SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[_][ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 2, 1998December 31, 1999 Commission File No. 1-13881
NEW MARRIOTT MI,INTERNATIONAL, INC.
(To Be Renamed "Marriott International, Inc.")
Delaware 52-2055918
(State of Incorporation) (I.R.S. Employer Identification Number)
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------------------------------------- ----------------------------------------------
Common Stock, $0.01 par value (100 shares outstanding as of New York Stock Exchange *
February 24, 1998) Chicago Stock Exchange*
Pacific Stock Exchange*---------------------------------------------
Class A Common Stock, $0.01 par value (noNew York Stock Exchange
(243,957,257 shares outstanding as of January 31, 2000) Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange*
as of February 24, 1998)Exchange
* Subject to official notice of issuance.
The aggregate market value of shares of common stock held by non-affiliates at
January 2, 199831, 2000 was $0.$5,796,024,530.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [_][X] No [X][_]
Indicate by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Documents Incorporated by Reference
Portions of the Proxy Statement prepared for the 19982000 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report.
Index to Exhibits is located on pages 4752 through 49.54.
PART I
New Marriott MI, Inc. is a wholly owned subsidiary of Marriott International,
Inc. formed to conduct Marriott International, Inc.'s lodging, senior living and
distribution services businesses. Throughout this report, Newwe refer to Marriott MI,International, Inc., together
with its subsidiaries, is referred to as "we," "us," or "the Company."
As
described herein, it is expected that all of the issued and outstanding common
stock of the Company will be distributed as a special dividend to shareholders
of Marriott International, Inc.
FORWARD-LOOKING STATEMENTS
When used throughoutWe have made forward-looking statements in this report,document that are based on
the beliefs and assumptions of our management, and on information currently
available to our management. Forward-looking statements include the information
concerning our possible or assumed future results of operations and statements
preceded by, followed by or that include the words "believes," "anticipates,"expects,"
"expects,"anticipates," "intends," "hopes,"plans," "estimates," "projects"or similar expressions.
Forward-looking statements involve risks, uncertainties and other similar
expressions, which are predictions of or indicate future eventsassumptions.
Actual results may differ materially from those expressed in these forward-
looking statements. We caution you not to put undue reliance on any forward-
looking statements.
You should understand that the following important factors, in addition to
those discussed in Exhibit 99 and trends
identify forward-looking statements. Such statements are subject to a number of
risks and uncertainties whichelsewhere in this annual report, could cause actual
results to differ materially from those projected, including: dependence on arrangements with present and
future property owners; contract terms offered by competitors;expressed in such forward-looking
statements.
. competition withinfor each of the Company'sour business segments;
. business strategies and their intended results;
. the balance between supply of and demand for hotel rooms,
timeshare units, and senior living accommodations; the Company'saccommodations and corporate
apartments;
. our continued ability to renew existing operating contracts and franchise agreements and obtain new operating contracts and
franchise agreements (in each case on
favorable terms); the Company'sagreements;
. our ability to develop and maintain positive relations with
current and potential hotel and senior living community owners
and distribution services clients;owners;
. the effect of international, national and regional economic
conditions;
. the availability of capital to allow us and potential hotel and
senior living community owners to fund investments;
. the Company's abilityeffect that internet hotel reservation channels may have on
the rates that we are able to achieve synergiescharge for hotel rooms; and
performance improvements
subsequent to closing on acquisitions; Marriott International, Inc.'s ability to
successfully complete its recently announced spinoff transaction; and. other risks described from time to time in the Company'sour filings with the
Securities and Exchange Commission including those set forth on Exhibit 99 filed herewith.
Given these uncertainties, readers are cautioned not to place undue reliance on
such statements. The Company also undertakes no obligation to publicly update or
revise any forward-looking statement to reflect current or future events or
circumstances.(the SEC).
ITEMS 1 ANDand 2. BUSINESS AND PROPERTIES
The Company isWe are a worldwide operator and franchisor of hotels and related lodging
facilities, an operator of senior living communities. The Company'scommunities, and a provider of
distribution services. Our operations are grouped in twothree business segments,
Lodging, Senior Living Services and ContractDistribution Services, which represented 77 percent81,
6, and 2313 percent, respectively, of total sales in 1997.the fiscal year ended
December 31, 1999.
In itsour Lodging segment, the Company operateswe operate, develop and franchisesfranchise lodging
facilities under 10 separate brand names and develops and operates vacation timesharing resorts. The Contract Services segment consists of two businesses. MarriottIn addition, we provide over 5,100
furnished corporate housing units.
2
In our Senior Living Services developssegment we develop and presently operates 89operate 144
senior living communities offering independent living, assisted living and
skilled nursing care for seniors in the United States.
Marriott Distribution Services (MDS) supplies food and related products to
internal operationsexternal customers and to external customersinternal lodging and senior living services operations
throughout the United States.
Proposed Spinoff
- ----------------
On October 1, 1997, Marriott International, Inc. announced a definitive
agreement to combine the operations of its Marriott Management Services Division
(MMS) with the North American operations of Sodexho Alliance, S.A. (Sodexho), a
worldwide food and management services organization. The combined company, to
be renamed Sodexho Marriott Services, Inc. (SMS), will be the largest provider
of food and facilities management services in North America. SMS common stock
is expected to be listed on the New York Stock Exchange.
Prior to the merger, all of the issued and outstanding common stock of the
Company will be distributed, on a pro rata basis, as a special dividend to
holders of Marriott International, Inc. common stock (the Spinoff). Marriott
International, Inc. has received a private letter ruling from the Internal
Revenue Service that the Spinoff will be tax-free to Marriott International,
Inc. and its shareholders. The Company will be renamed "Marriott International,
Inc." and its common stock will be listed on the New York Stock Exchange,
subject to official notice of issuance.
2
The Spinoff and merger transactions are expected to be consummated on March
27, 1998, subject to customary conditions, including approval by Marriott
International, Inc.'s shareholders. A special meeting of shareholders is
scheduled to be held on March 17, 1998 for purposes of considering and acting on
the foregoing transactions and related matters. A proxy statement and proxy
card relating to the special meeting were mailed beginning on February 16, 1998
to shareholders of record of Marriott International, Inc. on January 28, 1998.
Upon consummation of the Spinoff, the Company will have two classes of common
stock. One class will have one vote per share (New Marriott Common Stock) and
one class will have ten votes per share (New Marriott Class A Common Stock).
Each holder of Marriott International, Inc. common stock on the record date for
the Spinoff will receive one share of New Marriott Common Stock and one share of
New Marriott Class A Common Stock for each share of Marriott International, Inc.
common stock owned on such date. The rights, powers and preferences of the two
classes of stock will otherwise be identical, except that the Board of Directors
may declare and pay a regular quarterly cash dividend on the New Marriott Common
Stock that may be up to 125 percent of the cash dividend declared and paid on
the New Marriott Class A Common Stock, and the New Marriott Common Stock has
certain customary minority rights protection provisions that apply if a person
or group of persons acquires over 15 percent of the outstanding shares of New
Marriott Class A Common Stock after the Spinoff, and does not at that time hold
at least the same percentage of New Marriott Common Stock.
The Company has entered into a $1.5 billion multicurrency revolving credit
agreement permitting borrowings by the Company following consummation of the
Spinoff. The facility has a term of five years and borrowings will bear
interest at the London Interbank Offered Rate (LIBOR) plus a spread, based on
the Company's public debt rating. Additionally, annual fees will be paid on the
facility at a rate also based on the Company's public debt rating.
Each outstanding zero-coupon convertible subordinated note (LYONs) of Marriott
International, Inc. will be convertible into 8.76 shares of New Marriott Common
Stock, 8.76 shares of New Marriott Class A Common Stock and 2.19 shares of SMS
common stock (after giving effect to a one-for-four reverse stock split). The
LYONs will be assumed by the Company, and SMS will assume nine percent of the
LYONs obligation, which percentage is based on an estimate of the relative
equity values of SMS and the Company.
On February 25, 1998, Marriott International, Inc. commenced a tender offer
and consent solicitation for all $600 million of its outstanding public senior
debt (the Marriott International Public Debt) and RHG Finance Corporation, a
subsidiary of Marriott International, Inc. (and which will be a subsidiary of
the Company upon the Spinoff), commenced a tender offer and consent solicitation
for all $120 million of its outstanding public debt (the RHG Public Debt), which
is guaranteed by Marriott International, Inc. In the event that the consent
solicitation for any of the four series of Marriott International Public Debt is
unsuccessful, the Company will assume the debt of such series that is not
purchased by Marriott International, Inc. in the tender offer, and any
untendered RHG Public Debt will constitute part of the Company's consolidated
debt and will be guaranteed by the Company. Under its agreements with Sodexho
and Marriott International, Inc., to the extent that the Company assumes any
such Marriott International Public Debt, or any RHG Public Debt is not purchased
in the tender offer, Marriott International, Inc. will make a cash payment to
the Company in an amount equal to the aggregate amount of such debt.
The Company and SMS will enter into agreements under which the Company will
distribute food and supplies and provide administrative and data processing
services to SMS. The rights to all Marriott trademarks and trade names will be
transferred to the Company, which will license to SMS, for a period of four
years, certain Marriott brand names used in the food service and facilities
management businesses.
Financial information by industry segment and geographic area as of
January 2,
1998December 31, 1999 and for the three fiscal years then ended, appears in the
Combined
Statement of Income, the Summary of Significant Accounting Policies --
International Operations and the Business Segments notesnote to the Combinedour Consolidated Financial Statements included in Part II, Item 8.
Employee Relationsthis
annual report.
Formation of "New" Marriott International - ------------------
At January 2,Spinoff in March 1998
the Company had approximately 117,000 employees.
Approximately 3,500 employees at properties managedWe became a public company in March 1998, when we were spun off (the
Spinoff) as a separate entity by the Company were
representedcompany formerly named "Marriott
International, Inc." (Old Marriott). Our company - the "new" Marriott
International - was formed to conduct the lodging, senior living and
distribution services businesses formerly conducted by labor unions.Old Marriott.
The Company believesSpinoff was effected through a dividend of one share of our common
stock and one share of our Class A Common Stock for each share of Old Marriott
Common Stock outstanding on March 20, 1998. As the result of a shareholders'
vote at our 1998 annual meeting of shareholders, on May 21, 1998 we converted
all of our outstanding shares of common stock into shares of Class A Common
Stock on a one-for-one basis.
At the same time as the Spinoff, Old Marriott merged its relationsremaining
businesses - food service and facilities management - with employeesthe similar
businesses of Sodexho Alliance, S.A. (Sodexho Alliance) in the United States and
Canada, to form Sodexho Marriott Services, Inc. (SMS). We are positive.
3
Other Properties
- ----------------providing certain
transitional administrative services to SMS, and MDS provides food distribution
services to many of SMS's food service locations.
Lodging
We operate or franchise 1,880 lodging properties worldwide, with 355,883
rooms as of December 31, 1999. In addition, we provide 5,184 furnished corporate
housing units. We believe that our portfolio of fourteen lodging brands - from
luxury to economy to extended stay to corporate housing - is the operating properties discussed below,broadest of any
company in the Company leases an
870,000 square foot office building, locatedworld, and that we are the leader in Bethesda, Maryland, which serves
as the Company's headquarters. This lease has an initial term which expires in
2004, and includes options for an additional 15 years.
The Company believes its properties are in generally good physical condition
with need for only routine repair and maintenance.
LODGING
The Company's Lodging businesses included 1,478 operated or franchised hotels
with 297,086 rooms at January 2, 1998, under 10 distinct brands, serving all
segmentsquality tier of the
lodging industry: Marriott Hotels, Resorts and Suites (full-
service); Ritz-Carlton (luxury); Renaissance (full-service); New World (full-
service); Ramada International (moderate-price, full-service); Residence Inn
(extended-stay); Courtyard hotels (moderate-price); Fairfield Inn and Suites
(economy); TownePlace Suites (moderate-price, extended-stay) and serviced
apartments including those operated under the Marriott Executive Residences
brand (extended-stay, international). The Company is also a leading developer
and operator of vacation timesharing properties (Marriott Vacation Club
International)business. Consistent with our focus on management and
franchising, we own very few of our lodging properties. Our lodging brands
include:
Upscale Full-Service Lodging Extended-Stay Lodging
. Marriott Hotels, Resorts and Suites . Residence Inn
. Renaissance Hotels, Resorts and Suites . TownePlace Suites
. Marriott Executive Apartments
Luxury Lodging
. Ritz-Carlton
Vacation Timesharing
Moderate-Priced and Economy Lodging . Marriott Vacation Club International
. Courtyard . Horizons by Marriott Vacation Club
. Fairfield Inn . The Ritz-Carlton Club
. SpringHill Suites
. Ramada International Hotels and Resorts Corporate Apartments
(Europe, Middle East and Asia/Pacific) . ExecuStay by Marriott
3
Company-Operated Lodging Properties
- -----------------------------------
At January 2, 1998, the CompanyDecember 31, 1999, we operated a total of 729882 properties (191,214(219,880 rooms)
across its 10 lodging brandsas owned or under long-term management or lease agreements with property owners
(together, the Operating Agreements).
Terms of the Company'sour management agreements vary, but typically includewe earn a management
fee which comprises a base fee, which is a percentage of the revenues of the
hotel, and an incentive management fees andfee, which is based on the profits of the
hotel. Our management agreements also typically include reimbursement of costs
(both direct and indirect) of lodging operations. Such agreements are generally for
initial periods of 20 to 30 years, with options to renew for up to 50 additional
years. The Company'sOur lease agreements also vary, but typically include fixed annual
rentals plus additional rentals based on a percentage of annual revenues in
excess of a fixed amount. Many of the Operating Agreements are subordinated to
mortgages or other liens securing indebtedness of the owners. Additionally, a
number of the Operating Agreements permit the owners to terminate the agreement
if financial returns fail to meet defined levels and the operator haswe have not cured such
deficiencies.
The Company's responsibilitiesFor units that we manage, we are responsible for units it operates include hiring, training and
supervising the managers and employees required to operate the facilities.
The Company providesfacilities and
for purchasing supplies, for which we generally are reimbursed by the owners. We
provide centralized reservation services, and national advertising, marketing
and promotional services, as well as various accounting and data processing
services. The Company prepares and implements annual budgets forFor lodging facilities that it operates. Additionally, the Company is responsible
for allocating funds, generally a fixed percentage of revenue, for periodic
renovation of buildingswe manage, we prepare and replacement of furnishings. The Company believesimplement annual
operating budgets that its ongoing refurbishment program is adequateare subject to preserve the competitive
position and earning power of the hotels.owner approval.
Franchised Lodging Properties
- -----------------------------
The Company hasWe have franchising programs that permit the use of itscertain of our brand
names and itsour lodging systems by other hotel owners and operators. Under these
programs, the Company receiveswe generally receive an initial application fee and continuing royalty
fees, which typically range from 4four percent to 6six percent of room revenues
for all brands, plus 2two percent to 3three percent of food and beverage revenues
for full-
servicecertain full-service hotels. In addition, franchisees contribute to theour
national marketing and advertising programs, and pay fees for use of the Company'sour
centralized reservation systems. At January 2, 1998, the CompanyDecember 31, 1999, we had 749998 franchised
properties (105,872(136,003 rooms).
4
Summary of HotelsProperties by Brand
- --------------------------
The table below shows------------------------------
As of December 31, 1999 we operated or franchised the distribution of hotelsfollowing properties
by brand as of January 2,
1998.(excluding 5,184 corporate housing rental units):
Company-operated Franchised
------------------------------------------------------------- -------------------------------
Brand UnitsProperties Rooms UnitsProperties Rooms
- -------------------------------------------- -------------------------------------------------------------- -------------- ------------ -------------- --------------------------
Marriott Hotels, Resorts and Suites......... 204 87,423 122 37,148
Ritz-Carlton................................ 33 11,416Suites 230 100,712 138 39,977
Ritz-Carlton 36 11,878 - -
Renaissance................................. 62 24,183 8 2,587
New World................................... 14 6,889 - -Renaissance Hotels, Resorts and Suites 76 30,276 20 7,015
Ramada International........................ 33 7,032 41 7,444International 7 1,325 19 4,246
Residence Inn............................... 112 14,719 146 15,957
Courtyard................................... 210 30,731 139 17,015Inn 137 18,404 187 20,349
Courtyard 263 40,653 208 26,356
TownePlace Suites 26 2,672 35 3,434
Fairfield Inn and Suites.................... 51 7,133 293 25,721
TownePlace Suites........................... 2 1847,138 363 31,835
SpringHill Suites 6 654 28 2,791
Marriott Vacation Club International 43 4,641 - -
Marriott Executive ResidencesApartments and Other..... 8 1,504other 7 1,527 - -
---------------------- ------------ -------------- -------------- --------------
Total....................................... 729 191,214 749 105,872
=============------------
Total 882 219,880 998 136,003
========= ============ ============== ============== ==========================
A significant proportionWe plan to open approximately 230 hotels (approximately 38,000 rooms)
during 2000. 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 sell properties
that we develop, and the ability
4
of hotels operatedhotel or franchised bysenior living community developers to build or acquire new Marriott
properties, which are important parts of our growth plans, are partially
dependent on the Company at
January 2, 1998 were located outside the U.S., as follows:
U.S. Non-U.S.
-------------------------------- ----------------------------------
Brand Units Rooms Units Rooms
- ------------------------------------------------- ------------- -------------- -------------- --------------
Marriott Hotels, Resorts and Suites.............. 254 101,641 72 22,930
Ritz-Carlton..................................... 20 7,166 13 4,250
Renaissance...................................... 31 14,145 39 12,625
New World........................................ - - 14 6,889
Ramada International............................. - - 74 14,476
Residence Inn.................................... 254 30,125 4 551
Courtyard........................................ 338 46,715 11 1,031
Fairfield Inn and Suites......................... 344 32,854 - -
TownePlace Suites................................ 2 184 - -
Marriott Executive Residences and Other.......... - - 8 1,504
------------- -------------- -------------- --------------
Total............................................ 1,243 232,830 235 64,256
============= ============== ============== ==============
availability and price of capital.
Marriott Hotels, Resorts and Suites primarily serve business and leisure
travelers and meeting groups at locations in downtown and suburban areas, near
airports and at resort locations. Most Marriott full-service hotels contain from
300 to 500 rooms. However, the 19 convention hotels (approximately 18,500
rooms) are larger and contain up to 1,900 rooms. Marriott full-service hotel
facilitieshotels typically includehave swimming pools,
gift shops, convention and banquet facilities, a variety of restaurants and
lounges and parking facilities. The 35Our 19 convention hotels (approximately 20,100
rooms) are larger and contain up to 1,900 rooms. Marriott resort hotels (approximately 15,000 rooms) have
additional recreational facilities, such as tennis courts and golf courses. The
1013 Marriott Suites (approximately 2,6003,400 rooms) are full-service suite hotels
that typically contain aboutapproximately 250 suites, each consisting of a living
room, bedroom and bathroom. These
propertiesMarriott Suites have only limited meeting space.
The Company operates 25We operate conference centers with approximately 4,400 guest
rooms, located throughout the United States. Some of
the centers are used exclusively by employees of the sponsoring organization,
while others are marketed to outside meeting groups and individuals. The centers
typically include meeting room space, dining facilities, guest roomsguestrooms and
recreational facilities.
The Company receives management fees for operatingRoom operations contributed the conference
centers under contracts which typically range from one to five years.
Management fees are generally based on a fixed amount or a percentagemajority of
revenues, and some of the management contracts provide for the Company to earn
incentive fees if certain financial targets are exceeded.
5
Room revenues for Marriott full-service hotels contributed approximately 61
percent of the Company's full-service hotel sales for the fiscal year
1997,1999 with the remainder coming from food and beverage operations, recreational
facilities and other services. Individual business and leisure travelers accounted for
approximately 62 percent of occupied room nights at the Company full-service
hotels for fiscal year 1997, with group meetings representing another 38
percent. Although business at many resort properties is
seasonal depending on location, overall hotel profits have been relatively
stable and include only moderate seasonal fluctuations.
As of January 2, 1998, Marriott Hotels, Resorts and Suites were located in 41
states, the District of Columbia and 33 other countries. The Company expects to
add 21 operated or franchised Marriott Hotels, Resorts and Suites (approximately
6,100 rooms) during 1998. Of these hotel rooms, approximately 50 percent will
be located outside the United States.
At January 2, 1998, Marriott Hotels, Resorts and Suites operated or franchised
by the Company were located outside the U.S. in the United Kingdom (23 hotels),
Continental Europe (14 hotels), Asia (eight hotels), the Americas (17 hotels),
Africa and the Middle East (eight hotels) and Australia (two hotels).
Marriott Hotels, Resorts and Suites
Geographic Distribution at December 31, 1999 Hotels
- -------------------------------------------------------------- -------------
United States (40 states and the District of Columbia)........ 262 (107,752 rooms)
=============
Non-U.S. (46 countries and territories)
Americas (Non-U.S.).......................................... 19
United Kingdom............................................... 27
Continental Europe........................................... 25
Asia......................................................... 21
Africa and the Middle East................................... 11
Australia.................................................... 3
-------------
Total Non-U.S................................................. 106 (32,937 rooms)
=============
Ritz-Carlton hotels and resorts are renowned for their distinctive
architecture and for the quality of their facilities, dining and guest service.
Most Ritz-Carlton hotels have 200 to 500 guest rooms and typically include
meeting and banquet facilities, a variety of restaurants and lounges, gift
shops, swimming pools and parking facilities. Resort guests usuallyGuests at most of the Ritz-Carlton
resorts have access to additional recreational amenities, such as tennis courts
and golf courses.
As of January 2, 1998, Ritz-Carlton luxury hotels and resorts were located in
the United States and 12 other countries. It is expected that three Ritz-
Carlton hotels (approximately 1,000 rooms) will be opened during 1998.
Ritz-Carlton Luxury Hotels and Resorts
Geographic Distribution at December 31, 1999 Hotels
- ------------------------------------------------------------ ------------
United States (10 states)................................... 19 (6,897 rooms)
------------
Non-U.S. (15 countries and territories).................... 17 (4,981 rooms)
============
Renaissance is a global quality tierquality-tier brand which targets business
travelers, group meetings and leisure travelers. Renaissance hotels are
generally located in downtown locations of major cities, in suburban office
parks, near major gateway airports and in destination resorts. Most hotels
contain 300 to 500 rooms; however, a few of the convention hotels are larger,
in size, and some hotels in non-gateway markets, particularly in Europe, are smaller.
Renaissance hotels typically include an all-day dining restaurant, a specialty
restaurant, club floors and lounge, boardrooms, and convention and banquet
facilities. There
are 15 Renaissance Resorts whichresorts have additional recreational facilities
including golf, tennis and water sports.
As of January 2, 1998, Renaissance
hotels were located in 15 states, the District of Columbia and 22 other
countries.
At January 2, 1998, Renaissance hotels operated or franchised by the Company
were located outside the U.S. in Continental Europe (16 hotels), Asia (12
hotels), the Americas (eight hotels), Africa and the Middle East (two hotels)
and Australia (one hotel).
New World primarily targets international business travelers. New World
hotels are located exclusively in the Asia-Pacific region and are concentrated
in the major business districts of gateway cities in China and Southeast Asia.
With hotels in the key gateway markets to China of Hong Kong, Beijing and
Shanghai, New World has expanded into China's secondary business centers. New
World hotels typically range in size from 300 to 600 rooms and offer multiple
restaurants and lounges, executive floors and a variety of recreational, banquet
and meeting facilities. As of January 2, 1998, New World hotels were located in
seven countries outside the U.S.5
Renaissance Hotels, Resorts, and Suites
Geographic Distribution at December 31, 1999 Hotels
- ----------------------------------------------------------------- ------------
United States (17 states and the District of Columbia)........... 39 (17,084 rooms)
============
Non-U.S. (26 countries and territories)
Americas (Non-U.S.)............................................. 8
United Kingdom.................................................. 4
Continental Europe.............................................. 16
Asia............................................................ 22
Africa and the Middle East...................................... 7
------------
Total Non-U.S.................................................... 57 (20,207 rooms)
============
Ramada International is a moderately priced, full-servicemoderately-priced brand targeted at business and
leisure travelers. Each full-service Ramada International property includes a
restaurant, a cocktail lounge and full-service meeting and banquet facilities.
Ramada International hotels are located primarily in Europe in major and
secondary cities, near major international airports and suburban office park
locations. The CompanyWe also receivesreceive a royalty fee from Cendant Corporation (successor to
HFS, Inc.) and Ramada Franchise Canada Limited for the use of the Ramada name in
the United States and Canada, respectively.
As of January 2, 1998, Ramada International hotels were located in 22
countries outside the U.S., including the United Kingdom (four hotels),
Continental Europe (48 hotels), Asia (11 hotels), Central and South America
(three hotels), Africa and the Middle East (five hotels) and Australia (three
hotels).
