%</td><td>0.6 % pts.</td><td>71.2%</td><td>1.3% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 116.43</td><td>4.6 %</td><td>$ 111.12</td><td>4.4%</td></tr><tr><td>RevPAR</td><td>$ 81.76</td><td>5.5 %</td><td>$ 79.07</td><td>6.3%</td></tr><tr><td>Composite North American - All</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>71.6%</td><td>1.2 % pts.</td><td>70.8%</td><td>1.4% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 157.05</td><td>4.2 %</td><td>$ 130.97</td><td>4.2%</td></tr><tr><td>RevPAR</td><td>$ 112.40</td><td>6.0 %</td><td>$ 92.79</td><td>6.4%</td></tr></table>

nm means not meaningful as the brand is predominantly franchised.

(1)

Statistics include only properties located in the United States.



<table><tr><td rowspan="2"></td><td colspan="2">Comparable Company-Operated Properties</td><td colspan="2">Comparable Systemwide Properties</td></tr><tr><td>Twelve Months Ended December 31, 2012</td><td>Change vs. Twelve Months Ended December 31, 2011</td><td>Twelve Months Ended December 31, 2012</td><td>Change vs. Twelve Months ended December 31, 2011</td></tr><tr><td>Caribbean and Latin America</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>72.3%</td><td>1.2% pts.</td><td>70.2%</td><td>1.3% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 190.75</td><td>5.1%</td><td>$ 171.32</td><td>3.4%</td></tr><tr><td>RevPAR</td><td>$ 137.93</td><td>6.9%</td><td>$ 120.27</td><td>5.3%</td></tr><tr><td>Europe</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>72.7%</td><td>0.2% pts.</td><td>71.9%</td><td>0.2% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 170.72</td><td>2.8%</td><td>$ 166.02</td><td>2.6%</td></tr><tr><td>RevPAR</td><td>$ 124.20</td><td>3.0%</td><td>$ 119.40</td><td>2.8%</td></tr><tr><td>Middle East and Africa</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>61.8%</td><td>5.3% pts.</td><td>61.8%</td><td>5.6% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 133.14</td><td>(1.0)%</td><td>$ 130.10</td><td>(0.6)%</td></tr><tr><td>RevPAR</td><td>$ 82.25</td><td>8.3%</td><td>$ 80.37</td><td>9.2%</td></tr><tr><td>Asia Pacific</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>73.0%</td><td>3.7% pts.</td><td>72.9%</td><td>3.6% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 133.01</td><td>3.0%</td><td>$ 141.17</td><td>2.2%</td></tr><tr><td>RevPAR</td><td>$ 97.04</td><td>8.4%</td><td>$ 102.90</td><td>7.6%</td></tr><tr><td>Regional Composite (1)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>71.9%</td><td>2.0% pts.</td><td>71.2%</td><td>1.9% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 156.74</td><td>2.7%</td><td>$ 156.47</td><td>2.2%</td></tr><tr><td>RevPAR</td><td>$ 112.66</td><td>5.6%</td><td>$ 111.45</td><td>5.0%</td></tr><tr><td>International Luxury (2)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>63.4%</td><td>1.3% pts.</td><td>63.4%</td><td>1.3% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 341.32</td><td>3.6%</td><td>$ 341.32</td><td>3.6%</td></tr><tr><td>RevPAR</td><td>$ 216.34</td><td>5.9%</td><td>$ 216.34</td><td>5.9%</td></tr><tr><td>Total International (3)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>70.9%</td><td>1.9% pts.</td><td>70.5%</td><td>1.8% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 175.14</td><td>2.8%</td><td>$ 171.36</td><td>2.4%</td></tr><tr><td>RevPAR</td><td>$ 124.22</td><td>5.6%</td><td>$ 120.85</td><td>5.1%</td></tr></table>

(1) Company-operated statistics include properties located outside of the United States and Canada for the Marriott Hotels, Renaissance Hotels, Courtyard, and Residence Inn brands. In addition to the foregoing brands, systemwide statistics also include properties located outside of the United States and Canada for Autograph Collection and Fairfield Inn & Suites brands.

(2) International Luxury includes The Ritz-Carlton properties located outside of the United States and Canada and Bulgari Hotels & Resorts properties.
(3) Total International includes Regional Composite statistics and International Luxury statistics.



<table><tr><td rowspan="2"></td><td colspan="2">Comparable Company-Operated Properties</td><td colspan="2">Comparable Systemwide Properties</td></tr><tr><td>2012</td><td>Change vs. 2011</td><td>2012</td><td>Change vs. 2011</td></tr><tr><td>Composite Luxury (1)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>67.0%</td><td>1.0% pts.</td><td>67.0%</td><td>1.0% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 328.68</td><td>4.4%</td><td>$ 328.68</td><td>4.4%</td></tr><tr><td>RevPAR</td><td>$ 220.33</td><td>6.0%</td><td>$ 220.33</td><td>6.0%</td></tr><tr><td>Total Worldwide (2)</td><td></td><td></td><td></td><td></td></tr><tr><td>Occupancy</td><td>71.4%</td><td>1.4% pts.</td><td>70.8%</td><td>1.5% pts.</td></tr><tr><td>Average Daily Rate</td><td>$ 162.39</td><td>3.8%</td><td>$ 137.49</td><td>3.9%</td></tr><tr><td>RevPAR</td><td>$ 115.91</td><td>5.9%</td><td>$ 97.34</td><td>6.1%</td></tr></table>

(1) Composite Luxury includes worldwide properties for The Ritz-Carlton and Bulgari Hotels & Resorts brands.

(2) Company-operated statistics include properties worldwide for Marriott Hotels, Renaissance Hotels, The Ritz-Carlton, Bulgari Hotels & Resorts, Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, and SpringHill Suites brands. In addition to the foregoing brands, systemwide statistics also include properties worldwide for the Autograph Collection brand.



North American Full-Service includes Marriott Hotels, JW Marriott, Renaissance Hotels, Gaylord Hotels, and Autograph Collection Hotels.

<table><tr><td colspan="6">(\( in millions)</td><td colspan="2">Annual Change</td></tr><tr><td></td><td>2013</td><td>2012</td><td>2011</td><td>2013/2012</td><td>2012/2011</td><td></td><td></td></tr><tr><td>Segment revenues</td><td>$ 6,601</td><td>$ 5,965</td><td>$ 5,450</td><td>11%</td><td>9%</td><td></td><td></td></tr><tr><td>Segment results</td><td>$ 451</td><td>$ 407</td><td>$ 351</td><td>11%</td><td>16%</td><td></td><td></td></tr></table>

## 2013 Compared to 2012

In 2013, across our North American Full-Service segment we added 12 properties (2,922 rooms) and 14 properties (5,163 rooms) left the system.

For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable systemwide North American Full-Service properties increased by 5.4 percent to $117.39, occupancy for these properties increased by 0.9 percentage points to 71.5 percent, and average daily rates increased by 4.0 percent to $164.24.

The $44 million increase in segment results, compared to 2012, was driven by $34 million of higher base management and franchise fees and $22 million of higher incentive management fees, partially offset by $15 million of higher general, administrative, and other expenses. Owned, leased, and other revenue net of direct expenses was unchanged compared to 2012.

Higher base management and franchise fees stemmed from both higher RevPAR due to increased demand and unit growth, including the Gaylord brand properties we began managing in 2012, and also reflected fees for the additional four days of activity. The increase in incentive management fees primarily reflected higher property-level income resulting from higher property-level revenue and margins.

General, administrative, and other expenses reflected the following 2013 items: the $8 million impairment of deferred contract acquisition costs primarily related to two properties that left the system and one property that converted to a franchised property, $4 million of higher amortization of deferred contract acquisition costs associated with the Gaylord brand and hotel management company acquisition, and $9 million in other net miscellaneous cost increases. These increases were partially offset by a favorable variance from the 2012 accelerated amortization of $8 million of deferred contract acquisition costs for a property that exited our system and for which we earned a $14 million termination fee.

Owned, leased, and other revenue net of direct expenses was unchanged, primarily driven by our recognition in 2012 of a $14 million termination fee for one property, and our recognition in 2013 of $7 million in termination fees for five properties and $4 million of stronger results at two leased properties.

Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $5,896 million in 2013, compared to $5,325 million in 2012.

## 2012 Compared to 2011

In 2012, across our North American Full-Service segment we added 18 properties (11,444 rooms), including five properties from the Gaylord acquisition (8,098 rooms). Eight properties (3,569 rooms) left the system.

In 2012, RevPAR for comparable systemwide North American Full-Service properties increased by 6.4 percent to $109.93, occupancy for these properties increased by 1.8 percentage points to 70.3 percent, and average daily rates increased by 3.8 percent to $156.30.

The $56 million increase in segment results, compared to 2011, primarily reflected $30 million of higher base management and franchise fees, $15 million of higher incentive management fees, and $11 million of higher owned, leased, and other revenue net of direct expenses, partially offset by $2 million of higher general, administrative, and other expenses.

Higher base management and franchise fees primarily reflected increased RevPAR and, to a lesser extent, unit growth. The $15 million increase in incentive management fees primarily reflected higher property-level income resulting from higher property-level revenue and margins.

The $11 million increase in owned, leased, and other revenue net of direct expenses primarily reflected a $14 million termination fee for one property in 2012 and $3 million of net stronger owned and leased property results, primarily driven by



two properties that left the system and had losses in the prior year, partially offset by $7 million of termination fees for two properties in 2011.

General, administrative, and other expenses increased by $2 million and primarily reflected the accelerated amortization of $8 million of deferred contract acquisition costs for the property for which we earned the $14 million termination fee and $2 million of miscellaneous cost increases, partially offset by favorable variances from the following 2011 items: a $5 million performance cure payment we made for one property, a $2 million guarantee accrual for one property, and the write-off of contract acquisition costs totaling $2 million for two properties.

Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $5,325 million in 2012, compared to $4,862 million in 2011.

North American Limited-Service includes Courtyard, Fairfield Inn & Suites, SpringHill Suites, Residence Inn, TownePlace Suites, and included Marriott ExecuStay until we sold that business in the 2012 second quarter.

<table><tr><td rowspan="2"></td><td colspan="5">Annual Change</td></tr><tr><td>2013</td><td>2012</td><td>2011</td><td>Change 2013/2012</td><td>Change 2012/2011</td></tr><tr><td>Segment revenues</td><td>$ 2,601</td><td>$ 2,466</td><td>$ 2,358</td><td>5%</td><td>5%</td></tr><tr><td>Segment results</td><td>$ 478</td><td>$ 472</td><td>$ 382</td><td>1%</td><td>24%</td></tr></table>

## 2013 Compared to 2012

In 2013, across our North American Limited-Service segment we added 108 properties (12,927 rooms) and 22 properties (2,427 rooms) left the system. The majority of the properties that left the system were Courtyard and Fairfield Inn & Suites properties. In the 2012 second quarter, we completed the sale of our ExecuStay corporate housing business. The revenues, results of operations, assets, and liabilities of our ExecuStay business were not material to the Company's financial position, results of operations or cash flows for any of the periods presented.

For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable systemwide North American Limited-Service properties increased by 4.4 percent to $82.52, occupancy for these properties increased by 0.7 percentage points to 71.8 percent, and average daily rates increased by 3.4 percent to $115.00.

The $6 million increase in segment results, compared to 2012, primarily reflected $45 million of higher base management and franchise fees and $4 million of higher incentive management fees, partially offset by $43 million of lower gains and other income.

Higher base management and franchise fees were primarily driven by higher RevPAR due to increased demand, some of which was attributable to the favorable effect of property renovations, and higher relicensing fees, as well as the additional four days of activity, partially offset by an unfavorable variance from the 2012 recognition of $7 million of deferred base management fees in conjunction with the sale of our equity interest in a joint venture. The increase in incentive management fees primarily reflected higher property-level revenue which resulted in higher property-level income and margins. Lower gains and other income primarily reflected an unfavorable variance from a $41 million gain on the sale of our equity interest in a joint venture in 2012. See the "Gains (Losses) and Other Income" caption earlier in this report for more information on the sale of this equity interest.

Cost reimbursements revenue and expenses for our North American Limited-Service segment properties totaled $1,957 million in 2013, compared to $1,842 million in 2012.

## 2012 Compared to 2011

In 2012, across our North American Limited-Service segment we added 70 properties (8,470 rooms) and 16 properties (2,033 rooms) left the system. The majority of the properties that left the system were older Fairfield Inn properties. In the 2012 second quarter, we completed the sale of our ExecuStay corporate housing business, as discussed in the preceding "2013 Compared to 2012" caption. In 2012, we also completed the sale of an equity interest in a North American Limited-Service segment joint venture (formerly two joint ventures which were merged before the sale), which did not result in any rooms leaving the system.



In 2012, RevPAR for comparable systemwide North American Limited-Service properties increased by 6.3 percent to $79.07, occupancy for these properties increased by 1.3 percentage points to 71.2 percent, and average daily rates increased by 4.4 percent to $111.12.

The $90 million increase in segment results, compared to 2011, primarily reflected $43 million of higher base management and franchise fees, $41 million of higher gains and other income, $4 million of decreased joint venture equity losses, and $2 million of higher incentive management fees.

Higher gains and other income reflected a $41 million gain on the sale of our equity interest in a joint venture.

Higher base management and franchise fees primarily reflected higher RevPAR due to increased demand, some of which is attributable to the favorable effect of property renovations, and, to a lesser extent, new unit growth and our recognition of $7 million of deferred base management fees in 2012 in conjunction with the sale of our equity interest in the joint venture.

The $4 million decrease in joint venture equity losses primarily reflected a favorable variance from the sale of our equity interest in a joint venture which had losses in the prior year.

Cost reimbursements revenue and expenses for our North American Limited-Service segment properties totaled $1,842 million in 2012, compared to $1,687 million in 2011.

International includes Marriott Hotels, JW Marriott, Renaissance Hotels, Autograph Collection, Courtyard, AC Hotels by Marriott, Fairfield Inn & Suites, Residence Inn, and Marriott Executive Apartments located outside the United States and Canada.

<table><tr><td colspan="6">(\( in millions)</td><td colspan="2">Annual Change</td></tr><tr><td></td><td colspan="2">2013</td><td colspan="2">2012</td><td>2011</td><td>Change 2013/2012</td><td>Change 2012/2011</td></tr><tr><td>Segment revenues</td><td>$</td><td>1,522</td><td>$</td><td>1,330</td><td>$</td><td>14%</td><td>4%</td></tr><tr><td>Segment results</td><td>$</td><td>160</td><td>$</td><td>192</td><td>$</td><td>(17)%</td><td>10%</td></tr></table>

## 2013 Compared to 2012

In 2013, across our International segment we added 33 properties (7,191 rooms) and 10 properties (1,772 rooms) left the system.

For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable systemwide international properties increased by 2.7 percent to $114.56, occupancy for these properties increased by 1.3 percentage points to 71.2 percent, and average daily rates increased by 0.8 percent to $160.84. See "Business and Overview" for a discussion of results in the various International segment regions.

The $32 million decrease in segment results in 2013, compared to 2012, predominantly reflected $18 million of higher general, administrative, and other expenses, $11 million of lower owned, leased, and other revenue net of direct expenses, $7 million of lower incentive management fees, and $4 million of decreased joint venture equity earnings, partially offset by $11 million of higher base management and franchise fees.

The increase in general, administrative, and other expenses primarily reflected $14 million of increased expenses for initiatives to enhance and grow our brands globally, $7 million of higher accounts receivable reserves primarily related to two properties, and a $5 million performance cure payment for one property, partially offset by a favorable variance from a $5 million guarantee accrual for one property in 2012.

The decrease in owned, leased, and other revenue net of direct expenses largely reflected $7 million in costs related to three International segment leases we terminated, $5 million in weaker results at one leased property in London, and $5 million in weaker results at a leased property due to an asset write-off and the impact of renovations, partially offset by $5 million of higher termination fees principally associated with one property.

Lower joint venture equity earnings were primarily driven by a renovation at a hotel in one joint venture and lower earnings at two other joint ventures.

The increase in base management and franchise fees largely reflected new unit growth and higher RevPAR due to increased demand. The decrease in incentive management fees was primarily driven by a $3 million unfavorable impact from a contract revision for a property, a $3 million unfavorable variance from the 2012 recognition of previously deferred fees in



conjunction with a property's change in ownership, and a $3 million unfavorable foreign exchange rate impact. These were partially offset by $2 million in net new unit growth.

Cost reimbursements revenue and expenses for our International segment properties totaled $905 million in 2013, compared to $682 million in 2012.

## 2012 Compared to 2011

In 2012, across our International segment we added 29 properties (6,418 rooms) and 18 properties (3,281 rooms) left the system, largely due to quality issues.

In 2012, RevPAR for comparable systemwide international properties increased by 5.0 percent to $111.45, occupancy for these properties increased by 1.9 percentage points to 71.2 percent, and average daily rates increased by 2.2 percent to $156.47. Comparable company-operated RevPAR improved significantly in Thailand, China, Indonesia, the United Arab Emirates, and Mexico, while Europe experienced more modest RevPAR increases. Demand remained particularly weak in Egypt, Jordan, Kuwait, Oman and markets in Europe more dependent on regional travel.

The $17 million increase in segment results in 2012, compared to 2011, primarily reflected a $16 million increase in incentive management fees and $2 million of decreased joint venture equity losses, partially offset by a $1 million decrease in owned, leased, and other revenue net of direct expenses. Aggregate base management and franchise fees as well as general, administrative, and other expenses remained unchanged compared to 2011.

The $16 million increase in incentive management fees primarily reflected higher property-level income associated with better RevPAR and margins ($10 million), new unit growth net of terminations ($3 million), recognition of incentive management fees due to contract revisions for certain properties ($3 million), and recognition of previously deferred fees in conjunction with a property's change in ownership ($3 million), partially offset by unfavorable foreign exchange rates ($4 million).

Aggregate base management and franchise fees were unchanged and reflected $5 million of lower base management fees due to the spin-off, offset by $5 million of higher base management and franchise fees across our lodging business. The decrease in base management fees due to the spin-off reflected fees that the International segment no longer receives from the timeshare business following the spin-off. The $5 million increase in base management and franchise fees across our lodging business primarily reflected stronger RevPAR ($8 million), new unit growth net of terminations ($5 million), partially offset by unfavorable foreign exchange rates ($5 million) and contract revisions for certain properties ($3 million).

The $2 million decrease in joint venture equity losses primarily reflected increased earnings at two joint ventures.

The $1 million decrease in owned, leased, and other revenue net of direct expenses primarily reflected $8 million of lower termination fees in 2012, partially offset by net stronger results principally at a leased property in London in 2012 which had increased demand.

General, administrative, and other expenses remained unchanged and primarily reflected $6 million of increased expenses for initiatives to enhance and grow our brands globally, almost entirely offset by $3 million of lower accounts receivable reserves, and a $2 million guarantee accrual reversal in 2012 for one property where we were released of the guarantee.

Cost reimbursements revenue and expenses for our International segment properties totaled $682 million in 2012, compared to $621 million in 2011.

Luxury includes The Ritz-Carlton, Bulgari Hotels & Resorts, and EDITION worldwide.

<table><tr><td rowspan="2"></td><td colspan="5">Annual Change</td></tr><tr><td>2013</td><td>2012</td><td>2011</td><td>Change 2013/2012</td><td>Change 2012/2011</td></tr><tr><td>Segment revenues</td><td>$ 1,794</td><td>$ 1,765</td><td>$ 1,673</td><td>2%</td><td>5%</td></tr><tr><td>Segment results</td><td>$ 108</td><td>$ 102</td><td>$ 74</td><td>6%</td><td>38%</td></tr></table>

## 2013 Compared to 2012

In 2013, across our Luxury segment we added eight properties (2,380 rooms) and two properties (737 rooms) left the system. In 2013, we also added five residential products (301 units) and no residential products left the system.



For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable systemwide luxury properties increased by 7.7 percent to $235.94, occupancy increased by 1.6 percentage points to 68.5 percent, and average daily rates increased by 5.3 percent to $344.38.

The $6 million increase in segment results, compared to 2012, reflected $9 million of higher base management fees, $9 million of decreased joint venture equity losses, a $5 million increase in incentive management fees, and $1 million of higher owned, leased, and other revenue net of direct expenses, partially offset by a $19 million increase in general, administrative, and other expenses.

Higher base management fees stemmed from a favorable variance from $3 million of fee reversals in 2012 for two properties with contract revisions, increased RevPAR due to increased demand, and new unit growth.

The decrease in joint venture equity losses reflected a favorable variance from $8 million in losses in 2012 at a Luxury segment joint venture for the impairment of certain underlying residential properties.

The increase in incentive management fees was primarily driven by higher property-level revenue which resulted in higher property-level income and margins.

The increase in owned, leased, and other revenue net of direct expenses primarily reflected $7 million of termination fees for two properties, offset by $7 million of pre-opening expenses for the London and Miami EDITION hotels.

The increase in general, administrative, and other expenses reflected an unfavorable variance from $8 million in reversals of guarantee accruals in 2012 for three properties and the following 2013 items: (1) a $3 million impairment of deferred contract acquisition costs for a property that left our system; (2) a $2 million impairment of deferred contract acquisition costs for a property with cash flow shortfalls; (3) $4 million of higher expenses to support our growth; and (4) $2 million of other net miscellaneous cost increases.

Cost reimbursements revenue and expenses for our Luxury segment properties totaled $1,442 million in 2013, compared to $1,428 million in 2012.

## 2012 Compared to 2011

In 2012, across our Luxury segment we added four properties (499 rooms) and no properties left the system. In 2012, we also added three residential products (89 units). No residential products left the system.

In 2012, RevPAR for comparable systemwide luxury properties increased by 6.0 percent to $220.33, occupancy increased by 1.0 percentage points to 67.0 percent, and average daily rates increased by 4.4 percent to $328.68.

The $28 million increase in segment results, compared to 2011, reflected a $21 million decrease in general, administrative, and other expenses, $8 million of higher owned, leased, and other revenue net of direct expenses, and a $4 million increase in incentive management fees, partially offset by $3 million of increased joint venture equity losses and $3 million of decreased gains and other income.

The $21 million decrease in general, administrative, and other expenses primarily reflected a favorable variance from a $5 million impairment of deferred contract acquisition costs and a $5 million accounts receivable reserve, both recognized in 2011 and both for one property whose owner filed for bankruptcy, as well as $8 million of guarantee accrual reversals in 2012 for three properties for which we either satisfied the related guarantee requirements or were otherwise released.

The $8 million increase in owned, leased, and other revenue net of direct expenses primarily reflected a $9 million increase associated with our leased property in Japan (which experienced very low demand in 2011 as a result of the earthquake and tsunami and received a $2 million business interruption payment in 2012 from a utility company).

The $4 million increase in incentive management fees primarily reflected new unit growth. The $3 million increase in joint venture equity losses primarily reflected increased losses of $8 million, principally for the impairment of certain underlying residential properties in 2012, partially offset by $5 million of decreased losses after the impairment, as a result of decreased joint venture costs. The $3 million decrease in gains and other income primarily reflected the impairment of a cost method joint venture investment.

Cost reimbursements revenue and expenses for our Luxury segment properties totaled $1,428 million in 2012, compared to $1,350 million in 2011.



## SHARE-BASED COMPENSATION

Under our Stock and Cash Incentive Plan, we award: (1) stock options to purchase our common stock (“Stock Option Program”); (2) stock appreciation rights (“SARs”) for our common stock (“Stock Appreciation Right 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.

During 2013, we granted 2.5 million RSUs, 0.2 million service and performance RSUs, 0.7 million Employee SARs, and 0.1 million stock options. See Footnote No. 3, “Share-Based Compensation,” for more information.

## NEW ACCOUNTING STANDARDS

We do not expect that accounting standard updates issued to date and that are effective after December 31, 2013, will have a material effect on our Financial Statements.



## LIQUIDITY AND CAPITAL RESOURCES

## Cash Requirements and Our Credit Facilities

On July 18, 2013, we amended and restated our multicurrency revolving credit agreement (the "Credit Facility") to extend the facility's expiration to July 18, 2018 and increase the facility size to $2,000 million of aggregate effective borrowings. The material terms of the amended and restated Credit Facility are otherwise unchanged. The facility supports general corporate needs, including working capital, capital expenditures, and letters of credit. 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 based on our public debt rating. For more information on our Credit Facility, see Exhibit 10, "Third Amended and Restated Credit Agreement," to our Current Report on Form 8-K that we filed with the SEC on July 19, 2013.

The Credit Facility contains certain covenants, including a single financial covenant that limits our maximum leverage (consisting of the ratio of Adjusted Total Debt to Consolidated EBITDA, each as defined in the Credit Facility) to not more than 4 to 1. Our outstanding public debt does not contain a corresponding financial covenant or a requirement that we maintain certain financial ratios. We currently satisfy the covenants in our Credit Facility and public debt instruments, including the leverage covenant under the Credit Facility, and do not expect the covenants to restrict our ability to meet our anticipated borrowing and guarantee levels or increase those levels should we decide to do so in the future.

