1. By: Allie Leon Mod 11: Adjusting Enterprise Operations

2. The Lodging Industry • Marked by intense competition • Over 850 lodging management companies in the US alone • Experienced significant decreases in room reservations during the recession • Large trend toward international expansion (especially into Africa) • Key competitors: Intercontinental Hotel Group, the Starwood Hotels, Hyatt, and Hilton Hotels & Resort

3. Marriott International, Inc. • The largest hotel chain in the world • Controls about 10 % of US hotel market and 1% worldwide • Main operations are in the US, although strong presence in Canada, the UK, and China • Made up of 19 brands • Ritz Carlton, JW Marriott, Fairfield Marriott, Courtyard Marriott, etc. • 3900 lodging properties in 72 countries • Plans to open 100 new properties, adding 18 countries, by the end of 2014 • Most revenue from franchise arrangements • Primary customers are business travelers

4. Financial Reporting Consequences of Operating Leases 1. Lease asset is not on balance sheet causing NEA to be lower and therefore EATO higher 2. Lease liability is not on balance sheet which makes financial leverage ratios look better 3. RNEA appears higher 4. EPAT is lower due to classification of expense, causing net income in early years to appear higher -Operating leases record rent expense (SG&A) rather than depreciation and interest expense thereby reducing EPAT

5. Operating Leases (96%) IRR = 3.37%

6. Adjustments due to Capitalization of Operating Leases

7. Step 1 Stock Based Compensation Step 1: Value of options outstanding at the beginning of the year [9.5 mil (39.25 – 19)] = $192.38 beginning overhang

8. Step 2 Step 2: Value of options outstanding at the beginning of the year using end of the year prices [9.5 mil (49.19 – 22)] = $286.81

9. Step 3 Step 3: Estimated value of exercised options using average price [5 mil (44.22 – 17)] = $136.10

10. Step 4 Step 4: Value of options cancelled during the year [0 mil (44.22 – 17)] = $0

11. Step 5 Step 5: Value of options outstanding at end of year [4.6 mil (49.19 – 22)] = $125.07 ending overhang

12. Steps 6 & 7 Share Based Compensation effect of change in outstanding options (5-2) = ($161.73) effect of exercising & cancellations (3+4) =$136.10 Net: ($25.63) **negative share based comp due to large decrease in liability due to large decrease in options outstanding Adjustments

13. Questions??

14. Sources • Marriott International, Inc. 2013 10K • Yahoo Finance