6
The Company expects to add 17 hotels (approximately 4,000 rooms) to the
Renaissance, New World and Ramada International brands during fiscal 1998.
Courtyard hotels is the Company's moderate-price limited service hotel
product. Aimed at individual business and leisure travelers as well as
families, Courtyard hotels maintain a residential atmosphere and typically have
80 to 150 rooms. Well landscaped grounds include a courtyard with a pool and
social areas. Most hotels feature meeting rooms, limited restaurant and lounge
facilities, and an exercise room. The operating systems developed for these
hotels allow Courtyard to be price competitive while providing better value
through superior facilities and guest service.
As of January 2, 1998, Courtyard hotels were located in 42 states, the
District of Columbia, Canada and the United Kingdom. The Company expects to add
36 properties (approximately 5,000 rooms) to its Courtyard hotel system during
fiscal 1998, primarily through franchising.
Ramada International
Geographic Distribution at December 31, 1999 Hotels
- ------------------------------------------------------ --------------
Continental Europe.................................... 13
Asia.................................................. 7
Americas (Non-U.S.)................................... 2
Africa and the Middle East............................ 4
--------------
Total (14 countries and territories).................. 26 (5,571 rooms)
==============
Residence Inn is the U.S. market leader in theamong extended-stay lodging
segment,products, which caters primarily to business, government and family travelers
who stay more than five consecutive nights. Residence Inns generally have 80 to
130 studio and two-story penthouse suites. Most inns feature a series of
residential style buildings with landscaped walkways, courtyards and
recreational areas. The inns do not have restaurants but offer complimentary
continental breakfast. Each suite contains a fully equipped kitchen, and many
suites have wood-burning fireplaces.
As of January 2, 1998, Residence Inns were located in 43 states, Canada and
Mexico. The Company expects to add 34 inns (approximately 4,000 rooms) to its
Residence Inn system during fiscal 1998, primarily through franchising.
Fairfield Inn and Suites
Residence Inn
Geographic Distribution at December 31, 1999 Hotels
- ------------------------------------------------------------ ----------------
United States (46 states and the District of Columbia)...... 317 (37,717 rooms)
----------------
Canada...................................................... 6 (960 rooms)
----------------
Mexico...................................................... 1 (76 rooms)
================
Courtyard is the Company's economy lodging product which
competes directly with major national economy motel chains.our moderate-price limited-service hotel product. Aimed at cost-
conscious
individual business and leisure travelers as well as families, Courtyard hotels
maintain a typical Fairfield Inn has
65residential atmosphere and typically have 80 to 135150 rooms. Well
landscaped grounds include a courtyard with a pool and social areas. Most hotels
feature meeting rooms, limited restaurant and offers a swimming pool, complimentary continental breakfastlounge facilities, and free local phone calls. Fairfieldan exercise
room. The operating systems developed for these hotels allow Courtyard to be
price-competitive while providing better value through superior facilities and
guest service.
Courtyard
Geographic Distribution at December 31, 1999 Hotels
- ------------------------------------------------------------------- ----------------
United States (43 states and the District of Columbia)............. 435 (60,619 rooms)
----------------
Non-U.S. (8 countries)............................................ 36 (6,390 rooms)
================
SpringHill Suites are designed to meetis our all-suite brand in the needsmoderate price tier of
travelers who require more space and amenities. Theylodging products. SpringHill Suites feature suites that are 25 percent larger
than thea typical Fairfield Innhotel guest room and offer a broaderbroad range of amenities.
As of January 2, 1998, Fairfield Innamenities, including
complimentary continental breakfast and Suitesexercise facilities. At December 31,
1999, 34 properties (3,445 rooms) were located in 4721 states.
The Company expects to add 44 franchised Fairfield Inn and Suites (approximately
3,900 rooms) to its system during fiscal 1998.6
TownePlace Suites is a moderately priced, extended-stay hotel product that
is designed to appeal to business and leisure travelers. The standardtypical TownePlace
Suites hotel consists of two interior-corridor buildings containingcontains 95 units
consisting of high-qualityhigh quality one- and two-bedroom studio suites. Each suite
has a fully equipped kitchen and separate living area. Each hotel provides
housekeeping services and has on-site exercise facilities, an outdoor pool, 24-
hour staffing and laundry facilities. The Company plans to open 18At December 31, 1999, 61 TownePlace Suites
(approximately 1,900(6,106 rooms) during fiscal 1998.
Serviced apartments provide temporary housing forwere located in 25 states.
Fairfield Inn is our economy lodging product which competes directly with
major national economy motel chains. Aimed at cost-conscious individual business
executives and others who need quality accommodations outside their home country for 30 or more
days. Some serviced apartments operate underleisure travelers, a typical Fairfield Inn has 65 to 135 rooms and offers a
swimming pool, complimentary continental breakfast and free local phone calls.
At December 31, 1999, 414 Fairfield Inns (38,973 rooms) were located in 46
states and the Marriott Executive Residences
brand, that was introduced in February 1997 and is being developed specifically
for the long-term international traveler.District of Columbia.
Marriott Vacation Club International develops, sells and operates vacation
timesharing resorts. Profits are generated from three primary sources: (1)
selling fee simple and other forms of timeshare interests,intervals, (2) operating the
resorts and (3) financing consumer purchases of timesharing intervals.
SomeMany timesharing resorts are located adjacent to Marriott hotels, and
timeshare owners have access to certain hotel facilities during their vacation.
Owners can trade their annual interval for intervals at other Marriott
timesharing resorts or for intervals at certain timesharing resorts not
otherwise sponsored by the CompanyMarriott through an affiliated exchange company. Owners
also can trade their unused interval for points in the Marriott Rewards frequent
stay program, enabling them to stay at over 1,3001,600 Marriott hotels worldwide.
In 1997, the CompanyAt December 31, 1999, we had 1121 resorts in active sales, includingsales. In May, 1999, we
announced plans to launch a new vacation ownership resort brand - Horizons by
Marriott Vacation Club (Horizons). Horizons represents our entrance into the
historic
Custom House in Boston,moderate tier which currently accounts for 55 percent of the vacation ownership
market, which is the Company'sfastest-growing segment in the hospitality industry. The
first urban timeshare projectHorizons resort is being built in Orlando, Florida with completion
scheduled for early 2001. Marriott Vacation Club International's owner base
continues to expand, with 140,000 owners at year end 1999, compared to 120,000
in 1998.
Marriott Vacation Club International
Geographic Distribution at December 31, 1999 Resorts Units
- ------------------------------------------------------------- --------------- ----------------
Continental United States.................................... 37 3,891
Hawaii....................................................... 2 248
Caribbean.................................................... 2 262
Europe....................................................... 2 240
--------------- ----------------
Total........................................................ 43 4,641
=============== ================
Marriott Executive Apartments provide temporary housing for business
executives and others who need quality accommodations outside their home
country, usually for 30 or more days. Some serviced apartments operate under the
Company's first European timeshare resort in Marbella, Spain.
7
Additionally,Marriott Executive Apartments brand which is designed specifically for the Company announced its second European timeshare and golf
resort on the island of Mallorca in Spain. In 1997, the Company added 20,000 new
owners taking the Company's total timeshare owners to over 100,000. In addition,
the Company purchased a minority ownership in Interval International, Inc.long-
term international traveler. At December 31, 1999, seven serviced apartment
properties (1,527 units), one
of the leading timeshare interval exchange companies.
As of January 2, 1998, the Company operated 32 timeshare resortsincluding two Marriott Executive Apartments, were
located in the Continental U.S. (28 resorts), Hawaii (one resort), the Caribbean (two
resorts)three countries and Europe (one resort).territories.
ExecuStay provides furnished corporate apartments for stays of one month or
longer nationwide. ExecuStay owns no residential real estate and provides units
through short-term lease agreements with apartment owners and managers.
Other Activities
- -----------------
Marriott Golf manages 1727 golf course facilities for the Companyus and for other golf
course owners.
The Company has provided event planning and management services since 1996
under the brand name of Marquis Events International by Marriott. In 1996, the
Company was awarded a contract by the National Football League to be the
official provider of hospitality services such as catering, beverage services,
entertainment and decor to the NFL's corporate clientele for the 1997, 1998 and
1999 Super Bowls.
The Company operatesWe operate 19 systemwide hotel reservation centers, 12 of them in Omaha, Nebraska;
Salt Lake City, Utah; Atlanta, Georgia; Los Angeles, California;the U.S.
and London,
EnglandCanada and seven internationally, that handle reservation requests for
Marriott lodging brands worldwide, including franchised units. A further eight regional administrative office
locations also serve as reservation centers. The Company ownsproperties. We own one
of the Omaha
facilityU.S. facilities and leaseslease the other facilities.
The Company'sothers.
Our Architecture and Construction Division assists in the design,
development, construction and refurbishment of lodging properties and senior
living communities.communities and is paid a fee by the owners of such properties.
7
Competition
- -----------
The Company encountersWe encounter strong competition both as a hotellodging operator and as a
franchisor. There are over 500 hotellodging management companies in the United
States, including several that operate more than 100 properties. These operators
are primarily private management firms, but also include several large national
chains that own and operate their own hotels and also franchise their brands.
Hotel managementManagement contracts are typically long-term in nature, but most allow the hotel
owner to replace the management firm if certain financial or performance
criteria are not met.
Affiliation with a national or regional brand is prevalent in the U.S.
lodging industry. In 1997,1999, the majority of U.S. hotel rooms were brand-affiliated.brand-
affiliated. Most of the branded properties are franchises, under which the
operator pays the franchisor a fee for use of its hotel name and reservation
system. The franchising business is fairly concentrated, with the three largest
franchisors operating multiple hotel brands accounting for a significant proportion of
all U.S. rooms.
Outside the United States branding is much less prevalent, and most markets
are served primarily by independent operators. The Company believesWe believe that chain affiliation
will increase in overseas markets as local economies grow, trade barriers are
reduced, international travel accelerates and hotel owners seek the economies of
centralized reservation systems and marketing programs.
The Company hasBased on lodging industry data, we have approximately a sixseven percent share
of the U.S. lodginghotel market and(based on number of rooms), less than a one percent
share of the lodging market outside the United States. The Company'sStates and a seven percent share
of annual worldwide timesharing sales of about $7 billion. We believe that our
hotel brands are attractive to hotel owners seeking a management company or
franchise affiliation, because itsour hotels typically generate higher occupancies
and revenueRevenue per available roomAvailable Room (REVPAR) than direct competitors in most market
areas. The Company attributesWe attribute this performance premium to itsour success in achieving and
maintaining strong customer preference. The Company believes its superiorApproximately 37 percent of our
ownership resort sales come from additional purchases by or referrals from
existing owners. We believe that the location and quality of our lodging
facilities, nationalour marketing programs, reservation systems and itsour emphasis on
guest service and satisfaction are contributing factors.
The Company's propertiesfactors across all of our
brands.
Properties that we operate or franchise are regularly upgraded to maintain
their competitiveness. The vast majorityOur management, lease, and franchise agreements provide
for the allocation of rooms infunds, generally a fixed percentage of revenue, for
periodic renovation of buildings and replacement of furnishing. We believe that
the Marriott lodging system
either opened or have been refurbished inongoing refurbishment program is adequate to preserve the past five years. The Companycompetitive
position and earning power of the hotels. We also strivesstrive to continually update and improve
the products and services offered.
The Company believeswe offer. We believe that by operating a number of
hotels in each of itsour brands, it stayswe stay in direct touch with customers and reactsreact
to changes in the marketplace more quickly than chains which rely exclusively on
franchising.
8
Repeat guest business is enhanced by theThe Marriott Rewards and Marriott Miles programs which rewardenhance repeat guest
business by rewarding frequent travelers with free stays at Marriott hotels or
free travel on 18 participating airlines. Marriott Rewards introduced in the
spring of 1997, is a multi-brand
frequent guest program and replaced the
Company's 14-year-old Honored Guest Awards program. In addition to the
participationwith a total of sevenover 12 million members which covers
eight Marriott brands and Marriott Vacation Club International,
Marriott Rewards has formed a partnership with select Ritz-Carlton hotels and
also allows members to exchange points for frequent flyer miles with nine
partner airlines. Management believesbrands. We believe that the frequent stay programs generate
substantial repeat business that might otherwise go to competing hotels.
The resort timesharing industry also is very competitive. Formerly dominated
by real estate development companies and entrepreneurs, the industry has
recently begun to attract well capitalized corporations with significant
experience in the lodging and hospitality-related industries. The Company
currently has about a six percent share of this rapidly growing industry's
annual worldwide sales of about $6 billion. The Company competes by offering
premium quality products at attractive locations to prospective timeshare
buyers, many of whom are familiar with the Company's strong commitment to
customer satisfaction through its hotel properties. Approximately 26 percent of
the Company's ownership resort sales come from additional purchases by or
referrals from existing owners.
CONTRACT SERVICES
The Contract Services segment includes two businesses:8
Marriott Senior Living Services
(development and operation of senior living communities and related
senior care services) and Marriott Distribution Services (distribution of food
and supplies).
Marriott Senior Living Services
- -------------------------------
Through itsIn our Senior Living Services business, the Company developswe develop and operatesoperate both
"independent full-service" and "assisted living" senior living communities and
providesprovide related senior care services. Most are rental communities with dailymonthly
rates that depend on the amenities and services provided. The Company isWe are one of the
largest U.S. operatoroperators of senior living communities in the quality tier.
As of January 2, 1998,shown in the Senior Living Services businesstable below, at December 31, 1999 we operated 44144 senior
living communities in 29 states.
Communities Units (1)
-------------------- --------------------
Independent full-service
- owned............................................................... 3 1,193
- operated under long-term agreements................................. 42 11,651
-------------------- --------------------
45 12,844
Assisted living
- owned............................................................... 51 5,621
- operated under long-term agreements 48 6,295
-------------------- --------------------
99 11,916
-------------------- --------------------
Total senior living communities 144 24,760
==================== ====================
(1) Units represent independent living apartments plus beds in assisted living
and nursing centers.
At December 31, 1999, we operated 45 independent full-service senior living
communities, which offer both independent living apartments and personal
assistance units for seniors. Most of these communities also offer licensed
nursing care.
As of January 2, 1998, the Senior Living Services businessAt December 31, 1999, we also operated 4599 assisted living senior living
communities principally under the names "Brighton Gardens by Marriott," "Village
Oaks," "National Guest Homes" and "Hearthside."Marriott MapleRidge." Assisted living senior living communities are
for seniors who presently require personalbenefit from assistance with hygiene, administration of medication, mobility and other daily activities which do not require skilled nurses. Thesuch as bathing,
dressing or medication. Brighton Gardens concept is quality tiera quality-tier assisted living
concept which generally has 100 single resident90 assisted living suites and in certain locations,
30 to 45 nursing beds in a community. AlzheimerIn some communities, separate on-site
centers also provide specialized care units
are also provided at 23 communities.for residents with Alzheimer's or other
memory-related disorders. Village Oaks and National Guest Homes are
moderately pricedis a moderately-priced assisted living
conceptsconcept which emphasize non-familyemphasizes companion living and generally havehas 70 two-person suites in a
community. These concepts
areThis concept is geared for the cost-consciouscost conscious senior who enjoysbenefits
from the companionship of another unrelated individual. HearthsideMarriott MapleRidge
assisted living communities consist of a cluster of six or seven 14-room
cottages which offer residents smalla smaller scale, more intimate setting and
family-like living at a moderate price and single resident assisted living
suites.price.
The assisted living concepts typically include three meals per day, linen
and housekeeping services, security, transportation, and social and recreational
activities. Additionally, skilled nursing and therapy services are generally
available to Brighton Gardens and Hearthside residents.
Terms of the senior living services management agreements vary but
typically include base management fees, ranging from four to fivesix percent of
revenues, central administrative services reimbursements and incentive
management fees. Such agreements are generally for initial periods of five to 30
years, with options to renew for up to 25 additional years. Under the terms of the lease
agreementsleases
covering certain of the communities, the Company payswe pay the owner fixed annual rentalsrent plus
additional rentalsrent equal to a percentage of the amount by which annual revenues
in excess ofexceed a fixed amount.
9
The senior living services market is one of the fastest-growing segments of
the U.S. economy and the Company is expanding itsOur Senior Living Services division to meet this growing demand. By the end of fiscal 1998, the Company
expects to operate approximately 120 senior living communities.
As of January 2, 1998, the Company operated 89 senior living communities in 24
states.
Communities Units/1/
---------------- --------------
Independent full-service
- owned........................................ 3 1,189
- operated under long-term agreements.......... 41 11,074
---------------- --------------
44 12,263
---------------- --------------
Assisted living
- owned........................................ 12 1,242
- operated under long-term agreements.......... 33 4,188
---------------- --------------
45 5,430
---------------- --------------
Total senior living communities................ 89 17,693
================ ==============
- ----------
/1/ Units represent independent and assisted living apartments plus beds in
nursing centers.
Marriott Distribution Services
- ------------------------------
Marriott Distribution Services (MDS) is a United States limited-line
distributor of food and related supplies, carrying an average of 3,000 product
items per distribution center. This business unit originally focused on
purchasing, warehousing and distributing food and supplies to other Marriott
businesses. In recent years, however, MDS has steadily increased its third-
party business to about 65 percent of total sales volume in fiscal year 1997,
compared to less than 15 percent in fiscal year 1988.
MDS operated a nationwide network of 15 distribution centers as of January 2,
1998, including three centers opened during 1997. Leased facilities are
generally built to the Company's specifications, and utilize a narrow aisle
concept and technology to enhance productivity.
MDS plans to pursue new business by leveraging its purchasing economies,
quality assurance programs and operating systems.
Competition
- -----------
The Company encounters strong competition in each of its Contract Services
businesses.
Marriott Senior Living Services competes mostly with local and regional
providers of long-term health care and senior living services, although some
national providers are emerging in the assisted living market. Marriott Senior
Living Services is able toWe compete by
operating well maintainedwell-maintained facilities, and by providing quality health care, food
service and other services at reasonablecompetitive prices. The reputation for service,
quality care and know how associated with the Marriott name is also attractive
to residents and their families. Additionally,The Marriott Assisted Living Education Program,
chaired by actress Debbie Reynolds, also demonstrates our commitment to
leadership in the Senior Living Services hasbusiness. This program aims to increase
awareness of assisted living and to highlight general benefits to adult children
and their senior family members. Additionally, we have focused on developing
relationships with professionals who often refer
9
seniors to senior living communities, such as hospital discharge planners and
ministers.physicians. By educating these groups on the assisted living concept, and
familiarizing them with the Marriott productproducts and associates, Marriott Senior
Living Services generateswe generate a
significant volume of referrals that helps itsour senior living communities to
quickly achieve high, stabilized occupancy levels.
Marriott Distribution Services
MDS competesis a United States limited-line distributor of food and related supplies,
carrying an average of 3,000 product items per distribution center. This segment
originally focused on purchasing, warehousing and distributing food and supplies
to other Marriott businesses. However, MDS has increased its third-party
business to about 87 percent of total sales volume in the year ended December
31, 1999.
MDS operated a nationwide network of 13 distribution centers at December 31,
1999. Leased facilities are generally built to our specifications, and utilize a
narrow aisle concept and technology to enhance productivity.
Through MDS, we compete with numerous national, regional and local
distribution companies in the $134$147 billion U.S. food distribution industry. MDS attractsWe
attract clients by adopting competitive pricing policies and by maintaining one
of the highest order fill rates in the industry. In addition, MDS uses its purchasing leverage
andour limited
product lines, tooperating systems, and other economies provide a favorable cost
structure.
10
structure which we are able to leverage in pursuing new business.
Employee Relations
At December 31, 1999, we had approximately 143,000 employees. Approximately
5,500 employees at properties we manage were represented by labor unions. We
believe relations with our employees are positive.
Other Properties
In addition to the operating properties discussed above, we lease an 870,000
square foot office building in Bethesda, Maryland which serves as our
headquarters.
We believe our properties are in generally good physical condition with need
for only routine repair and maintenance.
ITEM 3. LEGAL PROCEEDINGS
There are no materialIncorporated by reference to the description of legal proceedings pending againstin the
Company."Contingent Liabilities" footnote in the financial statements set forth in Part
II, Item 8, "Financial Statements and Supplementary Data."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
1110
PARTPart II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The New Marriott Common Stockrange of prices of our common stock and dividends declared per share for
the New Marriottperiod since the March 27, 1998 Spinoff are as follows. No data are
presented for the period prior to the Spinoff since we were not a publicly-held
company during that time.
Stock Price Dividends
---------------------------------------------
Declared Per
High Low Share
-------------------- ------------------- -----------------
1998 Second Quarter.... $ 38 7/16 $ 30 1/2 $ 0.095/1/
Third Quarter..... 34 1/2 24 5/8 0.050
Fourth Quarter.... 30 1/4 19 3/8 0.050
Stock Price Dividends
---------------------------------------------
Declared Per
High Low Share
-------------------- ------------------- -----------------
1999 First Quarter..... $ 39 15/16 $ 29 $ 0.050
Second Quarter.... 44 1/2 33 0.055
Third Quarter..... 38 1/2 33 5/16 0.055
Fourth Quarter.... 36 1/4 29 9/16 0.055
/1/ Total of $.045 for the first quarter (declared and paid in the second
quarter), and $.05 second quarter dividend.
At January 31, 2000, there were 243,957,257 shares of Class A Common Stock
have
been accepted for listingoutstanding held by 55,987 shareholders of record. Our Class A Common Stock is
traded on the New York Stock Exchange, Chicago Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange, subject to
official notice of issuance.
At February 24, 1998, there were 100 shares of Company common stock
outstanding, all of which were held by Marriott International, Inc.
12Exchange.
11
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table presents summary selected historical financial data for
the Company derived from itsour financial statements as of and for the five fiscal
years ended January 2, 1998.
The historicalDecember 31, 1999.
Since the information set forth belowin this table is only a summary and does not provide all
of the information contained in our financial statements, including the related
notes, you should be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combinedour Consolidated Financial Statements and notes thereto, each
contained herein.Statements.
Per share data hasand Shareholders' Equity have not been presented for periods
prior to 1998 because the Company waswe were not a publicly heldpublicly-held company during the periods presented below.that time.
Fiscal Year
-------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996/1/ 1995
1994 1993
------------------------------------------------------------------ -------- -------- -------- -------
(in millions)millions, except per share data)
INCOME STATEMENT DATA:
Sales.............................................Income Statement Data:
Sales........................................... $ 9,0468,739 $ 7,2677,968 $ 6,2557,236 $ 5,7465,738 $ 4,6654,880
Operating Profit Before
Corporate Expenses and Interest..................Interest................ 830 736 609 508 390
316 267
Income Before Cumulative Effect
of a Change in Accounting Principle/2/...........Net Income...................................... 400 390 324 270 219
162 125
Net Income........................................ 324 270 219 162 95
BALANCE SHEET DATA (AT END OF YEAR)Per Share Data:
Diluted Earnings Per Share...................... 1.51 1.46
Cash Dividends Declared......................... .215 .195
Balance Sheet Data (at end of year):
Total Assets...................................... 5,557 4,198 3,179 2,401 2,285Assets.................................... 7,324 6,233 5,161 3,756 2,772
Long-Term and Convertible Subordinated Debt.......Debt..... 1,676 1,267 422 681 180
102 113Shareholders' Equity............................ 2,908 2,570
- -----------------------_______________________
/1/Fiscal year 1996 includes 53 weeks, all other years include 52 weeks.
/2/ Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," was adopted in the first fiscal quarter of 1993.
1312
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONSGeneral
The following discussion presents an analysis of results of our operations of the
Company for
fiscal years ended December 31, 1999, January 1, 1999, and January 2, 1998 (52 weeks), January 3, 1997 (53
weeks)1998.
Comparable REVPAR, room rate and December 29, 1995 (52 weeks). Comparableoccupancy statistics are used throughout this
report and are based upon Company-operatedon U.S. properties operated by us except for Fairfield Inn,
which data also include franchised units. Systemwide sales and statistics
include data from our owned, leased, managed and franchised properties.
The
Ramada InternationalIn 1998 we changed our accounting policy to no longer include the working
capital and New World brands do not have any U.S.sales of managed hotels and managed senior living communities in our
financial statements. Instead, our sales include fees earned plus costs
recovered from owners of managed properties. We restated prior periods and all
references in the discussion below refer to financial statement data prepared
under our new accounting policy. This restatement reflects reductions in sales
of $2,240 million for 1998 and $1,810 million for 1997, compared to sales as
previously calculated for those periods.
Consolidated Results
1999 Compared to 1996.1998
Net income increased three percent to $400 million in 1999 and diluted
earnings per share advanced three percent to $1.51. Overall profit growth in
1999 was curtailed by a $39 million pretax charge to reflect an agreement to
settle pending litigation, (refer to the "Contingent Liabilities" footnote in
the financial statements set forth in Part II, Item 8, "Financial Statements and
Supplementary Data") incremental costs of our Year 2000 readiness efforts, and
an operating loss in our senior living services business.