We believe the Credit Facility and our access to capital markets, together with cash we expect to generate from operations, remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, meet debt service, and fulfill other cash requirements.

We issue commercial paper in the United States. We do not have purchase commitments from buyers for our commercial paper; therefore, our ability to issue commercial paper is subject to market demand. We classify any outstanding commercial paper and Credit Facility borrowings as long-term debt based on our ability and intent to refinance them on a long-term basis. We reserve unused capacity under our Credit Facility to repay outstanding commercial paper borrowings in the event that the commercial paper market is not available to us for any reason when outstanding borrowings mature. We do not expect fluctuations in the demand for commercial paper to affect our liquidity, given our borrowing capacity under the Credit Facility.

At year-end 2013, our available borrowing capacity amounted to $1,291 million and reflected borrowing capacity of $1,165 million under our Credit Facility and our cash balance of $126 million. We calculated that borrowing capacity by taking $2,000 million of effective aggregate bank commitments under our Credit Facility and subtracting $834 million of outstanding commercial paper and $1 million of outstanding letters of credit under our Credit Facility.

We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to execute our announced growth plans. We expect to continue meeting part of our financing and liquidity needs primarily through commercial paper borrowings, issuances of Senior Notes, and access to long-term committed credit facilities. If conditions in the lodging industry deteriorate, or if disruptions in the capital markets take place as they did in the immediate aftermath of both the 2008 worldwide financial crisis and the events of September 11, 2001, we may be unable to place some or all of our commercial paper on a temporary or extended basis and may have to rely more on borrowings under the Credit Facility, which we believe will be adequate to fund our liquidity needs, including repayment of debt obligations, but which may or may not carry a higher cost than commercial paper. Since we continue to have ample flexibility under the Credit Facility’s covenants, we expect that undrawn bank commitments under the Credit Facility will remain available to us even if business conditions were to deteriorate markedly.

## Cash from Operations

Cash from operations, depreciation expense, and amortization expense for the last three fiscal years are as follows:

<table><tr><td>($ in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Cash from operations</td><td>$ 1,140</td><td>$ 989</td><td>$ 1,089</td></tr><tr><td>Depreciation expense</td><td>59</td><td>48</td><td>87</td></tr><tr><td>Amortization expense</td><td>68</td><td>54</td><td>57</td></tr></table>

Our ratio of current assets to current liabilities was 0.7 to 1.0 at year-end 2013 and 0.5 to 1.0 at year-end 2012. We minimize working capital through cash management, strict credit-granting policies, and aggressive collection efforts. We also have significant borrowing capacity under our Credit Facility should we need additional working capital.



Our ratios of earnings to fixed charges for the last five fiscal years, the calculations of which are detailed in Exhibit 12 to this 2013 Annual Report on Form 10-K, are as follows:

Fiscal Years

<table><tr><td>2013</td><td>2012</td><td>2011</td><td>2010</td><td>2009</td></tr><tr><td>5.1x</td><td>4.6x</td><td>2.3x</td><td>2.9x</td><td>*</td></tr></table>

* In 2009, earnings were inadequate to cover fixed charges by approximately $364 million.

## Timeshare Cash Flows

While our former Timeshare segment historically generated positive operating cash flow, year-to-year cash flow varied based on the timing of both cash outlays for the acquisition and development of new resorts and cash received from purchaser financing. We included timeshare reportable sales we financed in cash from operations when we collected cash payments. We show the 2011 net operating activity from our former Timeshare segment before the spin-off (which did not include income from our former Timeshare segment) in the following table. New Timeshare segment mortgages totaled $214 million in 2011 and collections totaled $273 million in 2011 (which included collections on securitized notes of $187 million).

<table><tr><td>($ in millions)</td><td>2011</td></tr><tr><td>Timeshare segment development less than cost of sales</td><td>$ 97</td></tr><tr><td>Timeshare segment collections (net of new mortgages)</td><td>59</td></tr><tr><td>Financially reportable sales less than closed sales</td><td>3</td></tr><tr><td>Other cash inflows</td><td>12</td></tr><tr><td>Net cash inflows from former Timeshare segment activity</td><td>$ 171</td></tr></table>

As noted in Footnote No. 2, “Income Taxes,” all tax matters that could affect the Company’s cash tax benefits related to the 2011 spin-off of our timeshare operations and timeshare development business were resolved in the 2013 first quarter, and we expect that the spin-off will result in our realization through 2015 of approximately $480 million of cash tax benefits, relating to the value of the timeshare business. We realized $363 million of cash tax benefits through 2013, of which $135 million of those benefits were realized in 2013. We expect to realize approximately $52 million in 2014. For more information on the spin-off, see Footnote No. 15, "Spin-off."

## Investing Activities Cash Flows

Capital Expenditures and Other Investments. We made capital expenditures of $404 million in 2013, $437 million in 2012, and $183 million in 2011. These included expenditures related to the development and construction of new hotels and acquisitions of hotel properties, as well as improvements to existing properties, and systems initiatives. Capital expenditures in 2013 decreased by $33 million compared to 2012, primarily due to the 2012 acquisition of land and a building we plan to develop into a hotel in our Luxury segment, partially offset by the 2013 acquisition of a managed property in our North American Full-Service segment. Contract acquisition costs in 2013 decreased by $192 million compared to 2012, primarily due to the $192 million acquisition of the Gaylord hotel management company in 2012. Separately, we classified the $18 million acquisition of the Gaylord brand name in 2012 as "Other investing activities."

Capital expenditures in 2012 increased by $254 million compared to 2011, primarily due to the acquisition of land and a building, renovations of buildings associated with developing three EDITION hotels, and the acquisition of land for an EDITION hotel. Contract acquisitions costs in 2012 increased by $179 million compared to 2011, primarily due to the $192 million acquisition of the Gaylord hotel management company. See Footnote No. 7, "Acquisitions and Dispositions," for more information on these acquisitions. We expect 2014 investment spending will total approximately $800 million to $1 billion, including approximately $150 million for maintenance capital spending and approximately $186 million for Protea. Investment spending also includes other capital expenditures (including property acquisitions), loan advances, contract acquisition costs, and equity and other investments.



Over time, we have sold lodging properties, both completed and under development, subject to long-term management agreements. The ability of third-party purchasers to raise the debt and equity capital necessary to acquire such properties depends in part on the perceived risks inherent in the lodging industry and other constraints inherent in the capital markets as a whole. We monitor the status of the capital markets and regularly evaluate the potential impact of changes in capital market conditions on our business operations. We expect to continue making selective and opportunistic investments to add units to our lodging business, which may include loans and noncontrolling equity investments.

Fluctuations in the values of hotel real estate generally have little impact on our overall business results because: (1) we own less than one percent of hotels that we operate or franchise; (2) management and franchise fees are generally based upon hotel revenues and profits rather than current hotel property values; and (3) our management agreements generally do not terminate upon hotel sale or foreclosure.

Dispositions. Property and asset sales generated no cash proceeds in 2013, $65 million in 2012, and $20 million in 2011. See Footnote No. 7, "Acquisitions and Dispositions," for more information on completed dispositions and planned dispositions.

Loan Activity. From time to time we make loans to owners of hotels that we operate or franchise. Loan collections, net of loan advances, amounted to $70 million in 2013 and $138 million in 2012. At year-end 2013, we had a $3 million long-term senior loan and $175 million of mezzanine and other loans ($142 million long-term and $36 million short-term) outstanding, compared with a $15 million long-term senior loan and $227 million of mezzanine and other loans ($165 million long-term and $62 million short-term) outstanding at year-end 2012. In 2013, our notes receivable balance for senior, mezzanine, and other loans decreased by $64 million, primarily reflecting collections on two MVW notes receivable issued to us in 2011 in conjunction with the Timeshare spin-off. See the “Senior, Mezzanine, and Other Loans” caption in Footnote No. 1, "Summary of Significant Accounting Policies."

Equity and Cost Method Investments. Cash outflows of $16 million in 2013, $15 million in 2012, and $83 million in 2011 for equity and cost method investments primarily reflect our investments in a number of joint ventures.

## Cash from Financing Activities

Debt. Debt increased by $264 million in 2013, to $3,199 million at year-end 2013 from $2,935 million at year-end 2012, and reflected our 2013 third quarter issuance of $348 million (book value) of Series M Senior Notes and a $333 million increase in commercial paper borrowings, partially offset by the $400 million (book value) retirement, at maturity, of our Series J Senior Notes, $15 million in decreased borrowings under our Credit Facility, and decreases of $2 million in other debt (which includes capital leases). Debt increased by $764 million in 2012, to $2,935 million at year-end 2012 from $2,171 million at year-end 2011, and reflected our 2012 issuance of $594 million (book value) of Series K Senior Notes, our 2012 issuance of $349 million (book value) of Series L Senior Notes, a $170 million increase in commercial paper, and $15 million of borrowings under our Credit Facility, partially offset by the $348 million (book value) retirement, at maturity, of our Series F Senior Notes and decreases of $16 million in other debt (which includes capital leases). See Footnote No. 10, "Long-Term Debt" for additional information on the debt issuances.

Our financial objectives include diversifying our financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At year-end 2013, our long-term debt had an average interest rate of 3.5 percent and an average maturity of approximately 5.1 years. The ratio of our fixed-rate long-term debt to our total long-term debt was 0.7 to 1.0 at year-end 2013.

See the “Cash Requirements and Our Credit Facilities,” caption within this “Liquidity and Capital Resources” section for more information on our Credit Facility.

Share Repurchases. We purchased 20.0 million shares of our common stock in 2013 at an average price of $41.46 per share, purchased 31.2 million shares in 2012 at an average price of $37.15 per share, and purchased 43.4 million shares in 2011 at an average price of $32.79 per share. As of year-end 2013, 14.3 million shares remained available for repurchase under authorizations from our Board of Directors. On February 14, 2014, we announced that our Board of Directors increased, by 25 million shares, the authorization to repurchase our common stock. We purchase shares in the open market and in privately negotiated transactions.

Dividends. Our Board of Directors declared a cash dividend of $0.13 per share on February 15, 2013 and a cash dividend of $0.17 per share on each of May 10, August 8, and November 7, 2013, and February 14, 2014.



## Contractual Obligations and Off Balance Sheet Arrangements

The following table summarizes our contractual obligations as of year-end 2013:

## Contractual Obligations

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Total</td><td colspan="5">Payments Due by Period</td></tr><tr><td>Less Than 1 Year</td><td>1-3 Years</td><td>3-5 Years</td><td>After 5 Years</td><td></td></tr><tr><td>Debt \( ^{(1)} \)</td><td>$ 3,638</td><td>$ 112</td><td>$ 796</td><td>$ 1,247</td><td>$ 1,483</td><td></td></tr><tr><td>Capital lease obligations \( ^{(1)} \)</td><td>53</td><td>47</td><td>2</td><td>2</td><td>2</td><td></td></tr><tr><td>Operating leases where we are the primary obligor:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Recourse</td><td>890</td><td>120</td><td>218</td><td>162</td><td>390</td><td></td></tr><tr><td>Nonrecourse</td><td>264</td><td>14</td><td>30</td><td>27</td><td>193</td><td></td></tr><tr><td>Operating leases where we are secondarily liable</td><td>4</td><td>4</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Purchase obligations</td><td>152</td><td>107</td><td>45</td><td>—</td><td>—</td><td></td></tr><tr><td>Other long-term liabilities</td><td>48</td><td>—</td><td>4</td><td>4</td><td>40</td><td></td></tr><tr><td>Total contractual obligations</td><td>$ 5,049</td><td>$ 404</td><td>$ 1,095</td><td>$ 1,442</td><td>$ 2,108</td><td></td></tr></table>

(1) Includes principal as well as interest payments.

The preceding table does not reflect unrecognized tax benefits as of year-end 2013 of $34 million. Please see Footnote No. 2, “Income Taxes” for additional information.

In addition to the purchase obligations noted in the preceding table, in the normal course of the hotel management business, we enter into purchase commitments to manage the daily operating needs of hotels that we manage for owners. Since we are reimbursed from the cash flows of the hotels, these obligations have minimal impact on our net income and cash flow.

The following table summarizes our guarantee commitments as of year-end 2013:

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Total Guarantees where we are the primary obligor</td><td colspan="5">Amount of Guarantee Commitments Expiration by Period</td></tr><tr><td>Amounts Committed</td><td>Less Than 1 Year</td><td>1-3 Years</td><td>3-5 Years</td><td>After 5 Years</td></tr><tr><td>Total guarantees where we are the primary obligor</td><td>$ 199</td><td>$ 37</td><td>$ 28</td><td>$ 47</td><td>$ 87</td><td></td></tr><tr><td>Total guarantees where we are secondarily liable</td><td>166</td><td>36</td><td>60</td><td>42</td><td>28</td><td></td></tr><tr><td>Total guarantee commitments</td><td>$ 365</td><td>$ 73</td><td>$ 88</td><td>$ 89</td><td>$ 115</td><td></td></tr></table>

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 our actions or the actions of the other joint venture owner.

We also had the following investment commitments outstanding at year-end 2013:

## Investment Commitments

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Total Amounts Committed</td><td colspan="5">Amount of Investment Commitments Expected Funding by Period</td></tr><tr><td>Less Than 1 Year</td><td>1-3 Years</td><td>3-5 Years</td><td>After 5 Years</td><td></td></tr><tr><td>Total investment commitments</td><td>$ 52</td><td>$ 29</td><td>$ 23</td><td>$ —</td><td>$ —</td><td></td></tr></table>

For further information on our investment commitments, including the nature of the commitments and their expirations, see the “Commitments and Letters of Credit” caption within Footnote No. 13, “Contingencies.”



At year-end 2013, we also had $80 million of letters of credit outstanding ($79 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 year-end 2013 totaled $122 million, the majority of which federal, state, and local governments requested in connection with our self-insurance programs.

## RELATED PARTY TRANSACTIONS

## Equity Method Investments

We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive fees. We also have equity method investments in entities that provide management and/or franchise services to hotels and receive fees. In addition, in some cases we provide loans, preferred equity, or guarantees to these entities. Our ownership interests in these equity method investments generally vary from 10 to 49 percent. Undistributed earnings attributable to our equity method investments represented approximately $2 million of our consolidated retained earnings at year-end 2013. For other information on these equity method investments, including the impact to our financial statements of transactions with these related parties, see Footnote No. 18, “Related Party Transactions.”

## CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) we must make assumptions that were uncertain at the time the estimate was made; and (2) changes in the estimate, or selection of a different estimate methodology could have a material effect on our consolidated results of operations or financial condition.

While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our financial position or results of operations.

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure presented below relating to them.

See Footnote No. 1, “Summary of Significant Accounting Policies,” for further information on our critical accounting policies, including our policies on:

Marriott Rewards and The Ritz-Carlton Rewards, our frequent guest rewards programs, including how members earn points, how we estimate the value of our redemption obligation, and how we recognize revenue for these programs;

Goodwill, including how we evaluate the fair value of reporting units and when we record an impairment loss on goodwill;

Valuation of Intangibles and Long-Lived Assets, including how we evaluate the fair value of intangibles and long-lived assets and when we record impairment losses on intangibles and long-lived assets;

Valuation of Investments in Ventures, including information on how we evaluate the fair value of investments in ventures and when we record impairment losses on investments in ventures;

Legal Contingencies, including information on how we account for legal contingencies;

Income Taxes, including information on how we determine our current year amounts payable or refundable, as well as our estimate of deferred tax assets and liabilities; and

Loan Loss Reserves for Senior, Mezzanine, and Other Loans, including information on how we measure impairment on these types of loans.

## OTHER MATTERS

## Inflation

Inflation has been moderate in recent years and has not had a significant impact on our businesses.



## Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk from changes in interest rates, stock prices, currency exchange rates, and debt prices. We manage our exposure to these risks by monitoring available financing alternatives, through development and application of credit granting policies and by entering into derivative arrangements. We do not foresee any significant changes in either our exposure to fluctuations in interest rates or currency rates or how we manage such exposure in the future.

We are exposed to interest rate risk on our floating-rate notes receivable and floating-rate debt. Changes in interest rates also impact the fair value of our fixed-rate notes receivable and the fair value of our fixed-rate long-term debt.

We are also subject to risk from changes in debt prices from our investments in debt securities and fluctuations in stock price from our investment in a publicly traded company. Changes in the price of the underlying stock can impact the fair value of our investment. We account for our investments as available-for-sale securities under the guidance for accounting for certain investments in debt and equity securities. At year-end 2013, our investments had a fair value of $41 million.

We use derivative instruments, including cash flow hedges, net investment in non-U.S. operations hedges, and other derivative instruments, as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and currency exchange rates. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes. See Footnote No. 1, “Summary of Significant Accounting Policies,” for more information on derivative instruments.



The following table sets forth the scheduled maturities and the total fair value as of year-end 2013 for our financial instruments that are impacted by market risks:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="12">Maturities by Period</td></tr><tr><td>2014</td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>There-after</td><td>Total Carrying Amount</td><td>Total Fair Value</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets-Maturities represent expected principal receipts, fair values represent assets.</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed-rate notes receivable</td><td>$ 35</td><td>$ 82</td><td>$ 3</td><td>$ 3</td><td>$ 5</td><td>$ 36</td><td>$ 164</td><td>$ 163</td><td></td><td></td><td></td><td></td></tr><tr><td>Average interest rate</td><td></td><td></td><td></td><td></td><td></td><td></td><td>4.27%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Floating-rate notes receivable</td><td>$ 1</td><td>$ 3</td><td>$ 1</td><td>$ —</td><td>$ —</td><td>$ 9</td><td>$ 14</td><td>$ 18</td><td></td><td></td><td></td><td></td></tr><tr><td>Average interest rate</td><td></td><td></td><td></td><td></td><td></td><td></td><td>0.33%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Liabilities-Maturities represent expected principal payments, fair values represent liabilities.</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed-rate debt</td><td>$ (6)</td><td>$ (319)</td><td>$ (297)</td><td>$ (300)</td><td>$ (9)</td><td>$ (1,384)</td><td>$ (2,315)</td><td>$ (2,432)</td><td></td><td></td><td></td><td></td></tr><tr><td>Average interest rate</td><td></td><td></td><td></td><td></td><td></td><td></td><td>4.56%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Floating-rate debt</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (834)</td><td>$ —</td><td>$ (834)</td><td>$ (834)</td><td></td><td></td><td></td><td></td></tr><tr><td>Average interest rate</td><td></td><td></td><td></td><td></td><td></td><td></td><td>0.43%</td><td></td><td></td><td></td><td></td><td></td></tr></table>



# MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management of Marriott International, Inc. is responsible for the integrity and objectivity of the consolidated financial statements and other financial information presented in this annual report. In meeting this responsibility, we maintain a highly developed system of internal controls, policies and procedures, including an internal auditing function.

The consolidated financial statements have been audited by Ernst & Young LLP, independent registered public accounting firm. Its report expresses an opinion as to whether management's financial statements fairly present, in all material respects, our consolidated financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles.

The Board of Directors fulfills its responsibility for the financial statements through its Audit Committee, composed of three directors that are independent of the Company. The committee meets a minimum of four times during the year with the independent registered public accounting firm, representatives of management and the internal auditors to review the scope and results of the internal and external audits, the accounting principles applied in financial reporting, and financial and operational controls. The independent registered public accounting firm and internal auditors have unrestricted access to the Audit Committee, with or without the presence of management.

## MANAGEMENT'S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Marriott International, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting. The Company has designed its internal control over financial reporting to provide reasonable assurance on the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance on prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of inherent limitations in internal control over financial reporting, such controls may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of the Company’s annual consolidated financial statements, management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the “COSO criteria”).

Based on this assessment, management has concluded that, applying the COSO criteria, as of December 31, 2013, the Company’s internal control over financial reporting was effective to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, a copy of which appears on the following page.



# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Marriott International, Inc.

We have audited Marriott International, Inc.'s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). Marriott International, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Marriott International, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Marriott International, Inc. as of December 31, 2013 and December 28, 2012, and the related consolidated statements of income, comprehensive income, shareholders' (deficit) equity, and cash flows for each of the three fiscal years in the period ended December 31, 2013 of Marriott International, Inc. and our report dated February 20, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP



# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Marriott International, Inc.

We have audited the accompanying consolidated balance sheets of Marriott International, Inc. as of December 31, 2013 and December 28, 2012, and the related consolidated statements of income, comprehensive income, shareholders' (deficit) equity and cash flows for each of the three fiscal years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Marriott International, Inc. at December 31, 2013 and December 28, 2012, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Marriott International, Inc.'s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated February 20, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP



## MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years 2013, 2012, and 2011
($ in millions, except per share amounts)

<table><tr><td></td><td>368 Days Ended December 31, 2013</td><td>364 Days Ended December 28, 2012</td><td>364 Days Ended December 30, 2011</td></tr><tr><td>REVENUES</td><td></td><td></td><td></td></tr><tr><td>Base management fees (1)</td><td>$ 621</td><td>$ 581</td><td>$ 602</td></tr><tr><td>Franchise fees (1)</td><td>666</td><td>607</td><td>506</td></tr><tr><td>Incentive management fees (1)</td><td>256</td><td>232</td><td>195</td></tr><tr><td>Owned, leased, corporate housing, and other revenue (1)</td><td>950</td><td>989</td><td>1,083</td></tr><tr><td>Timeshare sales and services</td><td>—</td><td>—</td><td>1,088</td></tr><tr><td>Cost reimbursements (1)</td><td>10,291</td><td>9,405</td><td>8,843</td></tr><tr><td></td><td>12,784</td><td>11,814</td><td>12,317</td></tr><tr><td>OPERATING COSTS AND EXPENSES</td><td></td><td></td><td></td></tr><tr><td>Owned, leased, and corporate housing-direct</td><td>779</td><td>824</td><td>943</td></tr><tr><td>Timeshare-direct</td><td>—</td><td>—</td><td>929</td></tr><tr><td>Timeshare strategy-impairment charges</td><td>—</td><td>—</td><td>324</td></tr><tr><td>Reimbursed costs (1)</td><td>10,291</td><td>9,405</td><td>8,843</td></tr><tr><td>General, administrative, and other (1)</td><td>726</td><td>645</td><td>752</td></tr><tr><td></td><td>11,796</td><td>10,874</td><td>11,791</td></tr><tr><td>OPERATING INCOME</td><td>988</td><td>940</td><td>526</td></tr><tr><td>Gains (losses) and other income (1)</td><td>11</td><td>42</td><td>(7)</td></tr><tr><td>Interest expense (1)</td><td>(120)</td><td>(137)</td><td>(164)</td></tr><tr><td>Interest income (1)</td><td>23</td><td>17</td><td>14</td></tr><tr><td>Equity in losses (1)</td><td>(5)</td><td>(13)</td><td>(13)</td></tr><tr><td>INCOME BEFORE INCOME TAXES</td><td>897</td><td>849</td><td>356</td></tr><tr><td>Provision for income taxes</td><td>(271)</td><td>(278)</td><td>(158)</td></tr><tr><td>NET INCOME</td><td>$ 626</td><td>$ 571</td><td>$ 198</td></tr><tr><td>EARNINGS PER SHARE-Basic</td><td></td><td></td><td></td></tr><tr><td>Earnings per share</td><td>$ 2.05</td><td>$ 1.77</td><td>$ 0.56</td></tr><tr><td>EARNINGS PER SHARE-Diluted</td><td></td><td></td><td></td></tr><tr><td>Earnings per share</td><td>$ 2.00</td><td>$ 1.72</td><td>$ 0.55</td></tr></table>

(1) See Footnote No. 18, "Related Party Transactions," to our Consolidated Financial Statements for disclosure of related party amounts.

