UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY 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 Quarter Ended | Commission File No. 1-13881 |
MARRIOTT INTERNATIONAL, INC.
Delaware | 52-2055918 | |
(State of Incorporation) | (I.R.S. Employer Identification Number) |
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000
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.
Yesx No¨
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).
Yesx No¨
Class | Shares outstanding | |||
Class A Common Stock, | 231,870,872 |
MARRIOTT INTERNATIONAL, INC.
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33 |
We have made forward-looking statements in this 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,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. 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 9999-1 and elsewhere in this quarterly report, could cause results to differ materially from those expressed in such forward-looking statements.
competition in each of our business segments; |
business strategies and their intended results; |
the balance between supply of and demand for hotel rooms, timeshare units |
our continued ability to obtain new operating contracts and franchise agreements; |
our ability to develop and maintain positive relations with current and potential hotel |
our ability to obtain adequate property and liability insurance to protect against losses or to obtain such insurance at reasonable rates; |
the effect of international, national and regional economic conditions, including the duration and severity of the current economic downturn in the United States, |
the impact of Severe Acute Respiratory Syndrome or SARS on travel, particularly if cases significantly increase or spread beyond the currently affected areas; |
· | our ability to recover our loan and |
the availability of capital to allow us and potential hotel owners to fund investments; |
the effect that internet reservation channels may have on the rates that we are able to charge for hotel rooms and timeshare intervals; and |
other risks described from time to time in our filings with the Securities and Exchange Commission (the SEC). |
MARRIOTT INTERNATIONAL, INC.
($ in millions, except per share amounts)
(Unaudited)
Twelve weeks ended | Thirty-six weeks ended | |||||||||||||||
September 6, 2002 | September 7, 2001 | September 6, 2002 | September 7, 2001 | |||||||||||||
SALES | ||||||||||||||||
Management and franchise fees | $ | 170 | $ | 187 | $ | 552 | $ | 618 | ||||||||
Distribution services | 351 | 385 | 1,102 | 1,143 | ||||||||||||
Other | 557 | 521 | 1,588 | 1,519 | ||||||||||||
1,078 | 1,093 | 3,242 | 3,280 | |||||||||||||
Other revenues from managed and franchised properties | 1,376 | 1,280 | 4,162 | 4,004 | ||||||||||||
2,454 | 2,373 | 7,404 | 7,284 | |||||||||||||
OPERATING COSTS AND EXPENSES | ||||||||||||||||
Distribution services | 385 | 384 | 1,144 | 1,137 | ||||||||||||
Other | 582 | 531 | 1,688 | 1,500 | ||||||||||||
967 | 915 | 2,832 | 2,637 | |||||||||||||
Other costs from managed and franchised properties | 1,376 | 1,280 | 4,162 | 4,004 | ||||||||||||
2,343 | 2,195 | 6,994 | 6,641 | |||||||||||||
111 | 178 | 410 | 643 | |||||||||||||
Corporate expenses | (25 | ) | (13 | ) | (77 | ) | (72 | ) | ||||||||
Interest expense | (19 | ) | (26 | ) | (59 | ) | (75 | ) | ||||||||
Interest income | 28 | 23 | 75 | 59 | ||||||||||||
INCOME BEFORE INCOME TAXES | 95 | 162 | 349 | 555 | ||||||||||||