Sales increased 10 percent to $8.7 billion in 1999, reflecting revenue gains
at established hotels, and contributions from new lodging properties and senior
living communities. Systemwide sales grew 10 percent to $17.7 billion in 1999.
1998 Compared to 1997
Net income increased 20 percent to $324$390 million in fiscal 1997, on a sales
increase of 241998. Diluted earnings per
share advanced 23 percent to $9$1.46, reflecting higher net income and the impact
of share repurchases. Profit growth was driven by strong performance for our
U.S. lodging operations, and improved results for our distribution services
business. Sales grew 10 percent to $8.0 billion, driven byprimarily due to the net
addition of 496 hotels (including acquisitions) and 41 senior living communities
from the beginning of 1997 through year-end 1998. Systemwide sales in 1998 were
$16.0 billion, a 21 percent increase compared to the preceding year.
Marriott Lodging
Annual Change
------------------
(dollars in millions) 1999 1998 1997 99/98 98/97
- ------------------------------------ -------- -------- -------- -------- --------
Sales............................... $ 7,041 $ 6,311 $ 5,247 +12% +20%
Operating profit.................... 827 704 570 +17% +24%
1999 Compared to 1998
Marriott Lodging reported a 17 percent increase in operating profit and 12
percent higher sales in 1999. Results reflected higher room rates for U.S.
hotels, contributions from new unit
expansion, including acquisitions,hotels worldwide, and strong interval sales in
resort timesharing. We estimate that lodging operating profit in 1999 was
attributable to base management fees (27 percent of total), franchise fees (17
percent) and land rent (three percent) that are based on fixed dollar amounts or
percentages of sales. The balance was attributable to our timesharing business
(15 percent), and to incentive management fees and other income based on the
profits of the underlying properties (38 percent).
13
Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 3.7 percent in 1999. Average room rates for
these hotels rose 3.6 percent, while occupancy remained at 77.5 percent.
Occupancy, average daily rate and REVPAR for each of our principal established
brands is shown in the following table.
Comparable
U.S. properties Systemwide
------------------------------- ----------------------------
Change vs. Change vs.
1999 1998 1999 1998
--------------- -------------- ------------- -------------
Marriott Hotels, Resorts and Suites
Occupancy.......................................... 77.5% -0.1% pts. 73.8% -2.1% pts.
Average daily rate................................. $ 140.86 +3.9% $ 132.51 +2.3%
REVPAR............................................. $ 109.22 +3.9% $ 97.79 -0.5%
Ritz-Carlton
Occupancy.......................................... 77.8% +3.4% pts. 75.4% +2.9% pts.
Average daily rate................................. $ 219.37 +5.5% $ 201.51 +4.1%
REVPAR............................................. $ 170.67 +10.3% $ 151.94 +8.3%
Renaissance Hotels, Resorts and Suites
Occupancy.......................................... 70.8% +0.5% pts. 68.7% +0.8% pts.
Average daily rate................................. $ 132.09 +2.1% $ 130.59 +7.1%
REVPAR............................................. $ 93.54 +2.9% $ 89.72 +8.3%
Residence Inn
Occupancy.......................................... 83.0% -0.1% pts. 79.0% -1.6% pts.
Average daily rate................................. $ 99.03 +0.9% $ 98.44 +4.2%
REVPAR............................................. $ 82.23 +0.8% $ 77.77 +2.2%
Courtyard
Occupancy.......................................... 79.3% -0.1% pts. 73.2% -4.4% pts.
Average daily rate................................. $ 91.48 +2.8% $ 89.65 +2.7%
REVPAR............................................. $ 72.53 +2.7% $ 65.62 -3.2%
Fairfield Inn
Occupancy.......................................... 71.0% -2.2% pts. 68.7% -3.7% pts.
Average daily rate................................. $ 58.87 +3.3% $ 59.15 +3.0%
REVPAR............................................. $ 41.80 +0.1% $ 40.64 -2.3%
International hotel operations posted improved results in 1999, reflecting
profit growth for properties in continental Europe, the Middle East, Latin
America and the Caribbean region.
Marriott Vacation Club International achieved a 22 percent increase in
contract sales in 1999, as well as higher income from resort management. Strong
interval sales were generated at timeshare resorts in Florida, South Carolina,
Hawaii and Spain. During 1999, we had 21 resorts in active sales, including the
initial project (Orlando, Fla.) for Horizons by Marriott Vacation Club, a new
product line targeting the moderate price tier of the timeshare market.
We added a net total of 194 hotels and timesharing resorts (27,600 rooms)
across our lodging brands during 1999.
1998 Compared to 1997
Marriott Lodging segment.
LODGINGreported a 24 percent increase in operating profit was up 26 percent onand 20
percent higher sales benefiting from favorable conditions in the1998. Results reflected solid room rate growth at U.S.
lodging market,hotels, and contributions from new properties. The revenue increase resulted from average
REVPAR growth across all brandsproperties worldwide. We added a net
14
total of eight percent176 hotels and the net addition of 325
hotels (69,810resorts (27,800 rooms), including the acquisition of Renaissance Hotel Group N.V.
(RHG). This revenue growth resulted to our lodging system in higher1998.
Lodging operating profit in 1998 was attributable to base management fees (28
percent of total), franchise fees (18 percent), land rent and franchise
fees. Revenue growth also contributed to higher house profits which resulted in
higherother income
(three percent), resort timesharing (13 percent), and incentive management fees.
Profitsfees
and other profit participations (38 percent).
Across our lodging brands, REVPAR for Marriott Hotels, Resorts and Suites increasedcomparable company-operated U.S.
properties grew by an average of six percent in 1998. Average room rates for
these hotels rose more than six percent, well in excess of 20
percentinflation, while
occupancy dipped one-half percentage point to 78 percent.
Comparable
U.S. properties Systemwide
------------------------------- ----------------------------
Change vs. Change vs.
1998 1997 1998 1997
--------------- -------------- ------------- -------------
Marriott Hotels, Resorts and Suites
Occupancy................................................ 78.0% -0.5% pts. 75.9% -0.7% pts.
Average daily rate....................................... $ 137.95 +6.7% $ 129.52 +5.9%
REVPAR................................................... $ 107.60 +6.1% $ 98.31 +4.9%
Ritz-Carlton
Occupancy................................................ 75.4% -2.1% pts. 72.5% -4.9% pts.
Average daily rate....................................... $ 205.48 +8.7% $ 193.53 +3.5%
REVPAR................................................... $ 154.93 +5.8% $ 140.31 -3.1%
Renaissance Hotels, Resorts and Suites
Occupancy................................................ 70.3% +0.7% pts. 67.9% +1.0% pts.
Average daily rate....................................... $ 129.38 +5.4% $ 121.98 -3.2%
REVPAR................................................... $ 90.95 +6.5% $ 82.82 -1.8%
Residence Inn
Occupancy................................................ 83.3% -0.2% pts. 80.6% - pts.
Average daily rate....................................... $ 99.12 +3.9% $ 94.44 +3.8%
REVPAR................................................... $ 82.59 +3.7% $ 76.12 +3.8%
Courtyard
Occupancy................................................ 79.7% -0.7% pts. 77.6% -0.6% pts.
Average daily rate....................................... $ 89.32 +6.8% $ 87.33 +5.8%
REVPAR................................................... $ 71.22 +6.0% $ 67.77 +5.0%
Fairfield Inn
Occupancy................................................ 73.5% -0.4% pts. 72.4% -0.6% pts.
Average daily rate....................................... $ 56.08 +3.6% $ 57.43 +5.1%
REVPAR................................................... $ 41.19 +2.9% $ 41.58 +4.2%
Results for our international hotel operations declined in fiscal 1997 on sales1998, as profit
growth in Europe and Latin America was offset by the impact of seven percent, which reflects the
addition of a net of two units (881 rooms)difficult
economic conditions in the U.S.Asia/Pacific region, and a net of eight units
(2,903 rooms) internationally. Comparable Company-operated U.S. hotels achieved
seven percent higher sales due to REVPAR increases of nine percent resulting
from room rate growth of nine percent to $129. These sales gains, coupled with
profit margin improvements,reduced travel in the Middle
East.
Marriott Vacation Club International generated substantially higher incentive management
fees at many properties. Profits for international hotels also were higher,
primarily because of contributions from new properties in 1996 and 1997.
Ritz-Carlton reported an increase in average room rates of five percent to
$185 and an increase in occupancy of four percentage points to 79 percent,
resulting in a 10 percent increase in
REVPAR.
RHG, which is comprisedcontract sales in 1998, and higher income from resort management and financing
activities. MVCI reported strong sales activity at major timeshare resorts in
Florida, South Carolina, California, Hawaii, Spain and Aruba.
In March 1998, we increased our ownership interest in The Ritz-Carlton Hotel
Company LLC to 99 percent from 49 percent. Sales for Marriott Lodging were up
11 percent in 1998 before the impact of the Renaissance, New World and Ramada International
brands, contributed $594 million in sales since its March 29, 1997 acquisition.
REVPAR for Company-operated U.S. Renaissance hotels increased six percent dueconsolidating this hotel management
company.
15
Marriott Senior Living Services
Annual Change
--------------------
(dollars in millions) 1999 1998 1997 99/98 98/97
- ----------------------------- -------- -------- -------- -------- --------
Sales......................... $ 559 $ 479 $ 446 +17% + 7%
Operating (loss) profit....... (18) 15 32 n/m -53%
1999 Compared to higher room rates and a slight decrease in occupancy. Integration of RHG into
the Company's payroll, procurement, marketing and sales, reservation and yield
management systems continues to progress on schedule and is expected to
contribute to revenue gains and margin improvements in 1998.
The limited-service lodging brands reported eight percent higher sales and
more than 25 percent profit growth in fiscal 1997 benefiting from increased
incentive management fees on Company-operated properties and expansion of
franchising programs. The limited-service brands added a net of 149 properties
(16,390 rooms), primarily franchises, during fiscal 1997.
. Courtyard, the Company's moderate-price brand,1998
Marriott Senior Living Services posted a five17 percent increase in sales in 1999,
as we added a net total of 31 new communities (4,216 living units) during the
year. Occupancy for comparable Company-operated units, as average room
rates and REVPAR were up eight percent, while occupancy remained at 81
percent.
. Residence Inn, the Company's extended-stay brand, generated five percent
growth in sales for comparable Company-operated units, as average room
rates climbed eight percentcommunities increased by nearly one percentage
point to $95, while occupancy dipped slightly to
84 percent resulting in a six percent increase in REVPAR.
. Fairfield Inn and Suites, the Company's economy brand, reflected a decrease
of two90 percent in sales1999.
The division reported an operating loss in 1999, primarily as a result of $18
million of pre-opening costs for comparable Company-operated units. A two
percent increasenew communities, increased accounts receivable
reserves, and one-time charges associated with our decision to slow new
construction until market conditions improve.
1998 Compared to 1997
Marriott Senior Living Services opened 24 senior living communities in average room rates to $51 was offset by a slight
decline in occupancy to 75 percent, resulting in no change in REVPAR.1998,
including 14
Marriott Vacation Club International posted a 21 percent increase inBrighton Gardens, our assisted living brand serving the number of timeshare intervals sold and 51 percent growth in financially reported
sales under the percentage of completion method. The sales increase resulted
from strong performance in several locations, including Marriott Vacation Club
International's first European resort in Marbella, Spain, as well as Fort
Lauderdale and Orlando, Florida and Hilton Head, South Carolina. Increased
profits from resort development were offset by reduced financing income, due to
lower sales of timeshare notes receivable during fiscal 1997.
CONTRACT SERVICES reported a 29 percent decrease in operating profit on 44
percent higher sales in fiscal 1997.quality
tier. Profit comparisons between years are
effectedfor 1998 were affected by sales to investors during 1996 and 1997the mid-1997 sale of 4329
senior living communities which the Company continueswe continue to operate under long-term
agreements. BeforeExcluding the impact of these transactions, Contract Services profits increased
four percent over fiscal 1996. Contract Servicesthis transaction, operating profit for the
division increased by $5 million in 1998. Occupancy for comparable communities
was also
adversely affectedunchanged for the year.
Marriott Distribution Services
Annual Change
--------------------
(dollars in millions) 1999 1998 1997 99/98 98/97
- ----------------------------- -------- -------- -------- -------- --------
Sales......................... $ 1,139 $ 1,178 $ 1,543 - 3% - 24%
Operating profit.............. 21 17 7 +24% +143%
1999 Compared to 1998
Operating profit for Marriott Distribution Services increased 24 percent in
1999 on a modest decline in sales. The division benefited from higher gross
margins per case and reduced inventory losses compared to 1998.
1998 Compared to 1997
Operating profit for Marriott Distribution Services more than doubled in 1998,
while sales declined 24 percent due to a reduction in the total number of
accounts serviced. Results were boosted by start-up lossesthe consolidation of distribution
facilities, and realization of significant economies in warehouse operations and
transportation.
Corporate expenses, interest and taxes
1999 Compared to 1998
Corporate expenses increased to $164 million in 1999 primarily due to a $39
million pretax charge associated with an agreement to settle pending litigation,
together with increased systems-related costs, including $22 million of costs
associated with our Year 2000 readiness program, compared to $12 million of Year
2000 readiness program costs in 1998. Interest expense more than doubled to $61
million as a result of borrowings to finance growth outlays and share
repurchases. Our effective income tax rate decreased to approximately 37.3
percent in 1999 from 38.3 percent in 1998, primarily due to the impact of tax-
oriented investments, and increased income in countries with lower effective tax
rates.
16
1998 Compared to 1997
Corporate expenses rose 25 percent in 1998, and included $12 million of costs
associated with our Year 2000 readiness program. Interest expense increased 36
percent in 1998 as a result of incremental borrowings to finance capital
expenditures and share repurchases. Our effective income tax rate decreased to
approximately 38.3 percent in 1998, from 39 percent in 1997, primarily due to
increased income in countries with lower effective tax rates.
Lodging Development
Marriott Lodging opened 243 properties totaling 36,500 rooms across its brands
in 1999, while 49 hotels (8,900 rooms) exited the system. Highlights of the
year included:
. Twenty-five full-service properties (approximately 7,100 rooms) opened
outside the United States. These include our first hotels in Armenia,
Ecuador, El Salvador, Guam, The Netherlands Antilles, Portugal and Spain.
. Thirty-nine hotels (9,400 rooms) converted from independent status or
competitor chains, including the 504-room Renaissance Worthington Hotel
in Texas, and the 387-room JW Marriott Ihilani Resort & Spa at Ko Olina
on the island of Oahu, Hawaii.
. A record 195 properties (approximately 23,500 rooms) added to our select
service and extended-stay brands, including the renovation and conversion
to Courtyard of historically significant urban properties in
Philadelphia, Washington, D.C., Fort Worth, San Diego and Omaha.
. Development of new Marriott Vacation Club International resorts in
Newport Beach, Calif., Panama City and Miami, Fla., Williamsburg, Va.,
and Maui, Hawaii, and a Horizons by Marriott Vacation Club resort in
Orlando, Fla.
At year-end 1999, we had over 400 hotel properties (approximately 70,000
rooms) under construction or approved for new distribution centersdevelopment. We expect to open
approximately 230 hotels and distribution accounts.timesharing resorts (38,000 rooms) in 2000. Over a
five-year period (1999 to 2003), we plan to add 175,000 rooms to our lodging
system. These growth plans are subject to numerous risks and uncertainties,
many of which are outside our control. See "Forward-Looking Statements" above
and "Liquidity and Capital Resources" below.
Senior Living Services Development
During 1999, Marriott Senior Living Services reportedneared completion of a sales increase of 28 percent in
fiscal 1997 over 1996, primarily due tomajor
expansion program involving the opening of 1760 new communities during
1997over a two-year
period from mid-1998 through mid-2000. The division's development efforts in
1999 were focused on its popular Brighton Gardens assisted living brand, and
Marriott MapleRidge, an assisted living concept designed for seniors who prefer
a two percentage point increase in occupancy,more intimate, family-like setting.
Due to 95 percent, for
comparable properties. Operating profit declined as "ownership profits" from 43
properties sold to investors since the beginning of 1996 were replaced with
"managed operating profits."
Marriott Distribution Services' sales were up sharply in fiscal 1997 as a
result of the addition of several major restaurant customers and the net
addition of two new distribution centers. Profits, however, were lower in
fiscal 1997 due to start-up costs associated with the new centers, as well as
costs of integrating the new business into existing distribution centers.
Corporate expenses rose 21 percent in 1997, due to non-cash items associated
with investments generating significant income tax benefits as well as modest
staff increases to accommodate growth and new business development. Interest
expense decreased 41 percent from fiscal 1996 due to the sale of the 29 Forum
Group communities to Host Marriott. Interest income declined 14 percent,
primarily due to collections on, and sales of, affiliate and other notes
receivable.
The Company's effective income tax rate increased to 39 percent in 1997,
compared to 38 percent in 1996, primarily due to the RHG acquisition. The
effective tax rate is expected to decline about one-half percentage point in
1998.
1996 Compared to 1995.
Net income increased 23 percent to $270 million in 1996, driven by
contributions from new unit expansion and strong profit growth for both the
Lodging and Contract Services segments, partially offset by higher interest and
corporate expenses.
Sales were up 16 percent to $7.3 billion in 1996. The impact of the 53rd week
on 1996 results of operations was not significant.
LODGING operating profit was up 26 percent on 10 percent higher sales,
benefiting from favorableoversupply conditions in the U.S. lodging market, and
contributions from new properties. The Company addedsome senior housing markets, we decided in
1999 to slow development of planned communities. Consequently, a netnumber of
146 hotels
(18,204 rooms) and opened four new vacation club resorts during the year.
Profits for Marriott Hotels, Resorts and Suites rose 24 percent in 1996 on
sales growth of nine percent reflecting the addition of a net of two units
(1,006 rooms)projects in the U.S. and a netearly stages of 17 units (3,768 rooms) internationally.
Comparable Company-operated U.S. hotels posted eight percent higher sales due to
room rate growth of seven percent to $118, and a one percentage point increase
in occupancy to 78 percent. These sales gains, coupled with profit margin
improvements, generated substantially higher incentive management fees at many
properties. Profits for international hotels alsodevelopment were higher, primarily because
of contributions from new properties.
The limited-service lodging brands reported 10 percent higher sales and 29
percent profit growth in 1996, also benefiting from increased incentive
management fees on Company-operated properties, and expansion of franchising
programs. The three brands added a net of 125 properties (12,888 rooms),
primarily franchises, during 1996.
15
. Courtyard posted an eight percent increase in sales for comparable Company-
operated units, as average room rates were up eight percent to $78, while
occupancy remained at 81 percent.
. Residence Inn generated eight percent growth in sales for comparable
Company-operated units, as average room rates climbed seven percent to $89,
while occupancy dipped slightly to 85 percent.
. Fairfield Inn and Suites achieved a six percent sales gain for comparable
Company-operated units, as average room rates were boosted 10 percent to
$50. Occupancy fell four percentage points to 77 percent, reflecting the
planned shift to higher rated business. The Company introduced Fairfield
Suites in 1996.
Marriott Vacation Club International posted a 25 percent increase in the
number of timeshare intervals sold and 17 percent growth in financially reported
sales under the percentage of completion method. Income from owner financing
activities and resort management also increased. Profits were flat, reflecting
higher marketing and selling costs associated with new resort locations, off-
site sales centers and establishing a European operations group.
Also contributing to 1996 lodging profit growth was higher income from the
Company's investment in The Ritz-Carlton Hotel Company LLC. For comparable U.S.
hotels, the luxury chain posted a 10 percent increase in sales as average room
rates increased four percent to $181 and occupancy increased to 75 percent. In
addition, house profit margins improved, benefiting from integration with
Marriott Lodging systems and programs.
CONTRACT SERVICES reported a 87 percent increase in operating profit on 52
percent higher sales in fiscal 1996 primarily due to the March 1996 acquisition
of the Forum Group.
Sales forpostponed or cancelled.
Marriott Senior Living Services increased 117 percent in 1996, while
profits were up more than five fold from 1995 levels. Excluding the impactis continuing to pursue development of the Forum Group acquisition, sales increased 23 percentnew
communities to be financed by third parties, and profits increased 18
percent. Overall growth was generated by a gain in occupancyexpects to 96 percent, and
a two percent increase in average per diem rates for comparable Marriottresume active
development of company-owned projects when market conditions improve.
Ten senior living communities strong move-in ratesunder construction at 11 communities opened since the
beginning of 1995 and contributions from the acquired Forum Group communities.
Sales for Marriott Distribution Services grew 35 percent in 1996, as the
division opened five new distribution centers and added several major external
restaurant accounts. Profits were flat in 1996, as sales gains were offset by
start-up costs associated with the new centers and new business.
Corporate expenses rose 24 percent in 1996, reflecting higher outlays
associated with new business development and staff additionsyear end 1999 are
scheduled to facilitate the
Company's growth. Additionally, costs increased due to tax-related investments
which generated significant after-tax savings. Interest expense increased
significantly as a result of interest expense on debt associated with the Forum
Group acquisition. Interest income declined five percent, primarily due to
collections on, and sales of, affiliate and other notes receivable.
The Company's effective income tax rate declined to 38 percent in 1996,
compared to 39.4 percent in 1995. This favorable trend reflects the Company's
ongoing participation in jobs and affordable housing tax credit programs.
LIQUIDITY AND CAPITAL RESOURCES
Growth Strategy
- ---------------
After the Spinoff, the Company will have substantial investment capacity with
which to pursue growth opportunities. The Company's lodging management and
franchise operations and its contract services businesses generate substantial
operating cash flow, with only modest reinvestment requirements. The Company's
lodging division expects to add more than 140,000 rooms over the five years
1998-2002, and to significantly expand its portfolio of vacation club resorts.
During the same period, the Company also expects to take advantage of
significant opportunities in the senior living services market by more than
tripling the number of senior living communities it operates.
The planned capital structure of the Company, following the Spinoff, is part
of an integrated strategy for a focused hospitality company with substantially
increased borrowing and investment capacity, as well as increased flexibility to
16open during 2000.
17
use its equity, where prudent, to participate aggressively in the ongoing global
consolidation of the lodging industry as well as the accelerating rate of
consolidation of the senior living industry within the United States. The
Company intends to pursue strategic acquisition opportunities.
The Company believesLiquidity And Capital Resources
We believe that it willwe have access to sufficient financial resources sufficient to finance
itsour growth, as well as to support our ongoing operations and meet debt service
and other cash requirements. However, our ability to sell properties that we
develop, and the ability of hotel or senior living community developers to build
or acquire new Marriott-branded properties, which are important parts of our
growth plans, are partially dependent on the availability and cost of capital.
We are monitoring the status of the capital markets, and are evaluating the
effect, that changes in capital market conditions may have on our ability to
execute our announced growth plans.
Cash From Operations
- --------------------
Cash from operations was $521$711 million in 1999, $605 million in 1998, and $542
million in 1997. Net income is stated after depreciation expense of $96 million
in 1999, $76 million in 1998 and $68 million in 1997, $504and after amortization
expense of $66 million in 1996 and $2811999, $64 million in 1995. The operating cash flow1998 and $58 million in 1997 primarily reflects higher
earnings than 1996, offset by lower sales of timeshare notes receivable.1997.
While the Company'sour timesharing business generates strong operating cash flow, annual
amounts are affected by the timing of cash outlays for the acquisition and
development of new resorts, and cash inflows related toreceived from purchaser financing. IntervalWe
include interval sales financed by the Company are not includedwe finance in operating cash flow
untilfrom operations when we collect cash
is collectedpayments or the notes are sold for cash.
Earnings Before Interest Expense, Income Taxes, Depreciationbefore interest expense, income taxes, depreciation and Amortizationamortization
(EBITDA) wasincreased to $860 million in 1999, compared to $802 million in 1998 and
$679 million $561 million and $437 million for fiscal years 1997,
1996 and 1995, respectively, representing a 21 percent increase in 1997, and a 28has grown at an 18 percent increase in 1996. The Company considersannual rate since 1995.
We consider EBITDA to be an indicator of itsour operating performance because EBITDAit
can be used to measure the Company'sour ability to service debt, fund capital expenditures
and expand itsour business. Nevertheless, EBITDAyou should not be considered asconsider EBITDA an
alternative to net income, operating profit, cash flows from operations, or any
other operating or liquidity measure prescribed by generally accepted accounting
principles.
A substantial portion of the Company'sour EBITDA is based on fixed dollar amounts or
percentages of sales. This includesThese include lodging base management and franchise fees
and land rent. With more than 1,450 hotel properties,2,000 hotels and senior living communities in the
Marriott system, no single operationproperty or customerregion is critical to the Company'sour financial
results.
The Company'sOur ratio of current assets to current liabilities was .83.92 at December 31,
1999, compared to .94 at January 2, 1998, compared to .70 at January 3, 1997.1, 1999. Each of the Company'sour businesses minimizes
working capital through strict credit-granting policies, aggressive collection
efforts and high inventory turnover.