See Notes to Consolidated Financial Statements



## MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years 2013, 2012, and 2011
($ in millions)

<table><tr><td rowspan="2"></td><td>368 Days Ended December 31, 2013</td><td>364 Days Ended December 28, 2012</td><td>364 Days Ended December 30, 2011</td></tr><tr><td>$ 626</td><td>$ 571</td><td>$ 198</td></tr><tr><td>Net income</td><td>$ 626</td><td>$ 571</td><td>$ 198</td></tr><tr><td>Other comprehensive income (loss):</td><td></td><td></td><td></td></tr><tr><td>Foreign currency translation adjustments</td><td>1</td><td>4</td><td>(31)</td></tr><tr><td>Other derivative instrument adjustments, net of tax</td><td>—</td><td>(2)</td><td>(20)</td></tr><tr><td>Unrealized gains (losses) on available-for-sale securities, net of tax</td><td>5</td><td>—</td><td>(3)</td></tr><tr><td>Reclassification of (gains) losses, net of tax</td><td>(6)</td><td>2</td><td>8</td></tr><tr><td>Total other comprehensive income (loss), net of tax</td><td>—</td><td>4</td><td>(46)</td></tr><tr><td>Comprehensive income</td><td>$ 626</td><td>$ 575</td><td>$ 152</td></tr></table>

See Notes to Consolidated Financial Statements



## MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
Fiscal Year-End 2013 and 2012
($ in millions)

<table><tr><td></td><td>December 31, 2013</td><td>December 28, 2012</td></tr><tr><td>ASSETS</td><td></td><td></td></tr><tr><td>Current assets</td><td></td><td></td></tr><tr><td>Cash and equivalents</td><td>$ 126</td><td>$ 88</td></tr><tr><td>Accounts and notes receivable, net (1)</td><td>1,081</td><td>1,028</td></tr><tr><td>Current deferred taxes, net</td><td>252</td><td>280</td></tr><tr><td>Prepaid expenses</td><td>67</td><td>57</td></tr><tr><td>Other</td><td>27</td><td>22</td></tr><tr><td>Assets held for sale</td><td>350</td><td>—</td></tr><tr><td></td><td>1,903</td><td>1,475</td></tr><tr><td>Property and equipment</td><td>1,543</td><td>1,539</td></tr><tr><td>Intangible assets</td><td></td><td></td></tr><tr><td>Goodwill</td><td>874</td><td>874</td></tr><tr><td>Contract acquisition costs and other (1)</td><td>1,131</td><td>1,115</td></tr><tr><td></td><td>2,005</td><td>1,989</td></tr><tr><td>Equity and cost method investments (1)</td><td>222</td><td>216</td></tr><tr><td>Notes receivable, net (1)</td><td>142</td><td>180</td></tr><tr><td>Deferred taxes, net (1)</td><td>647</td><td>676</td></tr><tr><td>Other (1)</td><td>332</td><td>267</td></tr><tr><td></td><td>$ 6,794</td><td>$ 6,342</td></tr><tr><td>LIABILITIES AND SHAREHOLDERS&#x27; DEFICIT</td><td></td><td></td></tr><tr><td>Current liabilities</td><td></td><td></td></tr><tr><td>Current portion of long-term debt</td><td>$ 6</td><td>$ 407</td></tr><tr><td>Accounts payable (1)</td><td>557</td><td>569</td></tr><tr><td>Accrued payroll and benefits</td><td>817</td><td>745</td></tr><tr><td>Liability for guest loyalty programs</td><td>666</td><td>593</td></tr><tr><td>Other (1)</td><td>629</td><td>459</td></tr><tr><td></td><td>2,675</td><td>2,773</td></tr><tr><td>Long-term debt</td><td>3,147</td><td>2,528</td></tr><tr><td>Liability for guest loyalty programs</td><td>1,475</td><td>1,428</td></tr><tr><td>Other long-term liabilities (1)</td><td>912</td><td>898</td></tr><tr><td>Shareholders&#x27; deficit</td><td></td><td></td></tr><tr><td>Class A Common Stock</td><td>5</td><td>5</td></tr><tr><td>Additional paid-in-capital</td><td>2,716</td><td>2,585</td></tr><tr><td>Retained earnings</td><td>3,837</td><td>3,509</td></tr><tr><td>Treasury stock, at cost</td><td>(7,929)</td><td>(7,340)</td></tr><tr><td>Accumulated other comprehensive loss</td><td>(44)</td><td>(44)</td></tr><tr><td></td><td>(1,415)</td><td>(1,285)</td></tr><tr><td></td><td>$ 6,794</td><td>$ 6,342</td></tr></table>

(1) See Footnote No. 18, "Related Party Transactions," to our Consolidated Financial Statements for disclosure of related party amounts.



# MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years 2013, 2012, and 2011
($ in millions)

<table><tr><td></td><td>368 Days Ended December 31, 2013</td><td>364 Days Ended December 28, 2012</td><td>364 Days Ended December 30, 2011</td></tr><tr><td>OPERATING ACTIVITIES</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 626</td><td>$ 571</td><td>$ 198</td></tr><tr><td>Adjustments to reconcile to cash provided by operating activities:</td><td></td><td></td><td></td></tr><tr><td>Depreciation and amortization</td><td>127</td><td>102</td><td>144</td></tr><tr><td>Income taxes</td><td>73</td><td>224</td><td>113</td></tr><tr><td>Timeshare activity, net</td><td>—</td><td>—</td><td>175</td></tr><tr><td>Timeshare strategy-impairment charges</td><td>—</td><td>—</td><td>324</td></tr><tr><td>Liability for guest loyalty program</td><td>99</td><td>60</td><td>78</td></tr><tr><td>Restructuring costs, net</td><td>—</td><td>—</td><td>(5)</td></tr><tr><td>Working capital changes and other</td><td>215</td><td>32</td><td>62</td></tr><tr><td>Net cash provided by operating activities</td><td>1,140</td><td>989</td><td>1,089</td></tr><tr><td>INVESTING ACTIVITIES</td><td></td><td></td><td></td></tr><tr><td>Capital expenditures</td><td>(404)</td><td>(437)</td><td>(183)</td></tr><tr><td>Dispositions</td><td>—</td><td>65</td><td>20</td></tr><tr><td>Loan advances</td><td>(7)</td><td>(17)</td><td>(26)</td></tr><tr><td>Loan collections</td><td>77</td><td>155</td><td>110</td></tr><tr><td>Equity and cost method investments</td><td>(16)</td><td>(15)</td><td>(83)</td></tr><tr><td>Contract acquisition costs</td><td>(61)</td><td>(253)</td><td>(74)</td></tr><tr><td>Investment in debt security</td><td>(65)</td><td>—</td><td>—</td></tr><tr><td>Other</td><td>(43)</td><td>(83)</td><td>(11)</td></tr><tr><td>Net cash used in investing activities</td><td>(519)</td><td>(585)</td><td>(247)</td></tr><tr><td>FINANCING ACTIVITIES</td><td></td><td></td><td></td></tr><tr><td>Commercial paper/Credit Facility, net</td><td>311</td><td>184</td><td>325</td></tr><tr><td>Issuance of long-term debt</td><td>345</td><td>936</td><td>118</td></tr><tr><td>Repayment of long-term debt</td><td>(407)</td><td>(370)</td><td>(264)</td></tr><tr><td>Issuance of Class A Common Stock</td><td>199</td><td>179</td><td>124</td></tr><tr><td>Dividends paid</td><td>(196)</td><td>(191)</td><td>(134)</td></tr><tr><td>Purchase of treasury stock</td><td>(834)</td><td>(1,145)</td><td>(1,425)</td></tr><tr><td>Other</td><td>(1)</td><td>(11)</td><td>11</td></tr><tr><td>Net cash used in financing activities</td><td>(583)</td><td>(418)</td><td>(1,245)</td></tr><tr><td>INCREASE (DECREASE) IN CASH AND EQUIVALENTS</td><td>38</td><td>(14)</td><td>(403)</td></tr><tr><td>CASH AND EQUIVALENTS, beginning of period</td><td>88</td><td>102</td><td>505</td></tr><tr><td>CASH AND EQUIVALENTS, end of period</td><td>$ 126</td><td>$ 88</td><td>$ 102</td></tr></table>

See Notes to Consolidated Financial Statements



## MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
Fiscal Years 2013, 2012, and 2011
(in millions)

<table><tr><td>Common Shares Outstanding</td><td>Total</td><td>Class A Common Stock</td><td>Additional Paid-in-Capital</td><td>Retained Earnings</td><td>Treasury Stock, at Cost</td><td>Accumulated Other Comprehensive Income (Loss)</td></tr><tr><td>366.9</td><td>Balance at December 31, 2010</td><td>$ 1,585</td><td>$ 5</td><td>$ 3,644</td><td>$ 3,286</td><td>$ (5,348)</td></tr><tr><td>—</td><td>Net income</td><td>198</td><td>—</td><td>—</td><td>198</td><td>—</td></tr><tr><td>—</td><td>Other comprehensive loss</td><td>(24)</td><td>—</td><td>—</td><td>—</td><td>(24)</td></tr><tr><td>—</td><td>Dividends</td><td>(135)</td><td>—</td><td>—</td><td>(135)</td><td>—</td></tr><tr><td>9.5</td><td>Employee stock plan issuance</td><td>182</td><td>—</td><td>9</td><td>(137)</td><td>310</td></tr><tr><td>(43.4)</td><td>Purchase of treasury stock</td><td>(1,425)</td><td>—</td><td>—</td><td>—</td><td>(1,425)</td></tr><tr><td>—</td><td>Spin-off of MVW (1)</td><td>(1,162)</td><td>—</td><td>(1,140)</td><td>—</td><td>—</td></tr><tr><td>333.0</td><td>Balance at December 30, 2011</td><td>(781)</td><td>5</td><td>2,513</td><td>3,212</td><td>(6,463)</td></tr><tr><td>—</td><td>Net income</td><td>571</td><td>—</td><td>—</td><td>571</td><td>—</td></tr><tr><td>—</td><td>Other comprehensive income</td><td>4</td><td>—</td><td>—</td><td>—</td><td>4</td></tr><tr><td>—</td><td>Dividends</td><td>(158)</td><td>—</td><td>—</td><td>(158)</td><td>—</td></tr><tr><td>9.1</td><td>Employee stock plan issuance</td><td>236</td><td>—</td><td>69</td><td>(116)</td><td>283</td></tr><tr><td>(31.2)</td><td>Purchase of treasury stock</td><td>(1,160)</td><td>—</td><td>—</td><td>—</td><td>(1,160)</td></tr><tr><td>—</td><td>Spin-off of MVW adjustment (1)</td><td>3</td><td>—</td><td>3</td><td>—</td><td>—</td></tr><tr><td>310.9</td><td>Balance at December 28, 2012</td><td>(1,285)</td><td>5</td><td>2,585</td><td>3,509</td><td>(7,340)</td></tr><tr><td>—</td><td>Net income</td><td>626</td><td>—</td><td>—</td><td>626</td><td>—</td></tr><tr><td>—</td><td>Other comprehensive loss</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>—</td><td>Dividends</td><td>(195)</td><td>—</td><td>—</td><td>(195)</td><td>—</td></tr><tr><td>7.1</td><td>Employee stock plan issuance</td><td>269</td><td>—</td><td>131</td><td>(103)</td><td>241</td></tr><tr><td>(20.0)</td><td>Purchase of treasury stock</td><td>(830)</td><td>—</td><td>—</td><td>—</td><td>(830)</td></tr><tr><td>298.0</td><td>Balance at December 31, 2013</td><td>$ (1,415)</td><td>$ 5</td><td>$ 2,716</td><td>$ 3,837</td><td>$ (7,929)</td></tr></table>

(1) The abbreviation MVW means Marriott Vacations Worldwide Corporation.



# MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

## Basis of Presentation

The 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 Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our 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 Consolidated Financial Statements, unless otherwise noted.

On November 21, 2011 ("the spin-off date"), we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock (the "spin-off") of our wholly owned subsidiary Marriott Vacations Worldwide Corporation ("MVW"). Because of our significant continuing involvement in MVW operations after the spin-off (by virtue of license and other agreements between us and MVW), we continue to include the historical financial results before the spin-off date of our former Timeshare segment in our historical financial results as a component of continuing operations. See Footnote No. 15, "Spin-off," for more information on the spin-off.

Preparation of financial statements that conform with U.S. generally accepted accounting principles ("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 at fiscal year-end 2013 and fiscal year-end 2012 and the results of our operations and cash flows for fiscal years 2013, 2012, and 2011. We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements. We also reclassified depreciation that third party owners reimburse to us which is included in the "Reimbursed costs" caption of our Income Statements, from the "Depreciation and amortization" caption to the "Working capital changes and other" caption of the Cash Flow Statement for all prior years presented to conform to our 2013 presentation.

## Fiscal Year

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 ended on December 31, 2013. Historically, our fiscal year was a 52-53 week fiscal year that ended on the Friday nearest to December 31. As a result, our 2013 fiscal year had 4 more days than the 2012 and 2011 fiscal years. We have not restated and do not plan to restate historical results.

The table below shows each completed fiscal year we refer to in this report, the date the fiscal year ended, and the number of days in that fiscal year:

<table><tr><td>Fiscal Year</td><td>Fiscal Year-End Date</td><td>Number of Days</td><td>Fiscal Year</td><td>Fiscal Year-End Date</td><td>Number of Days</td></tr><tr><td>2013</td><td>December 31, 2013</td><td>368</td><td>2008</td><td>January 2, 2009</td><td>371</td></tr><tr><td>2012</td><td>December 28, 2012</td><td>364</td><td>2007</td><td>December 28, 2007</td><td>364</td></tr><tr><td>2011</td><td>December 30, 2011</td><td>364</td><td>2006</td><td>December 29, 2006</td><td>364</td></tr><tr><td>2010</td><td>December 31, 2010</td><td>364</td><td>2005</td><td>December 30, 2005</td><td>364</td></tr><tr><td>2009</td><td>January 1, 2010</td><td>364</td><td>2004</td><td>December 31, 2004</td><td>364</td></tr></table>

Beginning in 2014, our fiscal years will be the same as the corresponding calendar year (each beginning on January 1 and ending on December 31, and containing 365 or 366 days).



## Revenue Recognition

Our revenues include: (1) base management and incentive management fees; (2) franchise fees (including licensing fees from MVW after the spin-off of $61 million for 2013, $61 million for 2012 and $4 million for 2011); (3) revenues from lodging properties we own or lease; and (4) cost reimbursements. Management fees are typically composed of a base fee, which is a percentage of the revenues of hotels, and an incentive fee, which is generally based on hotel profitability. Franchise fees are typically composed of initial application fees and continuing royalties generated from our franchise programs, which permit the hotel owners and operators to use certain of our brand names. Cost reimbursements include direct and indirect costs that are reimbursed to us by properties that we manage, franchise, or license.

Base Management and Incentive Management Fees: We recognize base management fees as revenue when we earn them under the contracts. In interim periods and at year-end, we recognize incentive management fees that would be due as if the contracts were to terminate at that date, exclusive of any termination fees payable or receivable by us.

Franchise Fee and License Fee Revenue: We recognize franchise fees and license fees as revenue in each accounting period as we earn those fees from the franchisee or licensee under the contracts.

Owned and Leased Units: We recognize room sales and revenues from other guest services for our owned and leased units when rooms are occupied and when we have rendered the services.

Cost Reimbursements: We recognize cost reimbursements from managed, franchised, and licensed properties when we incur the related reimbursable costs. These costs primarily consist of payroll and related expenses at managed properties where we are the employer and also include certain operational and administrative costs as provided for in our contracts with the owners. As these costs have no added markup, the revenue and related expense have no impact on either our operating or net income.

Other Revenue: Includes other third-party licensing fees, branding fees for third-party residential sales and credit card licensing, land rental income, and other revenue.

Timeshare Revenue Recognition Before the 2011 Spin-off: For periods before the spin-off, our revenues also included revenue from our former Timeshare segment including cost reimbursements revenue and timeshare sales and services revenue, the latter of which included the following types of revenue:

Timeshare and Fractional Intervals and Condominiums: Before the spin-off, we recognized sales when: (1) we had received a minimum of 10 percent of the purchase price; (2) the purchaser’s period to cancel for a refund had expired; (3) we deemed the receivables to be collectible; and (4) we had attained certain minimum sales and construction levels. We deferred all revenue using the deposit method for sales that did not meet all four of these criteria. For sales that did not qualify for full revenue recognition as the project had progressed beyond the preliminary stages but had not yet reached completion, we deferred all revenue and profit which we then recognized in earnings using the percentage of completion method.

Timeshare Points-Based Use System Revenue: Before the spin-off, we recognized sales under our points-based use system when the criteria noted in the “Timeshare and Fractional Intervals and Condominiums” caption were met, as we considered these sales to be sales of real estate.

Timeshare Residential (Stand-Alone Structures): Before the spin-off, we recognized sales under the full accrual method of accounting when we received our proceeds and transferred title at settlement.

Timeshare Interest Income: Before the spin-off, we reflected interest income from “Loans to timeshare owners” in our 2011 Income Statement in the "Timeshare sales and services" revenue caption of $143 million, consisting of $116 million from securitized loans and $27 million from non-securitized loans.

## Ground Leases

We are the lessee of land under long-term operating leases that include scheduled increases in minimum rents. We recognize these scheduled rent increases on a straight-line basis over the initial lease term.

## Real Estate Sales

We reduce gains on sales of real estate by the maximum exposure to loss if we have continuing involvement with the property and do not transfer substantially all of the risks and rewards of ownership. In sales transactions where we retain a



management contract, the terms and conditions of the management contract are generally comparable to the terms and conditions of the management contracts obtained directly with third-party owners in competitive bid processes.

## Profit Sharing Plan

We contribute to a profit sharing plan for the benefit of employees meeting certain eligibility requirements who elect to participate in the plan. Participating employees specify the percentage of salary deferred. We recognized compensation costs from profit sharing of $75 million in 2013, $69 million in 2012, and $91 million in 2011.

## Self-Insurance Programs

We self-insure for certain levels of property, liability, workers’ compensation and employee medical coverage. We accrue estimated costs of these self-insurance programs at the present value of projected settlements for known and incurred but not reported claims. We use a discount rate of 2.0 percent to determine the present value of the projected settlements, which we consider to be reasonable given our history of settled claims, including payment patterns and the fixed nature of the individual settlements.

We are subject to a variety of assessments for our insurance activities, including those by state guaranty funds and workers’ compensation second-injury funds. We record our liabilities for these assessments in our Balance Sheets within the other current liabilities line. These liabilities, which are not discounted, totaled $5 million at year-end 2013 and $5 million at year-end 2012. We expect to pay the $5 million liability for assessments as of year-end 2013 by the end of 2014.

## Our Rewards Programs

Marriott Rewards and The Ritz-Carlton Rewards are our frequent guest loyalty programs. Program members earn points based on the money they spend at our lodging operations, purchases of timeshare interval, fractional ownership, and residential products (through MVW for periods after the spin-off date) and, to a lesser degree, through participation in affiliated partners' programs, such as those offered by car rental, and credit card companies. Members can redeem points, which we track on their behalf, for stays at most of our lodging operations, airline tickets, airline frequent flyer program miles, rental cars, and a variety of other awards. Points cannot be redeemed for cash. We provide Marriott Rewards and The Ritz-Carlton Rewards as marketing programs to participating properties, with the objective of operating the programs on a break-even basis to us. We sell the points for amounts that we expect will, in the aggregate, equal the costs of point redemptions and program operating costs over time.

We estimate the value of the future redemption obligation using statistical formulas that project timing of future point redemption based on historical levels, including an estimate of the “breakage” for points that members will never redeem, and an estimate of the points that members will eventually redeem. These judgment factors determine our rewards programs' required liability for outstanding points. That liability totaled $2,141 million at year-end 2013 and $2,021 million at year-end 2012. A ten percent reduction in the estimate of “breakage” would have increased the estimated year-end 2013 liability by $139 million.

We defer revenue we receive from managed, franchised, and Marriott-owned/leased hotels and program partners. Our management and franchise agreements require that properties reimburse us currently for the costs of operating the rewards programs, including marketing, promotion, communication with, and performing member services for rewards program members. Due to the requirement that properties reimburse us for program operating costs as incurred, we recognize the related cost reimbursements revenues from properties for our rewards programs when we incur and expense such costs. We recognize the component of revenue from program partners that corresponds to program maintenance services over the expected life of the points awarded. When points are redeemed we recognize the amounts we previously deferred as revenue and the corresponding expense relating to the costs of the awards redeemed.

## Guarantees

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, as described below in this footnote under the heading "Fair Value Measurements." 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.



The offsetting entry for the guarantee liability depends on the circumstances in which the guarantee was issued. Funding under the guarantee reduces the recorded liability. In most cases, when we do not forecast any funding, we amortize the liability into income on a straight-line basis over the remaining term of the guarantee. On a quarterly basis, we evaluate all material estimated liabilities based on the operating results and the terms of the guarantee. If we conclude that it is probable that we will be required to fund a greater amount than previously estimated, we record a loss unless the advance would be recoverable in the form of a loan.

## Rebates and Allowances

We participate in various vendor rebate and allowance arrangements as a manager of hotel properties. Three types of programs that are common in the hotel industry are sometimes referred to as “rebates” or “allowances,” including unrestricted rebates, marketing (restricted) rebates, and sponsorships. These arrangements have the primary business purposes of securing favorable pricing for our hotel owners for various products and services and enhancing resources for promotional campaigns that certain vendors co-sponsor. More specifically, unrestricted rebates are funds returned to the buyer, generally based on volumes or quantities of goods purchased. Marketing (restricted) allowances are funds allocated by vendor agreements for certain marketing or other joint promotional initiatives. Sponsorships are funds paid by vendors, generally used by the vendor to gain exposure at meetings and events, which we account for as a reduction of the cost of the event.

We account for rebates and allowances as adjustments of the prices of the vendors' products and services. We show vendor costs as reimbursed costs and the reimbursement of those costs to us as cost reimbursements revenue; and accordingly we reflect rebates as a reduction of these line items.

## Cash and Equivalents

We consider all highly liquid investments with an initial maturity of three months or less at date of purchase to be cash equivalents.

## Assets Held for Sale

We consider properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we expect the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is reasonable given its current market value. Upon designation of a property as an asset held for sale, we record the property's value at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and we cease depreciation.

At year-end 2013, we had $350 million classified as "Assets held for sale" and $61 million in liabilities held for sale classified as "Other current liabilities" on our Balance Sheet. See Footnote No. 7, "Acquisitions and Dispositions" for additional information on these planned dispositions. At year-end 2012, we had no assets held for sale and no liabilities held for sale.

## Accounts Receivable

Our accounts receivable primarily consist of amounts due from hotel owners with whom we have management and franchise agreements and include reimbursements of costs we incurred on behalf of managed and franchised properties. We generally collect these receivables within 30 days. We record an accounts receivable reserve when losses are probable, based on an assessment of historical collection activity and current business conditions. Our accounts receivable reserve was $43 million at year-end 2013 and $32 million at year-end 2012.

## Loan Loss Reserves

## Senior, Mezzanine, and Other Loans

We may make loans to owners of hotels that we operate or franchise, generally to facilitate the development of a hotel and sometimes to facilitate brand programs or initiatives. We expect the owners to repay the loans in accordance with the loan agreements, or earlier as the hotels mature and capital markets permit. We use metrics such as loan-to-value ratios and debt service coverage, and other information about collateral and from third party rating agencies to assess the credit quality of the loan receivable, both upon entering into the loan agreement and on an ongoing basis as applicable.

On a regular basis, we individually assess all of these loans for impairment. We use internally generated cash flow projections to determine if we expect the loans to be repaid under the terms of the loan agreements. If we conclude that it is



probable a borrower will not repay a loan in accordance with its terms, we consider the loan impaired and begin recognizing interest income on a cash basis. To measure impairment, we calculate the present value of expected future cash flows discounted at the loan’s original effective interest rate or the estimated fair value of the collateral. If the present value or the estimated collateral is less than the carrying value of the loan receivable, we establish a specific impairment reserve for the difference.

If it is likely that a loan will not be collected based on financial or other business indicators, including our historical experience, our policy is to charge off the loan in the quarter in which we deem it uncollectible.

## Goodwill

We assess goodwill for potential impairment at the end of each fiscal year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then no further testing of the goodwill assigned to the reporting unit is required. However, if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment we will recognize, if any. At year-end 2013 and year-end 2012, we concluded that it was not more likely than not that the fair value of any reporting unit was less than its carrying value.

In the first step of the two-step goodwill impairment test, we compare the estimated fair value of the reporting unit with its carrying value. If the estimated fair value of the reporting unit exceeds its carrying amount, no further analysis is needed. If, however, the estimated fair value of the reporting unit is less than its carrying amount, we proceed to the second step and calculate the implied fair value of the reporting unit goodwill to determine whether any impairment is required. We calculate the implied fair value of the reporting unit goodwill by allocating the estimated fair value of the reporting unit to all of the unit's assets and liabilities as if the unit had been acquired in a business combination. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in the amount of that excess. In allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit, we use industry and market data, as well as knowledge of the industry and our past experience.

We calculate the estimated fair value of a reporting unit using the income approach. For the income approach, we use internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our expectations.

We have had no goodwill impairment charges for the last three fiscal years, and as of the date of each of the most recent detailed tests, the estimated fair value of each of our reporting units exceeded its respective carrying amount by more than 100 percent based on our models and assumptions.

For additional information on goodwill, including the amounts of goodwill by segment, see Footnote No. 14, “Business Segments.”

## Investments

We consolidate entities that we control. We account for investments in joint ventures using the equity method of accounting when we exercise significant influence over the venture. If we do not exercise significant influence, we account for the investment using the cost method of accounting. We account for investments in limited partnerships and limited liability companies using the equity method of accounting when we own more than a minimal investment. Our ownership interest in these equity method investments varies generally from 10 percent to 49 percent. See Footnote No. 4, "Fair Value of Financial Instruments" for additional information on available-for-sale securities. When we sell available-for-sale securities, we determine the cost basis of the securities sold using specific identification, meaning that we track our securities individually.