Benefit (provision) for income taxes | 8 | (61 | ) | (35 | ) | (203 | ) | |||||||||
NET INCOME | $ | 103 | $ | 101 | $ | 314 | $ | 352 | ||||||||
DIVIDENDS DECLARED PER SHARE | $ | .07 | $ | .065 | $ | .205 | $ | .19 | ||||||||
EARNINGS PER SHARE | ||||||||||||||||
Basic Earnings Per Share | $ | .43 | $ | .41 | $ | 1.30 | $ | 1.44 | ||||||||
Diluted Earnings Per Share | $ | .41 | $ | .39 | $ | 1.23 | $ | 1.36 | ||||||||
Twelve weeks ended | ||||||||
March 28, 2003 | March 22, 2002 | |||||||
SALES | ||||||||
Lodging | ||||||||
Base management fees | $ | 92 |
| $ | 85 |
| ||
Incentive management fees |
| 29 |
|
| 32 |
| ||
Franchise fees |
| 52 |
|
| 51 |
| ||
Owned and leased properties |
| 89 |
|
| 93 |
| ||
Cost reimbursements |
| 1,408 |
|
| 1,262 |
| ||
Other revenue |
| 276 |
|
| 280 |
| ||
Synthetic Fuel |
| 68 |
|
| 5 |
| ||
| 2,014 |
|
| 1,808 |
| |||
OPERATING COSTS AND EXPENSES | ||||||||
Lodging | ||||||||
Owned and leased – direct |
| 89 |
|
| 91 |
| ||
Other lodging – direct |
| 250 |
|
| 240 |
| ||
Reimbursed costs |
| 1,408 |
|
| 1,262 |
| ||
Administrative and other |
| 52 |
|
| 57 |
| ||
Synthetic Fuel |
| 127 |
|
| 11 |
| ||
| 1,926 |
|
| 1,661 |
| |||
| 88 |
|
| 147 |
| |||
Corporate expenses |
| (30 | ) |
| (29 | ) | ||
Interest expense |
| (26 | ) |
| (19 | ) | ||
Interest income |
| 20 |
|
| 19 |
| ||
Provision for loan losses |
| (5 | ) |
| — |
| ||
INCOME FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES |
| 47 |
|
| 118 |
| ||
Income tax benefit (provision) |
| 40 |
|
| (36 | ) | ||
INCOME FROM CONTINUING OPERATIONS |
| 87 |
|
| 82 |
| ||
Discontinued Operations | ||||||||
Income from Senior Living Services, net of tax |
| 7 |
|
| 4 |
| ||
Gain on disposal of Senior Living Services, net of tax |
| 23 |
|
| — |
| ||
Loss from Distribution Services, net of tax |
| — |
|
| (4 | ) | ||
Exit costs – Distribution Services, net of tax |
| (1 | ) |
| — |
| ||
NET INCOME | $ | 116 |
| $ | 82 |
| ||
EARNINGS PER SHARE – Basic | ||||||||
Earnings from continuing operations | $ | .37 |
| $ | .34 |
| ||
Earnings from discontinued operations |
| .13 |
|
| — |
| ||
Earnings per share | $ | .50 |
| $ | .34 |
| ||
EARNINGS PER SHARE – Diluted | ||||||||
Earnings from continuing operations | $ | .36 |
| $ | .32 |
| ||
Earnings from discontinued operations |
| .12 |
|
| — |
| ||
Earnings per share | $ | .48 |
| $ | .32 |
| ||
DIVIDENDS DECLARED PER SHARE | $ | 0.07 |
| $ | 0.065 |
| ||
See notesNotes to condensed consolidated financial statements.
MARRIOTT INTERNATIONAL, INC.
($ in millions)
September 6, 2002 | December 28, 2001 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and equivalents | $ | 311 | $ | 817 | ||||
Accounts and notes receivable | 620 | 611 | ||||||
Inventory | 86 | 96 | ||||||
Other | 477 | 606 | ||||||
1,494 | 2,130 | |||||||
Property and equipment | 2,908 | 2,930 | ||||||
Goodwill | 1,092 | 1,092 | ||||||
Other intangibles | 481 | 672 | ||||||
Investments in affiliates | 1,136 | 823 | ||||||
Notes and other receivables | 974 | 1,038 | ||||||
Other | 409 | 422 | ||||||
$ | 8,494 | $ | 9,107 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 647 | $ | 697 | ||||
Other | 1,220 | 1,105 | ||||||
1,867 | 1,802 | |||||||
Long-term debt | 1,747 | 2,408 | ||||||
Other long-term liabilities | 1,056 | 1,012 | ||||||
Convertible debt | 61 | 407 | ||||||
2,864 | 3,827 | |||||||
Shareholders’ equity | ||||||||
Class A common stock, 255.6 million shares issued | 3 | 3 | ||||||
Additional paid-in capital | 3,174 | 3,378 | ||||||