Working capital for
managed hotels is generally advanced to the Company by the hotel owners.
Investing Activities Cash Flows
- -------------------------------
Acquisitions. We continually seek opportunities to enter new markets,
increase market share or broaden service offerings through acquisitions. We
entered the $3 billion corporate housing market in 1999 by acquiring ExecuStay
Corporation, a leading provider of furnished apartments for executives and other
professionals.
In 1998, we increased our ownership interest in The Ritz-Carlton Hotel Company
completed three major acquisitions duringLLC, a luxury hotel brand and management company, to 99 percent from 49 percent.
We expect to acquire the last
three years:remaining one percent of this company within the next
several years. In 1997, we acquired Renaissance Hotel Group N.V., a premieran operator
and franchisor of approximately 150 hotels under three brands, in 38 countries; Forum Group, Inc.
(Forum), a leading providercountries.
Dispositions. Asset sales generated proceeds of senior living services; and a 49 percent interest
in The Ritz-Carlton Hotel Company LLC, one of the world's premier luxury hotel
brands and management companies. The Company expects to exercise its right to
acquire the remaining 51 percent of The Ritz-Carlton Hotel Company LLC within
the next several years at prices based on Ritz-Carlton's cash flow.
Dispositions. On April 3, 1997, the Company agreed to sell and leaseback,
under long-term, limited-recourse leases, 14 limited service hotels for
approximately $149$436 million in cash. Concurrently, the Company agreed to pay
security deposits of $15 million, which will be refunded upon expiration of the
leases. As of January 2, 1998, sales of all of the properties had closed,
resulting in a $20 million excess of the sales price over the net book value,
which will be recognized as a reduction of rent expense over the 17-year initial
lease terms. On October 10, 1997, the Company agreed to sell, and leaseback,
under long-term, limited-recourse leases, another nine limited service hotels
for approximately $1291999, $332
million in cash. Concurrently, the Company agreed to pay
security deposits of $131998 and $571 million which will be refunded upon expiration of the
leases. At January 2, 1998, sales of three of these nine properties hadin 1997. In 1999 we closed resulting in a $7 million excess of the sales price over the net book value,
which will be recognized as a reduction of rent expense over the 15-year initial
lease terms. All of the aforementioned leases are renewable at the option of
the Company.
17
On April 11, 1997, the Company sold five senior living communities for cash
consideration of approximately $79 million. On September 12, 1997, the Company
agreed to sell another seven senior living communities for cash consideration of
approximately $93 million. As of January 2, 1998,on the sales of five of these
properties had closed. The Company will continue to operate all of these
communities under long-term management agreements.
On June 21, 1997, the Company sold 2922
hotels and nine senior living communities acquired as
partcommunities. We also have negotiated asset sales
agreements with aggregate proceeds of the Forum acquisition, to Host Marriott$82 million for approximately $550 million,
resulting in no gain or loss. The consideration included approximately $50
millionsales expected to be
received subsequent to 1997 as expansions at certain communities
are completed. The $500 million of consideration received during 1997 consisted
of $222 millioncompleted in cash, $187 million of outstanding debt, $50 million of notes
receivable due June 20, 1998, and $41 million of notes receivable due January 1,2000 or 2001. The notes receivable from Host Marriott bear interest at nine percent.
Under the terms of the sale, Host Marriott purchased all of the common stock of
Forum which, at the time of the sale, included the 29 communities, certain
working capital and associated debt. The Company willWe continue to operate these communitiesproperties under long-term management agreements.
The Company sold four senior living communities during 1996 and three senior
living communities during 1995, retaining long-termlong-
term operating agreements.
Capital Expenditures and Other Investments. Capital expenditures of $929
million in 1999, $937 million in 1998 and $520 million in 1997, 1996included
development and 1995 of $520 million, $293 million and $127 million, respectively,
included construction and development of new hotels and senior living communities and
Courtyard, Residence Inn and TownePlace Suites properties. Capital expenditures
are expectedcommunities. Over
time, we expect to increase in 1998. The Company expects that, over time, it will sell certain lodging and senior living service properties under
development, or to be developed, while continuing to operate them under long-termlong-
term agreements.
The Company18
We also willexpect to continue to make other investments to grow itsour businesses,
including loans, minority equity investments and development of new timeshare
resorts and loans and
minority equity investments in connection with adding units to the Marriottour Lodging and Senior Living Services businesses.
The Company hasbusiness.
We have made loans to owners of hotelhotels and senior living propertiescommunities which it operateswe
operate or franchises. At January 2, 1998, and January 3, 1997, loansfranchise. Loans outstanding pursuant tounder this program totaled $351$295 million
at December 31, 1999 and $186$213 million respectively.at January 1, 1999. Unfunded commitments
aggregating $220$193 million were outstanding at January 2, 1998.December 31, 1999. These loans
typically are typically secured by mortgages on the projects. During 1997, $18 million of proceeds were received from sales of such loans to
institutional investors. The Company participatesWe participate in a program
with an unaffiliated lender in which the Companywe may provide credit enhancements forpartially guarantee loans made to
facilitate third party ownership of Company-operated or franchised
hotels and senior living services
communities.communities which we operate or franchise.
Cash From Financing Activities
Long-term debt (including convertible subordinated debt at January 1, 1999)
increased by $409 million in 1999 and $845 million in 1998, primarily to finance
our capital expenditure and share repurchase programs.
Our financial objectives include diversifying our financing sources and
optimizing the mix and maturity of our long-term debt. At year-end 1999, our
long-term debt (including commercial paper borrowings of $781 million) had an
average interest rate of 6.4 percent and an average maturity of approximately
5.8 years. The annual capital requiredratio of fixed rate long-term debt to total long-term debt was
53 percent as of December 31, 1999.
We issued $300 million of 10-year senior notes in September 1999 at a yield to
maturity of 8.0 percent, and received net offering proceeds of $296 million. In
1998, we issued a total of $400 million of 5-year and 7-year senior notes at an
average yield to maturity of 6.8 percent and received net offering proceeds of
$396 million.
We have entered into revolving credit agreements which provide for borrowings
of $1.5 billion expiring in March 2003, and $500 million expiring in February
2004. No loans were outstanding at year-end 1999 under these facilities, which
support our commercial paper program and letters of credit. We had $1.2 billion
of unused revolving credit available under these facilities as of December 31,
1999. Borrowings under these facilities bear interest at LIBOR plus a spread,
based on our public debt rating.
We called for mandatory redemption of our Liquid Yield Option Notes (LYONs) in
1999. Approximately 64 percent of LYONs holders elected to convert their notes
to common stock, for which we issued 6.1 million shares. The other 36 percent of
LYONs holders received cash totaling $120 million, which reduced by 3.4 million
common shares the dilutive impact of these convertible debt securities issued by
a predecessor company in 1996. Nine percent of the cash redemption price was
reimbursed to us by the Companypredecessor company (Sodexho Marriott Services, Inc.).
In January 2000, we filed a "universal shelf" registration statement with the
Securities and Exchange Commission. Together with the authority remaining under
a universal shelf registration statement filed in April 1999, this gives us the
flexibility to maintainoffer to the public up to $500 million of debt securities, common
stock or preferred stock.
We determine our debt capacity based on the amount and variability of our cash
flows. EBITDA coverage of gross interest cost was 9.1 times in 1999, and cash
flow requirements under our loan agreements were exceeded by a substantial
margin.
Share Repurchases. We periodically repurchase our common stock to replace
shares needed for employee stock plans and for other corporate purposes. We
purchased 10.8 million of our shares in 1999 at an average price of $33 per
share, and 13.7 million shares in 1998 at an average price of $29 per share. On
February 3, 2000 our Board of Directors authorized the repurchase of an
additional 25 million shares.
Dividends. In April 1999, our Board of Directors increased the quarterly cash
dividend by 10 percent to $.055 per share. We plan to continue to reinvest the
major portion of our earnings in our business.
19
Other Matters
Boston Market
In 1996, MDS became the exclusive provider of distribution services to Boston
Chicken, Inc. (BCI). On October 5, 1998, BCI and its hotels and senior
living communities is modest. MostBoston Market-controlled
subsidiaries filed voluntary bankruptcy petitions for protection under Chapter
11 of the Company's operating agreements
require that specified percentagesFederal Bankruptcy Code in the U.S. Bankruptcy Court in Phoenix (the
Court), and BCI and a franchisee announced closings of sales be set aside for renovation and
refurbishmentapproximately 20 percent
of the properties.
The Company, like most computer users, will be requiredrestaurants in the Boston Market chain. In December 1999, McDonald's
Corporation (McDonald's) announced that it had reached a definitive agreement to
modify significant
portionspurchase the majority of the assets of BCI, subject to confirmation of the BCI
plan of reorganization, including Court approval. If approved, the purchase is
expected to close in mid-2000, although no date has been established. MDS
continues to provide distribution services to BCI and has been receiving payment
of post-petition balances in accordance with the terms of its contract with BCI.
In addition, the Court approved, and MDS has been paid, substantially all of
MDS's pre-petition accounts receivable balances. Given the uncertainties
involved in BCI's bankruptcy and the planned sale to McDonald's, we cannot
predict the potential effect these events will have on our future results of
operations and financial position. If our contract were to terminate, or if BCI
or McDonald's ceased or further curtailed the operations of Boston Market, MDS
might be unable to recover up to $21 million in contract investment, receivables
and inventory, and MDS could have excess warehouse capacity and rolling stock.
Inflation
Inflation has been moderate in recent years, and has not had a significant
impact on our businesses.
Year 2000 Readiness Disclosure
The "Year 2000 problem" arose because many computer software soprograms and chip-based
embedded technology systems used only the last two digits to refer to a year,
and therefore could not properly recognize a year beginning with "20" instead of
the familiar "19." If not corrected, many computer applications could have
failed or created erroneous results.
State of Readiness. Prior to December 31, 1999, we adopted and completed an
enterprise-wide multi-step process toward Year 2000 readiness of our information
resource systems and other systems that it will function properly prioruse embedded computer chips. We also
modified operational contingency plans to specifically address Year 2000 issues,
and established information coordination centers to collect and report status
and track and address problems had they occurred during the actual turn of the
century.
As of March 3, 2000, we had not experienced any significant business
disruption as a result of the Year 2000 problem. Although Year 2000 problems may
not become evident until long after January 1, 2000, based on our Year 2000
readiness process and our experience at the end of 1999 and in early 2000, we
also do not expect significant Year 2000 related business disruptions in the
year 2000 and beyond. The Company has assembled a dedicated team to address
the year 2000 issue. This team has completed an inventory of all systems
requiring modification, and has completed the remediation of some significant
systems.future.
Costs. Many of the costs to be incurredof Year 2000 compliance have been or will be
reimbursed to the Companyus or otherwise paid directly by owners and clients pursuant to
existing contracts. Estimated pre-tax maintenance and modificationThrough December 31, 1999, we have expensed approximately
$34 million of the pretax costs to be borne byaddress the Company
are approximately $25Year 2000 problem. Although we
do not expect to $30 million and will be expensed as incurred. These
amounts are subjectincur significant Year 2000 related costs after December 31,
1999, some of the Year 2000 costs incurred in prior years related to numerous estimation uncertainties includinginternal
resources which we used to address the extent of
work to be done, availability and cost of consultants and the extent of testing
required.
Cash From Financing Activities
- ------------------------------
Non-interest bearing cash advances to or from Marriott International, Inc. are
made to allow both the Company and Marriott International, Inc. to meet their
respective cash requirements. Through such advances, the Company has had access
to funds from Marriott International, Inc.'s $1.5 billion revolving credit
facility and commercial paper program.
18
In 1996, the Company received proceeds of $288 million from the issuance of
zero coupon subordinated Liquid Yield Option NotesYear 2000 Problem. Those resources,
which have an aggregate
maturity valuenow been redeployed, will continue to generate costs in 2000 and
future years.
In addition, the Year 2000 problem heightened the need for timely completion
of $540previously planned system modernization and replacement projects. We estimate
that we will bear approximately $45 million in 2011. Each $1,000 LYON was issued at a
discount representing a yield to maturity of 4.25 percent.
Upon consummation$50 million of the Spinoff, each LYON will be convertible into 8.76
sharespretax costs
for these projects, most of New Marriott Common Stock, 8.76 shares of New Marriott Class A Common
Stock and 2.19 shares of SMS common stock (after giving effect to a one-for-four
reverse stock split). The LYONs will be assumed by the Company, and SMS will
assume nine percent of the LYONs obligation, which percentage is based on an
estimate of the relative equity values of SMS and the Company. The Company will
remain liable to the holders of the LYONs for any payments that SMS fails to
make on its allocable portion.
The Company has entered into a $1.5 billion multicurrency revolving credit
agreement permitting borrowings by the Company following consummation of the
Spinoff. The facility has a term of five years and borrowings will bear interest
at LIBOR plus a spread, based on the Company's public debt rating. Additionally,
annual fees will be paid on the facility at a rate also based on the Company's
public debt rating.
On February 25, 1998, Marriott International, Inc. commenced a tender offer
and consent solicitation for all $600 million of its outstanding public senior
debt (the Marriott International Public Debt) and RHG Finance Corporation, a
subsidiary of Marriott International, Inc. (and which will be a subsidiarycapitalized and amortized over the
useful lives of the Company upon the Spinoff), commenced a tender offerassets.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. We manage our
exposure to this risk by monitoring available financing alternatives, and
consent solicitation
for all $120 millionthrough development and application of its outstanding public debt (the RHG Public Debt), whichcredit granting policies. Our strategy
to manage exposure to changes in interest rates is guaranteed by Marriott International, Inc. In the event that the consent
solicitation forunchanged from January 1,
1999. Furthermore, we do not foresee any of the four series of Marriott International Public Debtsignificant changes in our exposure to
fluctuations in interest rates or in how such exposure is unsuccessful, the Company will assume the debt of such series that is not
purchased by Marriott International, Inc.managed in the tender offer,near
future.
The following sensitivity analysis displays how our earnings and any
untendered RHG Public Debt will constitute partthe fair
values of the Company's consolidated
debt and will be guaranteed by the Company. Under its agreements with Sodexho
and Marriott International, Inc., to the extent that the Company assumes any
such Marriott International Public Debt, or any RHG Public Debt is not purchased
in the tender offer, Marriott International, Inc. will make a cash payment to
the Company in an amount equal to the aggregate amount of such debt.
Dividends. The Company expects to pay quarterly dividends comparable to those
historically paid by Marriott International, Inc.
Share Repurchases. The Company has been authorized by its Board of Directors to
purchase, subsequent to the consummation of the Spinoff, up to approximately
five million shares of New Marriott Common Stock and up to approximately five
million shares of New Marriott Class A Common Stock.
OTHER MATTERS
Inflation
- ---------
The rate of inflation has been moderate in recent years and, accordingly, has
not had a significant impact on the Company's businesses.
Market Risk Disclosures
- -----------------------
The Company's earningscertain instruments we hold are affected by changes in interest rates as a result
of holding certainrates.
We hold notes receivable whichthat earn ainterest at variable rate of interest. Ifrates. Hypothetically,
an immediate one percentage point change in interest rates increased by 10 percent,would change annual
interest income would have increased by $1$3 million based on the balances during the fiscal year endedof these notes receivable at
December 31, 1999 and January 2, 1998.1, 1999.
Changes in interest rates also impact the fair value of the Company'sour long-term fixed
rate debt and long-term fixed rate notes receivable. IfBased on the balances
outstanding at December 31, 1999 and January 1, 1999, a hypothetical immediate
one percentage point change in interest rates increased by 10 percent,would change the fair value of our
long-term fixed rate debt by $41 million and $24 million, respectively, and
would change the Company'sfair value of long-term fixed rate notes receivable balances would have decreased by
approximately $4$5 million and $2 million, respectively.
Our commercial paper has been excluded from the above sensitivity analysis.
Although commercial paper is classified as long-term debt based on balances at January 2, 1998.
The Company usesour ability
and intent to refinance it on a foreign exchange swap to hedgelong-term basis, all commercial paper matures
within three months of year-end. As a loan receivable
denominatedresult, there would be no material
expected change in UK pounds sterling, and interest rate swap agreements to hedge
interest rate exposures relating to the Company's timeshare mortgage financing
program. Theexpense or fair value of these arrangements, and the exposures to lossfollowing a reasonably
expected change in earnings, fair value and cash flows arising from these arrangements are not
material to the Company.
19interest rates.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial information is included on the pages indicated:
Page
------------
Report of Independent Public Accountants........................................... 21
Combined23
Consolidated Statement of Income....................................................... 22
CombinedIncome................................................... 24
Consolidated Balance Sheet............................................................. 23
CombinedSheet......................................................... 25
Consolidated Statement of Cash Flows................................................... 24Flows............................................... 26
Consolidated Statement of Comprehensive Income..................................... 27
Consolidated Statement of Shareholders' Equity..................................... 28
Notes to CombinedConsolidated Financial Statements............................................. 25-40Statements......................................... 29-45
2022
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the ShareholderShareholders of New Marriott MI,International, Inc.:
We have audited the accompanying combinedconsolidated balance sheet of New Marriott
MI,International, Inc. as of January 2, 1998December 31, 1999 and January 3, 1997,1, 1999, and the related
combinedconsolidated statements of income, and cash flows and comprehensive income for each
of the three fiscal years in the period ended January 2, 1998.December 31, 1999 and the
consolidated statement of shareholders' equity for the period from March 27,
1998 to December 31, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform an 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 combinedconsolidated financial statements referred to above
present fairly, in all material respects, the financial position of New Marriott
MI,International, Inc. as of January 2, 1998December 31, 1999 and January 3, 1997,1, 1999, and the results
of its operations and its cash flows for each of the three fiscal years in the
period ended January 2, 1998,December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.Vienna, VA
February 19, 1998
2129, 2000
23
NEW MARRIOTT MI,INTERNATIONAL, INC.
COMBINEDCONSOLIDATED STATEMENT OF INCOME
FISCAL YEARS ENDED JANUARYFiscal Years Ended December 31, 1999, January 1, 1999 and January 2, 1998
JANUARY 3, 1997 AND DECEMBER 29, 1995
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)in millions, except per share amounts)
1999 1998 1997
1996 1995
----------------- ----------------- ----------------
(52 weeks) (53 weeks) (52 weeks)-------- -------- --------
SALES
Lodging
Rooms......................................................SALES.......................................................... $ 4,2888,739 $ 3,6197,968 $ 3,273
Food and beverage.......................................... 1,577 1,361 1,289
Other...................................................... 1,143 874 765
----------------- ----------------- ----------------
7,008 5,854 5,327
Contract Services........................................... 2,038 1,413 928
----------------- ----------------- ----------------
9,046 7,267 6,255
----------------- ----------------- ----------------7,236
OPERATING COSTS AND EXPENSES
Lodging
Departmental direct costs
Rooms..................................................... 964 843 772
Food and beverage......................................... 1,195 1,038 973
Remittances to hotel owners (including $541, $438 and $300,
respectively, to related parties)......................... 1,493 1,256 1,120
Other operating expenses................................... 2,787 2,265 2,102
----------------- ----------------- ----------------
6,439 5,402 4,967
Contract Services........................................... 1,998 1,357 898
----------------- ----------------- ----------------
8,437 6,759 5,865
----------------- ----------------- ----------------
OPERATING PROFIT
Lodging..................................................... 569 452 360
Contract Services........................................... 40 56 30
----------------- ----------------- ----------------EXPENSES................................... 7,909 7,232 6,627
-------- -------- --------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST................................................INTEREST.................................................. 830 736 609
508 390
Corporate expenses...........................................expenses............................................. (164) (110) (88)
(73) (59)
Interest expense.............................................expense............................................... (61) (30) (22)
(37) (9)
Interest income..............................................income................................................ 32 37 39
----------------- ----------------- ----------------36 32
-------- -------- --------
INCOME BEFORE INCOME TAXES...................................TAXES..................................... 637 632 531 435 361
Provision for income taxes...................................taxes..................................... 237 242 207
165 142
----------------- ----------------- ------------------------ -------- --------
NET INCOME...................................................INCOME..................................................... $ 400 $ 390 $ 324
$ 270 $ 219
================= ================= ======================== ======== ========
1999 1998 1997
-------- -------- ----------
EARNINGS PER SHARE Pro Forma(pro forma,
unaudited)
----------
Basic Earnings per Share (Unaudited)..............Per Share..................................... $ 1.62 $ 1.56 $ 1.27
$ 1.06 $ .88
================= ================= ================
Pro Forma======== ======== ==========
Diluted Earnings per Share (Unaudited)............Per Share................................... $ 1.51 $ 1.46 $ 1.19
$ .99 $ .83
================= ================= ======================== ======== ==========
See Notes To CombinedConsolidated Financial Statements
2224
NEW MARRIOTT MI,INTERNATIONAL, INC.
COMBINEDCONSOLIDATED BALANCE SHEET
January 2, 1998December 31, 1999 and January 3, 19971, 1999
($ in millions)
December 31, January 2, January 3,
1998 1997
---------------------- ----------------------1,
1999 1999
------------ ----------
ASSETS
Current assets
Cash and equivalents.........................................equivalents........................................... $ 289489 $ 239390
Accounts and notes receivable................................ 724 426receivable.................................. 740 605
Inventories, at lower of average cost or market.............. 129 124market................ 93 75
Prepaid taxes................................................ 159 149
Other........................................................ 66 46
---------------------- ----------------------
1,367 984
---------------------- ----------------------taxes.................................................. 220 200
Other.......................................................... 58 63
--------- ---------
1,600 1,333
--------- ---------
Property and equipment........................................ 1,537 1,824equipment............................................... 2,845 2,275
Intangible assets............................................. 1,448 333assets.................................................... 1,820 1,712
Investments in affiliates..................................... 530 491affiliates............................................ 294 228
Notes and other receivable.................................... 414receivables.......................................... 473 434
Other................................................................ 292 Other......................................................... 261 274
---------------------- ----------------------251
--------- ---------
$ 5,5577,324 $ 4,198
====================== ======================6,233
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.............................................payable.............................................. $ 839628 $ 716497
Accrued payroll and benefits................................. 333 264
Self-insurance............................................... 57 50benefits.................................. 399 345
Self-insurance................................................ 36 42
Other payables and accruals.................................. 410 374
---------------------- ----------------------
1,639 1,404
---------------------- ----------------------accruals................................... 680 528
--------- ---------
1,743 1,412
--------- ---------
Long-term debt................................................ 112 384
Self-insurance................................................ 196 191debt...................................................... 1,676 944
Self-insurance...................................................... 142 179
Other long-term liabilities................................... 714 478liabilities......................................... 855 805
Convertible subordinated debt................................. 310 297
Equity
Investments and net advances from Marriott
International, Inc.......................................... 2,586 1,444
---------------------- ----------------------debt....................................... - 323
Shareholders' equity
Class A common stock, 255.6 million shares issued............. 3 3
Additional paid-in capital.................................... 2,738 2,713
Retained earnings............................................. 508 218
Treasury stock, at cost....................................... (305) (348)
Accumulated other comprehensive income........................ (36) (16)
--------- ---------
2,908 2,570
--------- ---------
$ 5,5577,324 $ 4,198
====================== ======================6,233
========== =========
See Notes To CombinedConsolidated Financial Statements
2325
NEW MARRIOTT MI,INTERNATIONAL, INC.
COMBINEDCONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Years Ended December 31, 1999, January 1, 1999 and January 2, 1998 January 3, 1997 and December 29, 1995
($ in millions)
1999 1998 1997
1996 1995
------------------- ------------------- -------------------
(52 weeks) (53 weeks) (52 weeks)--------- --------- ----------
OPERATING ACTIVITIES
Net income..............................................income............................................... $ 324400 $ 270390 $ 219324
Adjustments to reconcile to cash provided by
operations:
Depreciation and amortization..........................amortization........................ 162 140 126
89 67
Income taxes...........................................taxes......................................... 87 76 64 69 61
Timeshare activity, net................................net.............................. (102) 28 (118)
(95) (192)
Other.................................................. 86 61 46Other................................................ 19 (22) 88
Working capital changes:
Accounts receivable.................................... (82) (30) (31)
Inventories............................................ - 13 (6)receivable.................................. (126) (104) (190)
Inventories.......................................... (17) 15 (3)
Other current assets................................... (8) 2 (8)assets................................. (38) (16) (15)
Accounts payable and accruals.......................... 129 125 125
------------------- ------------------- -------------------accruals........................ 326 98 266
--------- --------- ----------
Cash provided by operations............................. 521 504 281
------------------- ------------------- -------------------operations.............................. 711 605 542
--------- --------- ----------
INVESTING ACTIVITIES
Capital expenditures....................................expenditures..................................... (929) (937) (520)
(293) (127)
Acquisitions............................................Acquisitions............................................. (61) (48) (859)
(307) (210)
Dispositions............................................ 559 65 42
Loans to Host Marriott Corporation...................... (5) (16) (210)Dispositions............................................. 436 332 571
Loan repayments from Host Marriott Corporation.......... 6 141 250
Other loan advances..................................... (90) (73) (143)
Other loanadvances............................................ (144) (48) (95)
Loan collections and sales........................ 41 155 37
Other................................................... (180) (158) (120)
------------------- ------------------- -------------------sales............................... 54 169 47
Other.................................................... (143) (192) (190)
--------- --------- ----------
Cash used in investing activities....................... (1,048) (486) (481)
------------------- ------------------- -------------------activities........................ (787) (724) (1,046)
--------- --------- ----------
FINANCING ACTIVITIES
IssuancesIssuance of long-term debt.............................debt............................... 831 1,294 16
- 11
RepaymentsRepayment of long-term debt............................debt.............................. (173) (473) (15)
(133) (14)
IssuanceRedemption of convertible subordinated debt...............debt.............. (120) - 288-
Issuance of Class A common stock......................... 43 15 -
Dividends paid........................................... (52) (37) -
Purchase of treasury stock............................... (354) (398) -
Advances (to) from (to) Marriott International, Inc..........Old Marriott.......................... - (100) 576
(132) 215
------------------- ------------------- ---------------------------- --------- ----------
Cash provided by financing activities...................activities.................... 175 301 577
23 212
------------------- ------------------- ---------------------------- --------- ----------
INCREASE IN CASH AND EQUIVALENTS 50 41 12EQUIVALENTS............................ 99 182 73
CASH AND EQUIVALENTS, beginning of year.................. 239 198 186
------------------- ------------------- -------------------year..................... 390 208 135
--------- --------- ----------
CASH AND EQUIVALENTS, end of year........................year........................... $ 289489 $ 239390 $ 198
=================== =================== ===================208
========= ========= ==========
See Notes To CombinedConsolidated Financial Statements
2426
NEW MARRIOTT MI,INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Fiscal Years Ended December 31, 1999, January 1, 1999 and January 2, 1998
($ in millions)
1999 1998 1997
-------- -------- ---------
(pro forma,
unaudited)
-----------
Net income........................................................ $ 400 $ 390 $ 324
Other comprehensive (loss) income:
Foreign currency translation adjustments....................... (18) (3) (10)
Other.......................................................... (2) 6 1
------ ------- ---------
Total other comprehensive (loss) income........................... (20) 3 (9)
------ ------- ---------
Comprehensive income.............................................. $ 380 $ 393 $ 315
====== ======= =========
27
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Period From March 27, 1998 to December 31, 1999
(in millions, except per share amounts)
Accumulated
Common Class A Additional other
shares common paid-in Retained Treasury stock, comprehensive
outstanding stock capital earnings at cost income
- -----------------------------------------------------------------------------------------------------------------------------------
255.6 Spinoff on March 27, 1998........... $ 3 $ 2,711 $ - $ - $ (23)
- Net income, after the Spinoff....... - - 301 - -
- Dividends ($.195 per share)......... - - (49) - -
1.5 Employee stock plan issuance and
other, after the Spinoff.......... - 2 (34) 50 7
(13.7) Purchase of treasury stock.......... - - - (398) -
- -----------------------------------------------------------------------------------------------------------------------------------
243.4 Balance, January 1, 1999............ 3 2,713 218 (348) (16)
- Net income.......................... - - 400 - -
- Dividends ($.215 per share)......... - - (53) - -
5.5 Employee stock plan issuance
and other......................... - 29 (87) 172 (20)
2.1 ExecuStay acquisition............... - - (4) 67 -
(10.8) Purchase of treasury stock......... - - - (358) -
6.1 Conversion of convertible
subordinated debt................. - (4) 34 162 -
- -----------------------------------------------------------------------------------------------------------------------------------
246.3 Balance at December 31, 1999........ $ 3 $ 2,738 $ 508 $ (305) $ (36)
===================================================================================================================================
See Notes To Consolidated Financial Statements
28
MARRIOTT INTERNATIONAL, INC.
NOTES TO COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On October 1, 1997,The consolidated financial statements present the results of operations,
financial position and cash flows of Marriott International, Inc. announced(together with
its subsidiaries, we, us or the Company), formerly New Marriott MI, Inc., as if
we were a definitive
agreementseparate entity for all periods presented. During periods prior to
combineMarch 27, 1998, we were a wholly owned subsidiary of the operationsformer Marriott
International, Inc. (Old Marriott) and financial statements for such periods
have been prepared on a combined basis.
On March 27, 1998, all of our issued and outstanding common stock was
distributed, on a pro rata basis, as a special dividend (the Spinoff) to holders
of common stock of Old Marriott, and the Company was renamed "Marriott
International, Inc." Old Marriott's historical cost basis in our assets and
liabilities has been carried over. Old Marriott received a private letter ruling
from the Internal Revenue Service that the Spinoff would be tax-free to it and
its shareholders. For each share of common stock in Old Marriott, Managementshareholders
received one share of our Common Stock and one share of our Class A Common
Stock. On May 21, 1998, all outstanding shares of our Common Stock were
converted, on a one-for-one basis, into shares of our Class A Common Stock.
Also on March 27, 1998, Old Marriott was renamed Sodexho Marriott Services,
DivisionInc. (SMS) and its food service and facilities management business was combined
with the North American operations of Sodexho Alliance, S.A. (Sodexho), a
worldwide food and management services organization.
Prior to the merger, all
of the issued and outstanding common stock of New Marriott MI, Inc. (together
with its subsidiaries, the Company) will be distributed, on a pro rata basis, as
a special dividend to holders of Marriott International, Inc. common stock (the
Spinoff). For each share of common stock in Marriott International, Inc.,
shareholders will receive one share of Company Common Stock and one share of
Company Class A Common Stock. The Spinoff and merger are expected to be
consummated on March 27, 1998, subject to customary conditions, including
approval by Marriott International, Inc.'s shareholders. A special meeting of
shareholders is scheduled to be held on March 17, 1998 for purposes of
considering and acting on the foregoing transactions and related matters.
Marriott International, Inc. has received a private letter ruling from the
Internal Revenue Service that the Spinoff will be tax-free to Marriott
International, Inc. and its shareholders. The Company will be renamed "Marriott
International, Inc." and its common stock will be listed on the New York Stock
Exchange, subject to official notice of issuance.
For the purposes of governing certain of the ongoing relationships between the
Companyus
and SMS after the Spinoff and to provide for orderly transition, the
Company and SMS will enterwe entered into
various agreements with SMS including the Distribution
Agreement, Employee Benefits and Other EmploymentEmployee
Matters Allocation Agreement, Liquid Yield Option Notes (LYONs) Allocation
Agreement, Tax Sharing Agreement, Trademark and Trade Name License Agreement,
Noncompetition Agreement, Employee Benefit Services Agreement, Procurement
Services Agreement, Distribution Services Agreement, and other transitional
services agreements. Effective as of the Spinoff date, pursuant to these
agreements, will provide, among other things, that the
Company will assumewe assumed sponsorship of certain of Marriott International, Inc.'sOld Marriott's employee benefit
plans and insurance programs as well as succeedand succeeded to Marriott
International, Inc.'sOld Marriott's liability to LYONs
holders under the LYONs Indenture, a
portionnine percent of which will bewas assumed by SMS.
These combined financial statements present the financial position, results of
operations and cash flows of the Company as if it were a separate entity for all
periods presented. Marriott International, Inc.'s historical basis in the
assets and liabilities of the Company has been carried over.
All material intercompany transactions and balances between entities
included in these combinedconsolidated financial statements have been eliminated. Sales
by the Companyus to Marriott International, Inc.,SMS of $435 million in 1999, $434 million in 1997, $4061998, and $434 million in
1996 and
$325 million in 19951997, have not been eliminated. Changes in Investments and Net Advances from Old
Marriott International, Inc. represent theour net income, of the
Company plus the net cash transferred between Old Marriott
International, Inc. and the Companyus, and certain non-cash items.
The Company hasPrior to the Spinoff, we operated as a unit of Old Marriott, International, Inc., utilizing Marriott International, Inc.'sOld
Marriott's centralized systems for cash management, payroll, purchasing and
distribution, employee benefit plans, insurance and administrative services. As
a result, substantially all cash received by the
Companyus was deposited in and commingled
with Marriott International, Inc.'sOld Marriott's general corporate funds. Similarly, our operating expenses,
capital expenditures and other cash requirements of the Company were paid by Old Marriott International, Inc. and
charged directly or allocated to the Company.us. Certain assets and liabilities related to
the Company'sour operations arewere managed and controlled by Old Marriott
International, Inc. on a centralized
basis. SuchPrior to the Spinoff such assets and liabilities have
beenwere allocated to the Companyus
based on the Company'sour use of, or interest in, those assets and liabilities. In theour
opinion, of management, Marriott
International, Inc.'sthe methods for allocating costs, assets and liabilities are
believedprior to be reasonable. After the
Spinoff the Company intends towere reasonable. We now perform these functions independently and expects that the
costs incurred willhave not bebeen materially different from those currently allocated.allocated prior to
the Spinoff.
29
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date 25
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
of the financial statements, and the reported amounts of sales and expenses
during the reporting period. Accordingly, ultimate results could differ from
those estimates. Certain amounts have been reclassified to conform to the 1999
presentation.
Fiscal Year
The Company'sOur fiscal year ends on the Friday nearest to December 31. The 1996All fiscal year includes 53 weeks, while 1997 and 1995 fiscal years
presented include 52 weeks.
Managed Operations
The Company operates 509 hotelsRevenue Recognition
Our sales include fees and 55reimbursed costs for properties managed by us,
together with sales by lodging properties and senior living communities under long-
termowned or
leased by us, and sales made by our other businesses. Fees comprise management
agreements whereby remittances tofees and franchise fees received from third party owners of $1,350 million,
$1,056 millionlodging properties
and $960 million in 1997, 1996 and 1995, respectively, are based
primarily on profits.
Working capital and operating resultssenior living communities. Reimbursed costs comprise costs recovered from
owners of managed hotels and senior living communities operated by the Company's employees are consolidated because the
operating responsibilities associated with such entities are substantially the
same as if they were owned. The combined financial statements include the
following related to managed hotels and senior living communities operated by
the Company's employees: current assets and current liabilities of $512 million
at January 2, 1998 and $320 million at January 3, 1997; sales of $5,515 million
in 1997, $4,595 million in 1996 and $4,071 million in 1995; and operating
expenses, including remittances to owners, of $5,181 million in 1997, $4,322
million in 1996 and $3,830 million in 1995.
International Operations
The combined statement of income includes the following related to
international operations: sales of $333 million in 1997, $224 million in 1996
and $189 million in 1995; and operating profit before corporate expenses and
interest of $49 million in 1997, $21 million in 1996 and $19 million in 1995.communities.
Profit Sharing Plan
Marriott International, Inc. contributesWe contribute to a profit sharing plan for the benefit of employees meeting
certain eligibility requirements and electing participation in the plan.
Contributions are determined annually by the Board of DirectorsDirectors. We recognized
compensation cost of Marriott International, Inc. The Company's contributions are
based on salaries$46 million in 1999, $45 million in 1998 and wages of participating Company employees and totaled $36 million for 1997, $29 million for 1996 and $22 million for 1995.in
1997.
Self-Insurance Programs
Marriott International, Inc. isWe are self-insured for certain levels of general liability, workers'
compensation, employment practices and employee medical coverage. Estimated
costs of these self-insurance programs are accrued at the present value of
projected settlements for known and anticipated claims.
General and Administrative Expenses
Marriott International, Inc. provided certain corporate general and
administrative services to the Company andFrequent Guest Program
We accrue for the cost of those services was
allocatedredeeming points awarded to the Companymembers of our
frequent guest program based on the services provided.
Interest Expensediscounted expected costs of redemption. The
interest expense reflectedliability for this program was $289 million at December 31, 1999, and $280
million at January 1, 1999, and is included in other long-term liabilities in
the combined statement of income is based
upon the historical debt of the Company.
26
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)accompanying consolidated balance sheet.
Cash and Equivalents
The Company considersWe consider all highly liquid investments with a maturity of three months
or less at date of purchase to be cash equivalents.
Marriott
International, Inc. uses drafts in its cash management system. At January 2,
1998 and January 3, 1997, outstanding drafts of Marriott International, Inc.
allocated to the Company are included in accounts payable and totaled $135
million and $124 million, respectively. At January 2, 1998 and January 3, 1997,
cash included $140 million and $133 million, respectively, related to managed
properties. Marriott International, Inc.'s centralized cash has been allocated
to the Company.
New Accounting Standards
The CompanyWe will adopt Statement of Financial Accounting Standards (FAS) No.
130, "Reporting Comprehensive Income" and FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" during 1998. The Company is
evaluating the impact of these statements on its combined financial statements.
FAS No. 125,133, "Accounting for TransfersDerivative Investments and
Servicing of Financial Assets and
Extinguishments of Liabilities" was adopted duringHedging Activities," which we do not expect to have a material effect on our
consolidated financial statements, in or before the first quarter of 1997,
and FAS No. 129, "Disclosure2001.
In April 1998, the American Institute of Information about Capital Structure" wasCertified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." We adopted SOP 98-5 in the fourthfirst quarter of 1997, with no material effect on the Company's combined
financial statements.1999 by expensing pre-
opening costs for Company owned lodging and senior living communities as
incurred. The Company adopted FAS No. 128, "Earnings Per Share"adoption of SOP 98-5 resulted in the fourth quartera pretax expense of 1997. A comparison to pro forma earnings per share as previously calculated
follows:
(unaudited)
-------------------------------------------------
1997 1996 1995
------------- ------------- -------------
Pro Forma Primary Earnings Per Share as previously calculated............ $ 1.21 $ 1.00 $ .83
============= ============= =============
Pro Forma Fully Diluted Earnings Per Share as previously calculated...... $ 1.19 $ .99 $ .83
============= ============= =============
Pro Forma Basic Earnings Per Share....................................... $ 1.27 $ 1.06 $ .88
============= ============= =============
Pro Forma Diluted Earnings Per Share..................................... $ 1.19 $ .99 $ .83
============= ============= =============
On November 20, 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on EITF 97-2 "Application of FASB
Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances$22 million
in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
The Company is assessing the impact of EITF 97-2 on its long-standing policy
of including in its financial statements the working capital, revenues and
operating expenses of managed hotels and retirement communities operated with
the Company's employees. If the Company concludes that EITF 97-2 should be
applied to its management agreements, it would no longer include in its
financial statements certain working capital and revenues of those managed
operations. Application of EITF 97-2 to the Company's financial statements as
of and for the 52 weeks ended January 2, 1998, would have reduced each of
revenues and operating expenses by approximately $1.3 billion, and would have no
impact on operating profit, net income, pro forma earnings per share or equity.
271999.
30
NEW MARRIOTT MI,INTERNATIONAL, INC.
NOTES TO COMBINEDCONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
RELATIONSHIPRELATIONSHIPS WITH HOST MARRIOTT AND HOST MARRIOTT SERVICES
Marriott International, Inc., the Company andMAJOR CUSTOMERS
In December 1998, Host Marriott Corporation (Host Marriott) have entered into agreements which provide, among other things, for
(i) the Companyreorganized its
business operations to manage and franchise lodging properties owned or leased byqualify as a real estate investment trust (REIT). In
conjunction with its conversion to a REIT, Host Marriott (thespun off, in a taxable
transaction, a new company called Crestline Capital Corporation (Crestline). As
part of the Crestline spinoff, Host Marriott Lodging Management Agreements), (ii)transferred to Crestline all of the
Company to manage
senior living communities previously owned by Host Marriott, (theand Host Marriott
Senior Living Management Agreements), (iii) Marriott International,
Inc. to guaranteeentered into lease or sublease agreements with Crestline for substantially all
of Host Marriott's performance in connectionlodging properties. Our lodging and senior living community
management and franchise agreements with certain loans
or other obligations (the Marriott International, Inc. Guarantees), and (iv) the
Company to provide Host Marriott with various administrative services (the
Service Agreements). Upon consummationwere also assigned to
Crestline. In the case of the Spinoff, the Company will replace
Marriott International, Inc. under theselodging agreements, and guarantees. Marriott
International, Inc. has the right to purchase up to 20 percent of the voting
stock of Host Marriott if certain events involving a change of control occur.
This right will be assignedremains
obligated under such agreements in the event that Crestline fails to the Company upon consummation of the Spinoff.perform its
obligations thereunder. The Host Marriott Lodging Management Agreementslodging agreements now provide for the Companyus to manage the
Marriott hotels, Ritz-Carlton hotels, Courtyard hotels and Residence Inns owned or leased
by Host Marriott. Each Host Marriott Lodging Management Agreement, when entered
into, reflects market terms and conditions andCrestline. Our consent is substantially similarrequired for Crestline to the
terms of management agreements with third-party owners regarding lodging
facilities of a similar type. The Companytake certain major
actions relating to leased properties that we manage.
We recognized sales of $2,302$2,553 million, $1,787$2,144 million and $1,274$1,700 million
and operating profit before corporate expenses and interest of $221 million,
$197 million and $140 million $95 millionduring 1999, 1998 and $59 million during 1997, 1996 and
1995, respectively, from the
lodging properties owned or leased by Host Marriott. Additionally, Host Marriott
is a general partner in several unconsolidated partnerships that own lodging
properties operated by the Companyus under long-term agreements. The CompanyWe recognized sales of
$1,513$562 million, $1,769$712 million and $1,878$1,054 million and operating profit before
corporate expenses and interest of $64 million, $83 million and $122 million $121 millionin
1999, 1998 and $115 million in 1997, 1996 and
1995, respectively, from the lodging properties owned by these
unconsolidated partnerships. The CompanyWe also leasesleased land to certain of these
partnerships and recognized land rent income of $24 million in both 1999 and
1998, and $23 million $22 million and $21 million in 1997,
1996 and 1995, respectively.
The1997.
We have provided Host Marriott Senior Living Management Agreements provide for the Company
to manage independent full-service senior living communities owned or leased by
Host Marriott. These agreements, entered into on June 21, 1997, reflect market
terms and conditions and are substantially similar to management agreements with third-party owners. The Company recognized sales of $126 million and operating
profit before corporate expenses and interest of $1 million under these
agreements during 1997.
The Company has provided, and may provide in the future, financing to Host
Marriott for a portion of the cost of
acquiring properties to be operated or franchised by us, and may continue to
provide financing to Host Marriott or Crestline in the Company, including partial consideration for Host Marriott's
purchase of 29 senior living communities from the Company.future. The outstanding
principal balance of these loans was $135$11 million and $37$9 million at December 31,
1999 and January 2,1, 1999, respectively, and we recognized $1 million, $5 million
and $9 million in 1999, 1998 and January 3, 1997, respectively, and the Company recognized $9 million,
$17 million and $23 million in 1997, 1996 and 1995, respectively, in interest and fee income
under these credit agreements with Host Marriott.
Under the Marriott International, Inc. Guarantees, Marriott International,
Inc. hasWe have guaranteed the performance of Host Marriott and certain of its
affiliates to lenders and other third parties. These guarantees were limited to
$107$14 million at January 2, 1998.December 31, 1999. No payments have been made by Marriott
International, Inc.us pursuant to
these guarantees. On December 29, 1995,We continue to have the right to purchase up to 20 percent of
Host Marriott's outstanding common stock upon the occurrence of certain events
generally involving a change of control of Host Marriott. This right expires in
2017, and Host Marriott distributedhas granted an exception to the ownership limitations in
its shareholders through a
special dividend allcharter to permit full exercise of the outstanding shares of common stock of Host Marriott
Services Corporation (Host Marriott Services), which operates food, beverage and
merchandise concessions at airports, on toll roads and at arenas and other
tourist attractions. The Company providesthis right, subject to certain administrative and data
processing servicesconditions
related to ownership limitations applicable to REITs generally. We lease land to
Host Marriott Servicesthat had an aggregate book value of $264 million at December 31,
1999. Most of this land has been pledged to secure debt of the lessees. We have
agreed to defer receipt of rentals on this land, if necessary, to permit the
lessees to meet their debt service requirements.
We are party to agreements which provide for whichus to manage the Company charged $10senior living
communities owned by Crestline. We recognized sales of $177 million and $11$173
million in 1997 and 1996,operating profit before corporate expenses and interest of $3
million and $5 million under these agreements during 1999 and 1998,
respectively.
In addition, the
Company providesWe are party to management agreements with entities owned or affiliated
with another hotel owner which provide for us to manage hotel properties owned
or leased by those entities. We recognized sales of $531 million and distributes food$560
million during 1999 and supplies to Host Marriott Services,
for which the Company charged $80 million in 1997, $77 million in 1996 and
(prior to the special dividend) $65 million in 1995.
281998, respectively, from these properties.
31
NEW MARRIOTT MI,INTERNATIONAL, INC.
NOTES TO COMBINEDCONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company also provides certain administrative services to Host Marriott
(including the services provided to Host Marriott Services prior to the special
dividend) for which the Company charged $17 million in 1997, $19 million in 1996
and $25 million in 1995, including reimbursements.
PROPERTY AND EQUIPMENT
1997 1996
-------------------- --------------------1999 1998
----------- -------------
(in millions)
Land................................................................ $ 425658 $ 433580
Buildings and leasehold improvements................................ 486 8471,075 732
Furniture and equipment............................................. 329 323523 399
Timeshare properties................................................ 379 335587 438
Construction in progress............................................ 230 183
-------------------- --------------------
1,849 2,121progress 429 490
----------- -------------
3,272 2,639
Accumulated depreciation and amortization........................... (312) (297)
-------------------- --------------------(427) (364)
----------- -------------
$ 1,5372,845 $ 1,824
==================== ====================2,275
=========== =============
PropertyWe record property and equipment is recorded at cost, including interest, rent and real
estate taxes incurred during development and construction. Interest capitalized
as a cost of property and equipment totaled $33 million in 1999, $21 million in
1998 and $16 million in 1997, $9 million in
1996 and $8 million in 1995. Replacements1997. We capitalize replacements and improvements that
extend the useful life of property and equipment are capitalized. Depreciation is
computedequipment. We compute depreciation using
the straight-line method over the estimated useful lives of the assets. LeaseholdWe
amortize leasehold improvements are amortized over the shorter of the asset life or lease
term.
Land with an aggregate book value of $264 million at January 2,
1998 is leased to certain partnerships affiliated with Host Marriott. Most of
this land has been pledged to secure debt of these lessees. The Company has
agreed to defer receipt of rentals on this land, if necessary, to permit the
lessees to meet their debt service requirements.
ACQUISITIONS AND DISPOSITIONS
ExecuStay
On February 17, 1999, we completed a cash tender offer for approximately 44
percent of the outstanding common stock of ExecuStay Corporation (ExecuStay), a
leading provider of leased corporate apartments in the United States. On
February 24, 1999, substantially all of the remaining common stock of ExecuStay
was converted into nonvoting preferred stock of ExecuStay which we acquired, on
March 26, 1999, for approximately 2.1 million shares of our Class A Common
Stock. Our aggregate purchase price totaled $116 million. We consolidated the
operating results of ExecuStay from February 24, 1999, and have accounted for
the acquisition using the purchase method of accounting. We are amortizing the
resulting goodwill on a straight-line basis over 30 years.
The Ritz-Carlton Hotel Company LLC
In 1995, we acquired a 49 percent beneficial ownership interest in The
Ritz-Carlton Hotel Company LLC, which owns the management agreements on the
Ritz-Carlton hotels and resorts, the licenses for the Ritz-Carlton trademarks
and trade name as well as miscellaneous assets. The investment was acquired for
a total consideration of approximately $200 million. On March 19, 1998, we
increased our ownership interest in The Ritz-Carlton Hotel Company LLC to
approximately 99 percent for additional consideration of approximately $90
million. We expect to acquire the remaining one percent within the next several
years. We accounted for the acquisition using the purchase method of accounting.
We allocated the purchase cost to the assets acquired and the liabilities
assumed based on estimated fair values. We amortize the resulting goodwill on a
straight-line basis over 40 years. We amortize the amounts allocated to
management agreements on a straight-line basis over the estimated lives of the
agreements. Prior to March 19, 1998, we accounted for our investment in The
Ritz-Carlton Hotel Company LLC using the equity method of accounting.
For periods prior to March 19, 1998, we included our income from The Ritz-
Carlton Hotel Company LLC in operating profit in the accompanying consolidated
statements of income. We received distributions of $17 million in 1997 from The
Ritz-Carlton Hotel Company LLC. This amount was based upon an annual, cumulative
preferred return on invested capital.
32
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Renaissance Hotel Group N.V.