## Valuation of Intangibles and Long-Lived Assets

We test intangibles and long-lived asset groups for recoverability when changes in circumstances indicate that we may not be able to recover the carrying value; for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, or significant negative industry or economic trends. We also test recoverability when management has committed to a plan to sell or otherwise dispose of an asset group and we expect to complete the plan within a year. We evaluate recoverability of an asset group by comparing its carrying



value to the future net undiscounted cash flows that we expect the asset group will generate. If the comparison indicates that we will not be able to recover the carrying value of an asset group, we recognize an impairment loss for the amount by which the carrying value exceeds the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life.

We calculate the estimated fair value of an intangible asset or asset group using the income approach or the market approach. We utilize the same assumptions and methodology for the income approach that we describe in the “Goodwill” caption. For the market approach, we use internal analyses based primarily on market comparables and assumptions about market capitalization rates, growth rates, and inflation.

For information on impairment losses that we recorded in 2011 for long-lived assets, see Footnote No. 15, “Spin-off.”

## Valuation of Investments in Ventures

We may hold a minority equity interest in ventures established to develop or acquire and own hotel properties. These ventures are generally limited liability companies or limited partnerships.

We evaluate an investment in a venture for impairment when circumstances indicate that we may not be able to recover the carrying value, for example due to loan defaults, significant under performance relative to historical or projected operating performance, or significant negative industry or economic trends.

We impair investments we account for using the equity and cost methods of accounting when we determine that there has been an “other-than-temporary” decline in the venture’s estimated fair value compared to its carrying value. Additionally, a venture’s commitment to a plan to sell some or all of its assets could cause us to evaluate the recoverability of the venture’s individual long-lived assets and possibly the venture itself.

We calculate the estimated fair value of an investment in a venture using either a market approach or an income approach. We utilize the same assumptions and methodology for the income approach that we describe in the “Goodwill” caption. For the market approach, we use internal analyses based primarily on market comparables and assumptions about market capitalization rates, growth rates, and inflation.

For information on an impairment loss that we recorded in 2012 for a cost method investment, see Footnote No. 4, “Fair Value of Financial Instruments.”

## Fair Value Measurements

We have various financial instruments we must measure at fair value on a recurring basis, including certain marketable securities and derivatives. See Footnote No. 4, “Fair Value of Financial Instruments,” for further information. We also apply the provisions of fair value measurement to various nonrecurring measurements for our financial and nonfinancial assets and liabilities.

Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure our assets and liabilities using inputs from the following three levels of the fair value hierarchy:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 includes unobservable inputs that reflect our assumptions about what factors market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.

## Derivative Instruments

We record derivatives at fair value. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument in our Financial Statements. A derivative qualifies for hedge accounting if, at inception, we expect the derivative to be highly effective in offsetting the



underlying hedged cash flows or fair value and we fulfill the hedge documentation standards at the time we enter into the derivative contract. We designate a hedge as a cash flow hedge, fair value hedge, or a net investment in non-U.S. operations hedge based on the exposure we are hedging. For the effective portion of qualifying cash flow hedges, we record changes in fair value in other comprehensive income (“OCI”). We release the derivative’s gain or loss from OCI to match the timing of the underlying hedged items’ effect on earnings.

We review the effectiveness of our hedging instruments quarterly, recognize current period hedge ineffectiveness immediately in earnings, and discontinue hedge accounting for any hedge that we no longer consider to be highly effective. We recognize changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting in current period earnings. Upon termination of cash flow hedges, we release gains and losses from OCI based on the timing of the underlying cash flows or revenue recognized, unless the termination results from the failure of the intended transaction to occur in the expected time frame. Such untimely transactions require us to immediately recognize in earnings the gains and/or losses that we previously recorded in OCI.

Changes in interest rates, currency exchange rates, and equity securities expose us to market risk. We manage our exposure to these risks by monitoring available financing alternatives, as well as through development and application of credit granting policies. We also use derivative instruments, including cash flow hedges, net investment in non-U.S. operations hedges, fair value hedges, and other derivative instruments, as part of our overall strategy to manage our exposure to market risks. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes. See Footnote No. 4, “Fair Value of Financial Instruments,” for additional information.

## Non-U.S. Operations

The U.S. dollar is the functional currency of our consolidated and unconsolidated entities operating in the United States. The functional currency of our consolidated and unconsolidated entities operating outside of the United States is generally the primary currency of the economic environment in which the entity primarily generates and expends cash. We translate the financial statements of consolidated entities whose functional currency is not the U.S. dollar into U.S. dollars, and we do the same, as needed, for unconsolidated entities whose functional currency is not the U.S. dollar. We translate assets and liabilities at the exchange rate in effect as of the financial statement date, and translate income statement accounts using the weighted average exchange rate for the period. We include translation adjustments from currency exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of shareholders' equity. We report gains and losses from currency exchange rate changes for intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from non-U.S. currency transactions, currently in operating costs and expenses, and those amounted to losses of $5 million in 2013, $3 million in 2012, and $7 million in 2011. Gains and other income attributable to currency translation adjustment losses, net of gains, from the sale or complete or substantially complete liquidation of investments was zero for 2013 and $1 million for 2012. Gains and other income attributable to currency translation adjustment gains, net of losses, from the sale or complete or substantially complete liquidation of investments was $2 million for 2011.

## Legal Contingencies

We are subject to various legal proceedings and claims, the outcomes of which are uncertain. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss. In making such determinations we evaluate, among other things, the probability of an unfavorable outcome and, when we believe it probable that a liability has been incurred, our ability to make a reasonable estimate of the loss. We review these accruals each reporting period and make revisions based on changes in facts and circumstances.

## Income Taxes

We record the amounts of taxes payable or refundable for the current year, as well as deferred tax liabilities and assets for the future tax consequences of events we have recognized in our Financial Statements or tax returns, using judgment in assessing future profitability and the likely future tax consequences of those events. We base our estimates of deferred tax assets and liabilities on current tax laws, rates and interpretations, and, in certain cases, business plans and other expectations about future outcomes. We develop our estimates of future profitability based on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations.

Changes in existing tax laws and rates, their related interpretations, and the uncertainty generated by the current economic environment may affect the amounts of our deferred tax liabilities or the valuations of our deferred tax assets over time. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates.



For tax positions we have taken or expect to take in a tax return, we apply a more likely than not threshold, under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to continue to recognize the benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold. We recognize accrued interest and penalties for our unrecognized tax benefits as a component of tax expense.

For information about income taxes and deferred tax assets and liabilities, see Footnote No. 2, “Income Taxes.”

## New Accounting Standards

We do not expect that accounting standard updates issued to date and that are effective after December 31, 2013 will have a material effect on our Financial Statements.

## 2. INCOME TAXES

Our provision for income taxes for the last three fiscal years consists of:

<table><tr><td>(\( in millions)</td><td></td><td>2013</td><td>2012</td><td>2011</td><td></td></tr><tr><td rowspan="2">Current</td><td>-U.S. Federal</td><td>$</td><td>(139)</td><td>$</td><td>6</td></tr><tr><td>-U.S. State</td><td></td><td>(17)</td><td>(8)</td><td>—</td></tr><tr><td></td><td>-Non-U.S.</td><td></td><td>(44)</td><td>(34)</td><td>(55)</td></tr><tr><td></td><td></td><td></td><td>(200)</td><td>(36)</td><td>(2)</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td rowspan="2">Deferred</td><td>-U.S. Federal</td><td></td><td>(68)</td><td>(211)</td><td>(116)</td></tr><tr><td>-U.S. State</td><td></td><td>(10)</td><td>(30)</td><td>(10)</td></tr><tr><td></td><td>-Non-U.S.</td><td></td><td>7</td><td>(1)</td><td>(30)</td></tr><tr><td></td><td></td><td></td><td>(71)</td><td>(242)</td><td>(156)</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>

Our current tax provision does not reflect the following benefits attributable to us for the vesting or exercise of employee share-based awards: $66 million in 2013, $76 million in 2012, and $55 million in 2011. The preceding table includes tax credits of $3 million in 2013, $3 million in 2012, and $4 million in 2011. We had a tax provision applicable to other comprehensive income of $2 million in 2013 and $5 million in 2012, and a tax benefit applicable to other comprehensive loss of $14 million in 2011.

We have made no provision for U.S. income taxes or additional non-U.S. taxes on the cumulative unremitted earnings of non-U.S. subsidiaries ($739 million as of year-end 2013) because we consider these earnings to be indefinitely reinvested. These earnings could become subject to additional taxes if the non-U.S. subsidiaries dividend or loan those earnings to us or to a U.S. affiliate or if we sell our interests in the non-U.S. subsidiaries. We cannot practically estimate the amount of additional taxes that might be payable on the unremitted earnings.

We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. We conduct business in countries that grant “holidays” from income taxes for 10 to 30 year periods. These holidays expire through 2034. Without these tax “holidays,” we would have incurred the following aggregate income taxes and related earnings per share impacts: $1 million (less than $0.01 per diluted share) in 2013; less than $1 million (less than $0.01 per diluted share) in 2012; and $1 million (less than $0.01 per diluted share) in 2011.

In 2011, we recorded an income tax expense of $34 million to write off certain deferred tax assets that we transferred to MVW in conjunction with the spin-off of our timeshare operations and timeshare development business. We impaired these assets because we considered it "more likely than not" that MVW will not be able to realize the value of those deferred tax assets. See Footnote No. 15, "Spin-off" for more information on the transaction.



## Unrecognized Tax Benefits

The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 2011 to the end of 2013:

<table><tr><td>($ in millions)</td><td>Amount</td></tr><tr><td>Unrecognized tax benefit at beginning of 2011</td><td>39</td></tr><tr><td>Change attributable to tax positions taken during a prior period</td><td>(10)</td></tr><tr><td>Change attributable to withdrawal of tax positions previously taken or expected to be taken</td><td>(6)</td></tr><tr><td>Change attributable to tax positions taken during the current period</td><td>19</td></tr><tr><td>Decrease attributable to lapse of statute of limitations</td><td>(3)</td></tr><tr><td>Unrecognized tax benefit at year-end of 2011</td><td>39</td></tr><tr><td>Change attributable to tax positions taken during the current period</td><td>12</td></tr><tr><td>Decrease attributable to settlements with taxing authorities</td><td>(20)</td></tr><tr><td>Decrease attributable to lapse of statute of limitations</td><td>(2)</td></tr><tr><td>Unrecognized tax benefit at year-end of 2012</td><td>29</td></tr><tr><td>Change attributable to tax positions taken during the current period</td><td>8</td></tr><tr><td>Decrease attributable to settlements with taxing authorities</td><td>(2)</td></tr><tr><td>Decrease attributable to lapse of statute of limitations</td><td>(1)</td></tr><tr><td>Unrecognized tax benefit at year-end of 2013</td><td>34</td></tr></table>

These unrecognized tax benefits reflect the following year-over-year changes: (1) a $5 million increase in 2013, primarily due to a U.S. federal tax issue, currently in appeals, offset by a settlement with international taxing authorities; (2) $10 million decrease in 2012, primarily reflecting the changes attributable to settlements with taxing authorities and positions taken during 2012; and (3) no net change in 2011, although 2011 included increases such as positions for our timeshare spin-off, and decreases such as the closing of the 2005-2008 Internal Revenue Service ("IRS") audits, the re-measurement of existing positions, and the lapse of statutes of limitations.

Our unrecognized tax benefit balances included $12 million at year-end 2013, $13 million at year-end 2012, and $24 million at year-end 2011 of tax positions that, if recognized, would impact our effective tax rate.

The IRS has examined our federal income tax returns, and we have settled all issues for tax years through 2009. We participate in the IRS Compliance Assurance Program, which accelerates IRS examination of key transactions with the goal of resolving any issues before the taxpayer files its return. As a result, our open tax years under audit are substantially complete while the 2013 tax year audit is currently ongoing. Various foreign, state, and local income tax returns are also under examination by the applicable taxing authorities. It is reasonably possible that we will resolve with taxing authorities an international issue ($5 million) which arose in 2011 related to financing activity and a U.S. federal issue ($21 million), currently in appeals, during the next 12 months for which we have an unrecognized tax balance of $26 million. The U.S. federal amount is offset by a related deferred tax asset. Therefore, the possible resolution of the issue will not have a material impact on our financial statements.

## Deferred Income Taxes

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we actually pay or recover the taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.

We had the following total deferred tax assets and liabilities at year-end 2013 and year-end 2012:



<table><tr><td>($ in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Deferred tax assets</td><td>$ 926</td><td>$ 950</td></tr><tr><td>Deferred tax liabilities</td><td>(60)</td><td>(25)</td></tr><tr><td>Net deferred taxes</td><td>$ 866</td><td>$ 925</td></tr></table>

The following table details the composition of our net deferred tax balances at year-end 2013 and year-end 2012:

<table><tr><td>($ in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Balance Sheet Caption</td><td></td><td></td></tr><tr><td>Current deferred taxes, net</td><td>$ 252</td><td>$ 280</td></tr><tr><td>Long-term deferred taxes, net</td><td>647</td><td>676</td></tr><tr><td>Current liabilities, other</td><td>(19)</td><td>(13)</td></tr><tr><td>Long-term liabilities, other</td><td>(14)</td><td>(18)</td></tr><tr><td>Net deferred taxes</td><td>$ 866</td><td>$ 925</td></tr></table>

The following table shows the tax effect of each type of temporary difference and carry-forward that gave rise to a significant portion of our deferred tax assets and liabilities as of year-end 2013 and year-end 2012:

<table><tr><td>($ in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Employee benefits</td><td>$ 340</td><td>$ 321</td></tr><tr><td>Net operating loss carry-forwards</td><td>293</td><td>294</td></tr><tr><td>Tax credits</td><td>273</td><td>328</td></tr><tr><td>Reserves</td><td>61</td><td>63</td></tr><tr><td>Frequent guest program</td><td>30</td><td>43</td></tr><tr><td>Self-insurance</td><td>23</td><td>19</td></tr><tr><td>Deferred income</td><td>23</td><td>4</td></tr><tr><td>Joint venture interests</td><td>(23)</td><td>(11)</td></tr><tr><td>Property, equipment, and intangible assets</td><td>(37)</td><td>(14)</td></tr><tr><td>Other, net</td><td>48</td><td>23</td></tr><tr><td>Deferred taxes</td><td>1,031</td><td>1,070</td></tr><tr><td>Less: valuation allowance</td><td>(165)</td><td>(145)</td></tr><tr><td>Net deferred taxes</td><td>$ 866</td><td>$ 925</td></tr></table>

At year-end 2013, we had approximately $40 million of tax credits that expire through 2033 and $233 million of tax credits that do not expire. We recorded $14 million of net operating loss benefits in 2013 and $50 million in 2012. At year-end 2013, we had approximately $1.5 billion of net operating losses, of which $747 million expire through 2033.



## Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate

The following table reconciles the U.S. statutory tax rate to our effective income tax rate for the last three fiscal years:

<table><tr><td></td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>U.S. statutory tax rate</td><td>35.0%</td><td>35.0%</td><td>35.0%</td></tr><tr><td>U.S. state income taxes, net of U.S. federal tax benefit</td><td>2.6</td><td>2.6</td><td>2.3</td></tr><tr><td>Nondeductible expenses</td><td>0.5</td><td>0.3</td><td>1.8</td></tr><tr><td>Non-U.S. income</td><td>(5.7)</td><td>(3.9)</td><td>(0.9)</td></tr><tr><td>Change in valuation allowance \( ^{(1)} \)</td><td>0.3</td><td>(0.2)</td><td>8.9</td></tr><tr><td>Tax credits</td><td>(0.4)</td><td>(0.4)</td><td>(1.0)</td></tr><tr><td>Other, net</td><td>(2.1)</td><td>(0.7)</td><td>(1.7)</td></tr><tr><td>Effective rate</td><td>30.2%</td><td>32.7%</td><td>44.4%</td></tr></table>

(1) Primarily for the 2011 additional impairment of certain deferred tax assets transferred to MVW, as discussed earlier in this footnote.

We paid cash for income taxes, net of refunds of $77 million in 2013 and $45 million in 2011, and received $17 million of cash for income tax refunds, net of payments in 2012.

## 3. 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.

For all share-based awards, applicable accounting guidance requires that we measure compensation costs for our share-based payment transactions at fair value on the grant date and that we recognize those costs in our Financial Statements over the vesting period during which the employee provides service ("the service period") in exchange for the award.

During 2013, we granted 2.5 million RSUs, 0.2 million service and performance RSUs, 0.7 million SARs, and 0.1 million stock options.

We recorded share-based compensation expense for award grants of $116 million in 2013, $94 million in 2012, and $103 million in 2011. Deferred compensation costs for unvested awards totaled $108 million at year-end 2013 and $122 million at year-end 2012. As of year-end 2013, we expect to recognize these deferred compensation expenses over a weighted average period of two years.

Under the guidance for share-based compensation, we present the tax benefits and costs resulting from the exercise or vesting of share-based awards as financing cash flows. The exercise of share-based awards resulted in tax benefits of $121 million in 2013 and $71 million in 2012. Due to tax losses in 2011, we recorded no tax benefit in that year.

We received cash from the exercise of Marriott stock options of $199 million in 2013, $179 million in 2012, and $124 million in 2011.

## RSUs

We issue Marriott RSUs under the Stock Plan 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 recognize compensation expense for RSUs over the service period equal to the fair market value of the stock units on the date of issuance. Upon vesting, Marriott RSUs convert to shares which we distribute from treasury shares. We also issue service and performance Marriott RSUs ("S&P RSUs") to named executive officers under the Stock Plan. In addition to generally being subject to pro-rata annual vesting conditioned on continued service consistent with the standard form of Marriott RSUs, Marriott S&P RSUs are also subject to the satisfaction of a performance condition, expressed as an EBITDA goal, for a fiscal year during the applicable service vesting period. The following information on RSUs includes S&P RSUs.

We had deferred compensation costs for RSUs of approximately $102 million at year-end 2013 and $111 million at year-end 2012. The weighted average remaining term for RSU grants outstanding at year-end 2013 was two years.



The following table provides additional information on Marriott RSUs for the last three fiscal years:

<table><tr><td></td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Share-based compensation expense (in millions)</td><td>$ 101</td><td>$ 83</td><td>$ 90</td></tr><tr><td>Weighted average grant-date fair value (per Marriott RSU)</td><td>$ 38</td><td>$ 35</td><td>$ 40</td></tr><tr><td>Aggregate intrinsic value of converted and distributed Marriott RSUs (in millions)</td><td>$ 125</td><td>$ 91</td><td>$ 113</td></tr></table>

The following table shows the 2013 changes in our outstanding Marriott RSU grants and the associated weighted average grant-date fair values:

<table><tr><td></td><td>Number of Marriott RSUs (in millions)</td><td>Weighted Average Grant-Date Fair Value (per RSU)</td></tr><tr><td>Outstanding at year-end 2012</td><td>7.4</td><td>31</td></tr><tr><td>Granted during 2013 (2)</td><td>2.7</td><td>38</td></tr><tr><td>Distributed during 2013</td><td>(3.0)</td><td>29</td></tr><tr><td>Forfeited during 2013</td><td>(0.3)</td><td>34</td></tr><tr><td>Outstanding at year-end 2013 (1)</td><td>6.8</td><td>35</td></tr></table>

(1) Includes 0.2 million Marriott RSUs held by MVW employees.

(2) Includes 0.2 million S&P RSUs granted to named executive officers.

## Stock Options and SARs

We may grant employee stock options to officers and key employees at exercise prices or strike prices that equal the market price of our common stock on the grant date. Non-qualified options generally expire 10 years after the grant date, except those we issued from 1990 through 2000, which expire 15 years after their grant date. Most stock options under the Stock Option Program may be exercised in cumulative installments of one quarter at the end of each of the first four years following the grant date.

We recognized compensation expense for employee stock options of $2 million in 2013, $1 million in 2012, and less than $1 million in 2011. We had deferred compensation costs for employee stock options of $2 million at year-end 2013 and $3 million at year-end 2012. When holders exercise Marriott stock options we issue shares from treasury shares.

The following table shows the 2013 changes in our outstanding Marriott Stock Option Program awards and the associated weighted average exercise prices:

<table><tr><td></td><td>Number of Marriott Stock Options (in millions)</td><td>Weighted Average Exercise Price (per Option)</td></tr><tr><td>Outstanding at year-end 2012</td><td>9.5</td><td>19</td></tr><tr><td>Granted during 2013</td><td>0.1</td><td>39</td></tr><tr><td>Exercised during 2013</td><td>(5.0)</td><td>17</td></tr><tr><td>Forfeited during 2013</td><td>—</td><td>46</td></tr><tr><td>Outstanding at year-end 2013 (1)</td><td>4.6</td><td>22</td></tr></table>

(1) Includes 0.1 million Marriott stock options held by MVW employees.

The following table shows the Marriott stock options issued under the Stock Option Program awards outstanding at year-end 2013, as well as those exercisable on that date (those where the exercise price was less than the market price of our common stock on that date):



<table><tr><td rowspan="2"></td><td rowspan="2" colspan="4">Range of Exercise Prices</td><td colspan="4">Outstanding</td><td colspan="4">Exercisable</td></tr><tr><td>Number of Stock Options (in millions)</td><td>Weighted Average Exercise Price (per Option)</td><td>Weighted Average Remaining Life (in years)</td><td>Number of Stock Options (in millions)</td><td>Weighted Average Exercise Price (per Option)</td><td>Weighted Average Remaining Life (in years)</td><td></td><td></td><td></td></tr><tr><td>$</td><td>13</td><td>to</td><td>$</td><td>17</td><td>2.5</td><td>$</td><td>16</td><td>1</td><td>2.5</td><td>$</td><td>16</td><td>1</td></tr><tr><td></td><td>18</td><td>to</td><td></td><td>22</td><td>0.6</td><td>22</td><td>1</td><td>0.6</td><td></td><td>22</td><td>1</td><td></td></tr><tr><td></td><td>23</td><td>to</td><td></td><td>46</td><td>1.5</td><td>32</td><td>4</td><td>1.1</td><td></td><td>30</td><td>3</td><td></td></tr><tr><td></td><td>13</td><td>to</td><td></td><td>46</td><td>4.6</td><td>22</td><td>2</td><td>4.2</td><td></td><td>21</td><td>2</td><td></td></tr></table>

The following table shows the number of Marriott stock options we granted in the last three fiscal years and the associated weighted average grant-date fair values and weighted average exercise prices:

<table><tr><td></td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Options granted</td><td>96,960</td><td>255,761</td><td>19,192</td></tr><tr><td>Weighted average grant-date fair value (per option)</td><td>$ 13</td><td>$ 12</td><td>$ 15</td></tr><tr><td>Weighted average exercise price (per option)</td><td>$ 39</td><td>$ 35</td><td>$ 38</td></tr></table>

The following table shows the intrinsic value (the amount by which the market price of the underlying common stock exceeded the aggregate exercise price of the stock option) of all outstanding Marriott stock options and of exercisable Marriott stock options at year-end 2013 and 2012:

<table><tr><td>($ in millions)</td><td>2013</td><td>2012</td></tr><tr><td>Outstanding stock options</td><td>$ 126</td><td>$ 169</td></tr><tr><td>Exercisable stock options</td><td>121</td><td>168</td></tr></table>

Marriott stock options exercised during the last three years had total intrinsic values of approximately $131 million in 2013, $158 million in 2012, and $124 million in 2011.

We may grant Marriott SARs to officers and key employees ("Employee SARs") at base values (exercise prices or strike prices) equal to the market price of our common stock on the grant date. Employee SARs 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. We may grant Marriott SARs to directors ("Director SARs") at exercise prices or strike prices equal to the market price of our common stock on the grant date. Director SARs generally expire ten years after the date of grant and vest upon grant; however, they are generally not exercisable until one year after grant. On exercise of Marriott SARs, holders receive the number of shares of our common stock equal to the number of SARs that are being exercised multiplied by the quotient of (a) the final value minus the base value, divided by (b) the final value.

We recognized compensation expense for Employee SARs and Director SARs of $12 million in 2013, $9 million in 2012, and $12 million in 2011. We had deferred compensation costs related to SARs of approximately $4 million in 2013 and $8 million in 2012. Upon the exercise of Marriott SARs, we issue shares from treasury shares.

The following table shows the 2013 changes in our outstanding Marriott SARs and the associated weighted average exercise prices:

<table><tr><td></td><td>Number of SARs (in millions)</td><td>Weighted Average Exercise Price</td></tr><tr><td>Outstanding at year-end 2012</td><td>6.2</td><td>$ 31</td></tr><tr><td>Granted during 2013</td><td>0.7</td><td>39</td></tr><tr><td>Exercised during 2013</td><td>(0.5)</td><td>30</td></tr><tr><td>Forfeited during 2013</td><td>—</td><td>41</td></tr><tr><td>Outstanding at year-end 2013 (1)</td><td>6.4</td><td>$ 32</td></tr></table>

(1) Includes 0.2 million Marriott SARs held by MVW employees.