Retained earnings | 1,184 | 941 | ||||||
Unearned ESOP shares | — | (291 | ) | |||||
Treasury stock, at cost | (555 | ) | (503 | ) | ||||
Accumulated other comprehensive loss | (43 | ) | (50 | ) | ||||
3,763 | 3,478 | |||||||
$ | 8,494 | $ | 9,107 | |||||
March 28, 2003 | January 3, 2003 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and equivalents | $ | 525 |
| $ | 198 |
| ||
Accounts and notes receivable |
| 614 |
|
| 524 |
| ||
Prepaid taxes |
| 295 |
|
| 300 |
| ||
Other |
| 105 |
|
| 89 |
| ||
Assets held for sale |
| 186 |
|
| 633 |
| ||
| 1,725 |
|
| 1,744 |
| |||
Property and equipment |
| 2,626 |
|
| 2,589 |
| ||
Goodwill |
| 923 |
|
| 923 |
| ||
Other intangible assets |
| 500 |
|
| 495 |
| ||
Investments in affiliates – equity |
| 486 |
|
| 493 |
| ||
Investments in affiliates – notes receivable |
| 599 |
|
| 584 |
| ||
Notes and other receivables, net | ||||||||
Loans to timeshare owners |
| 199 |
|
| 153 |
| ||
Other notes receivable |
| 231 |
|
| 304 |
| ||
Other long-term receivables |
| 469 |
|
| 473 |
| ||
| 899 |
|
| 930 |
| |||
Other |
| 587 |
|
| 538 |
| ||
$ | 8,345 |
| $ | 8,296 |
| |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 468 |
| $ | 529 |
| ||
Current portion of long-term debt |
| 223 |
|
| 242 |
| ||
Liabilities of businesses held for sale |
| 101 |
|
| 366 |
| ||
Other |
| 1,067 |
|
| 1,070 |
| ||
| 1,859 |
|
| 2,207 |
| |||
Long-term debt |
| 1,875 |
|
| 1,492 |
| ||
Casualty self insurance reserves |
| 109 |
|
| 106 |
| ||
Other long-term liabilities and deferred income |
| 897 |
|
| 857 |
| ||
Convertible debt |
| 62 |
|
| 61 |
| ||
Shareholders’ equity | ||||||||
Class A common stock |
| 3 |
|
| 3 |
| ||
Additional paid-in capital |
| 3,280 |
|
| 3,224 |
| ||
Retained earnings |
| 1,215 |
|
| 1,126 |
| ||
Deferred compensation |
| (101 | ) |
| (43 | ) | ||
Treasury stock, at cost |
| (782 | ) |
| (667 | ) | ||
Accumulated other comprehensive loss |
| (72 | ) |
| (70 | ) | ||
| 3,543 |
|
| 3,573 |
| |||
$ | 8,345 |
| $ | 8,296 |
| |||
See notesNotes to condensed consolidated financial statements.
MARRIOTT INTERNATIONAL, INC.
($ in millions)
(Unaudited)
Thirty-six weeks ended | ||||||||
September 6, 2002 | September 7, 2001 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 314 | $ | 352 | ||||
Adjustments to reconcile to cash provided by operations: | ||||||||
Depreciation and amortization | 128 | 147 | ||||||
Income taxes and other | 90 | 151 | ||||||
Timeshare activity, net | (104 | ) | (218 | ) | ||||
Working capital changes | 35 | 16 | ||||||
Cash provided by operations | 463 | 448 | ||||||
INVESTING ACTIVITIES | ||||||||
Dispositions | 513 | 508 | ||||||
Capital expenditures | (222 | ) | (360 | ) | ||||
Note advances | (94 | ) | (147 | ) | ||||
Note collections and sales | 61 | 42 | ||||||
Other | (65 | ) | (169 | ) | ||||
Cash provided by (used in) investing activities | 193 | (126 | ) | |||||
FINANCING ACTIVITIES | ||||||||
Commercial paper activity, net | 248 | (423 | ) | |||||
(Repayment) Issuance of convertible debt | (347 | ) | 405 | |||||
Issuance of other long-term debt | 21 | 316 | ||||||
Repayment of other long-term debt | (932 | ) | (13 | ) | ||||
Issuance of Class A common stock | 28 | 69 | ||||||
Dividends paid | (49 | ) | (45 | ) | ||||
Purchase of treasury stock | (131 | ) | (91 | ) | ||||
Cash (used in) provided by financing activities | (1,162 | ) | 218 | |||||
(DECREASE) INCREASE IN CASH AND EQUIVALENTS | (506 | ) | 540 | |||||
