BASIS OF PRESENTATION

The condensed consolidated financial statements present the results of operations, financial position, and cash flows of Marriott International, Inc. and subsidiaries (referred to in this report as “we,” “us,” “Marriott,” or “the Company”). In order to make this report easier to read, we also refer throughout to (i) our Condensed Consolidated Financial Statements as our “Financial Statements,” (ii) our Condensed Consolidated Statements of Income as our “Income Statements,” (iii) our Condensed Consolidated Balance Sheets as our “Balance Sheets,” (iv) our Condensed Consolidated Statements of Cash Flows as our “Statements of Cash Flows,” (v) our properties, brands, or markets in the United States (“U.S.”) and Canada as “North America” or “North American,” and (vi) our properties, brands, or markets in our Caribbean and Latin America, Europe, and Middle East and Africa regions as “Other International,” and together with those in our Asia Pacific segment, as “International.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes in these Notes to Condensed Consolidated Financial Statements, unless otherwise noted.

These Financial Statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements in this report should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (“2017 Form 10-K”). Certain terms not otherwise defined in this Form 10-Q have the meanings specified in our 2017 Form 10-K.

Preparation of financial statements that conform with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. Accordingly, ultimate results could differ from those estimates.

The accompanying Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of March 31, 2018 and December 31, 2017, and the results of our operations and cash flows for the three months ended March 31, 2018 and March 31, 2017. Interim results may not be indicative of fiscal year performance because of seasonal and short-term variations. We have eliminated all material intercompany transactions and balances between entities consolidated in these Financial Statements.

The accompanying Financial Statements also reflect our adoption of several new accounting standards. See the “New Accounting Standards Adopted” caption below for additional information.

New Accounting Standards Not Yet Adopted

Accounting Standards Update (“ASU”) 2016-02 “Leases” (Topic 842). ASU 2016-02 introduces a lessee model that brings substantially all leases onto the balance sheet. Under the new standard, a lessee will recognize on its balance sheet a lease liability and a right-of-use asset for most leases, including operating leases. The new standard will also distinguish leases as either finance leases or operating leases. This distinction will affect how leases are measured and presented in the income statement and statement of cash flows. The standard is effective for us beginning in our 2019 first quarter and requires the use of a modified retrospective transition method. We are still assessing the potential impact that ASU 2016-02 will have on our financial statements and disclosures, but we expect that it will have a material effect on our Balance Sheets.

New Accounting Standards Adopted

ASU 2016-18 “Restricted Cash” (Topic 230). ASU 2016-18 requires companies to include restricted cash with cash and cash equivalents when reconciling beginning and ending amounts shown on the statement of cash flows. We adopted ASU 2016-18 in the 2018 first quarter using the retrospective transition method, and accordingly, we revised prior period amounts, as shown in the “Statements of Cash Flows” table below.

ASU 2016-16 “Accounting for Income Taxes: Intra-Entity Transfers of Assets Other than Inventory” (Topic 740). ASU 2016-16 requires companies to recognize the income tax effects of intercompany sales of assets other than inventory when the transfer occurs. We adopted ASU 2016-16 in the 2018 first quarter using the modified retrospective transition method and recorded an adjustment of $372 million for the cumulative effect to retained earnings at January 1, 2018.

ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments” (Topic 230). ASU 2016-15 specifies how certain cash receipts and payments are to be classified in the statement of cash flows and primarily impacts our presentation of cash outflows for commercial paper. Under ASU 2016-15, we are required to attribute a portion of the payments to accreted interest and classify that portion as cash outflows for operating activities. We adopted ASU 2016-15 in the 2018 first quarter using the retrospective transition method, and accordingly, we revised prior period amounts, as shown in the “Statements of Cash Flows” table below.

ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” (Topic 825). ASU 2016-01 eliminates the available-for-sale classification for equity investments and requires companies to measure equity investments at fair value and recognize any changes in the fair value in net income. We adopted ASU 2016-01 in the 2018 first quarter using the modified retrospective transition method and recorded a cumulative-effect adjustment of $4 million to retained earnings at January 1, 2018.

ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606). ASU 2014-09 and several related ASUs (collectively referred to as “ASU 2014-09”) supersede the revenue recognition requirements in Topic 605, Revenue Recognition, as well as most industry-specific guidance, and provide a principles-based, comprehensive framework in Topic 606, Revenue Recognition. ASU 2014-09 also specifies the accounting for certain costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements. We adopted ASU 2014-09 in the 2018 first quarter using the full retrospective transition method. See Footnote 2. Revenues for disclosures required by ASU 2014-09, including our revenue recognition accounting policies.

When we adopted ASU 2014-09, we applied the following expedients and exemptions, which are allowed by the standard, to our prior period Financial Statements and disclosures:


•	We used the transaction price at the date of contract completion for our contracts that had variable consideration and were completed before January 1, 2018.


•	We considered the aggregate effect of all contract modifications that occurred before January 1, 2016 when: (1) identifying satisfied and unsatisfied performance obligations; (2) determining the transaction price; and (3) allocating the transaction price to the satisfied and unsatisfied performance obligations.


•	We did not: (1) disclose the amount of the transaction price that we allocated to remaining performance obligations; or (2) include an explanation of when we expect to recognize the revenue allocated to remaining performance obligations.

The cumulative effect of adopting ASU 2014-09 was a decrease in 2016 retained earnings of approximately $264 million.

The following tables present the effect of the adoption of ASUs 2014-09, 2016-15, and 2016-18 on our Financial Statements included in this report.

Income Statements



	Three Months Ended						Three Months Ended
($ in millions, except per share amounts)	March 31, 2017 (As Previously Reported)			Adoption of ASU 2014-09			March 31, 2017 (As Adjusted)
REVENUES
Base management fees	$	264		$	—		$	264
Franchise fees	365			(10		)	355
Incentive management fees	153			(13		)	140
Gross fee revenues	782			(23		)	759
Contract investment amortization	—			(11		)	(11		)
Net fee revenues	782			(34		)	748
Owned, leased, and other revenue	439			(11		)	428
Cost reimbursement revenue	4,340			(604		)	3,736
	5,561			(649		)	4,912
OPERATING COSTS AND EXPENSES
Owned, leased, and other-direct	358			(2		)	356
Depreciation, amortization, and other	65			(14		)	51
General, administrative, and other	210			2			212
Merger-related costs and charges	51			—			51
Reimbursed expenses	4,340			(644		)	3,696
	5,024			(658		)	4,366
OPERATING INCOME	537			9			546
Gains and other income, net	—			—			—
Interest expense	(70		)	—			(70		)
Interest income	7			—			7
Equity in earnings	11			—			11
INCOME BEFORE INCOME TAXES	485			9			494
Provision for income taxes	(120		)	(3		)	(123		)
NET INCOME	$	365		$	6		$	371
EARNINGS PER SHARE
Earnings per share - basic	$	0.95		$	0.01		$	0.96
Earnings per share - diluted	$	0.94		$	0.01		$	0.95

Statements of Comprehensive Income



	Three Months Ended					Three Months Ended
($ in millions)	March 31, 2017 (As Previously Reported)			Adoption of ASU 2014-09		March 31, 2017 (As Adjusted)
Net income	$	365		$	6	$	371
Other comprehensive income (loss):
Foreign currency translation adjustments	188			—		188
Derivative instrument adjustments, net of tax	(2		)	—		(2		)
Unrealized (loss) gain on available-for-sale securities, net of tax	(1		)	—		(1		)
Pension and postretirement adjustments, net of tax	—			—		—
Reclassification of losses, net of tax	—			—		—
Total other comprehensive income, net of tax	185			—		185
Comprehensive income	$	550		$	6	$	556