The following tables show the number of Employee Marriott SARs and Director Marriott SARs we granted in the last three fiscal years, the associated weighted average exercise prices, and the associated weighted average grant-date fair values:

<table><tr><td>Employee Marriott SARs</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Employee Marriott SARs granted (in millions)</td><td>0.7</td><td>1.0</td><td>0.7</td></tr><tr><td>Weighted average exercise price (per SAR)</td><td>$ 39</td><td>$ 35</td><td>$ 38</td></tr><tr><td>Weighted average grant-date fair value (per SAR)</td><td>$ 13</td><td>$ 12</td><td>$ 14</td></tr><tr><td>Director Marriott SARs</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Director Marriott SARs granted</td><td>5,903</td><td>5,915</td><td>—</td></tr><tr><td>Weighted average exercise price (per SAR)</td><td>$ 44</td><td>$ 39</td><td>$ —</td></tr><tr><td>Weighted average grant-date fair value (per SAR)</td><td>$ 15</td><td>$ 14</td><td>$ —</td></tr></table>

Outstanding Marriott SARs had total intrinsic values of $111 million at year-end 2013 and $37 million at year-end 2012. Exercisable Marriott SARs had total intrinsic values of $82 million at year-end 2013 and $24 million at year-end 2012. Marriott SARs exercised during 2013 had total intrinsic values of $6 million and Marriott SARs exercised in 2012 had total intrinsic values of $2 million.

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 and non-employee director 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 and non-employee directors in 2013 and 2012, and to employees in 2011 (we did not grant SARs to non-employee directors in 2011):

<table><tr><td></td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Expected volatility</td><td>30 - 31%</td><td>31%</td><td>32%</td></tr><tr><td>Dividend yield</td><td>1.17%</td><td>1.01%</td><td>0.73%</td></tr><tr><td>Risk-free rate</td><td>1.8 - 1.9%</td><td>1.7 - 2.0%</td><td>3.4%</td></tr><tr><td>Expected term (in years)</td><td>8 - 10</td><td>8 - 10</td><td>8</td></tr></table>

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. In recent years, non-employee directors have generally exercised grants in their last year of exercisability.

## Deferred Stock Units

We also issue Marriott deferred stock units to non-employee directors. These non-employee director deferred stock units vest within one year and are distributed upon election.

The following table shows the share-based compensation expense, the number of deferred stock units we granted, the weighted average grant-date fair value, and the aggregate intrinsic value for the last three fiscal years for non-employee director Marriott deferred stock units:



<table><tr><td></td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Share-based compensation expense (in millions)</td><td>$ 1.4</td><td>$ 1.2</td><td>$ 1.1</td></tr><tr><td>Non-employee director deferred stock units granted</td><td>31,000</td><td>27,000</td><td>29,000</td></tr><tr><td>Weighted average grant-date fair value (per share)</td><td>$ 44</td><td>$ 39</td><td>$ 36</td></tr><tr><td>Aggregate intrinsic value of shares distributed (in millions)</td><td>$ 0.7</td><td>$ 1.0</td><td>$ 1.4</td></tr></table>

We had 261,000 outstanding non-employee Marriott deferred stock units at year-end 2013, and 245,000 outstanding at year-end 2012. The weighted average grant-date fair value of those outstanding deferred stock units was $22 for 2013 and $27 for 2012.

## Adjustments for the Timeshare Spin-off

Effective with the spin-off (see Footnote No. 15, "Spin-off," for further information), each holder of Marriott RSUs, stock options, and SARs on the November 10, 2011 record date for the spin-off received MVW RSUs, MVW stock options and/or MVW SARs, as applicable, consistent with the distribution ratio of one share of MVW common stock for every ten shares of Marriott common stock, with terms and conditions substantially similar to the terms and conditions applicable to the Marriott RSUs, stock options and SARs. In order to preserve the aggregate intrinsic value of the Marriott stock options and SARs those persons held, we adjusted the exercise prices of our awards by using the proportion of the Marriott ex-distribution closing stock price to the sum of the Marriott ex-distribution and MVW when issued closing stock prices on the distribution date. We accounted for these adjustments, which were designed to equalize the fair value of each award before and after spin-off, as modifications to the original awards. Comparing the fair value of the modified awards with the fair value of the original awards immediately before the modification did not yield incremental value. Accordingly, we did not record any incremental compensation expense as a result of the modifications to the awards on the spin-off date.

The equity award adjustments that occurred as a result of the spin-off also did not significantly impact our share-based compensation expense. Deferred compensation costs as of the date of spin-off reflected the unamortized balance of the original grant date fair value of the equity awards held by Marriott employees (regardless of whether those awards are linked to Marriott stock or MVW stock). MVW employees who participated in the Stock Plan before the spin-off continued to hold their Marriott granted awards as non-employees after the spin-off. We do not record any share-based compensation expense for these unvested awards held by MVW employees after the spin-off.

## Other Information

At year-end 2013, we reserved 32 million shares under the Stock Plan, including 11 million shares under the Stock Option Program and the SAR Program.

## 4. 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:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">At Year-End 2013</td><td colspan="3">At Year-End 2012</td></tr><tr><td colspan="2">Carrying Amount</td><td colspan="2">Fair Value</td><td>Carrying Amount</td><td>Fair Value</td></tr><tr><td>Cost method investments</td><td>$</td><td>16</td><td>$</td><td>17</td><td>$</td><td>21</td></tr><tr><td>Senior, mezzanine, and other loans</td><td></td><td>142</td><td></td><td>145</td><td></td><td>180</td></tr><tr><td>Marketable securities and other debt securities</td><td></td><td>111</td><td></td><td>111</td><td></td><td>56</td></tr><tr><td>Total long-term financial assets</td><td>$</td><td>269</td><td>$</td><td>273</td><td>$</td><td>257</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Senior Notes</td><td>$</td><td>(2,185)</td><td>$</td><td>(2,302)</td><td>$</td><td>(1,833)</td></tr><tr><td>Commercial paper</td><td></td><td>(834)</td><td></td><td>(834)</td><td></td><td>(501)</td></tr><tr><td>Other long-term debt</td><td></td><td>(123)</td><td></td><td>(124)</td><td></td><td>(130)</td></tr><tr><td>Other long-term liabilities</td><td></td><td>(50)</td><td></td><td>(50)</td><td></td><td>(69)</td></tr><tr><td>Total long-term financial liabilities</td><td>$</td><td>(3,192)</td><td>$</td><td>(3,310)</td><td>$</td><td>(2,533)</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>



We estimate the fair value of our cost method investments by applying a cap rate to stabilized earnings (a market approach using Level 3 inputs). During the 2012 third quarter, we determined that a cost method investment was other-than-temporarily impaired and, accordingly, we recorded the investment at its fair value as of the end of the 2012 third quarter ($12 million) and reflected a $7 million loss in the "Gains (losses) and other income" caption of our Income Statement. We estimated the fair value of the investment using cash flow projections discounted at risk premiums commensurate with market conditions. We used Level 3 inputs for these discounted cash flow analyses and our assumptions included revenue forecasts, cash flow projections, and timing of the sale of each hotel in the underlying investment.

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 carry our marketable securities at fair value. Our marketable securities include 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, which we value using directly observable Level 1 inputs. The carrying value of these marketable securities at year-end 2013 was $41 million.

In the 2013 second quarter, we acquired a $65 million mandatorily redeemable preferred equity ownership interest in an entity that owns three hotels that we manage. We account for this investment as a debt security (with an amortized cost of $70 million at year-end 2013, including accrued interest income), and we include it in the "Marketable securities and other debt securities" caption in the preceding table. We estimated the $70 million fair value of this security by discounting cash flows using risk-adjusted rates, both of which are Level 3 inputs. This security matures in 2015 subject to annual extensions through 2018. We do not intend to sell this security and it is not more likely than not that we will be required to sell the investment before recovery of the amortized cost basis, which may be at maturity.

In the 2013 second quarter, we received $22 million in net cash proceeds for the sale of a portion of our shares of a publicly traded company (with an amortized cost of $14 million at the date of sale) and recognized an $8 million gain in the "Gains (losses) and other income" caption of our Income Statement. This gain included recognition of unrealized gains that we previously recorded in other comprehensive income. See Footnote No. 12, "Comprehensive Income and Shareholders' (Deficit) Equity" for additional information on the reclassification of these unrealized gains from accumulated other comprehensive income.

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. 10, "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 year-end 2013 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 guarantees. As noted in the "Guarantees" caption of Footnote No. 1, "Summary of Significant Accounting Policies," 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 year-end 2013 and year-end 2012, we determined that the carrying values of our guarantee liabilities approximated their fair values based on Level 3 inputs.

See the “Fair Value Measurements” caption of Footnote No. 1, “Summary of Significant Accounting Policies” for more information on the input levels we use in determining fair value.

## 5. 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:



<table><tr><td></td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Computation of Basic Earnings Per Share</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 626</td><td>$ 571</td><td>$ 198</td></tr><tr><td>Weighted average shares outstanding</td><td>305.0</td><td>322.6</td><td>350.1</td></tr><tr><td>Basic earnings per share</td><td>$ 2.05</td><td>$ 1.77</td><td>$ 0.56</td></tr><tr><td>Computation of Diluted Earnings Per Share</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 626</td><td>$ 571</td><td>$ 198</td></tr><tr><td>Weighted average shares outstanding</td><td>305.0</td><td>322.6</td><td>350.1</td></tr><tr><td>Effect of dilutive securities</td><td></td><td></td><td></td></tr><tr><td>Employee stock option and SARs plans</td><td>4.0</td><td>6.1</td><td>8.0</td></tr><tr><td>Deferred stock incentive plans</td><td>0.8</td><td>0.9</td><td>0.9</td></tr><tr><td>Restricted stock units</td><td>3.2</td><td>3.3</td><td>3.3</td></tr><tr><td>Shares for diluted earnings per share</td><td>313.0</td><td>332.9</td><td>362.3</td></tr><tr><td>Diluted earnings per share</td><td>$ 2.00</td><td>$ 1.72</td><td>$ 0.55</td></tr></table>

We compute the effect of dilutive securities using the treasury stock method and average market prices during the period. We have excluded the following antidilutive stock options and SARs in our calculation of diluted earnings per share because their exercise prices were greater than the average market prices for the applicable periods:

(a) for 2013, 0.4 million options and SARs;

(b) for 2012, 1.0 million options and SARs; and

(c) for 2011, 4.1 million options and SARs.

## 6. PROPERTY AND EQUIPMENT

The following table shows the composition of our property and equipment balances at year-end 2013 and 2012:

<table><tr><td>($ in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Land</td><td>$ 535</td><td>$ 590</td></tr><tr><td>Buildings and leasehold improvements</td><td>786</td><td>703</td></tr><tr><td>Furniture and equipment</td><td>789</td><td>854</td></tr><tr><td>Construction in progress</td><td>338</td><td>383</td></tr><tr><td></td><td>2,448</td><td>2,530</td></tr><tr><td>Accumulated depreciation</td><td>(905)</td><td>(991)</td></tr><tr><td></td><td>$ 1,543</td><td>$ 1,539</td></tr></table>

The following table shows the composition of these property and equipment balances that we recorded as capital leases:

<table><tr><td>($ in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Land</td><td>$ 8</td><td>$ 30</td></tr><tr><td>Buildings and leasehold improvements</td><td>68</td><td>143</td></tr><tr><td>Furniture and equipment</td><td>37</td><td>38</td></tr><tr><td>Construction in progress</td><td>1</td><td>4</td></tr><tr><td></td><td>114</td><td>215</td></tr><tr><td>Accumulated depreciation</td><td>(83)</td><td>(82)</td></tr><tr><td></td><td>$ 31</td><td>$ 133</td></tr></table>

We record property and equipment at cost, including interest and real estate taxes we incur during development and construction. Interest we capitalized as a cost of property and equipment totaled $31 million in 2013, $27 million in 2012, and $12 million in 2011. We capitalize the cost of improvements that extend the useful life of property and equipment when we incur them. These capitalized costs may include structural costs, equipment, fixtures, floor, and wall coverings. We expense all



repair and maintenance costs when we incur them. We compute depreciation using the straight-line method over the estimated useful lives of the assets (three to 40 years), and we amortize leasehold improvements over the shorter of the asset life or lease term. Our depreciation expense totaled $107 million in 2013, $93 million in 2012, and $130 million in 2011 (including reimbursed costs of $48 million in 2013, $45 million in 2012, and $43 million in 2011). We included amortization of assets recorded under capital leases in depreciation expense.

See Footnote No. 15, "Spin-off" for additional information on the $68 million property and equipment impairment charge we recorded in 2011 as part of the Timeshare strategy-impaired charges.

## 7. ACQUISITIONS AND DISPOSITIONS

## 2013 Acquisition

On October 4, 2013, we acquired a North American Full-Service managed property which we plan to renovate for a total of $115 million in cash and recognized the related property and equipment.

## Planned Acquisition as of Year-End 2013

Late in the 2013 fourth quarter, we entered into a definitive agreement with Protea Hospitality Holdings ("Protea Hospitality") of Cape Town, South Africa to acquire Protea Hotels' brands and hotel management business for approximately $186 million (2.02 billion rand). As part of the transaction, Protea Hospitality will create a property ownership company to retain ownership of the hotels it currently owns, and it will enter into long-term management and lease agreements with Marriott for these hotels. It would also retain a number of minority interests in other Protea-managed hotels. Once the transaction closes, we expect to add over 100 hotels (over 10,000 rooms) across three brands in South Africa and six other Sub-Saharan African countries to our International full-service portfolio. We expect to manage approximately 45 percent of the rooms, franchise approximately 39 percent of the rooms, and lease approximately 16 percent of the rooms. The transaction, which we expect will close at the beginning of the 2014 second quarter, remains subject to regulatory approvals and other customary closing conditions.

## Planned Dispositions as of Year-End 2013

In the beginning of the 2014 first quarter, we sold The London EDITION to a third party, received approximately $240 million in cash, and simultaneously entered into definitive agreements to sell The Miami and The New York EDITION hotels that we are currently developing to the same third party. The total sales price for the three EDITION hotels will be $815 million, approximately equal to the aggregate estimated development costs of the three hotels. At year-end 2013, we had $244 million in Luxury segment assets related to The London EDITION ($236 million in property and equipment and $8 million in current assets) classified in the "Assets held for sale" caption and $13 million in Luxury segment liabilities classified in liabilities held for sale within the "Other current liabilities" caption of the Balance Sheet. We expect to sell The Miami EDITION in the second half of 2014 and The New York EDITION in the first half of 2015, when we anticipate that construction will be complete. We will retain long-term management agreements for each of the three hotels sold. We did not reclassify The Miami EDITION or The New York EDITION assets and liabilities as held for sale because the hotels are under construction and not available for immediate sale in their present condition.

In the 2013 fourth quarter, we entered into an agreement to sell our right to acquire the landlord’s interest in a leased real estate property and certain attached assets of the property. We subsequently reclassified the related $106 million (€77 million) in International segment assets ($105 million (€76 million) in property and equipment and $1 million (€1 million) in current assets) to the "Assets held for sale" caption of the Balance Sheet and $48 million (€35 million) in International segment liabilities to liabilities held for sale within the "Other current liabilities" caption of the Balance Sheet as of year-end 2013. We recognized an impairment loss of $2 million (€2 million) in the "Gains (losses) and other income" caption of our Income Statement as a result of measuring the assets at fair value less costs to sell. After year-end 2013, we sold the right and attached assets for $62 million (€45 million) in cash and the assumption of $45 million (€33 million) of related obligations. We will continue to operate the property under a long-term management agreement.

## 2012 Acquisitions

In 2012, we entered into a definitive agreement with Gaylord Entertainment Company (subsequently renamed Ryman Hospitality Properties, Inc.) ("Ryman Hospitality") to acquire the Gaylord brand and hotel management company. On September 25, 2012, Ryman Hospitality's shareholders approved its conversion into a real estate investment trust. On October 1, 2012, we acquired the Gaylord Hotels brand and hotel management company for $210 million in cash and recognized $210 million in intangible assets at the acquisition date, primarily reflecting deferred contract acquisition costs. Ryman Hospitality continues to own the Gaylord hotels, which we manage under the Gaylord brand under long-term management agreements.



This transaction added four hotels and approximately 7,800 rooms to our North American Full-Service segment, and included our entering into management agreements for several attractions at the Gaylord Opryland in Nashville, consisting of a showboat, a golf course, and a saloon. As part of the transaction, on December 1, 2012 we also assumed management of another hotel owned by Ryman Hospitality, the Inn at Opryland, with approximately 300 rooms.

In the 2012 fourth quarter, we acquired land for $32 million in cash that we expect will be developed into a hotel. Earlier in 2012, we also acquired land and a building we plan to develop into a hotel for $160 million in cash. In conjunction with the latter acquisition, we had also made a cash deposit of $6 million late in 2011.

## 2012 Dispositions

In 2012, we completed the sale of our equity interest in a North American Limited-Service joint venture (formerly two joint ventures which were merged before the sale) and we amended certain provisions of the management agreements for the underlying hotel portfolio. As a result of this transaction, we received cash proceeds of $96 million, including $30 million of proceeds which is refundable by us over the term of the management agreements if the hotel portfolio does not meet certain quarterly hotel performance thresholds. To the extent the hotel portfolio meets the quarterly hotel performance thresholds, we will recognize the $30 million of proceeds over the remaining term of the management agreements as base fee revenue. In 2012, we recognized a gain of $41 million, which consisted of: (1) $20 million of gain that we deferred in 2005 because we retained the equity interest following the original sale of land to one of the joint ventures and because there were contingencies for the 2005 transaction that expired with this sale; and (2) $21 million of gain on the sale of the equity interest. We also recognized base management fee revenue totaling $7 million, most of which we had deferred in earlier periods, but which we earned in conjunction with the sale.

We also sold our ExecuStay corporate housing business in 2012. Neither the sales price nor the gain we recognized was material to our results of operations and cash flows. The revenues, results of operations, assets, and liabilities of our ExecuStay business also were not material to our financial position, results of operations or cash flows for any of the periods presented, and accordingly we have not reflected ExecuStay as a discontinued operation.

## 2011 Acquisitions

In 2011, we contributed approximately $51 million (€37 million) in cash for the intellectual property and associated 50 percent interests in two new joint ventures formed for the operation, management, and development of AC Hotels by Marriott, initially in Europe but eventually in other parts of the world. The hotels are managed by the joint ventures or franchised at the direction of the joint ventures. As we note in Footnote No. 13, “Contingencies,” we have a right and, in some circumstances, an obligation to acquire the remaining interest in the joint ventures over the next seven years.

In 2011, we acquired certain assets and a leasehold on a hotel for an initial payment of $34 million (€25 million) in cash plus fixed annual rent. See Footnote No. 17, “Leases,” for more information. As we note in Footnote No. 13, “Contingencies,” we also had a right and, in some circumstances, an obligation to acquire the landlord’s interest in the real estate property and certain attached assets of this hotel for $45 million (€33 million). As discussed in the "Planned Dispositions as of Year-End 2013" caption, after year-end 2013, we sold that right and certain attached assets.

## 2011 Dispositions

On November 21, 2011, we completed the spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our then wholly owned subsidiary MVW. The dividend consisted of a pro rata distribution of one share of MVW common stock for every ten shares of Marriott common stock to our shareholders of record at the close of business on November 10, 2011. We recognized no gain or loss as a result of the spin-off. See Footnote No. 15, "Spin-off," for more information.

In 2011, we completed a bulk sale of land and developed inventory for net cash proceeds of $17 million and recorded a net gain of $2 million, which we included in the results of our former Timeshare segment.

In 2011, we also sold our 11 percent interest in one hotel, concurrently terminated the associated lease agreement, and entered into a long-term management agreement. Cash proceeds totaled $1 million, and we recognized a $2 million loss. We accounted for our sale of the 89 percent interest in 1999 under the financing method and reflected the sales proceeds received in 1999 as long-term debt. In conjunction with the 2011 sale of the remaining 11 percent interest, our assets decreased by $19 million and liabilities decreased by $17 million.



## 8. GOODWILL AND INTANGIBLE ASSETS

The following table details the composition of our other intangible assets at year-end 2013 and 2012:

<table><tr><td>(\( in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Contract acquisition costs and other</td><td>$ 1,554</td><td>$ 1,512</td></tr><tr><td>Accumulated amortization</td><td>(423)</td><td>(397)</td></tr><tr><td></td><td>$ 1,131</td><td>$ 1,115</td></tr></table>

We capitalize both direct and incremental costs that we incur to acquire management, franchise, and license agreements. We amortize these costs on a straight-line basis over the initial term of the agreements, ranging from 15 to 30 years. Our amortization expense totaled $68 million in 2013, $54 million in 2012, and $57 million in 2011. Our estimated aggregate amortization expense for each of the next five fiscal years is as follows: $59 million for 2014; $59 million for 2015; $59 million for 2016; $59 million for 2017; and $59 million for 2018.

The following table details the carrying amount of our goodwill at year-end 2013 and 2012:

<table><tr><td>(\( in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Goodwill</td><td>$ 928</td><td>$ 928</td></tr><tr><td>Accumulated impairment losses</td><td>(54)</td><td>(54)</td></tr><tr><td></td><td>$ 874</td><td>$ 874</td></tr></table>

## 9. NOTES RECEIVABLE

The following table shows the composition of our notes receivable balances (net of reserves and unamortized discounts) at year-end 2013 and 2012:

<table><tr><td>(\( in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Senior, mezzanine, and other loans</td><td>$ 178</td><td>$ 242</td></tr><tr><td>Less current portion</td><td>(36)</td><td>(62)</td></tr><tr><td></td><td>$ 142</td><td>$ 180</td></tr></table>

We classify notes receivable due within one year as current assets in the caption “Accounts and notes receivable” in our Balance Sheets.

The following table shows the expected future principal payments (net of reserves and unamortized discounts) as well as interest rates and unamortized discounts for our notes receivable as of year-end 2013:

<table><tr><td colspan="2">Notes Receivable Principal Payments (net of reserves and unamortized discounts) and Interest Rates (\$ in millions)</td><td>Amount</td></tr><tr><td>2014</td><td>$ 36</td><td></td></tr><tr><td>2015</td><td>85</td><td></td></tr><tr><td>2016</td><td>4</td><td></td></tr><tr><td>2017</td><td>3</td><td></td></tr><tr><td>2018</td><td>5</td><td></td></tr><tr><td>Thereafter</td><td>45</td><td></td></tr><tr><td>Balance at year-end 2013</td><td>$ 178</td><td></td></tr><tr><td>Weighted average interest rate at year-end 2013</td><td>4.6%</td><td></td></tr><tr><td>Range of stated interest rates at year-end 2013</td><td>0 to 8.0%</td><td></td></tr></table>

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



<table><tr><td>Notes Receivable Unamortized Discounts (\ in millions)</td><td>Amount</td></tr><tr><td>Balance at year-end 2012</td><td>$ 11</td></tr><tr><td>Balance at year-end 2013</td><td>$ 12</td></tr></table>

## Senior, Mezzanine, and Other Loans

Generally, all of the loans we make have similar characteristics in that they are loans to owners and operators of hotels and hospitality properties. We reflect interest income for “Senior, mezzanine, and other loans” in the “Interest income” caption in our Income Statements. At year-end 2013, our recorded investment in impaired “Senior, mezzanine, and other loans” was $99 million. We had a $90 million notes receivable reserve representing an allowance for credit losses, leaving $9 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 $96 million during 2013, $94 million during 2012, and $89 million during 2011.

The following table summarizes the activity for our “Senior, mezzanine, and other loans” notes receivable reserve for 2011, 2012, and 2013:

<table><tr><td>(\( in millions)</td><td>Notes Receivable Reserve</td></tr><tr><td>Balance at year-end 2010</td><td>$ 74</td></tr><tr><td>Additions</td><td>2</td></tr><tr><td>Write-offs</td><td>(7)</td></tr><tr><td>Transfers and other</td><td>9</td></tr><tr><td>Balance at year-end 2011</td><td>78</td></tr><tr><td>Additions</td><td>2</td></tr><tr><td>Reversals</td><td>(1)</td></tr><tr><td>Write-offs</td><td>(1)</td></tr><tr><td>Transfers and other</td><td>1</td></tr><tr><td>Balance at year-end 2012</td><td>79</td></tr><tr><td>Reversals</td><td>(2)</td></tr><tr><td>Transfers and other</td><td>13</td></tr><tr><td>Balance at year-end 2013</td><td>$ 90</td></tr></table>

Past due senior, mezzanine, and other loans totaled zero at year-end 2013 and $7 million at year-end 2012.