CASH AND EQUIVALENTS, beginning of period | 817 | 334 | ||||||
CASH AND EQUIVALENTS, end of period | $ | 311 | $ | 874 | ||||
Twelve weeks ended | ||||||||
March 28, 2003 | March 22, 2002 | |||||||
OPERATING ACTIVITIES | ||||||||
Income from continuing operations | $ | 87 |
| $ | 82 |
| ||
Adjustments to reconcile to cash provided by operating activities: | ||||||||
Income from discontinued operations |
| 7 |
|
| — |
| ||
Discontinued operations – gain on sale/exit |
| 22 |
|
| — |
| ||
Depreciation and amortization |
| 34 |
|
| 39 |
| ||
Income taxes and other |
| (90 | ) |
| 52 |
| ||
Timeshare activity, net |
| (62 | ) |
| (29 | ) | ||
Working capital changes |
| (100 | ) |
| (87 | ) | ||
Net cash (used in) provided by operating activities |
| (102 | ) |
| 57 |
| ||
INVESTING ACTIVITIES | ||||||||
Capital expenditures |
| (63 | ) |
| (87 | ) | ||
Dispositions |
| 263 |
|
| 99 |
| ||
Loan advances |
| (42 | ) |
| (33 | ) | ||
Loan collections and sales |
| 86 |
|
| 7 |
| ||
Other |
| (15 | ) |
| (36 | ) | ||
Net cash provided by (used in) investing activities |
| 229 |
|
| (50 | ) | ||
FINANCING ACTIVITIES | ||||||||
Commercial paper, net |
| 388 |
|
| 277 |
| ||
Issuance of long-term debt |
| — |
|
| 8 |
| ||
Repayment of long-term debt |
| (21 | ) |
| (918 | ) | ||
Issuance of Class A common stock |
| 4 |
|
| 17 |
| ||
Dividends paid |
| (17 | ) |
| (16 | ) | ||
Purchase of treasury stock |
| (154 | ) |
| — |
| ||
Net cash provided by (used in) financing activities |
| 200 |
|
| (632 | ) | ||
INCREASE (DECREASE) IN CASH AND EQUIVALENTS |
| 327 |
|
| (625 | ) | ||
CASH AND EQUIVALENTS, beginning of period |
| 198 |
|
| 812 |
| ||
CASH AND EQUIVALENTS, end of period | $ | 525 |
| $ | 187 |
| ||
See notesNotes to condensed consolidated financial statements.
MARRIOTT INTERNATIONAL, INC.
(Unaudited)
1. | Basis of Presentation |
The accompanying condensed consolidated financial statements present the results of operations, financial position and cash flows of Marriott International, Inc. (together with its subsidiaries, we, us or the Company).
The accompanying condensed consolidated financial statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States. We believe the disclosures made are adequate to make the information presented not misleading. However, you should read the condensed consolidated financial statements in conjunction with the consolidated financial statements and notes to those financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2001.January 3, 2003. Certain terms not otherwise defined in this quarterly report have the meanings specified in our Annual Report.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of sales and expenses during the reporting period and the possible outcomesdisclosures of contingenciescontingent liabilities. Accordingly, ultimate results could differ from those estimates.
In our opinion, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of September 6, 2002March 28, 2003 and December 28, 2001,January 3, 2003 and the results of operations for the twelve and thirty-six weeks ended September 6, 2002 and September 7, 2001 and cash flows for the thirty-sixtwelve weeks ended September 6, 2002March 28, 2003 and September 7, 2001.March 22, 2002. Interim results may not be indicative of fiscal year performance because of seasonal and short-term variations. We have eliminated all material intercompany transactions and balances between entities included in these financial statements.