On March 29, 1997, the Companywe acquired substantially all of the outstanding common
stock of Renaissance Hotel Group N.V. (RHG), an operator and franchisor of
approximately 150 hotels in 38 countries under the Renaissance, New World and
Ramada International brands. The purchase cost of approximately $937 million was
funded by Marriott International, Inc.Old Marriott. The acquisition has been accounted for using the
purchase method of accounting. The purchase cost has been
allocated to the assets acquired and liabilities assumed based on estimated fair
values as follows:
(in millions)
Current assets............................................................... $ 141
Hotel management, franchise and license agreements........................... 380
Other assets................................................................. 7
Current liabilities.......................................................... (119)
Long-term debt............................................................... (12)
Other long-term liabilities.................................................. (106)
Investments and net advances from Marriott International, Inc................ (128)
Goodwill..................................................................... 774
----------------
Purchase cost................................................................ $ 937
================
Goodwill is being amortized on a straight-line
basis over 40 years. Amounts allocated to management, franchise and license
agreements are being amortized on a straight-line basis over the lives of the
agreements. 29
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
The Companypurchase cost has been allocated to the assets acquired and
liabilities assumed based on estimated fair values.
We included RHG's operating results from the date of acquisition. Summarized below are theOur
unaudited pro forma combined results of operations of
the Companysales and net income for 1997, and 1996,calculated as if RHG had been
acquired at the beginning of the respective fiscal years (in millions).
1997 1996
---------------------- ----------------------
Sales..................................................... $ 9,244 $ 8,123
====================== ======================
Net income................................................ $ 319 $ 242
====================== ======================
that year, were $7,383 million and $319 million,
respectively. Unaudited pro forma results of operations include an adjustment
for interest expense of $12 million, and $53 million for 1997 and 1996, respectively, as if the acquisition borrowings had been
incurred by the Company.us. Amortization expense deducted in determining net income reflects
the impact of the excess of the purchase price over the net tangible assets
acquired. The unaudited pro forma combined results of operations do not reflect
the Company'sour expected future results of operations.
Dr. Henry Cheng Kar-Shun is the Managing Director of New World Development
Company Limited (New World Development) and, together with his family and
affiliated corporations, owns or otherwise controls approximately 35 percent of
New World Development's common stock. Effective June 1, 1997, Dr. Cheng was
appointed to the Board of Directors of Marriott International, Inc. Dr. Cheng,
New World Development and their affiliates own all or a portion of 87 hotels
that are operated by the Company and, prior to the Company's acquisition of RHG,
owned a majority of RHG common stock. New World Development and other affiliates
of Dr. Cheng have indemnified the Company for certain lease, debt, guarantee and
other obligations resulting from the formation of RHG as a hotel management
company in 1995.
The Ritz-Carlton Hotel Company LLC
On April 24, 1995, the Company acquired a 49 percent beneficial ownership
interest in The Ritz-Carlton Hotel Company LLC, which owns the management
agreements on the Ritz-Carlton hotels and resorts, the licenses for the Ritz-
Carlton trademarks and trade name as well as miscellaneous assets. The
investment was acquired for a total consideration of approximately $200 million.
The Company expects to acquire the remaining 51 percent within the next several
years beginning in 1998. The investment in the Ritz-Carlton Hotel Company LLC is
accounted for using the equity method of accounting.
The excess of the Company's investment in The Ritz-Carlton Hotel Company LLC
over its share of the net tangible assets is being amortized over 25 years. The
Company's income from The Ritz-Carlton Hotel Company LLC is included in lodging
operating profit in the accompanying combined statement of income. The Company
received distributions of $17 million, $20 million and $6 million in 1997, 1996
and 1995, respectively, from its investment in The Ritz-Carlton Hotel Company
LLC. Such amounts were based upon an annual, cumulative preferred return on
invested capital.
30
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
Forum Group, Inc.
On March 25, 1996, a wholly owned subsidiary of the Company acquired all of
the outstanding shares of common stock of Forum Group, Inc. (Forum), an operator
of 43 senior living communities, 34 of which were owned or partially owned by
Forum, for total cash consideration of approximately $303 million. The
acquisition was accounted for using the purchase method of accounting. The
purchase cost was allocated to the assets acquired and liabilities assumed based
on estimated fair values as follows:
(in millions)
Current assets............................ $ 40
Property and equipment.................... 531
Other assets.............................. 29
Current liabilities....................... (45)
Long-term debt............................ (363)
Other long-term liabilities............... (58)
Goodwill.................................. 169
---------------
Purchase cost............................. $ 303
===============
Goodwill is being amortized on a straight-line basis over 35 years.
On June 21, 1997, the Companywe sold 29 senior living communities acquired as part of
the 1996 Forum acquisition to Host Marriott for approximately $550 million,
resulting in no gain or loss. The consideration included approximately $50
million to be received subsequent to 1997, as expansions at certain communities
are completed. The $500 million of consideration received during 1997 consisted
of $222 million in cash, $187 million of outstanding debt $50and $91 million of
notes receivable due on June 20, 1998, and $41 million of notes receivable due on
January 1, 2001. The notes receivable from Host Marriott bearbearing interest at nine percent.percent which were repaid on April 1,
1998. Under the terms of the sale, Host Marriott purchased all of the common
stock of Forum, which at the time of the sale includedowned the 29 communities, certain
working capital and associated debt. The Company willWe continue to operate these communities
under long-term management agreements.
Other Property SalesDispositions
In 1999, we agreed to sell and leaseback, under long-term, limited-recourse
leases, four hotels for approximately $59 million in cash. At the same time, we
agreed to pay security deposits of $2 million which will be refunded at the end
of the leases. As of December 31, 1999, the sale of one of these hotels had been
completed, resulting in a sales price which exceeded the net book value by $1
million, which we will recognize as a reduction of rent expense over the 15-year
initial lease term. We can renew the leases on all four hotels at our option.
During 1999, we agreed to sell, subject to long-term management agreements,
four hotels and five senior living communities for $55 million and $90 million,
respectively. As of December 31, 1999, sales of all four hotels and three of the
senior living communities had been completed, for a total of $107 million,
resulting in pretax gains of $10 million. We recognized $2 million of the gain
in 1999, and the balance will be recognized provided certain contingencies in
the sales contracts expire.
In 1999, we also sold an 89 percent interest in one hotel, and concurrently
signed a long-term lease on the property. We are accounting for this transaction
under the financing method, and the sales proceeds of $58 million are reflected
as long-term debt in the accompanying consolidated balance sheet.
On December 29, 1998, we agreed to sell and leaseback, under long-term,
limited-recourse leases, 17 hotels for approximately $202 million in cash. At
the same time, we agreed to pay security deposits of $21 million which will be
refunded at the end of the leases. As of December 31, 1999, all of the
properties had been sold, resulting in a sales price which exceeded the net book
value by $19 million, which is being recognized as a reduction of rent expense
over the 15-year initial lease terms.
33
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
During 1998, we agreed to sell, subject to long-term management agreements,
eight lodging properties and 11 senior living communities for consideration of
$183 million and $178 million, respectively. As of December 31, 1999, sales of
all of these properties had been completed, resulting in pretax gains of $69
million. We recognized $21 million and $12 million of these gains in 1999 and
1998, respectively. The balance will be recognized provided certain
contingencies in the sales contracts expire.
On April 3, 1997, the Companywe agreed to sell and leaseback, under long-term,
limited-recourse leases, 14 limited service hotels for approximately $149 million in cash. Concurrently,At
the Companysame time, we agreed to pay security deposits of $15 million, which will be
refunded upon expirationat the end of the leases. As of January 2, 1998, sales of all of the properties
had closed,been sold, resulting in a $20 million
excess of the sales price overwhich exceeded the net book value by
$20 million, which will beis being recognized as a reduction of rent expense over the
17-year initial lease terms. On October 10, 1997, the Companywe agreed to sell and
leaseback, under long-term, limited-
recourselimited-recourse leases, another nine limited
service hotels for approximately $129 million in cash. Concurrently,At the Companysame time, we
agreed to pay security deposits of $13 million, which will be refunded upon expirationat the
end of the leases. AsAt January 1, 1999, all of January 2, 1998, sales of three of these ninethe properties had closed,been sold,
resulting in a $7 million excess of the sales price overwhich exceeded the net book value by $17 million,
which will beis being recognized as a reduction of rent expense over the 15-year
initial lease terms. AllWe can renew all of the aforementionedthese leases are renewable at the option of the Company.our option.
On April 11, 1997, the Companywe sold five senior living communities for cash
consideration of approximately $79 million. On September 12, 1997, the Companywe agreed to
sell another seven senior living communities for cash consideration of
approximately $93$95 million. AsThe sale of January 2, 1998, the sales of fiveall of these properties had closed. The Company willresulted in a
pretax gain of $19 million, which is being recognized over a period of up to
four years, provided contingencies in the sales contracts expire. We continue to
operate all of these communities under long-term management agreements.
During 1996, the Company sold and leased back four senior living communities
for cash consideration of approximately $53 million. The excess of the sales
price over the net book value of $9 million will be recognized as a reduction of
rent expense over the 20-year initial lease terms.
31
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
Note Sales
The CompanyWe periodically sells,sell, with limited recourse, notes receivable originated by
Marriott Vacation Club International in connection with the sale of timesharing
intervals. Net proceeds from these transactions totaled $195 million in 1999,
$165 million in 1998 and $68 million in 1997 and $1481997. Pretax gains from these
transactions increased by $3 million in 1996.1999 compared to 1998, and by $17
million in 1998 compared to 1997. At January 2, 1998, the CompanyDecember 31, 1999, we had a repurchase
obligation of $70$86 million with respect to these mortgage note sales.
Additionally, the Company sold, without recourse, first mortgage loans on
Marriott lodging and senior living properties of $18 million in 1997 and $113
million in 1996.
INTANGIBLE ASSETS
1997 1996
------------ ------------1999 1998
--------- ---------
(in millions)
Hotel management,Management, franchise and license agreements........agreements............................. $ 587771 $ 178
Goodwill.................................................. 937 190
Other..................................................... 31 30
------------ ------------
1,555 398721
Goodwill................................................................. 1,246 1,129
Other.................................................................... 23 23
--------- ---------
2,040 1,873
Accumulated amortization.................................. (107) (65)
------------ ------------amortization................................................. (220) (161)
--------- ---------
$ 1,4481,820 $ 333
============ ============1,712
========= =========
IntangibleWe amortize intangible assets are amortized on a straight-line basis over periods of
three to 40 years. AmortizationIntangible amortization expense totaled $62 million in 1999,
$54 million in 1998 and $42 million in 1997, $12 million in
1996 and $6 million in 1995.1997.
34
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
INCOME TAXES
Total deferred tax assets and liabilities as of January 2, 1998December 31, 1999 and
January 3,
1997,1, 1999, were as follows:
1997 1996
-------------- --------------1999 1998
------ ------
(in millions)
Deferred tax assets..................................assets..................................................... $ 388424 $ 389457
Deferred tax liabilities............................. (378) (304)
-------------- --------------liabilities................................................ (340) (417)
------ ------
Net deferred taxes...................................taxes...................................................... $ 1084 $ 85
============== ==============40
====== ======
The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as of
January 2, 1998December 31, 1999 and January 3, 19971, 1999 follows:
1997 1996
-------------- --------------1999 1998
--------- -------
(in millions)
Self-insurance......................................Self-insurance........................................................... $ 10374 $ 10391
Employee benefits................................... 93 106benefits........................................................ 151 145
Deferred income..................................... 15 15income.......................................................... 51 51
Other reserves...................................... 27 25reserves........................................................... 32 28
Frequent stay programs.............................. 99 78guest program................................................... 44 86
Partnership interests...............................interests.................................................... (2) (31) (37)
Property, equipment and intangible assets........... (178) (118)assets................................ (212) (199)
Finance leases......................................leases........................................................... - (44)
(25)
Other, net.......................................... (74) (62)
-------------- --------------net............................................................... (54) (87)
--------- -------
Net deferred taxes..................................taxes....................................................... $ 1084 $ 85
============== ==============40
========= =======
32
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
NoAt December 31, 1999, we had approximately $12 million of tax credits which
expire through 2019.
We have made no provision for U.S. income taxes, or additional foreign
taxes, has been made
on the cumulative unremitted earnings of non-U.S. subsidiaries ($60145
million as of January 2, 1998)December 31, 1999) because management considerswe consider these earnings to be
permanently invested. These earnings could become subject to additional taxes if
remitted as dividends, loaned to the Companyus or a U.S. affiliate, or if the
Company sells itswe sell our
interests in the affiliates. It is not practicable toWe cannot practically estimate the amount of
additional taxes which might be payable on the unremitted earnings.
The provision for income taxes consists of:
1999 1998 1997
1996 1995
------------ ------------ ---------------------- --------- ---------
(in millions)
Current - Federal............................Federal....................................... $ 117 $ 164 $ 168
$ 102 $ 46
- State..............................State......................................... 26 35 34
21 16
- Foreign............................ 43 13 15
------------ ------------ ------------
245 136 77
------------ ------------ ------------Foreign....................................... 24 18 28
---------- --------- ---------
167 217 230
---------- --------- ---------
Deferred - Federal............................ (34) 24 57Federal...................................... 58 25 (19)
- State..............................State........................................ 12 1 (3)
4 10
- Foreign............................Foreign...................................... - (1) 1 (2)
------------ ------------ ------------
(38) 29 65
------------ ------------ ------------(1)
---------- --------- ---------
70 25 (23)
---------- --------- ---------
$ 237 $ 242 $ 207
$ 165 $ 142
============ ============ ====================== ========= =========
The current tax provision does not reflect the benefit attributable to the Companyus
relating to the exercise of employee stock options of Marriott International,
Inc. of$44 million in 1999, $39
million in 1998 and $38 million in 1997, $27 million in 1996 and $20 million in 1995.1997. The taxes applicable to other
comprehensive income are not material.
35
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A reconciliation of the U.S. statutory tax rate to the Company'sour effective income tax
rate follows:
1999 1998 1997
1996 1995------------- ------------ ------------ ----------------------
U.S. statutory tax rate........................rate................................... 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit....benefit............... 3.9 4.1 4.0 4.0 4.8
Corporate-owned life insurance.................insurance............................ - (0.3) (0.8)
(0.8) (1.3)
Tax credits....................................credits............................................... (5.4) (4.2) (3.4)
(2.2) (1.5)
Goodwill amortization..........................amortization..................................... 1.8 1.6 0.6 0.21.6
Other, net.....................................net................................................ 2.0 2.1 2.6
1.4 2.2------------- ------------ ------------ ----------------------
Effective rate................................rate............................................ 37.3% 38.3% 39.0%
38.0% 39.4%============= ============ ============ ======================
Cash paid for income taxes, net of refunds, was $150 million in 1999, $164
million in 1998 and $143 million in 1997, $96
million in 1996 and $81 million in 1995.1997.
As part of the Spinoff, SMS and the Company will enterwe entered into a tax sharing agreement with SMS
which reflects each party's rights and obligations with respect to deficiencies
and refunds, if any, of federal, state or other taxes relating to the business
of Old Marriott International, Inc. and the Company prior to the Spinoff.
The Company isDuring periods prior to the Spinoff, we were included in the consolidated
federal income tax return of Marriott International, Inc.Old Marriott. The income tax provision reflects the
portion of Marriott International, Inc.'sOld Marriott's historical income tax provision attributable to the operations of the Company. Management believesour
operations. We believe that the income tax provision, as reflected, is
comparable to what the income tax provision would have been if the
Companywe had filed a
separate return during the periods presented.
33
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
LEASES
Summarized below are the Company'sOur future obligations under operating leases at January 2, 1998:
Operating
Leases
--------------
(in millions)
Fiscal Year
1998................................................... $ 135
1999................................................... 131
2000................................................... 126
2001................................................... 122
2002................................................... 123
Thereafter............................................. 1,149
--------------
Total minimum lease payments........................... $ 1,786
==============December 31, 1999, are
summarized below:
(in millions)
-----------
Fiscal Year
2000........................................................... $ 161
2001........................................................... 157
2002........................................................... 156
2003........................................................... 153
2004........................................................... 150
Thereafter..................................................... 1,496
----------
Total minimum lease payments................................... $ 2,273
==========
Most leases have initial terms of up to 20 years, and contain one or more
renewal options, generally for five or 10 year periods. The leases provide for
minimum rentals, and additional rentals which are based on the operations of the leased
property. The total minimum lease payments above include $837 million
representing obligations of consolidated subsidiaries which are non-recourse to
Marriott International, Inc.
Rent expense consists of:
1997 1996 1995
---------- ---------- ----------
(in millions)
Minimum rentals............... $ 123 $ 110 $ 102
Additional rentals............ 127 133 102
---------- ---------- ----------
$ 250 $ 243 $ 204
========== ========== ==========
1999 1998 1997
------- -------- -------
(in millions)
Minimum rentals.............................................. $ 153 $ 138 $ 123
Additional rentals........................................... 102 101 127
------- -------- -------
$ 255 $ 239 $ 250
======= ======== =======
36
MARRIOTT INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
LONG-TERM DEBT
Long-termOur long-term debt at January 2, 1998December 31, 1999 and January 3, 1997,1, 1999, consisted of the
following:
1997 1996
------------ ------------1999 1998
-------- ------
(in millions)
Secured debt.........................................Unsecured debt
Senior notes, average interest rate of 7.2% at December 31, 1999,
maturing through 2009..................................................... $ -701 $ 283
Unsecured debt:402
Commercial paper, interest rate of 6.5% at December 31, 1999................ 781 426
Endowment deposits (non-interest bearing)........... 108 107
Other............................................... 28 14
------------ ------------
136 404................................... 111 111
Other....................................................................... 101 35
-------- ------
1,694 974
Less current portion................................. 24 20
------------ ------------portion......................................................... 18 30
-------- ------
$ 1121,676 $ 384
============ ============944
======== ======
The Company hasIn April 1999, we filed a "universal shelf" registration statement with the
Securities and Exchange Commission. That registration statement, which became
effective on May 4, 1999, originally allowed us to offer to the public up to
$500 million of debt securities, Class A Common Stock and/or preferred stock.
This "universal shelf" format provides us with additional flexibility to meet
our financing needs.
On September 20, 1999, we sold $300 million principal amount of 7-7/8 percent
Series C Notes, which mature in 2009, in a public offering made under our shelf
registration statement. We received net proceeds of approximately $296 million
from this offering, after paying underwriting discounts, commissions and
offering expenses.
In January 2000, we filed a second "universal shelf" registration statement
for $300 million in debt securities, Class A Common Stock and/or preferred
stock, which together with the remaining availability under the April 1999
registration statement, allows us to offer to the public up to $500 million of
securities.
In November 1998, we issued, through a private placement, $400 million of
unsecured senior notes (Series A and B Notes). Proceeds net of discounts totaled
$396 million. On April 23, 1999, we commenced a registered exchange offer to
exchange the privately placed Series A and B Notes for publicly registered new
notes on substantially identical terms. All of the privately placed Series A and
B Notes were tendered for exchange, and new notes were issued to the holders on
May 31, 1999.
In March 1998 and February 1999, respectively, we entered into a $1.5 billion
and $500 million multicurrency revolving credit agreement permitting borrowings by the Company following consummation of the
Spinoff. The facility has a termfacilities (the Facilities) each
with terms of five years and borrowings willyears. Borrowings bear interest at the London Interbank
Offered Rate (LIBOR) plus a spread, based on the Company'sour public debt rating.
Additionally, annual fees will beare paid on the facilityFacilities at a rate also based on the Company'sour
public debt rating. Commercial paper, supported by the Facilities, is classified
as long-term debt based on our ability and intent to refinance it on a long-term
basis.
We are in compliance with covenants in our loan agreements which require the
maintenance of certain financial ratios and minimum shareholders' equity, and
also include, among other things, limitations on additional indebtedness and the
pledging of assets.
The 1999 statement of cash flows excludes $215 million of convertible
subordinated debt that was converted to equity in November, 1999, $54 million of
debt that we assumed during 1999, and $15 million of notes receivable we
received in a 1999 asset sale that we subsequently sold for cash. The 1998
statement of cash flows excludes $31 million of notes receivable forgiven as
part consideration for the 1998 acquisition of The Ritz-Carlton Hotel Company
LLC, and $12 million of long-term debt assumed in 1998. The 1997 combined statement of
cash flows excludes $226 million of debt assumed by Host Marriott, and $91 million
of notes receivable related to the sale of 29 senior living communities to Host
Marriott and $12 million of debt assumed in the RHG acquisition. The 1996 combined statement of cash flows excludes $363
million of Forum debt assumed at the date of acquisition by the Company. Non-
recourseNon-recourse
debt of $62 million and $29 million
34
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
extinguished without cash paymentspayment in 1997 and 1996, respectively, and $77
million assumed in 1995 is not reflected
in the statement of cash flows.
37
MARRIOTT INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Aggregate debt maturities are: 1998 - $24 million; 1999 - $11 million; 2000 - $8$18 million; 2001 - $9$15 million;
2002 - $8$795 million; 2003 - $219 million; 2004 - $14 million and $76$633 million
thereafter.
Cash paid for interest was $63 million in 1999, $23 million in 1998 and $11
million in 1997, $19 million in 1996, and $2
million in 1995.1997.
CONVERTIBLE SUBORDINATED DEBT
On March 25, 1996, Old Marriott issued $540 million (principal amount at
maturity) of zero coupon convertible subordinated debt in the form of LYONs due
2011 was issued. Each
$1,000 LYON is convertible at any time, at the option of the holder, into 8.76
shares of Marriott International, Inc.'s common stock.2011. The LYONs were issued and recorded at a discount representing a yield to
maturity of 4.25 percent. The Company
recorded the LYONs at the discounted amount at issuance. Accretion iswas recorded as interest expense and an
increase to the carrying value. Gross proceeds from the LYONs issuance were $288
million. Upon consummation of the Spinoff, each LYON will be convertible into 8.76
shares of Company Common Stock, 8.76 shares of Company Class A Common Stock and
2.19 shares of SMS common stock (after giving effect to a one-for-four reverse
stock split). Thewe assumed the LYONs, will be assumed by the Company, and SMS will assumeassumed
a nine percent share of the LYONs obligation which percentage is based on an estimate of the relative equity values
of SMS and the Company. The Company will be liable toat the holders of the LYONs for any payments that SMS fails to make on its allocable
portion.
At the option of the holder, the Company may be required to redeem each LYON
on March 25, 1999, or March 25, 2006, for $603.71 or $810.36 per LYON,
respectively. In such event, the Company may elect to redeem the LYONs for cash,
common stock, or any combination thereof.Spinoff.
The LYONs arewere redeemable by the obligorus at any time on or after March 25, 1999 for
cash equal to the issue price plus accrued original issue discount. The LYONs are expressly subordinatedOn October
7, 1999, we delivered a mandatory redemption notice to the senior indebtednessholders of the issuer,
including guarantees, as definedLYONs
indicating our plan to redeem them on November 8, 1999 for $619.65 in cash per
LYON. Holders of 347,000 LYONs elected to convert each LYON into 17.52 shares of
our Class A Common Stock and 2.19 shares of SMS common stock prior to the indenture governingclose
of business on November 8, 1999. The aggregate redemption payment for the
remaining 193,000 LYONs totaled $120 million. Pursuant to the LYONs (Senior
Indebtedness). Marriott International, Inc.'s Senior Indebtedness amountedAllocation
Agreement entered into with SMS as part of the Spinoff, SMS funded nine percent
of the aggregate LYONs redemption payment. We funded the redemption payment with
proceeds from commercial paper borrowings. Unamortized deferred financing costs
of $2 million relating to $1.8 billionthe LYONs that were redeemed were recognized as
interest expense in 1999.
SHAREHOLDERS' EQUITY
Eight hundred million shares of our Class A Common Stock with a par value of
$.01 per share are authorized. Ten million shares of preferred stock, without
par value, are authorized, with none issued.
On March 27, 1998, our Board of Directors adopted a shareholder rights plan
under which one preferred stock purchase right was distributed for each share of
our Class A Common Stock. Each right entitles the holder to buy 1/1000/th/ of a
share of a newly issued series of junior participating preferred stock of the
Company at January 2, 1998. Followingan exercise price of $175. The rights will be exercisable ten days
after a person or group acquires beneficial ownership of 20 percent or more of
our Class A Common Stock, or begins a tender or exchange for 30 percent or more
of our Class A Common Stock. Shares owned by a person or group on March 27, 1998
and held continuously thereafter are exempt for purposes of determining
beneficial ownership under the rights plan. The rights are nonvoting and will
expire on the tenth anniversary of the adoption of the shareholder rights plan,
unless exercised or previously redeemed by us for $.01 each. If we are involved
in a merger or certain other business combinations not approved by the Board of
Directors, each right entitles its holder, other than the acquiring person or
group, to purchase common stock of either the Company or the acquirer having a
value of twice the exercise price of the right.
As of December 31, 1999, we have been authorized by our Board of Directors to
purchase up to 5.5 million shares of our Class A Common Stock.