## 10. LONG-TERM DEBT

We provide detail on our long-term debt balances at year-end 2013 and 2012 in the following table:



<table><tr><td>($ in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Senior Notes:</td><td></td><td></td></tr><tr><td>Series G, interest rate of 5.8%, face amount of $316, maturing November 10, 2015 (effective interest rate of 6.7%) \( ^{1)} \)</td><td>$ 312</td><td>$ 309</td></tr><tr><td>Series H, interest rate of 6.2%, face amount of $289, maturing June 15, 2016 (effective interest rate of 6.4%) \( ^{1)} \)</td><td>289</td><td>289</td></tr><tr><td>Series I, interest rate of 6.4%, face amount of $293, maturing June 15, 2017 (effective interest rate of 6.5%) \) ^{1)}</td><td>292</td><td>292</td></tr><tr><td>Series J, matured February 15, 2013</td><td>—</td><td>400</td></tr><tr><td>Series K, interest rate of 3.0%, face amount of $600, maturing March 1, 2019 (effective interest rate of 4.4%) \) ^{1)}</td><td>595</td><td>594</td></tr><tr><td>Series L, interest rate of 3.3%, face amount of $350, maturing September 15, 2022 (effective interest rate of 3.4%) \) ^{1)}</td><td>349</td><td>349</td></tr><tr><td>Series M, interest rate of 3.4%, face amount of $350, maturing October 15, 2020 (effective interest rate of 3.6%) \( ^{1)} \)</td><td>348</td><td>—</td></tr><tr><td>Commercial paper, average interest rate of 0.4% at December 31, 2013</td><td>834</td><td>501</td></tr><tr><td>$2,000 Credit Facility</td><td>—</td><td>15</td></tr><tr><td>Other</td><td>180</td><td>186</td></tr><tr><td></td><td>3,199</td><td>2,935</td></tr><tr><td>Less current portion classified in:</td><td></td><td></td></tr><tr><td>Other current liabilities (liabilities held for sale)</td><td>(46)</td><td>—</td></tr><tr><td>Current portion of long-term debt</td><td>(6)</td><td>(407)</td></tr><tr><td></td><td>$ 3,147</td><td>$ 2,528</td></tr></table>

(1) Face amount and effective interest rate are as of year-end 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.

In the 2013 third quarter, we issued $350 million aggregate principal amount of 3.4 percent Series M Notes due 2020 (the "Series M Notes"). We received net proceeds of approximately $345 million from the offering, after deducting the underwriting discount and estimated expenses. We will pay interest on the Series M Notes on April 15 and October 15 of each year, commencing on April 15, 2014. The Notes will mature on October 15, 2020, and we may redeem them, in whole or in part, at our option.

In 2012, we issued $350 million aggregate principal amount of 3.3 percent Series L Notes due 2022 (the "Series L Notes"). We received net proceeds of approximately $346 million from the offering, after deducting the underwriting discount and estimated expenses. We pay interest on the Series L Notes on March 15 and September 15 of each year, and we made our first interest payment on March 15, 2013. The Notes will mature on September 15, 2022, and we may redeem them, in whole or in part, at our option.

In 2012, we also issued $600 million aggregate principal amount of 3.0 percent Series K Notes due 2019 (the "Series K Notes") in two offerings, one for $400 million and a follow on for $200 million. We received total net proceeds of approximately $590 million from these offerings, after deducting underwriting discounts and estimated expenses. We pay interest on the Series K Notes on March 1 and September 1 of each year, and we made our first interest payment on September 1, 2012. The Notes will mature on March 1, 2019, and we may redeem them, in whole or in part, at our option.

We issued the Series M Notes, Series L Notes, and the Series K Notes under an indenture dated as of November 16, 1998 with The Bank of New York Mellon, as successor to JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan Bank), as trustee.

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. In 2012, we made a $356 million cash payment of principal and interest to retire, at maturity, all of our outstanding Series F Notes.

We are party to a multicurrency revolving credit agreement (the “Credit Facility”) that provides for $2,000 million of aggregate borrowings to support general corporate needs, including working capital, capital expenditures, and letters of credit. The Credit Facility expires on July 18, 2018. The availability of the Credit Facility also supports our commercial paper program. Borrowings under the Credit Facility generally 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 (net of unamortized discounts) for our debt in the following table:

<table><tr><td>Debt Principal Payments (net of unamortized discounts) (\ in millions)</td><td>Amount</td></tr><tr><td>2014</td><td>$ 52</td></tr><tr><td>2015</td><td>319</td></tr><tr><td>2016</td><td>297</td></tr><tr><td>2017</td><td>301</td></tr><tr><td>2018</td><td>843</td></tr><tr><td>Thereafter</td><td>1,387</td></tr><tr><td>Balance at year-end 2013</td><td>$ 3,199</td></tr></table>

We paid cash for interest, net of amounts capitalized, of $83 million in 2013, $83 million in 2012, and $130 million in 2011.

## 11. SELF-INSURANCE RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table summarizes the activity in our self-insurance reserve for losses and loss adjustment expenses for the last two fiscal years:

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td></tr><tr><td>Balance at beginning of year</td><td>$ 342</td><td>$ 330</td></tr><tr><td>Less: reinsurance recoverable</td><td>(5)</td><td>(5)</td></tr><tr><td>Net balance at beginning of year</td><td>337</td><td>325</td></tr><tr><td>Incurred related to:</td><td></td><td></td></tr><tr><td>Current year</td><td>116</td><td>108</td></tr><tr><td>Prior year</td><td>8</td><td>(11)</td></tr><tr><td>Total incurred</td><td>124</td><td>97</td></tr><tr><td>Paid related to:</td><td></td><td></td></tr><tr><td>Current year</td><td>(25)</td><td>(28)</td></tr><tr><td>Prior year</td><td>(79)</td><td>(57)</td></tr><tr><td>Total paid</td><td>(104)</td><td>(85)</td></tr><tr><td>Net balance at end of year</td><td>357</td><td>337</td></tr><tr><td>Add: reinsurance recoverable</td><td>5</td><td>5</td></tr><tr><td>Balance at end of year</td><td>$ 362</td><td>$ 342</td></tr></table>

Our provision for incurred losses relating to the current year increased by $8 million over 2012 primarily due to an increase in medical benefit costs and growth in business activity. Our provision for incurred losses relating to prior years increased by $8 million in 2013 and decreased by $11 million in 2012 as a result of changes in estimates from insured events from prior years due to changes in underwriting experience and frequency and severity trends. Our year-end 2013 self-insurance reserve of $362 million consisted of a current portion of $120 million and long-term portion of $242 million. Our year-end 2012 self-insurance reserve of $342 million consisted of a current portion of $103 million and long-term portion of $239 million.

## 12. COMPREHENSIVE INCOME AND SHAREHOLDERS' (DEFICIT) EQUITY

The following table details the accumulated other comprehensive income (loss) activity for 2013, 2012, and 2011:



<table><tr><td>($ in millions)</td><td>Foreign Currency Translation Adjustments</td><td>Other Derivative Instrument Adjustments (1)</td><td>Unrealized Gains (Losses) on Available-For-Sale Securities (2)</td><td>Accumulated Other Comprehensive Loss</td></tr><tr><td>Balance at year-end 2010</td><td>$ (4)</td><td>$ 2</td><td>—</td><td>$ (2)</td></tr><tr><td>Other comprehensive loss before reclassifications</td><td>(31)</td><td>(20)</td><td>(3)</td><td>(54)</td></tr><tr><td>Amounts reclassified from accumulated other comprehensive loss</td><td>(2)</td><td>—</td><td>10</td><td>8</td></tr><tr><td>Net other comprehensive (loss) income</td><td>(33)</td><td>(20)</td><td>7</td><td>(46)</td></tr><tr><td>Balance at year-end 2011</td><td>$ (37)</td><td>$ (18)</td><td>$ 7</td><td>$ (48)</td></tr><tr><td>Other comprehensive income (loss) before reclassifications</td><td>4</td><td>(2)</td><td>—</td><td>2</td></tr><tr><td>Amounts reclassified from accumulated other comprehensive loss</td><td>1</td><td>1</td><td>—</td><td>2</td></tr><tr><td>Net other comprehensive income (loss)</td><td>5</td><td>(1)</td><td>—</td><td>4</td></tr><tr><td>Balance at year-end 2012</td><td>$ (32)</td><td>$ (19)</td><td>$ 7</td><td>$ (44)</td></tr><tr><td>Other comprehensive income before reclassifications</td><td>1</td><td>—</td><td>5</td><td>6</td></tr><tr><td>Amounts reclassified from accumulated other comprehensive loss</td><td>—</td><td>—</td><td>(6)</td><td>(6)</td></tr><tr><td>Net other comprehensive loss</td><td>1</td><td>—</td><td>(1)</td><td>—</td></tr><tr><td>Balance at year-end 2013</td><td>$ (31)</td><td>$ (19)</td><td>$ 6</td><td>$ (44)</td></tr></table>

(1) We present the portions of other comprehensive income (loss) before reclassifications that relate to other derivative instrument adjustments net of deferred taxes of $1 million for 2012 and deferred tax benefits of $14 million for 2011.

(2) We present the portions of other comprehensive income (loss) before reclassifications that relate to unrealized gains (losses) on available-for-sale securities net of deferred taxes of $2 million for 2013 and $4 million for 2012.

The following table details the effect on net income of significant amounts reclassified out of accumulated other comprehensive loss for 2013:

<table><tr><td>($ in millions)</td><td>Amounts Reclassified from Accumulated Other Comprehensive Loss</td><td></td></tr><tr><td>Accumulated Other Comprehensive Loss Components</td><td>2013</td><td>Income Statement Line(s) Item Affected</td></tr><tr><td>Other derivative instrument adjustments</td><td></td><td></td></tr><tr><td>Gains (losses) on cash flow hedges</td><td></td><td></td></tr><tr><td>Foreign exchange contracts</td><td>$ 3</td><td>Base management and franchise fees</td></tr><tr><td>Interest rate contracts</td><td>(5)</td><td>Interest expense</td></tr><tr><td></td><td>(2)</td><td>Income before income taxes</td></tr><tr><td></td><td>2</td><td>Provision for income taxes</td></tr><tr><td>Other, net</td><td>$ —</td><td>Net income</td></tr><tr><td>Unrealized gains on available-for-sale securities</td><td></td><td></td></tr><tr><td>Sale of an available-for-sale security</td><td>$ 10</td><td>Gains and other income</td></tr><tr><td></td><td>10</td><td>Income before income taxes</td></tr><tr><td></td><td>(4)</td><td>Provision for income taxes</td></tr><tr><td></td><td>$ 6</td><td>Net income</td></tr></table>

Our restated certificate of incorporation authorizes 800 million shares of our common stock, with a par value of $.01 per share and 10 million shares of preferred stock, without par value. At year-end 2013, we had 298 million of these authorized shares of our common stock and no preferred stock outstanding.



## 13. 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 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 year-end 2013 in the following table:

<table><tr><td>(\( in millions)</td><td colspan="2">Maximum Potential Amount of Future Fundings</td><td colspan="2">Liability for Guarantees</td></tr><tr><td>Guarantee Type</td><td>$</td><td>83</td><td>$</td><td>4</td></tr><tr><td>Debt service</td><td></td><td>99</td><td></td><td>40</td></tr><tr><td>Operating profit</td><td></td><td>17</td><td></td><td>2</td></tr><tr><td>Other</td><td></td><td>199</td><td></td><td>46</td></tr><tr><td>Total guarantees where we are the primary obligor</td><td></td><td></td><td></td><td></td></tr></table>

We included our liability at year-end 2013 for guarantees for which we are the primary obligor in our Balance Sheet as follows: $2 million in “Other current liabilities” and $44 million in the “Other long-term liabilities.”

Our guarantees listed in the preceding table include $20 million of debt service guarantees, $11 million of operating profit guarantees, and $1 million of other 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:

• $102 million of guarantees for Senior Living Services lease obligations of $75 million (expiring in 2018) and lifecare bonds of $27 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 $4 million of the lifecare bonds; HCP, Inc., as successor by merger to CNL Retirement Properties, Inc. (“CNL”), is the primary obligor on $22 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 year-end 2013. In 2011 Sunrise provided us with $3 million of 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 $35 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 year-end 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 MVW payment



obligations, for which we currently have a total exposure of $17 million, relate to various letters of credit and several other guarantees. MVW has indemnified us for these obligations. At year-end 2013, we expect these obligations will expire as follows: $2 million in 2014, $3 million in 2017, and $12 million (16 million Singapore Dollars) 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 year-end 2013. See Footnote No. 15 "Spin-off," for more information on the spin-off of our timeshare operations and timeshare development business.

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 Worldwide ("Oakwood"). Oakwood has indemnified us for the obligations under this guarantee. Our total exposure at year-end 2013 for this guarantee is $6 million in future rent payments through the end of the lease in 2019. Our liability for this guarantee had a carrying value of $1 million at year-end 2013.

A guarantee for two adjoining leases, originally entered into in 2000 and 2006, for which we became secondarily liable in the 2013 third quarter as a result of our assignment of the leases to Accenture LLP. Accenture is the primary obligor and has indemnified us for the obligations under these leases and the guarantee. Our total exposure at year-end 2013 is $6 million related to future rent payments through the end of the leases in 2017. After year-end 2013, we were released from this guarantee and are no longer secondarily liable.

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, at year-end 2013, we had the following commitments outstanding:

A commitment to invest up to $10 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 $8 million of this commitment as follows: $6 million in 2014 and $2 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 this commitment as follows: $15 million in 2014 and $8 million in 2015.

A commitment, with no expiration date, to invest up to $11 million in a joint venture for development of a new property. We expect to fund this commitment as follows: $8 million in 2014 and $3 million in 2015.

A commitment to invest $18 million in the renovation of a leased hotel. We expect to fund this commitment by the end of 2014.

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 seven 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 and $8 million (€6 million) in deposits in 2012. In 2013, we acquired an additional five percent noncontrolling interest in 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 had a right and under certain circumstances an obligation to acquire, for approximately $45 million (€33 million), the landlord’s interest in the real estate property and certain attached assets of a hotel that we lease. After year-end 2013, we sold that right and certain attached assets. See Footnote No. 7, "Acquisitions and Dispositions" for additional information on the sale and reclassification of the capital lease to assets held for sale as of year-end 2013.

Various commitments for the purchase of information technology hardware, software, as well as accounting, finance, and maintenance services in the normal course of business totaling $152 million. We expect to fund these commitments as follows: $107 million in 2014, $32 million in 2015, and $13 million in 2016. The majority of these commitments will be recovered through cost reimbursement charges to properties in our system.

• Several commitments aggregating $35 million with no expiration date and which we do not expect to fund.

A commitment to invest up to $10 million under certain circumstances for additional mandatorily redeemable preferred equity ownership interest in an entity that owns three hotels. We may fund this commitment, which expires



in 2015 subject to annual extensions through 2018; however, we have not yet determined the amount or timing of any potential funding.

A "put option" agreement we entered into after year-end 2013 with the lenders of a construction loan. On January 14, 2014, in conjunction with entering into a management agreement for the Times Square EDITION hotel in New York City (currently projected to open in 2017), and the hotel's ownership group obtaining acquisition financing and entering into agreements concerning future construction financing for the mixed use project (which includes both the hotel and adjacent retail space), we agreed to provide credit support to the lenders through a "put option" agreement. Under this agreement, we have granted the lenders the right, upon an uncured event of default by the hotel owner under, and an acceleration of, the mortgage loan, to require us to purchase the hotel component of the property during the first two years after opening for $315 million. The lenders may extend this period for up to three years to complete foreclosure if the loan has been accelerated and certain other conditions are met. While we cannot assure you that the lenders will not exercise this "put option," we believe that the likelihood of any exercise is remote. We do not have an ownership interest in this EDITION hotel.

At year-end 2013, we had $80 million of letters of credit outstanding ($79 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 year-end 2013, totaled $122 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 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. 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 Marriott's defense of statute of limitations with respect to Mr. Bond and Mr. Steigman and completed discovery concerning class certification. We opposed plaintiffs' motion for class certification and sought summary judgment on the issue of statute of limitations in 2012. On August 9, 2013, the court denied our motion for summary judgment on the issue of statute of limitations and deferred its ruling on class certification. We moved to amend the court's judgment on our motion for summary judgment in order to certify an interlocutory appeal, which was denied. On January 7, 2014, the court denied plaintiffs' motion for class certification, and issued a Scheduling Order for full discovery of the remaining issues in this case. 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 the number of parties for whom the claims may be pursued, and the possibility of our prevailing on our statute of limitations defense on appeal 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.

## 14. BUSINESS SEGMENTS

We are a diversified lodging company with operations in four business segments:

North American Full-Service, which includes the Marriott Hotels, 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, 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, which includes the Marriott Hotels, 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, which includes The Ritz-Carlton, Bulgari Hotels & Resorts, and EDITION properties worldwide (together with residential properties associated with some of The Ritz-Carlton hotels).

In addition, before the spin-off, our former Timeshare segment consisted of the timeshare operations and timeshare development business that we transferred to MVW in conjunction with the spin-off. We continue to include our former Timeshare segment's historical financial results for periods before the spin-off in our historical financial results as a component of continuing operations as reflected in the tables that follow. See Footnote No. 15, "Spin-off" for more information on the spin-off.

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, after the spin-off.

## Revenues

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>North American Full-Service Segment</td><td>$ 6,601</td><td>$ 5,965</td><td>$ 5,450</td></tr><tr><td>North American Limited-Service Segment</td><td>2,601</td><td>2,466</td><td>2,358</td></tr><tr><td>International Segment</td><td>1,522</td><td>1,330</td><td>1,278</td></tr><tr><td>Luxury Segment</td><td>1,794</td><td>1,765</td><td>1,673</td></tr><tr><td>Former Timeshare Segment</td><td>—</td><td>—</td><td>1,438</td></tr><tr><td>Total segment revenues</td><td>12,518</td><td>11,526</td><td>12,197</td></tr><tr><td>Other unallocated corporate</td><td>266</td><td>288</td><td>120</td></tr><tr><td></td><td>$ 12,784</td><td>$ 11,814</td><td>$ 12,317</td></tr></table>

## Net Income

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>North American Full-Service Segment</td><td>$ 451</td><td>$ 407</td><td>$ 351</td></tr><tr><td>North American Limited-Service Segment</td><td>478</td><td>472</td><td>382</td></tr><tr><td>International Segment</td><td>160</td><td>192</td><td>175</td></tr><tr><td>Luxury Segment</td><td>108</td><td>102</td><td>74</td></tr><tr><td>Former Timeshare Segment</td><td>—</td><td>—</td><td>(217)</td></tr><tr><td>Total segment financial results</td><td>1,197</td><td>1,173</td><td>765</td></tr><tr><td>Other unallocated corporate</td><td>(203)</td><td>(204)</td><td>(302)</td></tr><tr><td>Interest expense and interest income \( ^{(1)} \)</td><td>(97)</td><td>(120)</td><td>(107)</td></tr><tr><td>Income taxes</td><td>(271)</td><td>(278)</td><td>(158)</td></tr><tr><td></td><td>$ 626</td><td>$ 571</td><td>$ 198</td></tr></table>

(1) The $164 million of interest expense shown on the Income Statement for year-end 2011 includes $43 million that we allocated to our former Timeshare segment.



## Equity in Losses of Equity Method Investees

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>North American Full-Service Segment</td><td>$ 4</td><td>$ 2</td><td>$ 1</td></tr><tr><td>North American Limited-Service Segment</td><td>3</td><td>2</td><td>(2)</td></tr><tr><td>International Segment</td><td>(6)</td><td>(2)</td><td>(4)</td></tr><tr><td>Luxury Segment</td><td>(4)</td><td>(13)</td><td>(10)</td></tr><tr><td>Former Timeshare Segment</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total segment equity in losses</td><td>(3)</td><td>(11)</td><td>(15)</td></tr><tr><td>Other unallocated corporate</td><td>(2)</td><td>(2)</td><td>2</td></tr><tr><td></td><td>$ (5)</td><td>$ (13)</td><td>$ (13)</td></tr></table>

## Depreciation and Amortization

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>North American Full-Service Segment</td><td>$ 45</td><td>$ 38</td><td>$ 31</td></tr><tr><td>North American Limited-Service Segment</td><td>21</td><td>16</td><td>23</td></tr><tr><td>International Segment</td><td>31</td><td>24</td><td>26</td></tr><tr><td>Luxury Segment</td><td>23</td><td>17</td><td>28</td></tr><tr><td>Former Timeshare Segment</td><td>—</td><td>—</td><td>29</td></tr><tr><td>Total segment depreciation and amortization</td><td>120</td><td>95</td><td>137</td></tr><tr><td>Other unallocated corporate</td><td>7</td><td>7</td><td>7</td></tr><tr><td></td><td>$ 127</td><td>$ 102</td><td>$ 144</td></tr></table>

## Assets

<table><tr><td>(\( in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>North American Full-Service Segment</td><td>$ 1,662</td><td>$ 1,517</td></tr><tr><td>North American Limited-Service Segment</td><td>470</td><td>492</td></tr><tr><td>International Segment</td><td>1,154</td><td>1,056</td></tr><tr><td>Luxury Segment</td><td>1,440</td><td>1,174</td></tr><tr><td>Total segment assets</td><td>4,726</td><td>4,239</td></tr><tr><td>Other unallocated corporate</td><td>2,068</td><td>2,103</td></tr><tr><td></td><td>$ 6,794</td><td>$ 6,342</td></tr></table>

## Equity Method Investments

<table><tr><td>(\( in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>North American Full-Service Segment</td><td>$ 13</td><td>$ 13</td></tr><tr><td>North American Limited-Service Segment</td><td>44</td><td>44</td></tr><tr><td>International Segment</td><td>113</td><td>100</td></tr><tr><td>Luxury Segment</td><td>29</td><td>29</td></tr><tr><td>Total segment equity method investments</td><td>199</td><td>186</td></tr><tr><td>Other unallocated corporate</td><td>8</td><td>9</td></tr><tr><td></td><td>$ 207</td><td>$ 195</td></tr></table>



## Goodwill

<table><tr><td>(\( in millions)</td><td>North American Full-Service Segment</td><td>North American Limited-Service Segment</td><td>International Segment</td><td>Luxury Segment</td><td>Total Goodwill</td></tr><tr><td>Year-end 2011 balance:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>$ 335</td><td>$ 126</td><td>$ 298</td><td>$ 170</td><td>$ 929</td></tr><tr><td>Accumulated impairment losses</td><td>—</td><td>(54)</td><td>—</td><td>—</td><td>(54)</td></tr><tr><td></td><td>$ 335</td><td>$ 72</td><td>$ 298</td><td>$ 170</td><td>$ 875</td></tr><tr><td>Year-end 2012 balance:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>$ 335</td><td>$ 125</td><td>$ 298</td><td>$ 170</td><td>$ 928</td></tr><tr><td>Accumulated impairment losses</td><td>—</td><td>(54)</td><td>—</td><td>—</td><td>(54)</td></tr><tr><td></td><td>$ 335</td><td>$ 71</td><td>$ 298</td><td>$ 170</td><td>$ 874</td></tr><tr><td>Year-end 2013 balance:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>$ 335</td><td>$ 125</td><td>$ 298</td><td>$ 170</td><td>$ 928</td></tr><tr><td>Accumulated impairment losses</td><td>—</td><td>(54)</td><td>—</td><td>—</td><td>(54)</td></tr><tr><td></td><td>$ 335</td><td>$ 71</td><td>$ 298</td><td>$ 170</td><td>$ 874</td></tr></table>

## Capital Expenditures

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>North American Full-Service Segment</td><td>$ 128</td><td>$ 9</td><td>$ 8</td></tr><tr><td>North American Limited-Service Segment</td><td>8</td><td>19</td><td>11</td></tr><tr><td>International Segment</td><td>37</td><td>38</td><td>52</td></tr><tr><td>Luxury Segment</td><td>181</td><td>306</td><td>40</td></tr><tr><td>Former Timeshare Segment</td><td>—</td><td>—</td><td>13</td></tr><tr><td>Total segment capital expenditures</td><td>354</td><td>372</td><td>124</td></tr><tr><td>Other unallocated corporate</td><td>50</td><td>65</td><td>59</td></tr><tr><td></td><td>$ 404</td><td>$ 437</td><td>$ 183</td></tr></table>

Segment expenses include selling expenses directly related to the operations of the businesses, aggregating $49 million in 2013, $53 million in 2012, and $354 million in 2011 (approximately 82 percent of which were for our former Timeshare segment for the period before the spin-off).

Our Financial Statements include the following related to operations located outside the United States for our segments:

1. Revenues of $2,149 million in 2013, $1,912 million in 2012, and $1,945 million in 2011;

2. Segment financial results of $269 million in 2013, $283 million in 2012, and $172 million in 2011. The 2013 segment financial results consisted of segment income of $91 million from Asia, $84 million from the Americas (excluding the United States), $50 million from Continental Europe, $26 million from the United Kingdom and Ireland, and $18 million from the Middle East and Africa; and

3. Fixed assets of $238 million in 2013 and $491 million in 2012. We include fixed assets located outside the United States at year-end 2013 and year-end 2012 in the “Property and equipment” caption in our Balance Sheets. Also, we had $341 million of fixed assets in 2013 classified in the "Assets held for sale" caption in our Balance Sheet. See Footnote No. 7, "Acquisitions and Dispositions" for more information.