Revenue Recognition
Our sales include (1) base and incentive management andfees, (2) franchise fees, (2) sales from our distribution services business, (3) sales from lodging properties and senior living communities owned or leased by us, (4) cost reimbursements, (5) other lodging revenue, and (6) sales made by our other businesses, and (4) certain other revenues from properties franchised or managed by us.Synthetic Fuel business. Management fees comprise a base fee, which is a percentage of the revenues of hotels or senior living communities, and an incentive fee, which is generally based on unit profitability. Franchise fees comprise initial application fees and continuing royalties generated from our franchise programs, which permit the hotel owners and operators to use certain of our brand names. Other revenues from managed and franchised propertiesCost reimbursements include direct and indirect costs that are reimbursed to us by lodging and senior living community owners for properties that we manage or franchise. Other revenues include revenues from hotel propertieslodging revenue includes sales (excluding base fees, reimbursed costs and senior living communities that we own or lease, along with salesfranchise fees) from our timeshare,Timeshare and ExecuStay and Synthetic Fuel businesses.
Timeshare: We recognize revenue from timeshare interest sales in accordance with Statement of Financial Accounting Standards (FAS) No. 66, “Accounting for Sales of Real Estate.” We recognize sales when a minimum of 10 percent of the purchase price for the timeshare interval has been received, the period of cancellation with refund has expired, we deem the receivables collectible and we have attained certain minimum sales and construction levels. For sales that do not meet these criteria, we defer all revenue using the deposit method.
Owned and Leased Units: We recognize room sales and revenues from guest services for our owned and leased units, including ExecuStay, when rooms are occupied and services have been rendered.
Franchise RevenueRevenue:: We recognize franchise fee revenues in accordance with FAS No. 45, “Accounting for Franchise Fee Revenue.” We recognize franchise fees as revenue in each accounting period as fees are earned and become receivable from the franchisee.
Other Revenues from Managed and Franchised Properties:Cost Reimbursements: We recognize other revenuescost reimbursements, in accordance with operating agreements, from managed and franchised properties when we incur the related reimbursable costs.
Synthetic Fuel:We recognize revenue from ourthe Synthetic Fuel business when the synthetic fuel is produced and sold.
2. | New Accounting Standards |
We adopted the disclosure provision FASB Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others,” in the fourth quarter of 2002. We applied the initial recognition and initial measurement provisions for guarantees issued in the first quarter of 2003 and there was no material impact on our financial statements.
FIN 46, “Consolidation of Variable Interest Entities,” is effective immediately for all enterprises with variable interests in variable interest entities created after January 31, 2003. FIN 46 provisions must be applied to variable interests in variable interest entities created before February 1, 2003 from the beginning of the third quarter of 2003. If an entity is determined to be a variable interest entity, it must be consolidated by the enterprise that absorbs the majority of the entity’s expected losses if they occur, receives a majority of the entity’s expected residual returns if they occur, or both. Where it is reasonably possible that the company will consolidate or disclose information about a variable interest entity, the company must disclose the nature, purpose, size and activity of the variable interest entity and the company’s maximum exposure to loss as a result of its involvement with the variable interest entity in all financial statements issued after January 31, 2003.
FIN 46 does not apply to qualifying special purpose entities, such as those used by us to sell notes receivable originated by our timeshare business in connection with the sales, operating costssale of timeshare intervals. These qualifying special purpose entities will continue to be accounted for in accordance with FAS No. 140, “Accounting for Transfers and expenses we recognized during the twelveServicing of Financial Assets and thirty-six weeks ended September 6, 2002 and September 7, 2001. Lodging includes our Full-Service, Select-Service, Extended-Stay, and Timeshare business segments.