38
MARRIOTT INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
EARNINGS PER SHARE
For periods prior to the Spinoff, the Company's
obligations underearnings per share calculations are pro
forma, and the LYONs will be subordinatednumber of weighted average shares outstanding and the effect of
dilutive securities are based upon the weighted average number of Old Marriott
shares outstanding, and the Old Marriott effect of dilutive securities for the
applicable period, adjusted (1) for the distribution ratio in the Spinoff of one
share of our Common Stock and one share of our Class A Common Stock for every
share of Old Marriott common stock and (2) to reflect the Company's Senior
Indebtedness, and SMS's obligations under the LYONs will be subordinated to the
Company's and SMS's Senior Indebtedness.
35
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
PRO FORMA EARNINGS PER SHARE - UNAUDITEDconversion of our
Common Stock into our Class A Common Stock on May 21, 1998.
The following table illustrates the reconciliation of the earnings and pro
forma number
of shares used in the basic and diluted pro forma earnings per share calculations (in
millions, except per share amounts).
1999 1998 1997
1996 1995
------------- ------------- ----------------------------- ------------------- -------------------
(pro forma,
unaudited)
-------------------
Computation of Pro Forma Basic Earnings Per Share
Net income.............................................income................................................. $ 400 $ 390 $ 324
$ 270 $ 219
Pro forma weightedWeighted average shares outstanding..........outstanding........................ 247.5 249.8 254.2
254.9 249.6
------------- ------------- -------------
Pro Forma----------------- ----------------- -----------------
Basic Earnings Per Share..................Share................................... $ 1.62 $ 1.56 $ 1.27
$ 1.06 $ .88
============= ============= ============================== ================= =================
Computation of Pro Forma Diluted Earnings Per Share
Net income.............................................income................................................. $ 324400 $ 270390 $ 219324
After-tax interest expense on convertible
subordinated debt.....................................debt........................................ 7 8 6 -
------------- ------------- -------------8
----------------- ----------------- -----------------
Net income for pro forma diluted earnings per share..............................................share.................. $ 407 $ 398 $ 332
$ 276 $ 219
------------- ------------- -------------
Pro forma weighted----------------- ----------------- -----------------
Weighted average shares outstanding..........outstanding........................ 247.5 249.8 254.2 254.9 249.6
Pro Forma
Effect of Dilutive Securities
Employee stock purchase plan........................plan............................. 0.2 - 0.1 0.5 0.2
Employee stock option plan..........................plan............................... 8.7 8.9 7.08.1 8.7
Deferred stock incentive plan.......................plan............................ 5.4 5.8 6.25.7 5.4
Convertible subordinated debt.......................debt.............................. 8.0 9.5 7.3 -
------------- ------------- -------------9.5
----------------- ----------------- -----------------
Shares for pro forma diluted earnings per share.....share...................... 269.8 273.1 277.9
277.4 263.0
------------- ------------- -------------
Pro Forma----------------- ----------------- -----------------
Diluted Earnings Per Share................Share................................. $ 1.51 $ 1.46 $ 1.19
$ .99 $ .83
============= ============= ============================== ================= =================
The pro formaWe compute the effect of dilutive securities is computed using the treasury stock method
and average market prices during the period. TheFor periods prior to November 8,
1999, when all of our convertible subordinated debt was redeemed or converted,
we used the if-converted method is used for convertible subordinated debt.purposes of calculating diluted earnings per
share.
39
MARRIOTT INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
INVESTMENTS AND NET ADVANCES FROM OLD MARRIOTT INTERNATIONAL, INC.
The following is an analysis of Marriott International, Inc.'sOld Marriott's investment in the Company:
1998 1997
--------- ---------
(in millions)
---------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
Balance at beginning of year............................ $ 1,4442,586 $ 1,251 $ 7631,444
Net income.............................................. 89 324
270 219
Net cash transactions with Marriott International, Inc..Advances (to) from Old Marriott......................... (100) 576 (132) 215
Employee stock plan issuance and other.................. 116 242
55 54
-------------- -------------- --------------Spinoff on March 27, 1998............................... (2,691) -
--------- ---------
Balance at end of year.................................. $ - $ 2,586
$ 1,444 $ 1,251
============== ============== ======================= =========
36
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
EMPLOYEE STOCK PLANS
UnderIn connection with the Spinoff, we issued stock options, deferred shares and
restricted shares with the same value as the respective Old Marriott International, Inc.'s 1996awards as
of the Spinoff under our 1998 Comprehensive Stock and Cash Incentive Plan
(Comprehensive Plan), Marriott International, Inc.. Under the Comprehensive Plan, we may award to
participating Company employees (i)(1) options to purchase Marriott International, Inc.'s common
stockour Class A Common Stock (Stock
Option Program and Supplemental Executive Stock Option awards), (ii)(2) deferred
shares of Marriott International, Inc.'s common stockour Class A Common Stock and (iii)(3) restricted shares of Marriott International, Inc.'s common stock.our Class A
Common Stock. In addition Marriott International, Inc. haswe have an employee stock purchase plan (Stock
Purchase Plan). In accordance with the provisions of Opinion No. 25 of the
Accounting Principles Board, we recognize no compensation cost is recognized for the Stock
Option Program, the Supplemental Executive Stock Option awards or the Stock
Purchase Plan.
Deferred shares granted to officers and key employees under the Comprehensive
Plan generally vest over 10 years in annual installments commencing one year
after the date of grant. Certain employees may elect to defer receipt of shares
until termination or retirement. The Company accruesWe accrue compensation expense for the fair
market value of the shares on the date of grant, less estimated forfeitures. Marriott International, Inc.We
awarded 0.2 million and 0.4 million deferred shares to Company employees under this plan during 1997 and 1996,
respectively.1999. Compensation cost recognized
during 1999, 1998 and 1997 and 1996 was $9$15 million, $12 million and $8$9 million,
respectively.
Restricted shares under the Comprehensive Plan are issued to officers and key
employees and distributed over a number of years in annual installments, subject
to certain prescribed conditions including continued employment. The Company
recognizesWe recognize
compensation expense for the restricted shares over the restriction period equal
to the fair market value of the shares on the date of issuance. Marriott International, Inc.We awarded 0.1
million and 0.2 million restricted shares to Company employees under this plan during 19971999. We recognized
compensation cost of $4 million, $3 million and 1996, respectively.
Compensation cost recognized was $2 million in each of1999, 1998 and
1997, and 1996.respectively.
Under the Stock Purchase Plan, eligible employees may purchase Marriott
International, Inc. common stockour Class A
Common Stock through payroll deductions at the lower of the market value at the
beginning or end of each plan year.
Employee stock options may be granted to officers and key employees at
exercise prices not less thanequal to the market price of Marriott International, Inc.'s
stockour Class A Common Stock on the
date of grant. Nonqualified options expire up to 15 years after the date of
grant. Most options under the Stock Option Program are exercisable in cumulative
installments of one-fourthone quarter at the end of each of the first four years following
the date of grant. In February 1997, Marriott International, Inc.
issued one2.1 million Supplemental Executive Stock
Option awards were awarded to certain Company
employees, whichof our officers. The options vest after
eight years. However,years but could vest earlier if Marriott International,
Inc.'sour stock price meets certain performance
criteria the options may vest
sooner.criteria. These options have an exercise price of $54$25 and none0.2 million of them
were forfeited during 1998. None of them were exercised during 1999, 1998 or
forfeited during 1997.1997 and 1.9 million remained outstanding at December 31, 1999.
For the purposes of the following disclosures required by FAS No. 123,
"Accounting for Stock-Based Compensation," the fair value of each option granted
has beenduring 1999, 1998 and 1997 was $14, $11 and $13, respectively. We estimated the
fair value of each option granted on the date of grant using the Black-Scholes
option-pricing model, withusing the assumptions noted in the following assumptions:table.
40
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1999 1998 1997
1996 1995
------------- -------------- -------------------- ------ -------
Annual dividends...........................dividends...................................... $ .35.22 $ .32.20 $ .28.18
Expected volatility........................volatility................................... 29% 28% 24%
25% 26%
Risk freeRisk-free interest rate....................rate............................... 6.7% 5.8% 6.2% 6.1% 5.9%
Expected life (in years)................................................. 7 7 7
Pro forma compensation cost for the Stock Option Program, the Supplemental
Executive Stock Option awards and employee purchases pursuant to the Stock
Purchase Plan subsequent to December 30, 1994, recognized in accordance with FAS
No. 123, would reduce the Company'sour net income as follows (in millions)millions, except per share
amounts):
1999 1998 1997
1996 1995
------------- -------------- ---------------------- -------- ----------
Net income as reported.....................reported................................ $ 324400 $ 270390 $ 219324
Pro forma net income.......................income.................................. $ 364 $ 366 $ 309
Diluted earnings per share as reported................ $ 2611.51 $ 2161.46 $ 1.19
Pro forma diluted earnings per share.................. $ 1.38 $ 1.38 $ 1.14
37A summary of our Stock Option Program activity during 1999 and 1998 is
presented below:
1999 1998
-------------------------------------- -----------------------------------
Number of Weighted Number of Weighted
options average exercise options average exercise
(in millions) price (in millions) price
------------- ---------------- ------------- ----------------
Outstanding at beginning of year........... 31.5 $ 19 - $ -
New awards at the Spinoff.................. - - 27.3 16
Granted during the year.................... 6.9 33 6.4 28
Exercised during the year.................. (4.2) 12 (1.5) 11
Forfeited during the year.................. (0.4) 30 (0.7) 20
------------- -------------
Outstanding at end of year................. 33.8 22 31.5 19
============= ================ ============= ================
Options exercisable at end of year......... 19.3 $ 16 19.1 $ 13
============= ================ ============= ================
At December 31, 1999, 49.2 million shares were reserved under the
Comprehensive Plan (including 31.5 million shares under the Stock Option Program
and 1.9 million shares of the Supplemental Executive Stock Option awards) and
4.2 million shares were reserved under the Stock Purchase Plan.
41
NEW MARRIOTT MI,INTERNATIONAL, INC.
NOTES TO COMBINEDCONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The weighted-average fair value of each option granted during 1997, 1996 and
1995 was $22, $19 and $12, respectively. Since the pro forma compensation cost
forStock options issued under the Stock Option Program is recognized over the vesting period, the
foregoing pro forma reductions in the Company's net income are not
representative of anticipated amounts in future years.
In connection with the Spinoff, stock options, deferred shares and restricted
shares which have been granted to Company employees by Marriott International,
Inc. will be canceled and new awards with the same value will be issued to them
by the Company under a new comprehensive stock incentive plan.outstanding at December
31, 1999 were as follows:
Outstanding Exercisable
------------------------------------------------------- ---------------------------------
Weighted Weighted Weighted
Range of Number of average average Number of average
exercise options remaining life exercise options exercise
prices (in millions) (in years) price (in millions) price
- ------------------- -------------- -------------- ---------- ------------- ------------
$ 3 to 5 3.5 6 $ 5 3.5 $ 5
6 to 9 2.2 8 7 2.2 7
10 to 15 4.7 10 13 4.7 13
16 to 24 4.5 12 21 4.1 19
25 to 37 18.9 14 30 4.8 29
- ------------------- -------------- -------------
$ 3 to 37 33.8 12 22 19.3 16
=================== ============== ============== ========== ============= ============
FAIR VALUE OF FINANCIAL INSTRUMENTS
TheWe assume that the fair values of current assets and current liabilities are assumed to be
equal to their reported carrying amounts. The fair values of noncurrent
financial assets and liabilities are shown below.
1997 1996
---------------------------1999 1998
-------------------------- -----------------------
Carrying Fair Carrying Fair
amount value amount value
----------- ----------- ----------- ------------------- --------- --------- ------
(in millions) (in millions)
(in millions)
Notes and other receivable.........................receivables...................... $ 672708 $ 685720 $ 479606 $ 479622
Long-term debt, convertible subordinated
debt and other long-term liabilities...................... 490 478 674 631liabilities........... 1,646 1,568 1,331 1,309
NotesWe value notes and other receivable are valuedreceivables based on the expected future cash flows
discounted at risk adjusted rates. ValuationsWe determine valuations for long-term debt,
convertible subordinated debt and other long-term liabilities are determined based on quoted
market prices or expected future payments discounted at risk adjusted rates.
CONTINGENT LIABILITIES
Marriott International, Inc. issuesWe issue guarantees to lenders and other third parties in connection with
financing transactions and other obligations. These guarantees arewere limited, in
the aggregate, to $231$193 million at January 2, 1998,December 31, 1999, including the Marriott International, Inc. Guarantees,guarantees
involving major customers, with expected funding of zero. New World Development and another affiliate of Dr. Cheng have severally
indemnified Marriott International, Inc. for loan guarantees with a maximum
funding of $18 million (which are included in the $231 million above) and
guarantees by RHG of leases with minimum annual payments of approximately $59
million. As of January 2, 1998, Marriott International, Inc.December 31,
1999, we had extended approximately $220$352 million of loan commitments to owners
of lodging and senior living properties. Letters of credit outstanding on Marriott International,
Inc.'sour
behalf at January 2, 1998,December 31, 1999, totaled $95$74 million, the majority of which $38related
to our self-insurance programs. At December 31, 1999, we had repurchase
obligations of $86 million related to the Company's repurchase obligation for notes receivable originatedfrom timeshare interval
purchasers, which have been sold with limited recourse.
New World Development and another affiliate of Dr. Cheng, a director of the
Company, have severally indemnified us for guarantees by us of leases with
minimum annual payments of approximately $59 million.
On February 23, 2000, we entered into an agreement, which was subsequently
embodied in a definitive agreement executed on March 9, 2000, to resolve pending
litigation described below involving certain limited partnerships formed in the
mid- to late 1980's. Consummation of the settlement is subject to numerous
conditions, including the receipt of third-party consents and court approval.
The agreement was reached with lead counsel to the plaintiffs in the lawsuits
described below, and with the special litigation committee appointed by the
general partner of two of the partnerships, Courtyard by Marriott Vacation Club InternationalLimited
Partnership (CBM I) and Courtyard by Marriott II Limited Partnership (CBM II).
Because of the numerous conditions to be satisfied, there can be no assurances
that the settlement transactions will be consummated and, if consummated, terms
could differ materially from those described below.
42
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Under the agreement, we will acquire, through an unconsolidated joint venture
with Host Marriott, all of the limited partners' interests in CBM I and CBM II
for approximately $372 million. These partnerships own 120 Courtyard by Marriott
hotels. The purchase price will be financed with $185 million in mezzanine debt
loaned to the joint venture by us and with equity contributed in equal shares by
us and Host Marriott. We will continue to manage these 120 hotels under long-
term agreements. Also, we and Host Marriott each have agreed to pay
approximately $31 million to the plaintiffs in the Texas Multi-Partnership
lawsuit described below in exchange for dismissal of the complaints and full
releases.
We recorded a pretax charge of $39 million which is included in corporate
expenses in the fourth quarter of 1999, to reflect these anticipated settlement
transactions. However, if the foregoing settlement transactions are not
consummated, and either a less favorable settlement is entered into, or the
lawsuits are tried and decided adversely to the Company, we could incur losses
significantly different than the pretax charge associated with the settlement
agreement described above.
Courtyard by Marriott II Limited Partnership
On June 7, 1996, a group of partners in CBM II filed a lawsuit against Host
Marriott, the Company and others, Whitey Ford, et al. v. Host Marriott
Corporation, et al., in the 285/th/ Judicial District Court of Bexar County,
Texas, alleging breach of fiduciary duty, breach of contract, fraud, negligent
misrepresentation, tortious interference, violation of the Texas Free Enterprise
and Antitrust Act of 1983 and conspiracy in connection with the formation,
operation and management of CBM II and its hotels. The plaintiffs sought
unspecified damages. On January 29, 1998, two other limited partners, A.R.
Milkes and D. R. Burklew, filed a petition in intervention seeking to convert
the lawsuit into a class action, and a class was certified. In March 1999, Palm
Investors, L.L.C., the assignee of a number of limited partnership units
acquired through various tender offers, and Equity Resource, an assignee,
through various of its funds, of a number of limited partnership units, filed
pleas in intervention, which among other things added additional claims relating
to the 1993 split of Marriott Corporation and to the 1995 refinancing of CBM
II's indebtedness. On August 17, 1999, the general partner of CBM II appointed
an independent special litigation committee to investigate the derivative claims
described above and to recommend to the general partner whether it is in the
best interests of CBM II for the derivative litigation to proceed. The general
partner agreed to adopt the recommendation of the committee. Under Delaware law,
the recommendation of a duly appointed independent litigation committee is
binding on the general partner and the majoritylimited partners. Following certain
adjustments to the underlying complaints, including the assertion as derivative
claims some of the remainder
relatedclaims previously filed as individual claims, a final amended
class action complaint was filed on January 6, 2000. Trial, which was scheduled
to begin in late February, 2000, has been postponed pending approval and
consummation of the settlement described above.
Texas Multi-Partnership Lawsuit
On March 16, 1998, limited partners in several limited partnerships sponsored
by Host Marriott or its subsidiaries filed a lawsuit, Robert M. Haas, Sr. and
Irwin Randolph Joint Tenants, et al. v. Marriott International, Inc.'s self-insurance program. Upon
consummation, et al., in
the 57/th/ Judicial District Court of Bexar County, Texas, alleging that the
defendants conspired to sell hotels to the partnerships for inflated prices and
that they charged the partnerships excessive management fees to operate the
partnerships' hotels. The plaintiffs further allege that the defendants
committed fraud, breached fiduciary duties and violated the provisions of
various contracts. A Marriott International subsidiary manages each of the
Spinoff,hotels involved and, as to some properties, the Company will replace SMS as guarantor or
obligor underis the guaranteesground lessor and
commitments, or will indemnify SMS in respect
of them.
38collects rent. The Company, several Marriott subsidiaries and J.W. Marriott, Jr.
are among the several named defendants. The plaintiffs are seeking unspecified
damages.
43
NEW MARRIOTT MI,INTERNATIONAL, INC.
NOTES TO COMBINEDCONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
BUSINESS SEGMENTS
1997 1996 1995
------------ ------------ --------------
(in millions)
Identifiable assets
Lodging.................................... $ 3,995 $ 2,414 $ 2,329
Contract Services.......................... 968 1,279 377
Corporate.................................. 594 505 473
------------ ------------ --------------
$ 5,557 $ 4,198 $ 3,179
============ ============ ==============
Capital expenditures
Lodging.................................... $ 271 $ 158 $ 76
Contract Services.......................... 233 122 44
Corporate.................................. 16 13 7
------------ ------------ --------------
$ 520 $ 293 $ 127
============ ============ ==============
Depreciation and amortization
Lodging.................................... $ 89 $ 55 $ 45
Contract Services.......................... 25 24 11
Corporate.................................. 12 10 11
------------ ------------ --------------
$ 126 $ 89 $ 67
============ ============ ==============
The Company isWe are a diversified hospitality company with operations in twothree business
segments: Lodging, which includes development,the franchising, ownership, operation and
franchisingdevelopment of lodging properties under 10 brand names and development and
operation ofincluding vacation timesharing resorts; and ContractSenior
Living Services, consistingwhich consists of the development,operation, ownership and operationdevelopment of
senior living communitiescommunities; and Distribution Services, which operates a wholesale
food distribution.
The resultsdistribution business. We evaluate the performance of operationsour segments based
primarily on operating profit before corporate expenses and interest. We do not
allocate income taxes at the segment level.
1999 1998 1997
----------------- ----------------- -----------------
(in millions)
Sales
Lodging................................................... $ 7,041 $ 6,311 $ 5,247
Senior Living Services.................................... 559 479 446
Distribution Services..................................... 1,139 1,178 1,543
----------------- ----------------- -----------------
$ 8,739 $ 7,968 $ 7,236
================= ================= =================
Operating profit (loss) before corporate expenses and
interest
Lodging................................................... $ 827 $ 704 $ 570
Senior Living Services.................................... (18) 15 32
Distribution Services..................................... 21 17 7
----------------- ----------------- -----------------
$ 830 $ 736 $ 609
================= ================= =================
Depreciation and amortization
Lodging................................................... $ 108 $ 99 $ 89
Senior Living Services.................................... 21 19 19
Distribution Services..................................... 6 6 6
Corporate................................................. 27 16 12
----------------- ----------------- -----------------
$ 162 $ 140 $ 126
================= ================= =================
Assets
Lodging................................................... $ 5,159 $ 4,285 $ 3,649
Senior Living Services.................................... 980 905 728
Distribution Services..................................... 187 179 190
Corporate................................................. 998 864 594
----------------- ----------------- -----------------
$ 7,324 $ 6,233 $ 5,161
================= ================= =================
Capital expenditures
Lodging................................................... $ 519 $ 562 $ 271
Senior Living Services.................................... 301 329 227
Distribution Services..................................... 3 2 6
Corporate................................................. 106 44 16
----------------- ----------------- -----------------
$ 929 $ 937 $ 520
================= ================= =================
Sales of the Company's businessDistribution Services exclude sales (made at market terms and
conditions) to other segments are reportedof $166 million, $155 million and $159 million in
the combined statement of income.1999, 1998 and 1997, respectively.
Segment operating expenses include selling, general and administrative
expenses directly related to the operations of the businesses, aggregating $518$529
million in 1997, $4461999, $496 million in 19961998 and $380$435 million in 1995.
391997.
The consolidated financial statements include the following related to
international operations: sales of $392 million in 1999, $323 million in 1998,
and $294 million in 1997; operating profit before corporate expenses and
interest of $66 million in 1999, $49 million in 1998, and $50 million in 1997;
and fixed assets of $102 million in 1999, $102 million in 1998, and $112 million
in 1997.
44
NEW MARRIOTT MI,INTERNATIONAL, INC.
NOTES TO COMBINEDCONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
QUARTERLY FINANCIAL DATA - UNAUDITED
($ in millions, except per share data)
1997/1999/1/
-----------------------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ---------- --------------------------- --------------- --------------- --------------- -------------
Systemwide revenues/2/........................sales /2/.......................... $ 2,5863,687 $ 3,1734,235 $ 3,1273,992 $ 4,3105,770 $ 13,19617,684
Sales......................................... 1,909 2,195 2,073 2,869 9,0461,895 2,042 1,995 2,807 8,739
Operating profit before corporate expenses
and interest..................................... 135 159 136 179 609interest............................... 193 216 188 233 830
Net income.................................... 69 84 74 97 324
Pro forma diluted100 114 96 90 400
Diluted earnings per share/3,4/..... .26 .31 .27share /3/................ .38 .42 .36 1.19
- ----------------------------------------------------------------------------------------------------------------.34 1.51
____________________________________________________________________________________________________________________________________
1996/1998/1/
------------------------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ---------- --------------------------- --------------- --------------- --------------- -------------
Systemwide revenues/2/........................sales /2/.......................... $ 2,0013,257 $ 2,3234,001 $ 2,2773,566 $ 3,2985,200 $ 9,89916,024
Sales......................................... 1,509 1,696 1,645 2,417 7,2671,715 1,927 1,804 2,522 7,968
Operating profit before corporate expenses
and interest..................................... 101 129 115interest................................. 163 508186 164 223 736
Net income.................................... 64 62 59 85 270
Pro forma diluted89 101 86 114 390
Diluted earnings per share/3,4/..... .22 .23 .22 .31 .99share /3/................ .33 .37 .32 .44 1.46
____________________________________________________________________________________________________________________________________
- --------------------------------------------------------------------------------
/1/ The quarters consist of 12 weeks, except the fourth quarter, which includesconsists
of 16 weeks in 1997 and 17 weeks in 1996.weeks.
/2/ Systemwide sales comprise revenues representgenerated from guests at owned, leased,
managed and franchised hotels and senior living communities, together with
sales of the Company plus revenues of
franchised lodging properties andour other properties not operated with the
Company's employees, less fees generated by such properties (that are already
included in sales of the Company).businesses.
/3/ Pro forma earnings per share data reflect the adoption, in the fourth
quarter of 1997, of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share."
/4/ The sum of the earnings per share for the four quarters differsmay differ from
annual earnings per share due to the required method of computing the
weighted average number of shares in interim periods.
4045
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
4146
PART III
ITEMS 10, 11, 12 and 13.
As described below, certain information appearing in the Company'sour Proxy Statement to be
furnished to shareholders in connection with the 19982000 Annual Meeting of
Shareholders, is incorporated by reference in this Form 10-K Annual Report.
ITEM 10. This information is incorporated by reference to the
"Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" sections of the Company's
Proxy Statement to be furnished to shareholders in
connection with the 1998
ITEM 10. This information is incorporated by reference to the
"Directors Standing For Election," "Directors Continuing
In Office" and "Section 16(a) Beneficial Ownership
Reporting Compliance" sections of our Proxy Statement to
be furnished to shareholders in connection with the 2000
Annual Meeting. Information regarding executive
officers is included below.
ITEM 11. This information is incorporated by reference to the
"Executive Compensation" section of our Proxy Statement
to be furnished to shareholders in connection with the
2000 Annual Meeting.
ITEM 12. This information is incorporated by reference to the
"Stock Ownership" section of our Proxy Statement to be
furnished to shareholders in connection with the 2000
Annual Meeting.