## 15. SPIN-OFF

On November 21, 2011, we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our then wholly owned subsidiary MVW. Marriott shareholders of record as of the close of business on November 10, 2011 received one share of MVW common stock for every ten shares of Marriott common stock. Neither we nor our shareholders recognize income, gain, or loss for federal income tax purposes as a result of the distribution of MVW common stock, except in the case of our shareholders for cash they received in lieu of fractional shares. As a result of the spin-off, MVW is an independent company



whose common shares are listed on the New York Stock Exchange under symbol "VAC," and we no longer beneficially own any shares of MVW.

In connection with the spin-off, we entered into several agreements with MVW, and, in some cases, certain of its subsidiaries, that govern our post-spin-off relationship with MVW, including a Separation and Distribution Agreement, two License Agreements for the use of Marriott and Ritz-Carlton marks and intellectual property, an Employee Benefits and Other Employment Matters Allocation Agreement, a Tax Sharing and Indemnification Agreement, a Marriott Rewards Affiliation Agreement, and a Non-Competition Agreement. Under license agreements with us, MVW is both the exclusive developer and operator of timeshare, fractional, and related products under the Marriott brand and the exclusive developer of fractional and related products under The Ritz-Carlton brand. Under the license agreements we receive license fees consisting of a fixed annual fee of $50 million plus two percent of the gross sales price paid to MVW for initial developer sales of interest in vacation ownership units and residential real estate units and one percent of the gross sales price paid to MVW for resales of interests in vacation ownership units and residential real estate units, in each case that are identified with or use the Marriott or Ritz-Carlton marks. The license fee also includes a periodic inflation adjustment.

Following the spin-off, we no longer consolidate MVW's financial results as part of our financial reporting. However, because of our significant continuing involvement in MVW operations after the spin-off (by virtue of the license and other agreements between us and MVW), we continue to include our former Timeshare segment's historical financial results for periods before the spin-off in our historical financial results as a component of continuing operations.

Our shareholders' equity decreased by $1,162 million as a result of the spin-off of MVW. We show in the following table the components of the decrease, which was primarily noncash and principally consisted of the net book value of the net assets we contributed to MVW in the spin-off:

<table><tr><td colspan="2">(\( in millions)</td><td colspan="2">2011</td></tr><tr><td>Cash and equivalents</td><td></td><td>$</td><td>52</td></tr><tr><td>Accounts and notes receivable</td><td></td><td></td><td>247</td></tr><tr><td>Inventory</td><td></td><td></td><td>982</td></tr><tr><td>Other current assets</td><td></td><td></td><td>293</td></tr><tr><td>Property and equipment and other</td><td></td><td></td><td>284</td></tr><tr><td>Loans to timeshare owners</td><td></td><td></td><td>987</td></tr><tr><td>Other current liabilities</td><td></td><td></td><td>(533)</td></tr><tr><td>Current portion of long-term debt</td><td></td><td></td><td>(122)</td></tr><tr><td>Long-term debt</td><td></td><td></td><td>(773)</td></tr><tr><td>Other long-term liabilities</td><td></td><td></td><td>(255)</td></tr><tr><td>SPIN-OFF OF MVW</td><td></td><td></td><td>1,162</td></tr></table>

In 2011, we recognized $34 million of transaction-related expenses for the spin-off. During the 2011 fourth quarter before the spin-off we also received net cash proceeds of: (1) approximately $122 million from a $300 million secured warehouse credit facility that MVW put in place to provide short-term financing for receivables originated in connection with the sale of timeshare interests, and (2) $38 million from our sale to third-party investors of preferred stock that a subsidiary of MVW issued to us. This distribution of approximately $160 million in cash before completion of the spin-off had no impact on our earnings.

Before the spin-off, management assessed the Timeshare segment's intended use of excess undeveloped land and built inventory and the then current market conditions for those assets. On September 8, 2011, management approved a plan for our former Timeshare segment to accelerate cash flow through the monetization of certain excess undeveloped land in the U.S., Mexico, and the Bahamas over the next 18 to 24 months and to accelerate sales of excess built luxury fractional and residential inventory over the next three years. As a result, under the guidance for accounting for the impairment or disposal of long-lived assets, because the nominal cash flows from the planned land sales and the estimated fair values of the land and excess built luxury inventory were less than their respective carrying values, we recorded a pre-tax noncash impairment charge of $324 million ($234 million after-tax) in our 2011 Income Statement under the "Timeshare strategy-impairment charges" caption which we allocated to our former Timeshare segment. The pre-tax noncash impairment charge consisted of a $256 million inventory impairment and a $68 million property and equipment impairment.

We estimated the fair value of the land by using recent comparable sales data for the land parcels, which we determined were Level 3 inputs. We estimated the fair value of the excess built luxury fractional and residential inventory using cash flow



projections discounted at risk premiums commensurate with the market conditions of the related projects. We used Level 3 inputs for these discounted cash flow analyses and our assumptions included: growth rate and sales pace projections, additional sales incentives such as pricing discounts, and marketing and sales cost estimates.

See Footnote No. 18, "Timeshare Strategy-Impairment Charges" of the Notes to our Financial Statements in our 2011 Form 10-K for more information on these charges.

## 16. 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.

## Variable interest entities related to our timeshare note securitizations

Before the spin-off, we periodically securitized, without recourse, through special purpose entities, notes receivable originated by our former Timeshare segment in connection with the sale of timeshare interval and fractional products. These securitizations provided funding for us and transferred the economic risks and substantially all the benefits of the loans to third parties. In a securitization, various classes of debt securities that the special purpose entities issued were generally collateralized by a single tranche of transferred assets, which consisted of timeshare notes receivable. We serviced the notes receivable. With each securitization, we retained a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized receivables or, in some cases, overcollateralization and cash reserve accounts. As a result of our involvement with these entities in 2011 before the spin-off, we recognized $116 million of interest income, partially offset by $39 million of interest expense to investors and $3 million in debt issuance cost amortization.

We show our cash flows to and from the timeshare notes securitization variable interest entities in the following table for 2011 before the spin-off:

<table><tr><td>($ in millions)</td><td>2011</td></tr><tr><td>Cash inflows:</td><td></td></tr><tr><td>Proceeds from securitization</td><td>$ 122</td></tr><tr><td>Principal receipts</td><td>188</td></tr><tr><td>Interest receipts</td><td>112</td></tr><tr><td>Total</td><td>422</td></tr><tr><td>Cash outflows:</td><td></td></tr><tr><td>Principal to investors</td><td>(185)</td></tr><tr><td>Repurchases</td><td>(64)</td></tr><tr><td>Interest to investors</td><td>(39)</td></tr><tr><td>Total</td><td>(288)</td></tr><tr><td>Net Cash Flows</td><td>$ 134</td></tr></table>

Under the terms of our timeshare note securitizations, we had the right at our option to repurchase defaulted mortgage notes at the outstanding principal balance. The transaction documents typically limited such repurchases to 10 to 20 percent of the transaction’s initial mortgage balance. We voluntarily repurchased $43 million of defaulted notes and $21 million of other non-defaulted notes during 2011.

## Other variable interest entities

In the 2013 second quarter, we purchased a $65 million mandatorily redeemable preferred equity ownership interest in an entity that owns three hotels, which we also manage. See Footnote No. 4, "Fair Value of Financial Instruments" for further information on the purchase and Footnote No. 13, "Contingencies" for information on the commitment we entered into as part of this transaction. Based on qualitative and quantitative analyses, we concluded that the entity in which we invested is a



variable interest entity because it is capitalized primarily with debt. We did not consolidate the entity because we do not have the power to direct the activities that most significantly impact the entity's economic performance. Inclusive of our contingent future funding commitment, our maximum exposure to loss at year-end 2013 is $80 million.

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 year-end 2013, we managed four 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 two 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 the power to direct the activities that most significantly impact the entities’ economic performance. We are liable for rent payments (totaling $5 million) for two of the four hotels if there are cash flow shortfalls. These two hotels have lease terms of less than one year. In addition, as of year-end 2013 we are liable for rent payments of up to an aggregate cap of $4 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.

## 17. LEASES

We have summarized below our future obligations under operating leases at year-end 2013:

<table><tr><td>($ in millions)</td><td>Minimum Lease Payments</td></tr><tr><td>Fiscal Year</td><td></td></tr><tr><td>2014</td><td>$ 134</td></tr><tr><td>2015</td><td>130</td></tr><tr><td>2016</td><td>118</td></tr><tr><td>2017</td><td>103</td></tr><tr><td>2018</td><td>86</td></tr><tr><td>Thereafter</td><td>583</td></tr><tr><td>Total minimum lease payments where we are the primary obligor</td><td>$ 1,154</td></tr></table>

Most leases have initial terms of up to 20 years and contain one or more renewal options, generally for five- or 10-year periods. These leases provide for minimum rentals and additional rentals based on our operations of the leased property. The total minimum lease payments above include $264 million of obligations of our consolidated subsidiaries that are non-recourse to us.

The foregoing table does not reflect $4 million in aggregate minimum lease payments, for which we are secondarily liable, relating to the CTF leases further discussed in Footnote No. 16, “Variable Interest Entities.”

The following table details the composition of rent expense for operating leases for the last three years:

<table><tr><td>($ in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Minimum rentals</td><td>$ 159</td><td>$ 188</td><td>$ 240</td></tr><tr><td>Additional rentals</td><td>56</td><td>62</td><td>66</td></tr><tr><td></td><td>$ 215</td><td>$ 250</td><td>$ 306</td></tr></table>

Our future obligation under capital leases at year-end 2013 was $53 million with a present value of net minimum lease payments of $51 million. In conjunction with the sale of our right to acquire the landlord’s interest in a leased real estate property and certain attached assets of the property after year-end 2013, $46 million of the $51 million originally classified in the “Long-term debt” caption was reclassified to liabilities held for sale within the "Other current liabilities" caption of the accompanying Balance Sheet as of year-end 2013. See Footnote No. 7, "Acquisitions and Dispositions" for more information.



Accordingly, the “Long-term debt” caption in the accompanying Balance Sheets includes the remaining $5 million for year-end 2013 and $50 million for year-end 2012 that represents the present value of net minimum lease payments for capital leases.

## 18. RELATED PARTY TRANSACTIONS

## Equity Method Investments

We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive fees. We also have equity method investments in entities that provide management and/or franchise service to hotels and receive fees. In addition, in some cases we provide loans, preferred equity or guarantees to these entities. We generally own between 10 and 49 percent of these equity method investments. Undistributed earnings attributable to our equity method investments represented approximately $2 million of our consolidated retained earnings at year-end 2013.

The following tables present financial data resulting from transactions with these related parties:

## Income Statement Data

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Base management fees</td><td>$ 17</td><td>$ 26</td><td>$ 37</td></tr><tr><td>Incentive management fees</td><td>1</td><td>5</td><td>—</td></tr><tr><td>Cost reimbursements</td><td>236</td><td>315</td><td>383</td></tr><tr><td>Owned, leased, corporate housing, and other</td><td>1</td><td>3</td><td>8</td></tr><tr><td>Total revenue</td><td>$ 255</td><td>$ 349</td><td>$ 428</td></tr><tr><td>General, administrative, and other</td><td>$ (5)</td><td>$ —</td><td>$ (5)</td></tr><tr><td>Reimbursed costs</td><td>(236)</td><td>(315)</td><td>(383)</td></tr><tr><td>Gains and other income</td><td>—</td><td>43</td><td>4</td></tr><tr><td>Interest expense-capitalized</td><td>—</td><td>1</td><td>2</td></tr><tr><td>Interest income</td><td>4</td><td>3</td><td>3</td></tr><tr><td>Equity in losses</td><td>(5)</td><td>(13)</td><td>(13)</td></tr></table>

## Balance Sheet Data

<table><tr><td>(\( in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Current assets-accounts and notes receivable</td><td>$ 22</td><td>$ 18</td></tr><tr><td>Contract acquisition costs and other</td><td>20</td><td>21</td></tr><tr><td>Equity and cost method investments</td><td>207</td><td>195</td></tr><tr><td>Deferred taxes, net asset</td><td>16</td><td>17</td></tr><tr><td>Other</td><td>16</td><td>20</td></tr><tr><td>Current liabilities:</td><td></td><td></td></tr><tr><td>Other</td><td>(13)</td><td>(2)</td></tr><tr><td>Other long-term liabilities</td><td>(2)</td><td>(2)</td></tr></table>

Summarized information for the entities in which we have equity method investments is as follows:

## Income Statement Data

<table><tr><td>(\( in millions)</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Sales</td><td>$ 721</td><td>$ 902</td><td>$ 1,215</td></tr><tr><td>Net income (loss)</td><td>$ 15</td><td>$ (4)</td><td>$ (58)</td></tr></table>



<table><tr><td>($ in millions)</td><td>At Year-End 2013</td><td>At Year-End 2012</td></tr><tr><td>Assets (primarily comprised of hotel real estate managed by us)</td><td>$ 1,832</td><td>$ 1,486</td></tr><tr><td>Liabilities</td><td>$ 1,482</td><td>$ 1,245</td></tr></table>

## 19. RELATIONSHIP WITH MAJOR CUSTOMER

Host Hotels & Resorts, Inc., formerly known as Host Marriott Corporation, and its affiliates (“Host”) owned or leased 66 lodging properties at year-end 2013 and 124 lodging properties at year-end 2012 that we operated under long-term agreements. Over the last three years, we recognized revenues of $1,957 million in 2013, $2,226 million in 2012, and $2,210 million in 2011 from those lodging properties, and included those revenues in our North American Full-Service, North American Limited-Service, Luxury, and International segments.

Host is also a partner in certain unconsolidated partnerships that own lodging properties that we operate under long-term agreements. Host was affiliated with ten such properties at year-end 2013, ten such properties at year-end 2012, and five such properties at year-end 2011. We recognized revenues of $87 million in 2013, $75 million in 2012, and $59 million in 2011 from those lodging properties, and included those revenues in our North American Full-Service, Luxury, and International segments.



## SHAREHOLDER RETURN PERFORMANCE GRAPH - UNAUDITED

The following graph compares the performance of the Company’s Class A Common Stock from January 2, 2009 to December 31, 2013 (the end of our 2008 and 2013 fiscal years) with the performance of the Standard & Poor’s Corporation Composite 500 Index and the Standard & Poor’s Hotels, Resorts & Cruise Lines Index. The graph assumes an initial investment of $100 on January 2, 2009, and reinvestment of dividends. As discussed in more detail in Footnote No. 15, "Spin-off" of the Notes to our Financial Statements in this report, on November 21, 2011 we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our then wholly owned subsidiary Marriott Vacations Worldwide Corporation (MVW). From the spin-off date, Marriott no longer beneficially owned any shares of MVW common stock. In conjunction with the spin-off, our shareholders received one share of MVW common stock for every ten shares of our common stock that were held on the record date. We reflect the effect of the spin-off in the cumulative total return of our common stock as a reinvested dividend.

COMPARISON OF SHAREHOLDER RETURNS AMONG MARRIOTT INTERNATIONAL, INC., THE S&P 500 INDEX AND THE S&P 500 HOTELS, RESORTS & CRUISE LINES INDEX



Marriott International, Inc. — S&P 500 Hotels, Resorts, & Cruise Lines Index — S&P 500 Index

<table><tr><td>Fiscal Year Ended</td><td>1/2/09</td><td>1/1/10</td><td>12/31/10</td><td>12/30/11</td><td>12/28/12</td><td>12/31/13</td></tr><tr><td>Marriott International, Inc.</td><td>$ 100.00</td><td>$ 138.07</td><td>$ 208.86</td><td>$ 155.81</td><td>$ 192.03</td><td>$ 263.76</td></tr><tr><td>S&amp;P 500 Hotels, Resorts, &amp; Cruise Lines Index</td><td>100.00</td><td>145.85</td><td>221.44</td><td>175.94</td><td>213.39</td><td>281.40</td></tr><tr><td>S&amp;P 500 Index</td><td>100.00</td><td>122.57</td><td>138.80</td><td>140.14</td><td>157.42</td><td>211.92</td></tr></table>

NOTE: Throughout the period shown in this chart, the S&P 500 Hotels, Resorts & Cruise Lines Index consisted of Carnival Corporation, Starwood Hotels & Resorts Worldwide Inc., the Company, and Wyndham Worldwide Corporation.



## SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA – UNAUDITED

($ in millions, except per share data)

<table><tr><td rowspan="2"></td><td colspan="6">Fiscal Year 2013 (1),(3)</td></tr><tr><td>First Quarter</td><td>Second Quarter</td><td>Third Quarter</td><td>Fourth Quarter</td><td>Fiscal Year</td><td></td></tr><tr><td>Revenues</td><td>$ 3,142</td><td>$ 3,263</td><td>$ 3,160</td><td>$ 3,219</td><td>$ 12,784</td><td></td></tr><tr><td>Operating income</td><td>$ 226</td><td>$ 279</td><td>$ 245</td><td>$ 238</td><td>$ 988</td><td></td></tr><tr><td>Net income</td><td>$ 136</td><td>$ 179</td><td>$ 160</td><td>$ 151</td><td>$ 626</td><td></td></tr><tr><td>Diluted earnings per share</td><td>$ 0.43</td><td>$ 0.57</td><td>$ 0.52</td><td>$ 0.49</td><td>$ 2.00</td><td></td></tr></table>

($ in millions, except per share data)

<table><tr><td rowspan="2"></td><td colspan="6">Fiscal Year 2012 (2)</td></tr><tr><td>First Quarter</td><td>Second Quarter</td><td>Third Quarter</td><td>Fourth Quarter</td><td>Fiscal Year</td><td></td></tr><tr><td>Revenues</td><td>$ 2,552</td><td>$ 2,776</td><td>$ 2,729</td><td>$ 3,757</td><td>$ 11,814</td><td></td></tr><tr><td>Operating income</td><td>$ 175</td><td>$ 243</td><td>$ 213</td><td>$ 309</td><td>$ 940</td><td></td></tr><tr><td>Net income</td><td>$ 104</td><td>$ 143</td><td>$ 143</td><td>$ 181</td><td>$ 571</td><td></td></tr><tr><td>Diluted earnings per share</td><td>$ 0.30</td><td>$ 0.42</td><td>$ 0.44</td><td>$ 0.56</td><td>$ 1.72</td><td></td></tr></table>

(1) 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 first quarter included the period from December 29, 2012 through March 31, 2013, and our 2013 second, third, and fourth quarters included the three month periods ended June 30, September 30, and December 31, respectively.

(2) The 2012 quarters consisted of 12 weeks, except for the fourth quarter of 2012, which consisted of 16 weeks.

(3) The sum of the earnings per share for the four quarters differs from annual earnings per share due to the required method of computing the weighted average shares in interim periods.



## SELECTED HISTORICAL FINANCIAL DATA- UNAUDITED

The following table presents a summary of selected historical financial data for the Company derived from our Financial Statements as of and for our last 10 fiscal years. Since this information is only a summary and does not provide all of the information contained in our financial statements, including the related notes, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements in this report for each respective year for more detailed information including, among other items, restructuring costs and other charges we incurred in 2008 and 2009, timeshare strategy-impairment charges we incurred in 2009 and 2011, and our 2011 spin-off of our former timeshare operations and timeshare development business. For periods before the 2011 spin-off, we continue to include our former Timeshare segment in Marriott's historical financial results as a component of continuing operations because of Marriott's significant continuing involvement in MVW future operations.

<table><tr><td rowspan="2">(S in millions, except per share data)</td><td colspan="12">Fiscal Year (1)</td></tr><tr><td>2013</td><td>2012</td><td>2011</td><td>2010</td><td>2009</td><td>2008</td><td>2007</td><td>2006</td><td>2005</td><td>2004</td><td></td><td></td></tr><tr><td>Income Statement Data:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues (2)</td><td>$ 12,784</td><td>$ 11,814</td><td>$ 12,317</td><td>$ 11,691</td><td>$ 10,908</td><td>$ 12,879</td><td>$ 12,990</td><td>$ 11,995</td><td>$ 11,129</td><td>$ 9,778</td><td></td><td></td></tr><tr><td>Operating income (loss) (2)</td><td>$ 988</td><td>$ 940</td><td>$ 526</td><td>$ 695</td><td>$ (152)</td><td>$ 765</td><td>$ 1,183</td><td>$ 1,089</td><td>$ 671</td><td>$ 579</td><td></td><td></td></tr><tr><td>Income (loss) from continuing operations attributable to Marriott</td><td>$ 626</td><td>$ 571</td><td>$ 198</td><td>$ 458</td><td>$ (346)</td><td>$ 359</td><td>$ 697</td><td>$ 712</td><td>$ 543</td><td>$ 487</td><td></td><td></td></tr><tr><td>Cumulative effect of change in accounting principle (3)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(109)</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Discontinued operations (4)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>3</td><td>(1)</td><td>5</td><td>126</td><td>109</td><td></td><td></td></tr><tr><td>Net income (loss) attributable to Marriott</td><td>$ 626</td><td>$ 571</td><td>$ 198</td><td>$ 458</td><td>$ (346)</td><td>$ 362</td><td>$ 696</td><td>$ 608</td><td>$ 669</td><td>$ 596</td><td></td><td></td></tr><tr><td>Per Share Data (5):</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Diluted earnings (losses) per share from continuing operations attributable to Marriott shareholders</td><td>$ 2.00</td><td>$ 1.72</td><td>$ 0.55</td><td>$ 1.21</td><td>$ (0.97)</td><td>$ 0.97</td><td>$ 1.73</td><td>$ 1.64</td><td>$ 1.16</td><td>$ 1.01</td><td></td><td></td></tr><tr><td>Diluted losses per share from cumulative effect of accounting change</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(0.25)</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Diluted earnings per share from discontinued operations attributable to Marriott shareholders</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>0.01</td><td>—</td><td>0.01</td><td>0.27</td><td>0.22</td><td></td><td></td></tr><tr><td>Diluted earnings (losses) per share attributable to Marriott shareholders</td><td>$ 2.00</td><td>$ 1.72</td><td>$ 0.55</td><td>$ 1.21</td><td>$ (0.97)</td><td>$ 0.98</td><td>$ 1.73</td><td>$ 1.40</td><td>$ 1.43</td><td>$ 1.23</td><td></td><td></td></tr><tr><td>Cash dividends declared per share</td><td>$ 0.6400</td><td>$ 0.4900</td><td>$ 0.3875</td><td>$ 0.2075</td><td>$ 0.0866</td><td>$ 0.3339</td><td>$ 0.2844</td><td>$ 0.2374</td><td>$ 0.1979</td><td>$ 0.1632</td><td></td><td></td></tr><tr><td>Balance Sheet Data (at year-end):</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total assets</td><td>$ 6,794</td><td>$ 6,342</td><td>$ 5,910</td><td>$ 8,983</td><td>$ 7,933</td><td>$ 8,903</td><td>$ 8,942</td><td>$ 8,588</td><td>$ 8,530</td><td>$ 8,668</td><td></td><td></td></tr><tr><td>Long-term debt</td><td>3,147</td><td>2,528</td><td>1,816</td><td>2,691</td><td>2,234</td><td>2,975</td><td>2,790</td><td>1,818</td><td>1,681</td><td>836</td><td></td><td></td></tr><tr><td>Shareholders’ (deficit) equity</td><td>(1,415)</td><td>(1,285)</td><td>(781)</td><td>1,585</td><td>1,142</td><td>1,380</td><td>1,429</td><td>2,618</td><td>3,252</td><td>4,081</td><td></td><td></td></tr><tr><td>Other Data:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Base management fees</td><td>$ 621</td><td>$ 581</td><td>$ 602</td><td>$ 562</td><td>$ 530</td><td>$ 635</td><td>$ 620</td><td>$ 553</td><td>$ 497</td><td>$ 435</td><td></td><td></td></tr><tr><td>Franchise fees</td><td>666</td><td>607</td><td>506</td><td>441</td><td>400</td><td>451</td><td>439</td><td>390</td><td>329</td><td>296</td><td></td><td></td></tr><tr><td>Incentive management fees</td><td>256</td><td>232</td><td>195</td><td>182</td><td>154</td><td>311</td><td>369</td><td>281</td><td>201</td><td>142</td><td></td><td></td></tr><tr><td>Total fees</td><td>$ 1,543</td><td>$ 1,420</td><td>$ 1,303</td><td>$ 1,185</td><td>$ 1,084</td><td>$ 1,397</td><td>$ 1,428</td><td>$ 1,224</td><td>$ 1,027</td><td>$ 873</td><td></td><td></td></tr><tr><td>Fee Revenue-Source:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>North America (6)</td><td>$ 1,186</td><td>$ 1,074</td><td>$ 970</td><td>$ 878</td><td>$ 806</td><td>$ 1,038</td><td>$ 1,115</td><td>$ 955</td><td>$ 809</td><td>$ 682</td><td></td><td></td></tr><tr><td>Total Outside North America (7)</td><td>357</td><td>346</td><td>333</td><td>307</td><td>278</td><td>359</td><td>313</td><td>269</td><td>218</td><td>191</td><td></td><td></td></tr><tr><td>Total fees</td><td>$ 1,543</td><td>$ 1,420</td><td>$ 1,303</td><td>$ 1,185</td><td>$ 1,084</td><td>$ 1,397</td><td>$ 1,428</td><td>$ 1,224</td><td>$ 1,027</td><td>$ 873</td><td></td><td></td></tr></table>

(1) Beginning with our 2013 fiscal year, we changed to a calendar year-end reporting cycle. All fiscal years prior to 2013 included 52 weeks, except for 2008 which included 53 weeks.