Twelve weeks ended September 6, 2002 | |||||||||||||||||
Lodging | Senior Living Services | Distribution Services | Synthetic Fuel | Total | |||||||||||||
($ in millions) | |||||||||||||||||
Sales | |||||||||||||||||
Management and franchise fees | $ | 162 | $ | 8 | $ | — | $ | — | $ | 170 | |||||||
Other | 425 | 77 | 351 | 55 | 908 | ||||||||||||
587 | 85 | 351 | 55 | 1,078 | |||||||||||||
Other revenues from managed and franchised properties | 1,282 | 94 | — | — | 1,376 | ||||||||||||
1,869 | 179 | 351 | 55 | 2,454 | |||||||||||||
Operating costs and expenses | |||||||||||||||||
Operating costs | 427 | 68 | 385 | 87 | 967 | ||||||||||||
Other costs from managed and franchised properties | 1,282 | 94 | — | — | 1,376 | ||||||||||||
1,709 | 162 | 385 | 87 | 2,343 | |||||||||||||
Segment financial results | $ | 160 | $ | 17 | $ | (34 | ) | $ | (32 | ) | $ | 111 | |||||
Twelve weeks ended September 7, 2001 | |||||||||||||||||
Lodging | Senior Living Services | Distribution Services | Synthetic Fuel | Total | |||||||||||||
($ in millions) | |||||||||||||||||
Sales | |||||||||||||||||
Management and franchise fees | $ | 179 | $ | 8 | $ | — | $ | — | $ | 187 | |||||||
Other | 447 | 74 | 385 | — | 906 | ||||||||||||
626 | 82 | 385 | — | 1,093 | |||||||||||||
Other revenues from managed and franchised properties | 1,197 | 83 | — | — | 1,280 | ||||||||||||
1,823 | 165 | 385 | — | 2,373 | |||||||||||||
Operating costs and expenses | |||||||||||||||||
Operating costs | 452 | 79 | 384 | — | 915 | ||||||||||||
Other costs from managed and franchised properties | 1,197 | 83 | — | — | 1,280 | ||||||||||||
1,649 | 162 | 384 | — | 2,195 | |||||||||||||
Segment financial results | $ | 174 | $ | 3 | $ | 1 | $ | — | $ | 178 | |||||||
3. | Earnings Per Share |
Thirty-six weeks ended September 6, 2002 | |||||||||||||||||
Lodging | Senior Living Services | Distribution Services | Synthetic Fuel | Total | |||||||||||||
($ in millions) | |||||||||||||||||
Sales | |||||||||||||||||
Management and franchise fees | $ | 527 | $ | 25 | $ | — | $ | — | $ | 552 | |||||||
Other | 1,239 | 236 | 1,102 | 113 | 2,690 | ||||||||||||
1,766 | 261 | 1,102 | 113 | 3,242 | |||||||||||||
Other revenues from managed and franchised properties | 3,887 | 275 | — | — | 4,162 | ||||||||||||
5,653 | 536 | 1,102 | 113 | 7,404 | |||||||||||||
Operating costs and expenses | |||||||||||||||||
Operating costs | 1,261 | 233 | 1,144 | 194 | 2,832 | ||||||||||||
Other costs from managed and franchised properties | 3,887 | 275 | — | — | 4,162 | ||||||||||||
5,148 | 508 | 1,144 | 194 | 6,994 | |||||||||||||
Segment financial results | $ | 505 | $ | 28 | $ | (42 | ) | $ | (81 | ) | $ | 410 | |||||
Thirty-six weeks ended September 7, 2001 | |||||||||||||||||
Lodging | Senior Living Services | Distribution Services | Synthetic Fuel | Total | |||||||||||||
($ in millions) | |||||||||||||||||
Sales | |||||||||||||||||
Management and franchise fees | $ | 594 | $ | 24 | $ | — | $ | — | $ | 618 | |||||||
Other | 1,294 | 225 | 1,143 | — | 2,662 | ||||||||||||
1,888 | 249 | 1,143 | — | 3,280 | |||||||||||||
Other revenues from managed and franchised properties | 3,759 | 245 | — | — | 4,004 | ||||||||||||
5,647 | 494 | 1,143 | — | 7,284 | |||||||||||||
Operating costs and expenses | |||||||||||||||||
Operating costs | 1,260 | 240 | 1,137 | — | 2,637 | ||||||||||||
Other costs from managed and franchised properties | 3,759 | 245 | — | — | 4,004 | ||||||||||||
5,019 | 485 | 1,137 | — | 6,641 | |||||||||||||
Segment financial results | $ | 628 | $ | 9 | $ | 6 | $ | — | $ | 643 | |||||||
Twelve weeks ended | Thirty-six weeks ended | |||||||||||
September 6, 2002 | September 7, 2001 | September 6, 2002 | September 7, 2001 | |||||||||
Computation of Basic Earnings Per Share | ||||||||||||
Net income | $ | 103 | $ | 101 | $ | 314 | $ | 352 | ||||
Weighted average shares outstanding | 240.9 | 244.8 | 241.9 | 244.1 | ||||||||
Basic Earnings Per Share | $ | .43 | $ | .41 | $ | 1.30 | $ | 1.44 | ||||
Computation of Diluted Earnings Per Share | ||||||||||||