Balance Sheets



($ in millions)	December 31, 2017 (As Previously Reported) ⁽¹⁾			Adoption of ASU 2014-09			December 31, 2017 (As Adjusted)
ASSETS
Current assets
Cash and equivalents	$	383		$	—		$	383
Accounts and notes receivable, net	1,999			(26		)	1,973
Prepaid expenses and other	216			19			235
Assets held for sale	149			—			149
	2,747			(7		)	2,740
Property and equipment, net	1,793			—			1,793
Intangible assets
Brands	5,922			—			5,922
Contract acquisition costs and other	2,884			(262		)	2,622
Goodwill	9,207			—			9,207
	18,013			(262		)	17,751
Equity method investments	735			(1		)	734
Notes receivable, net	142			—			142
Deferred tax assets	93			—			93
Other noncurrent assets	426			167			593
	$	23,949		$	(103	)	$	23,846
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt	$	398		$	—		$	398
Accounts payable	783			—			783
Accrued payroll and benefits	1,214			—			1,214
Liability for guest loyalty programs	2,064			57			2,121
Accrued expenses and other	1,541			(250		)	1,291
	6,000			(193		)	5,807
Long-term debt	7,840			—			7,840
Liability for guest loyalty programs	2,876			(57		)	2,819
Deferred tax liabilities	604			1			605
Deferred revenue	145			438			583
Other noncurrent liabilities	2,753			(143		)	2,610
Shareholders' equity
Class A Common Stock	5			—			5
Additional paid-in-capital	5,770			—			5,770
Retained earnings	7,391			(149		)	7,242
Treasury stock, at cost	(9,418		)	—			(9,418		)
Accumulated other comprehensive loss	(17		)	—			(17		)
	3,731			(149		)	3,582
	$	23,949		$	(103	)	$	23,846


⁽¹⁾	Includes reclassifications among various captions, including Deferred revenue and Other noncurrent liabilities, to conform to current period presentation.

Statements of Cash Flows



	Three Months Ended									Three Months Ended
($ in millions)	March 31, 2017 (As Previously Reported)			Adoption of ASU 2014-09			Adoption of ASUs 2016-18 and 2016-15			March 31, 2017 (As Adjusted)
OPERATING ACTIVITIES
Net income	$	365		$	6		$	—		$	371
Adjustments to reconcile to cash provided by operating activities:
Depreciation, amortization, and other	65			(3		)	—			62
Share-based compensation	48			—			—			48
Income taxes	82			4			—			86
Liability for guest loyalty program	60			9			—			69
Contract acquisition costs	—			(53		)	—			(53		)
Merger-related charges	(36		)	—			—			(36		)
Working capital changes	(108		)	(28		)	1			(135		)
(Gain) loss on asset dispositions	1			—			—			1
Other	49			7			(7		)	49
Net cash provided by (used in) operating activities	526			(58		)	(6		)	462
INVESTING ACTIVITIES
Capital expenditures	(48		)	—			—			(48		)
Dispositions	311			—			—			311
Loan advances	(28		)	—			—			(28		)
Loan collections	7			—			—			7
Contract acquisition costs	(54		)	54			—			—
Other	(4		)	4			1			1
Net cash provided by investing activities	184			58			1			243
FINANCING ACTIVITIES
Commercial paper/Credit Facility, net	(33		)	—			7			(26		)
Issuance of long-term debt	1			—			—			1
Repayment of long-term debt	(4		)	—			—			(4		)
Issuance of Class A Common Stock	2			—			—			2
Dividends paid	(115		)	—			—			(115		)
Purchase of treasury stock	(582		)	—			—			(582		)
Share-based compensation withholding taxes	(99		)	—			—			(99		)
Net cash provided by (used in) financing activities	(830		)	—			7			(823		)
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(120		)	—			2			(118		)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period	858			—			29			887
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period	$	738		$	—		$	31		$	769

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