(2) Balances do not reflect the impact of discontinued operations. Also, for periods prior to 2009, we reclassified our provision for loan losses associated with our lodging operations to the "General, administrative, and other expenses" caption of our Income Statements to conform to our presentation for periods beginning in 2009. This reclassification only affected operating income.

(3) We adopted certain provisions of Accounting Standards Certification Topic 978 (previously Statement of Position 04-2, "Accounting for Real Estate Time Sharing Transactions"), in our 2006 first quarter, which we reported in our Income Statements as a cumulative effect of change in accounting principle.

(4) In 2002, we announced our intent to sell, and subsequently did sell, our Senior Living Services business and exited our Distribution Services business. In 2007, we exited our synthetic fuel business. These businesses are reflected as discontinued operations.

(5) For periods before the stock dividends we issued in the third and fourth quarters of 2009, we have adjusted all per share data retroactively to reflect those stock dividends. Additionally, for periods before 2006, we have adjusted all per share data retroactively to reflect the June 9, 2006, stock split that we effected in the form of a stock dividend.

(6) Represents fee revenue from the continental United States (which does not include Hawaii) and Canada, except for 2011 through 2013, which represent fee revenue from the United States (including Hawaii) and Canada.
(7) Represents fee revenue outside the continental United States and Canada, except for 2011 through 2013, which represent fee revenue outside the United States and Canada.



## NON-GAAP FINANCIAL MEASURES RECONCILIATIONS - UNAUDITED

We report certain financial measures that are not prescribed or authorized by U.S. generally accepted accounting principles (“GAAP”). We discuss management’s reasons for reporting these non-GAAP measures below, and the accompanying tables reconcile the most directly comparable GAAP measures to the non-GAAP measures (identified by a double asterisk) that we refer to. Although management evaluates and presents these non-GAAP measures for the reasons we describe below, please be aware that these non-GAAP measures are not alternatives to revenue, operating income, income from continuing operations, net income, earnings per share or any other comparable operating measure prescribed by GAAP. In addition, we may calculate and/or present these non-GAAP financial measures differently than measures with the same or similar names that other companies report, and as a result, the non-GAAP measures we report may not be comparable to those reported by others.

## Earnings Before Interest and Taxes

Earnings Before Interest and Taxes (“EBIT”) reflects earnings excluding the impact of interest expense and tax expense. The calculation of EBIT adds back to income (loss) from continuing operations attributable to Marriott: (1) the provision (benefit) for income taxes; (2) the provision for income taxes related to noncontrolling interest in losses of consolidated subsidiaries; (3) interest expense; and (4) timeshare interest (for periods before the date of our spin-off of our timeshare operations and timeshare development business) representing previously capitalized interest that was a component of product cost.

We use EBIT, 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 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.

## Return on Invested Capital

We calculate Return on Invested Capital (“ROIC”) as EBIT divided by average invested capital. We consider ROIC to be a meaningful indicator of our operating performance because it measures how effectively we use the money we invest in our lodging operations.

The calculation of invested capital deducts from total assets: (1) current liabilities, as we intend to satisfy them in the short term; (2) assets net of current liabilities associated with discontinued operations, because the ROIC metric we analyze relates to our core lodging business (continuing operations); (3) deferred tax assets net of current deferred income tax liabilities, because the numerator of the calculation is a pre-tax number; and (4) timeshare capitalized interest (for periods before the date of our spin-off of our timeshare operations and timeshare development business) because the numerator of the calculation is a pre-interest expense number.



## RETURN ON INVESTED CAPITAL \( ^{**} \)  - UNAUDITED

The following table reconciles income (loss) from continuing operations attributable to Marriott to earnings (losses) before interest expense and income taxes:

<table><tr><td>(\$ in millions)</td><td>Fiscal Year 2013</td><td>Fiscal Year 2012</td><td>Fiscal 5 Year 2011</td><td>Fiscal Year 2010</td><td>Fiscal Year 2009</td><td>Fiscal Year 2008</td><td>Fiscal Year 2007</td><td>Fiscal Year 2006</td><td>Fiscal Year 2005</td><td>Fiscal Year 2004</td></tr><tr><td>Income (loss) from continuing operations attributable to Marriott</td><td>$ 626</td><td>$ 571</td><td>$ 198</td><td>$ 458</td><td>$ (346)</td><td>$ 359</td><td>$ 697</td><td>$ 712</td><td>$ 543</td><td>$ 487</td></tr><tr><td>Add:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Provision (benefit) for income taxes</td><td>271</td><td>278</td><td>158</td><td>93</td><td>(65)</td><td>350</td><td>441</td><td>380</td><td>284</td><td>265</td></tr><tr><td>Provision for income taxes related to noncontrolling interest in losses of consolidated subsidiaries</td><td>—</td><td>—</td><td>—</td><td>—</td><td>4</td><td>9</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Interest expense</td><td>120</td><td>137</td><td>164</td><td>180</td><td>118</td><td>163</td><td>184</td><td>124</td><td>106</td><td>99</td></tr><tr><td>Timeshare interest 1</td><td>—</td><td>—</td><td>11</td><td>20</td><td>24</td><td>15</td><td>24</td><td>21</td><td>24</td><td>21</td></tr><tr><td>Earnings (losses) before interest expense and income taxes **</td><td>$ 1,017</td><td>$ 986</td><td>$ 531</td><td>$ 751</td><td>$ (265)</td><td>$ 896</td><td>$ 1,346</td><td>$ 1,237</td><td>$ 957</td><td>$ 872</td></tr></table>

The following table reconciles assets to invested capital:

<table><tr><td>(\$ in millions)</td><td>Year-End 2013</td><td>Year-End 2012</td><td>Year-End 2011</td><td>Year-End 2010</td><td>Beginning of Year 2010</td><td>Year-End 2009</td><td>Year-End 2008</td><td>Year-End 2007</td><td>Year-End 2006</td><td>Year-End 2005</td><td>Year-End 2004</td><td>Year-End 2003</td></tr><tr><td>Assets</td><td>$ 6,794</td><td>$ 6,342</td><td>$ 5,910</td><td>$ 8,983</td><td>$ 8,903</td><td>$ 7,933</td><td>$ 8,903</td><td>$ 8,942</td><td>$ 8,588</td><td>$ 8,530</td><td>$ 8,668</td><td>$ 8,177</td></tr><tr><td>Add:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Current liabilities - discontinued operations</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>3</td><td>13</td><td>55</td><td>63</td><td>82</td><td>16</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Current liabilities, net of current portion of long-term debt 2</td><td>(2,623)</td><td>(2,366)</td><td>(2,203)</td><td>(2,363)</td><td>(2,218)</td><td>(2,223)</td><td>(2,413)</td><td>(2,701)</td><td>(2,507)</td><td>(2,086)</td><td>(2,011)</td><td>(1,779)</td></tr><tr><td>Assets - discontinued operations</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(53)</td><td>(91)</td><td>(103)</td><td>(116)</td><td>(83)</td></tr><tr><td>Deferred tax assets, net 3</td><td>(880)</td><td>(943)</td><td>(1,142)</td><td>(1,159)</td><td>(1,348)</td><td>(1,256)</td><td>(913)</td><td>(863)</td><td>(865)</td><td>(765)</td><td>(559)</td><td>(466)</td></tr><tr><td>Timeshare capitalized interest</td><td>—</td><td>—</td><td>—</td><td>(45)</td><td>(46)</td><td>(46)</td><td>(49)</td><td>(19)</td><td>(19)</td><td>(20)</td><td>(21)</td><td>(22)</td></tr><tr><td>Invested capital **</td><td>$ 3,291</td><td>$ 3,033</td><td>$ 2,565</td><td>$ 5,416</td><td>$ 5,291</td><td>$ 4,408</td><td>$ 5,531</td><td>$ 5,319</td><td>$ 5,161</td><td>$ 5,619</td><td>$ 6,043</td><td>$ 5,843</td></tr><tr><td>Average invested capital ** 4</td><td>$ 3,162</td><td>$ 2,799</td><td>$ 3,991</td><td>$ 5,354</td><td></td><td>$ 4,970</td><td>$ 5,425</td><td>$ 5,240</td><td>$ 5,390</td><td>$ 5,831</td><td>$ 5,943</td><td></td></tr><tr><td>Return on invested capital **</td><td>32%</td><td>35%</td><td>13%</td><td>14%</td><td></td><td>(5)%</td><td>17%</td><td>26%</td><td>23%</td><td>16%</td><td>15%</td><td></td></tr></table>

** Denotes a non-GAAP financial measure.

 \( ^{1} \)  Timeshare interest (for periods before the November 21, 2011 spin-off of our timeshare operations and timeshare development business) represents previously capitalized interest that was a component of product cost.

 \( ^{2} \)  At year-end 2013, "current portion of long-term debt" included $46 million in liabilities held for sale classified as "other current liabilities."

 \( ^{3} \)  “Deferred tax assets, net” was also net of “current deferred income tax liabilities” of $13 million, $12 million, $19 million, and $19 million for year-ends 2012, 2011, 2010, and 2009, respectively, and zero for each prior year-end presented.

 \( ^{4} \)  Calculated as “Invested capital” for the current year and prior year, divided by two, with the exception of 2010. To reflect our adoption of ASU No. 2009-16 and ASU No. 2009-17 on the first day of fiscal year 2010, we calculate "Average invested capital" for 2010 as the average of (1) the 2010 beginning balance (reflecting the impact of adopting those standards); and (2) the Year-End 2010 balance.

As discussed in more detail in Footnote No. 15, "Spin-off" of the Notes to our Financial Statements in this report, on November 21, 2011 we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our then wholly owned subsidiary Marriott Vacations Worldwide Corporation ("MVW"). From the spin-off date, Marriott no longer beneficially owned any shares of MVW common stock and for periods after the spin-off date does not consolidate MVW's financial results as part of Marriott's financial reporting. However, because of Marriott's significant continuing involvement in MVW future operations (by virtue of the license and other agreements between Marriott and MVW), we continue to include our former Timeshare segment's historical financial results for periods before the spin-off date in our historical financial results as a component of continuing operations. The results for 2011 include the results of the former Timeshare segment before the spin-off date while results for all earlier fiscal years include the results of the former Timeshare segment for those entire fiscal years.



## Adjusted 2012 Diluted Earnings Per Share ("EPS") Excluding Gain on Joint Venture Sale

In 2012, we recorded a $41 million pre-tax ($25 million after-tax) gain on the sale of an equity interest in a North American Limited-Service joint venture in the “Gains and other income” caption of our Income Statement, which consisted of: (1) a $21 million gain on the sale of this interest; and (2) recognition of the $20 million remaining gain we deferred in 2005 due to contingencies in the original transaction documents for the sale of land to the joint venture which expired with the 2012 sale. Management evaluates this non-GAAP measure that excludes that gain on sale because this non-GAAP measure allows for period-over-period comparisons of our on-going core operations before the impact of this item. This non-GAAP measure also facilitates management’s comparison of results from our on-going operations before the impact of this item with results from other lodging companies.

## ADJUSTED DILUTED 2012 EPS  \( * \) 

(in millions, except per share amounts)

<table><tr><td></td><td>Full Year 2013</td><td>Full Year 2012</td></tr><tr><td>Net income, as reported</td><td></td><td>$ 571</td></tr><tr><td>Less: Gain on Courtyard JV sale, net of tax</td><td></td><td>(25)</td></tr><tr><td>Net income, as adjusted **</td><td></td><td>$ 546</td></tr><tr><td>Diluted EPS, as reported</td><td></td><td>$ 1.72</td></tr><tr><td>Diluted per share gain on Courtyard joint venture sale</td><td></td><td>(0.08)</td></tr><tr><td>Diluted EPS, as adjusted **</td><td></td><td>$ 1.64</td></tr><tr><td>Diluted EPS</td><td>$ 2.00</td><td></td></tr><tr><td>Increase over 2012 diluted EPS</td><td>16%</td><td></td></tr><tr><td>Increase over 2012 adjusted diluted EPS **</td><td>22%</td><td></td></tr><tr><td>Diluted shares</td><td></td><td>332.9</td></tr></table>

** Denotes non-GAAP financial measures.



## Adjusted 2013 Operating Income Margin Excluding Cost Reimbursements

Cost reimbursements revenue represents reimbursements we receive for costs we incur on behalf of managed and franchised 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 The Ritz-Carlton Rewards programs. As we record cost reimbursements based on the costs we incur with no added markup, this revenue and related expense has no impact on either our operating income or net income because cost reimbursements revenue net of reimbursed costs expense is zero. In calculating adjusted operating income margin we consider total revenues as adjusted to exclude cost reimbursements and, therefore, adjusted operating income margin excluding cost reimbursements to be meaningful metrics as they represent that portion of revenue and operating income margin that impacts operating income and net income.

## ADJUSTED OPERATING INCOME MARGIN EXCLUDING COST REIMBURSEMENTS  \( * \) 

($ in millions)

<table><tr><td></td><td colspan="2">Full Year 2013</td></tr><tr><td>Operating income</td><td>$     988</td><td></td></tr><tr><td>Total revenue, as reported</td><td>$     12,784</td><td></td></tr><tr><td>Less: cost reimbursements</td><td>(10,291)</td><td></td></tr><tr><td>Total revenues, excluding cost reimbursements  \( * \)  \( * \)</td><td>$     2,493</td><td></td></tr><tr><td>Adjusted operating income margin, excluding cost reimbursements  \( * \)  \( * \)</td><td>40%</td><td></td></tr></table>

** Denotes non-GAAP financial measures.



## DIRECTORS

J.W. MARRIOTT, JR. \( ^{1} \) 
Executive Chairman and
Chairman of the Board
Marriott International, Inc.

JOHN W. MARRIOTT III \( ^{6} \) 
Vice Chairman of the Board,
Marriott International, Inc., and
Chief Executive Officer
JWM Family Enterprises, L.P.

MARY K. BUSH \( ^{2,3} \) 
Chairman
Bush International, LLC

FREDERICK A. HENDERSON \( ^{2} \) 
Chairman and Chief Executive Officer
SunCoke Energy Inc.

LAWRENCE W. KELLNER \( ^{1,2,4} \) 
President
Emerald Creek Group, LLC

DEBRA L. LEE \( ^{4,5} \) 
Chairman and Chief Executive Officer
BET Networks

GEORGE MUÑOZ  \( {}^{2,5} \) 
Principal
Muñoz Investment Banking Group, LLC

HARRY J. PEARCE \( ^{3,5,6} \) 
Chairman
MDU Resources, Inc.

STEVEN S REINEMUND 3,4
Dean of Business
Wake Forest University

W. MITT ROMNEY \( ^{6} \) 
Former Republican Candidate for
President of the United States

LAWRENCE M. SMALL 3,6
Former Secretary
The Smithsonian Institution

ARNE M. SORENSON 5
President and Chief Executive Officer
Marriott International, Inc.

## DIRECTORS EMERITI

STERLING D. COLTON
WILLIAM J. SHAW

## LEGEND

* All information as of February 14, 2014.

1 Executive Committee

2 Audit Committee

3 Compensation Policy Committee

4 Nominating and Corporate Governance Committee

5 Committee for Excellence

6 Finance Committee

7 Retired on February 28, 2014

† Executive officer as defined under the Securities Exchange Act of 1934

## EXECUTIVE OFFICERS

J.W. MARRIOTT, JR. \( ^{†} \) 
Executive Chairman and
Chairman of the Board

ARNE M. SORENSON \( ^{†} \) 
President and Chief Executive Officer

ROBERT J. McCarthy \( ^{5,7,†} \) 
Chief Operations Officer

CARL T. BERQUIST \( ^{†} \) 
Executive Vice President and
Chief Financial Officer

ANTHONY G. CAPUANO \( ^{5,\dagger} \) 
Executive Vice President and
Global Chief Development Officer

SIMON F. COOPER \( ^{†} \) 
President and Managing Director
Asia Pacific

BANCROFT S. GORDON
Vice President, Senior Counsel and
Corporate Secretary

DAVID J. GRISSEN \( ^{†} \) 
Group President

CAROLYN B. HANDLON
Executive Vice President
Finance and Global Treasurer

DEBORAH MARRIOTT HARRISON
Global Officer
Marriott Culture and Business Councils

KEVIN M. KIMBALL
Executive Vice President
Global Business Finance

ALEX KYRIAKIDIS \( ^{†} \) 
President and Managing Director
Middle East and Africa

STEPHANIE C. LINNARTZ \( ^{5,\dagger} \) 
Executive Vice President and Chief Marketing
and Commercial Officer

KATHLEEN MATTHEWS \( ^{5} \) 
Executive Vice President and
Chief Communications and Public Affairs Officer

AMY C. McPHERSON \( ^{†} \) 
President and Managing Director
Europe

LAURA E. PAUGH
Senior Vice President
Investor Relations

DAVID A. RODRIGUEZ \( ^{5,\dagger} \) 
Executive Vice President and
Chief Human Resources Officer

EDWARD A. RYAN \( ^{†} \) 
Executive Vice President and
General Counsel



## CORPORATE HEADQUARTERS

Marriott International, Inc.
10400 Fernwood Road
Bethesda, MD 20817
301/380-3000
Internet: Marriott.com

## COMMON STOCK LISTINGS

The company’s Class A Common Stock (ticker symbol: MAR) is listed on the NASDAQ Global Select Market (“NASDAQ”) and the Chicago Stock Exchange.

## SHAREHOLDERS OF RECORD

At February 7, 2014, there were 294,823,291 shares of Class A Common Stock outstanding held by 36,811 shareholders of record.

## INVESTOR RELATIONS

For information, call: 301/380-6500
Internet: Marriott.com/investor

## INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

Ernst & Young LLP

McLean, VA

## ANNUAL MEETING OF SHAREHOLDERS

May 9, 2014—10:30 a.m.
JW Marriott Hotel Washington, DC
1331 Pennsylvania Avenue, NW
Washington, DC 20004

## REGISTRAR AND TRANSFER AGENT

Shareholder inquiries regarding stock transfers, dividend payments, address changes, enrollment in the company’s direct investment plan, lost stock certificates, or other stock account matters should be directed to:

Computershare Shareowner Services
P.O. Box 43078
Providence, RI 02940 3078
800/311-4816 (U.S. and Canada)
+1 201/680-6693 (International)
www.computershare.com/investor

## OTHER INFORMATION

Any shareholder who would like a copy of the company’s Annual Report on Form 10-K for the fiscal year 2013 may obtain one, without charge, by addressing a request to the Secretary, Marriott International, Inc., Department 52/862, 10400 Fernwood Road, Bethesda, Maryland, 20817. The company’s copying costs will be charged if copies of exhibits to the Annual Report on Form 10-K are requested. You may also obtain a copy of the Annual Report for fiscal year 2013, including exhibits, from the company’s website at Marriott.com/Investor by clicking on “SEC Filings.”

## COMMON STOCK PRICES AND
DIVIDENDS \( ^{(1)} \) 

<table><tr><td></td><td></td><td>Cash</td></tr><tr><td></td><td>Stock Price</td><td>Per</td></tr><tr><td></td><td>High</td><td>Low</td></tr><tr><td>2012</td><td></td><td></td></tr><tr><td>First Quarter</td><td>$38.63</td><td>$29.73</td></tr><tr><td>Second Quarter</td><td>40.45</td><td>35.68</td></tr><tr><td>Third Quarter</td><td>40.00</td><td>34.69</td></tr><tr><td>Fourth Quarter</td><td>41.84</td><td>33.93</td></tr></table>

## 2012

First Quarter ..... $38.63 $29.73 $0.1000
Second Quarter ..... 40.45 35.68 0.1300
Third Quarter ..... 40.00 34.69 0.1300
Fourth Quarter ..... 41.84 33.93 0.1300

## 2013

First Quarter ..... $42.27 $36.24 $0.1300
Second Quarter ..... 44.45 38.17 0.1700
Third Quarter ..... 43.99 39.58 0.1700
Fourth Quarter ..... 49.84 41.26 0.1700

(1) The range of prices of our common stock and cash dividends declared per share for each quarterly period within the last two years are shown in the table above.

## TELEPHONE NUMBERS

For reservations or information, call:
AC Hotels by Marriott.....1-800/404-4806
Autograph Collection.....1-877/829-2429
Bulgari Hotels & Resorts.....1-800/6BULGARI
Courtyard.....1-800/321-2211
EDITION.....1-800/466-9695
Fairfield Inn & Suites.....1-800/228-2800
Gaylord Hotels.....1-800/429-5673
Grand Residences by Marriott.....1-888/220-2058
JW Marriott.....1-800/228-9290
Marriott Executive Apartments.....1-800/800-5744
Marriott Hotels.....1-800/228-9290
Marriott Vacation Club.....1-866/300-3032
Renaissance Hotels.....1-800/468-3571
Residence Inn.....1-800/331-3131
The Ritz-Carlton Destination Club.....1-800/542-8680
The Ritz-Carlton Hotel Company, L.L.C.....1-800/241-3333
SpringHill Suites.....1-888/287-9400
TownePlace Suites.....1-800/257-3000

## INTERNET USERS

We invite you to learn more about Marriott’s business and growth opportunities at Marriott.com/investor. Our investor site includes an electronic version of this report, investor presentations, earnings conference calls, press releases, SEC filings, company history, and information about the company’s governance and Board of Directors. You may also enroll in our dividend reinvestment plan.

Shareholders may also elect to receive notices of shareholder meetings, proxy materials and annual reports electronically through the Internet. If your shares are registered in your own name, and not in “street name” through a broker or other nominee, simply log in to the Internet site maintained by our transfer agent, Computershare Shareowner Services (formerly BNY Mellon Shareowner Services), at www.envisionreports.com/MAR and the step-by-step instructions will prompt you through enrollment.

## LODGING DEVELOPMENT INQUIRIES

## ANTHONY CAPUANO

Executive Vice President and Global Chief Development Officer .....1-301/380-4317

## LAURENT DE KOUSEMAEKER

Chief Development Officer
Caribbean and
Latin America.....1-301/380-2340

## CARLTON ERVIN

Chief Development Officer
Europe .....41-44-723-5100

## PAUL FOSKEY

Chief Development Officer
Asia Pacific.....1-852-2918-6230

## TIM GRISIUS

Senior Vice President
Lodging and Mixed Use Development
Marriott International and
The Ritz-Carlton.....1-301/380-6254

## SAMIR BAIDAS

Chief Development Officer
Middle East and Africa.....33-1-4099-8792

## RICHARD HOFFMAN

Executive Vice President
Mergers, Acquisitions and
Business Development .....1-301/380-1670

## ERIC JACOBS

Chief Development Officer
Select-Service and
Extended-Stay Brands.....1-301/380-6066

## SCOTT MELBY

Executive Vice President
Development, Planning
and Feasibility.....1-301/380-4137

## KEVIN MONTANO

Senior Vice President
EDITION
Global Development .....1-301/380-7588

## NOAH SILVERMAN

Chief Development Officer
North America
Full-Service Hotels.....1-301/380-2372

## INTERNET

MarriottDevelopment.com



# 2013 AWARDS AND RECOGNITION

World's Most Admired Lodging Company #1 in FORTUNE \( ^{®} \) 

World's Most Ethical Companies
Ethisphere™ Institute

Company of the Year
Executive Leadership Council

Top 50 Companies for Diversity DiversityInc

FTSE4Good Index

World Savers Award—Top Large Hotel Chain
Condé Nast Traveler

Leadership in Environment Award
Keystone Center

100 Best Companies to Work For (FORTUNE \( ^{®} \)  "All Star" and "Social Media Star") FORTUNE \( ^{®} \) 

World's Best Multinational Workplaces for 2013
Great Places to Work Institute \( ^{®} $ 

100% on the Corporate Equality Index
Human Rights Campaign

100 Best Companies
Working Mother

Top 50 Best Companies for Latinas
LATINA Style

Corporate Engagement Award of Excellence, The Ritz-Carlton Points of Light

TownePlace Suites ranked #1 Extended Stay Brand
J.D. Power and Associates

North America Hotel Guest Satisfaction Survey—The Ritz-Carlton Hotel Company Tops Luxury Hotel Brands for Fourth Consecutive Year
J.D. Power and Associates

TownePlace Suites is the number one ranked hotel brand in the Midprice Extended Stay Tier Business Travel News

Top Hotel Loyalty Program, Marriott Rewards
U.S. News & World Report

Best Hotel Loyalty Program—Marriott Rewards, Americas
Freddie Award




MARRIOTT INTERNATIONAL, INC.

10400 FERNWOOD ROAD

BETHESDA, MARYLAND 20817

MARRIOTT.COM

FIND YOUR WORLD ONLINE.

TOUR OUR INTERACTIVE ANNUAL REPORT AT MARRIOTT.COM/INVESTOR.