ITEM 13. This information is incorporated by reference to the
"Certain Transactions" section of our Proxy Statement to
be furnished to shareholders in connection with the 2000
Annual Meeting.
Information
regarding executive officers is included below.
ITEM 11. This information is incorporated by reference to the
"Executive Compensation" section of the Company's
Proxy Statement to be furnished to shareholders in
connection with the 1998 Annual Meeting.
ITEM 12. This information is incorporated by reference to the
"Security Ownership of Certain Beneficial Owners and
Management" section of the Company's Proxy Statement
to be furnished to shareholders in connection with
the 1998 Annual Meeting.
ITEM 13. This information is incorporated by reference to the
"Certain Transactions" section of the Company's
Proxy Statement to be furnished to shareholders in
connection with the 1998 Annual Meeting.
42
47
EXECUTIVE OFFICERS
Set forth below is certain information with respect to theour executive officers
of the Company, each of whom currently holds the same positions with Marriott
International, Inc. Such persons will relinquish their positions with Marriott
International, Inc. on the Spinoff date. However, William J. Shaw will continue
as Chairman of the SMS Board.officers.
Name and Title Age Business Experience
- -------------------------------------- ---------- -------------------------------------------------------------------------- --- -------------------
J. W. Marriott, Jr. 6567 Mr. Marriott is Chairman of the Marriott International,
Chairman of the Marriott Inc. Board and Chief Executive Officer of the
Chairman of the Marriott Company. He joined Marriott Corporation (now known as Host Marriott
International, Inc. Board and Chief He joined Marriott CorporationCorporation) in 1956, and has been a
Executive Officer member of the Board of Directors of Marriott Corporation
/ Host Marriott / Marriott International since 1964. He
became President of Marriott Corporationand a director in 1964, Chief
Executive Officer of Marriott CorporationExecutive Officer in 1972 and Chairman of the Board of Marriott Corporation in 1985. Mr.
Marriott remains a director of Host Marriott andalso is a director of Host Marriott Services. He is also a
director ofCorporation, General Motors
Corporation and the U.S.-Russia
Business Council.Naval Academy Endowment Trust. He serves on the
Board of Trustees of the Mayo Foundation, National Geographic Society and The J. Willard
& Alice S. Marriott Foundation, and the Board of Directors of Georgetown
University. HeUniversity, and is on the President's Advisory
Committeea member of the American Red Cross and the Executive Committee of the World
Travel & Tourism Council and is a
member of the Business Council and the Business
Roundtable.Council. Mr. Marriott has
served as ChairmanChief Executive Officer of the Marriott International, Inc. BoardCompany since its inception in
1997, and served as Chairman and Chief Executive Officer of Old Marriott
International, Inc. sincefrom October 1993. He will become1993 to March 1998. Mr. Marriott has served as a director
of the Company upon the
Spinoff.since March 1998.
Todd Clist 5658 Todd Clist joined Marriott Corporation in 1968. Mr. Vice President; Clist served as
Vice President; general manager of several hotels before President - Marriott Lodging, being named Regional Vice
President, North American Lodging President, Midwest Region for
United States and Canada Marriott Hotels, Resorts and Suites in
Operations 1980. Mr. Clist became Executive Vice President of Marketing for
Marriott Hotels, Resorts and Suites in 1985, and Senior Vice President,
Lodging Products and Markets in 1989. Mr. Clist was named Executive Vice
President and General Manager for Fairfield Inn in 1990, for both
Fairfield Inn and Courtyard in 1991, and for Fairfield Inn, Courtyard
and Residence Inn in 1993. Mr. Clist was appointed to his current
position in January 1994.
Edwin D. Fuller 5254 Edwin D. Fuller joined Marriott Corporation in 1972 and
Vice President; held several sales positions
Vice President; before being appointed Vice President of Marketing in 1979. He became
President and Managing Director - President - Marketing in 1979. After serving as general
Marriott Lodging International manager at several Marriott hotels, Mr. Fuller became a
Regional Vice President in the Midwest Region 1985, Regional Vice
Marriott Lodging International President of the Western Region in 1988, and in 1990 was promoted to
Senior Vice President & Managing Director of International Lodging, with
a focus on developing the international group of hotels. He was named
Executive Vice President and Managing Director of MarriottInternational Lodging
International in 1990. Mr. Fuller1994, and was appointedpromoted to his current position of President and
Managing Director of International Lodging in January 1994.1997.
4348
Name and Title Age Business Experience
- -------------------------------------- ---------- ------------------------------------------------------------------------------ ------ ---------------------
Paul E. Johnson, Jr. 5052 Paul E. Johnson, Jr. joined Marriott Corporation in 1983 in Corporate
Vice President; in Corporate Financial Planning & Analysis. In 1987, he President - Marriott was promoted to Group Vice
President - Marriott President of Finance and
Senior Living Services Development for the Marriott Service Group and
Senior Living Services later assumed responsibility for real estate development for Marriott
Senior Living Services. During 1989, he served as Vice President and
General Manager of Marriott Corporation's Travel Plazas division. Mr.
Johnson subsequently served as Vice President and General Manager of
Marriott Family Restaurants from December 1989 through 1991. In October
1991, he was appointed as Executive Vice President and General Manager
of Marriott Senior Living Services, and in June 1996 he was appointed to
his current position.
Brendan M. Keegan 5456 Brendan M. Keegan joined Marriott Corporation in 1971, in Seniorthe Corporate
Vice President - the CorporatePresident; Organization Development Department and Human Resources subsequently held several human
Executive Vice President - resources positions, including Vice President of Organization
Human Resources Development and Executive Succession Planning. In 1986, Mr. Keegan was
named Senior Vice President, Human Resources, Marriott Service Group, which now comprises the Company's Contract
Services Group. In
April 1997, Mr. Keegan was appointed Senior Vice President of Human
Resources for the
Company'sour worldwide human resources functions, including
compensation, benefits, labor and employee relations, employment and
human resources planning and development and
employee communications.development. In February 1998, he was
appointed to his current position.
Robert T. Pras 5658 Robert T. Pras joined Marriott Corporation in 1979 as Executive Vice
Vice President; Executive Vice President of Fairfield Farm Kitchens, the predecessor of Marriott
President - Marriott predecessor of Marriott Distribution Services. In 1981, Distribution Services Mr. Pras became Executive Vice President
Distribution Services of Procurement and Distribution. In May 1986, Mr. Pras was appointed to
the additional position of General Manager of Marriott Corporation's
Continuing Care Retirement Communities. He was named Executive Vice
President and General Manager of Marriott Distribution Services in 1990.
Mr. Pras was appointed to his current position in January 1997.
Joseph Ryan 5658 Joseph Ryan joined the CompanyOld Marriott in December 1994 as Executive Vice
Executive Vice President and General Executive Vice President and General Counsel. Prior to Counsel that time, he was a partner in
Counsel the law firm of O'Melveny & Myers, serving as the Managing Partner from
1993 until his departure. He joined O'Melveny & Myers in 1967 and was
admitted as a partner in 1976.
4449
Name and Title Age Business Experience
- -------------------------------------- ---------- -------------------------------------------------------------------------------- ------ -----------------------
Horst H. Schulze 59 Horst H. Schulze has served as the President and Chief Operating Officer
Vice President; of The Ritz-Carlton since 1988. Mr. Schulze joined The Ritz-Carlton in
President and Chief Operating 1983 as Vice President, Operations and was appointed Executive Vice
Officer, The Ritz-Carlton Hotel President in 1987. Prior to 1983, he spent nine years with Hyatt Hotels
Company, LLC Corporation where he held several positions including Hotel General
Manager, Regional Vice President and Corporate Vice President. Before
his association with Hyatt, Mr. Schulze worked for Hilton Hotels. Mr.
Schulze began his hotel career in Europe where he completed hotel school
and worked in world-class hotels including the Bellevue Palace and Le
Beau Rivage in Switzerland, the Plaza Athenee in Paris, France, the
Savoy Hotel in London and the Kurhaus/Casino Bad Neuenahr, Germany.
William J. Shaw 52 On March 31, 1997, William J.54 Mr. Shaw becamehas served as President and Chief Operating Officer of the
Director, President and Chief ChiefCompany since March 1997 (including service in the same capacity with
Operating Officer ofOld Marriott International, Inc.
Operating Officeruntil March 1998). Mr. Shaw joined Marriott Corporation in
1974, was elected Corporate Controller in 1979 and a Vice President in
1982. In 1986, Mr. Shaw was elected Senior Vice President-FinancePresident--Finance and
Treasurer of Marriott Corporation. He was elected Chief Financial
Officer and Executive Vice President of Marriott Corporation and promoted to Chief Financial Officer in April
1988. In February 1992, he was elected President of the Marriott Service
Group, which now comprises
Marriott International, Inc.'s Contract Services Group.
Mr. Shaw was elected Executive Vice President and
President - Marriott Service Group in October 1993. Mr. Shaw is also Chairman of the Board of Directors of HostSodexho
Marriott Services.Services, Inc. He also serves on the Board of Trustees of the
University of Notre Dame Loyola College
in Maryland and the Suburban Hospital Foundation. Mr. Shaw
has beenserved as a director of Old Marriott International,(now named Sodexho Marriott
Services, Inc.) since May 1997, and as a director of the Company since
its
inceptionMarch 1998.
Arne M. Sorenson 41 Arne M. Sorenson joined Old Marriott in 1997.
Michael A. Stein 48 Michael A. Stein joined Marriott Corporation in 19891996 as Senior Vice President of
Executive Vice President and Chief Vice President, Finance and Chief Accounting Officer. InBusiness Development. He was instrumental in our acquisition of the
Financial Officer 1990, he assumed responsibility forRenaissance Hotel Group in 1997. Prior to joining Marriott,
Corporation's financial planning and analysis functions.
In 1991, he was elected Senior Vice President, Financea
partner in the law firm of Latham & Watkins in Washington, D.C., where
he played a key role in 1992 and Corporate Controller1993 in the distribution of Old
Marriott Corporation and also
assumed responsibility forby Marriott Corporation's
internal audit function. InCorporation. Effective October 1993, he1, 1998, Mr.
Sorenson was appointed Executive Vice President and Chief Financial
Officer of Marriott International, Inc. Prior to joining
Marriott Corporation, Mr. Stein spent 18 years with
Arthur Andersen LLP (formerly Arthur Andersen & Co.)
where, since 1982, he was a partner.Officer.
James M. Sullivan 5456 James M. Sullivan joined Marriott Corporation in 1980, Vice President; departed in 1983
Executive Vice President - to acquire, manage, expand and Executive Vice President - subsequently sell a successful restaurant
Lodging Development chain, and
Lodging Development returned to Marriott Corporation in 1986 as Vice President of
Mergers and Acquisitions. Mr. Sullivan became Senior Vice President,
Finance - Lodging in 1989, Senior Vice President - Lodging Development
in 1990 and was appointed to his current position in December 1995.
4550
Name and Title Age Business Experience
- -------------------------------------- ---------- --------------------------------------------------------------------------------- ------ -------------------------------
William R. Tiefel 6365 William R. Tiefel joined Marriott Corporation in 1961 and Executivewas named
Vice President and was namedChairman; President of Marriott Hotels, Resorts and President - Marriott Lodging Group Suites in 1988.1998. He had
Chairman - The Ritz-Carlton Hotel previously served as resident manager and general manager at several
Company, LLC Marriott hotels prior to being appointed Regional Vice President and
later Executive Vice President of Marriott Hotels, Resorts and Suites
and Marriott Ownership Resorts. Mr. Tiefel was elected Executive Vice
President of Marriott Corporation in November 1989. In March 1992, he
was elected President - Marriott Lodging Group and assumed
responsibility for all of Marriott International, Inc.'sMarriott's lodging brands. In October 1993,May 1998 he was
appointed to his current position.
Stephen P. Weisz 4749 Stephen P. Weisz joined Marriott Corporation in 1972 and was named
Vice President; was named Regional Vice President of the Mid-Atlantic Executive Vice President - Marriott Region in 1991. Mr. Weisz
President - Marriott Vacation Club had previously served as
Lodging and Senior Vice President of Rooms Operations
International before being
President - Marriott Vacation Club appointed as Vice President of the Revenue Management
International
Group. Mr. Weisz became Senior Vice President of Sales and Marketing for
Marriott Hotels, Resorts and Suites in August 1992 and Executive Vice
President - Lodging Brands in August 1994. In December 1996, Mr. Weisz
was appointed President - Marriott Vacation Club International.
4651
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The response to this portion of Item 14 is submitted under Item 8
of this Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(3) EXHIBITS
Any shareholder who desireswants a copy of the following Exhibits may
obtain a copyone from us upon request from the Company at a charge that reflects the
reproduction cost of such Exhibits. Requests should be made to
the Secretary, Marriott International, Inc., Marriott Drive,
Department 52/862, Washington, D.C. 20058.
Incorporation by Reference
(where a report or registration statement is
indicated below, that document has been previously
Exhibit filed with the SEC and the applicable exhibit is
No. Description incorporated by reference thereto)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2.1 Distribution Agreement dated as of September 30, 1997 Appendix A in the Company'sour Form 10 filed on between Marriott International, Inc. and the February 13,
1997 with Sodexho Marriott Services, Inc. 1998.
Registrant.
2.2 Agreement and Plan of Merger dated as of September 30, Appendix B in the Company'sour Form 10 filed on 1997 by and among Marriott International, Inc., February 13,
September 30, 1997 with Sodexho Marriott 1998.
Services, Inc., Marriott-ICC Merger Corp., the Registrant,
Sodexho Alliance, S.A. and International
Catering Corporation.
2.3 Omnibus Restructuring Agreement dated as of September Appendix C in the Company'sour Form 10 filed on February 13,
September 30, 1997 by and amongwith Sodexho Marriott International,1998.
Services, Inc., February 13, 1998. Marriott-ICC Merger Corp., the Registrant,
Sodexho Alliance, S.A. and International
Catering Corporation.
2.4 Amendment Agreement dated as of January 28, 1998 by Appendix D in the Company'sour Form 10 filed on and among Marriott International, Inc., Marriott-ICC February 13,
among Sodexho Marriott Services, Inc., 1998.
Marriott-ICC Merger Corp., the Registrant,Company, Sodexho
Alliance, S.A. and International Catering
Corporation.
3.1 Certificate of Incorporation of the Registrant. Exhibit No. 3.1 to the Company's Form 10 filed on
February 13, 1998.
3.2 Form ofThird Amended and Restated Certificate of Appendix J inExhibit No. 3 to our Form 10-Q for the Company's Form 10 filed onfiscal
Incorporation of the Registrant (to become effective February 13, 1998.
upon the Spinoff).
3.3 Bylaws of the Registrant.Company. quarter ended June 18, 1999.
3.2 Amended and Restated Bylaws. Exhibit No. 3.3 to the Company'sour Form 10 filed on
February 13, 1998.
3.4 Form of Amended and Restated Bylaws of the Registrant Appendix K in the Company's Form 10 filed on
(to become effective upon the Spinoff). February 13, 1998.
47
Incorporation by Reference
(where a report or registration statement is
indicated below, that document has been previously
Exhibit filed with the SEC and the applicable exhibit is
No. Description incorporated by reference thereto)
- -----------------------------------------------------------------------------------------------------------------------
4.1 Indenture with Chemical Bank, as Trustee, as Exhibit Nos. 4(i) and 4(ii) to Form 8-K of
supplemented. Marriott International, Inc. dated December 9,
1993 (Original Indenture and First Supplemental
Indenture); Exhibit No. 4(ii) to Form 8-K of
Marriott International, Inc. dated April 19, 1995
(Second Supplemental Indenture); Exhibit No. 4.2
to Form 8-K of Marriott International, Inc. dated
June 7, 1995 (Third Supplemental Indenture); and
Exhibit No. 4.2 to Form 8-K of Marriott
International, Inc. dated December 11, 1995
(Fourth Supplemental Indenture)./(1)/
4.2 Indenture with The First National Bank of Chicago, as Exhibit 2.02 to RHG Finance Corporation's Annual
Trustee, as supplemented. Report on Form 20-F10-K for the fiscal
year ended June
30, 1996;January 1, 1999.
52
3.3 Amended and Restated Rights Agreement dated as Exhibit No. 44.1 to our Form 10-Q of
Marriott International, Inc. for the fiscal
quarter ended June 20, 1997 (First and Second
Supplemental Indentures)./(2)/
4.3 Indentureof August 9, 1999 with The Bank of New York, as Trustee,quarter ended September 10, 1999.
Rights Agent.
4.1 Indenture dated November 16, 1998 with The Chase Exhibit No. 4.1 to our Form 8-K10-K for the fiscal
Manhattan Bank, as Trustee. year ended January 1, 1999.
4.2 Form of Marriott
relating to Liquid Yield Option Notes, as supplemented. International, Inc. dated March 25, 1996; and6.625% Series A Note due 2003. Exhibit No. 4.2 to our Form 8-K10-K for the fiscal
year ended January 1, 1999.
4.3 Form of Marriott
International, Inc. dated March 25, 1996 (First
Supplemental Indenture).6.875% Series B Note due 2005. Exhibit No. 4.3 to our Form 10-K for the fiscal
year ended January 1, 1999.
4.4 Form of Second Supplemental Indenture relating to the7.875% Series C Note due 2009. Exhibit No. 4.44.1 to the Company'sour Form 10 filed on
Liquid Yield Option Notes. February 13, 1998.8-K dated September 20,
1999.
10.1 Employee Benefits and Other Employment Matters Exhibit No. 10.1 to the Company'sour Form 10 filed on February
Allocation Agreement dated as of September 30, 1997 by February 13, 1998.
and between1997 with Sodexho Marriott International,Services, Inc. and the
Registrant.
10.2 1998 Comprehensive Stock and Cash Incentive Plan. Appendix L in the Company'sour Form 10 filed on February 13,
1998.
10.3 Form of Noncompetition Agreement bybetween Sodexho Exhibit No. 10.1 to our Form 10-Q for the fiscal
Marriott Services, Inc. and amongthe Company. quarter ended March 27, 1998.
10.4 Tax Sharing Agreement with Sodexho Marriott Exhibit No. 10.310.2 to our Form 10-Q for the Company's Form 10 filed on
International,fiscal
Services, Inc. and the Registrant. February 13, 1998.
10.4 Form of Tax Sharing Agreement by and among Marriott Appendix E in the Company's Form 10 filed on
International, Inc., the Registrant and Sodexho February 13, 1998. Alliance, S.A. quarter ended March 27, 1998.
10.5 Distribution Agreement with Host Marriott as amended. Exhibit No. 10.3 to Form 8-K of Old Marriott International, Inc. dated
Corporation, as amended. October 25, 1993; and Exhibit No. 10.2 to Form 10-K of
Old Marriott
International, Inc. for the fiscal year ended December 29,
1995 (First Amendment).
48
Incorporation by Reference
(where a report or registration statement is
indicated below, that document has been previously; Exhibit Nos. 10.4 and 10.5
to our Form 10-Q for the fiscal quarter ended March
27, 1998 (Second and Third Amendments); and filed
with the SECthis report as Exhibit 10.5 (a) (Fourth
Amendment) and the applicable exhibit is
No. Description incorporated by reference thereto)
- -----------------------------------------------------------------------------------------------------------------------Exhibit 10.5 (b) (Fifth Amendment).
10.6 Restated Noncompetition Agreement with Host Marriott and Host Exhibit No. 10.6 to our Form 10-Q for the fiscal
Marriott Corporation. quarter ended March 27, 1998.
10.7 $1.5 billion Credit Agreement dated February 19, Exhibit 10.10 to our Form 8-K of Marriott
Marriott Services Corporation,10-K for the fiscal year
1998 with Citibank, N.A., as amended. International, Inc.Administrative ended January 2, 1998.
Agent, and certain banks.
10.8 $500 million Credit Agreement dated October 25, 1993; andFebruary 2, Exhibit No. 10.44.8 to our Form 10-K for the fiscal
1999 with Citibank, N.A. as Administrative year ended January 1, 1999.
Agent, and certain banks.
12 Statement of Computation of Ratio of Earnings to Filed with this report.
Fixed Charges.
53
21 Subsidiaries of Marriott International, Inc. for the fiscal year ended
December 29, 1995 (Amendment No. 1).
10.7 Acquisition Agreement, dated asFiled with this report.
23 Consent of February 17, 1997, Exhibit No. 10.1 to Form 8-K of Marriott
by and between Marriott International, Inc. and International, Inc. dated February 19, 1997.
Renaissance Hotel Group N.V.
10.8 Shareholder Agreement, dated as of February 17, 1997, Exhibit No. 10.2 to Form 8-K of Marriott
by and between Marriott International, Inc. and International, Inc. dated February 19, 1997.
Diamant Hotel Investments N.V.
10.9 Form of LYONs Allocation Agreement between the Exhibit No. 10.9 to the Company's Form 10 filed on
Registrant and Marriott International, Inc. February 13, 1998.
10.10 $1.5 billion Credit AgreementArthur Andersen LLP. Filed with Citibank, N.A., as Filed herewith.
Administrative Agent, and certain banks, as Banks,
dated February 19, 1998.
21 Subsidiaries of the Registrant (at or prior to the Exhibit No. 21 to the Company's Form 10 filed on
time at which the common stock of the Registrant is February 13, 1998.
distributed to stockholders of Marriott International,
Inc.).this report.
27 Financial Data Schedule for the Registrant.Company. Filed herewith.with this report.
99 Forward-Looking Statements. Filed herewith.with this report.
_____________________________
/(1)/ These agreements are currently between Marriott International, Inc. and
Chemical Bank, as Trustee. If consent solicitations with respect to the
securities evidenced by these agreements are successful, the Registrant will not
become a party to the agreements. However, if any such consent solicitation is
not successful, the relevant securities will become obligations of the
Registrant and one or more supplemental indentures assigning the rights and
obligations of Marriott International, Inc. to the Registrant will be executed.
/(2)/ The obligations of Marriott International, Inc. (as guarantor) will be
assumed by the Registrant pursuant to a supplemental indenture which may include
additional changes to this Indenture if the consent solicitation with respect to
these securities is successful.
(b) REPORTS ON FORM 8-K
None.
49On September 20, 1999, we filed a report describing the issuance of $300
million of 7-7/8 percent Series C Notes due 2009 in an underwritten public
offering.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 the Company haswe have duly caused this Form 10-K to be signed on itsour behalf by the
undersigned, thereunto duly authorized, on this 6th10th day of March, 1998.
NEW2000.
MARRIOTT MI,INTERNATIONAL, INC.
By /s/ J.W. Marriott, Jr.
---------------------------------------------------------
J.W. Marriott, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-K has been signed by the following persons on our behalf of the Company in their capacities
and on the date indicated above.
PRINCIPAL EXECUTIVE OFFICER:
/s/ J.W. Marriott, Jr.
- ------------------------------- Chairman of the Board, Chief Executive Officer
J.W. Marriott, Jr.
- ----------------------------------
J.W. Marriott, Jr. Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
/s/ Michael A. Stein
- ----------------------------------
Michael A. Stein Executive Vice President,
Chief Financial Officer and Director
PRINCIPAL FINANCIAL OFFICER:
/s/ Arne M. Sorenson Executive Vice President,
- -------------------------------- Chief Financial Officer
Arne M. Sorenson
PRINCIPAL ACCOUNTING OFFICER:
/s/ Linda A. Bartlett Vice President, Controller
- ---------------------------------
Linda A. Bartlett
DIRECTORS:
/s/ Henry Cheng Kar-Shun /s/ W. Mitt Romney
- --------------------------------------------------------- --------------------------------------------------------
Henry Cheng Kar-Shun, Director W. Mitt Romney, Director
/s/ Gilbert M. Grosvenor /s/ Roger W. Sant
- --------------------------------------------------------- --------------------------------------------------------
Gilbert M. Grosvenor, Director Roger W. Sant, Director
/s/ Richard E. Marriott /s/ William J. Shaw
- --------------------------------------------------------- --------------------------------------------------------
Richard E. Marriott, Director William J. Shaw, Director
/s/ Floretta Dukes McKenzie /s/ Lawrence M. Small
- --------------------------------------------------------- --------------------------------------------------------
Floretta Dukes McKenzie, Director Lawrence M. Small, Director
/s/ Harry J. Pearce
- ---------------------------------------------------------
Harry J. Pearce, Director
PRINCIPAL ACCOUNTING OFFICER:
/s/ Stephen E. Riffee
- ----------------------------------
Stephen E. Riffee Vice President, Finance and
Chief Accounting Officer
DIRECTORS:
/s/ William J. Shaw
- ----------------------------------
William J. Shaw, Chairman of
the Board and Director
/s/ Joseph Ryan
- ----------------------------------
Joseph Ryan, Director
/s/ Michael A. Stein
- ----------------------------------
Michael A. Stein, Director
S-1