Financial Information
Jump to a Section:
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cost Reimbursements
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 but also includes reimbursements for other costs, such as those associated with our Loyalty Programs, reservations, and marketing programs. As we record cost reimbursements based upon costs incurred with no added markup, this revenue and related expense has no impact on either our operating or net income.
2017 Compared to 2016
The $4,219 million increase in cost reimbursements revenue and reimbursed costs primarily reflected higher Legacy-Starwood reimbursements, Loyalty Program activity, and growth across our system.
2016 Compared to 2015
The $1,916 million increase in cost reimbursements revenue and reimbursed costs primarily reflected $1,348 million from the Starwood Combination and the following Legacy-Marriott drivers: higher property occupancies, unit growth across our system, and growth in the Marriott Rewards program membership and activity.
Other Operating Expenses
2017 Compared to 2016
Depreciation, amortization, and other expenses increased by $122 million, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets and $6 million higher write-offs of deferred contract acquisition costs.
General, administrative, and other expenses increased by $190 million, primarily due to the Starwood Combination, $14 million of higher litigation expenses, $13 million of higher development expenses, $10 million of higher compensation expenses, and $10 million from net unfavorable foreign exchange rates.
Merger-related costs and charges decreased by $227 million. For more information, see Footnote 4 “Merger-Related Costs and Charges.”
2016 Compared to 2015
Depreciation, amortization, and other expenses increased by $29 million driven by $43 million from the Starwood Combination, partially offset by a decrease of $14 million from Legacy-Marriott operations which primarily reflected a favorable variance to 2015 impairment charges.
General, administrative, and other expenses increased by $70 million, primarily due to $79 million from the Starwood Combination, partially offset by a net decrease of $9 million in Legacy-Marriott expenses. The decrease primarily reflected $15 million in lower reserves for guarantee funding and $9 million in lower foreign exchange losses, partially offset by $15 million of higher administrative costs to grow our brands globally, $4 million of higher bad debt reserves, and $3 million net unfavorable impact to our legal expenses associated with 2015 litigation resolutions.
Merger-related costs and charges increased by $386 million. For more information, see Footnote 4 “Merger-Related Costs and Charges.”
Non-Operating Income (Expense)
2017 Compared to 2016
Gains and other income, net increased by $683 million, primarily due to the disposition of our ownership interest in Avendra and the gain on the sale of a North American Full-Service property in the 2017 second quarter. See the “Dispositions” caption of Footnote 3 “Acquisitions and Dispositions” for more information.
Interest expense increased by $54 million, primarily due to an increase in debt as a result of the Starwood Combination and higher commercial paper borrowings, partially offset by $18 million of lower interest due to the maturities of Series H and I Notes and a $13 million favorable variance to the bridge term loan facility commitment costs that we incurred in 2016.
Interest income increased by $3 million, primarily due to issuances of new loans, partially offset by $7 million lower interest income on a repaid loan.
Equity in earnings increased by $29 million, primarily due to higher earnings by Legacy-Starwood investees.
2016 Compared to 2015
Gains and other income, net decreased by $22 million, primarily due to the net Legacy-Marriott gain that we recorded in 2015.
Interest expense increased by $67 million, primarily due to a net increase in Senior Notes interest expense ($18 million), an increase in debt as a result of the Starwood Combination ($15 million), the amortization of costs for a bridge term loan facility commitment that we obtained in the 2016 first quarter ($13 million), net lower capitalized interest primarily due to the completion of The New York (Madison Square Park) EDITION in 2015 ($9 million), and higher interest rates on commercial paper borrowings ($7 million).
Interest income increased by $6 million, primarily driven by higher Legacy-Marriott interest income on a loan that we provided to an owner in conjunction with entering into a franchise agreement for a North American Limited-Service property in the 2015 fourth quarter ($8 million), partially offset by lower Legacy-Marriott interest income on two repaid loans ($6 million).
Equity in earnings decreased by $6 million, primarily reflecting a net unfavorable variance to three Legacy-Marriott adjustments recorded in 2015, partially offset by $5 million from the Starwood Combination.