Net income | $ | 103 | $ | 101 | $ | 314 | $ | 352 | ||||
After-tax interest expense on convertible debt | — | 2 | 4 | 3 | ||||||||
Net income for diluted earnings per share | $ | 103 | $ | 103 | $ | 318 | $ | 355 | ||||
Weighted average shares outstanding | 240.9 | 244.8 | 241.9 | 244.1 | ||||||||
Effect of Dilutive Securities | ||||||||||||
Employee stock purchase plan | — | — | 0.1 | 0.1 | ||||||||
Employee stock option plan | 5.3 | 8.3 | 7.1 | 8.5 | ||||||||
Deferred stock incentive plan | 5.0 | 5.3 | 4.9 | 5.3 | ||||||||
Convertible debt | 0.9 | 6.4 | 3.8 | 3.1 | ||||||||
Shares for diluted earnings per share | 252.1 | 264.8 | 257.8 | 261.1 | ||||||||
Diluted Earnings Per Share | $ | .41 | $ | .39 | $ | 1.23 | $ | 1.36 | ||||
Twelve weeks ended | ||||||
March 28, 2003 | March 22, 2002 | |||||
Computation of Basic Earnings Per Share | ||||||
Income from continuing operations | $ | 87 | $ | 82 | ||
Weighted average shares outstanding |
| 233.9 |
| 241.9 | ||
Basic earnings per share from continuing operations | $ | 0.37 | $ | 0.34 | ||
Computation of Diluted Earnings Per Share | ||||||
Income from continuing operations | $ | 87 | $ | 82 | ||
After-tax interest expense on convertible debt |
| — |
| — | ||
Income from continuing operations for diluted earnings per share | $ | 87 | $ | 82 | ||
Weighted average shares outstanding |
| 233.9 |
| 241.9 | ||
Effect of dilutive securities | ||||||
Employee stock purchase plan |
| — |
| — | ||
Employee stock option plan |
| 3.9 |
| 7.5 | ||
Deferred stock incentive plan |
| 4.8 |
| 4.9 | ||
Restricted stock plan |
| 0.1 |
| — | ||
Convertible debt |
| 0.9 |
| — | ||
Shares for diluted earnings per share |
| 243.6 |
| 254.3 | ||
Diluted earnings per share from continuing operations | $ | 0.36 | $ | 0.32 | ||
We compute the effect of dilutive securities using the treasury stock method and average market prices during the period. We use the if-converted method for convertible debt. determine dilution based on earnings from continuing operations.
The calculationscalculation of diluted earnings per share excludedoes not include the following options because the inclusion would have an antidilutive impact for the applicable period: (a) for the twelve weekweeks ended March 28, 2003, 20.3 million options and thirty-six week periods(b) for the twelve weeks ended September 6,March 22, 2002, 7.45.9 million options, $2 million of after-tax interest expense on convertible debt and 6.4 million shares issuable upon conversion of convertible debt.
4. | Stock-Based Compensation |
We have several stock-based employee compensation plans that we account for using the intrinsic value method under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, we do not reflect stock-based employee compensation cost in net income for our Stock Option Program, the Supplemental Executive Stock Option awards or the Stock Purchase Plan. We recognized stock-based employee compensation cost of $4 million and 6.0$2 million, options, respectively,net of tax, for deferred share grants, restricted share grants and (b) 4.9 million optionsrestricted stock units for the thirty-six week periodtwelve weeks ended September 7, 2001.
The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of FAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. The impact of measured but unrecognized compensation cost and excess tax benefits credited to additional paid-in capital is included in the denominator of the diluted pro forma shares for both periods presented.
Twelve weeks ended | ||||||||
($ in millions, except per share amounts) | March 28, 2003 | March 22, 2002 | ||||||
Net income, as reported | $ | 116 |
| $ | 82 |
| ||
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects |
| 4 |
|
| 2 |
| ||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
| (16 | ) |
| (15 | ) | ||
Pro forma net income | $ | 104 |
| $ | 69 |
| ||
Earnings per share: | ||||||||
Basic – as reported | $ | .50 |
| $ | .34 |
| ||
Basic – pro forma | $ | .44 |
| $ | .29 |
| ||
Diluted – as reported | $ | .48 |
| $ | .32 |
| ||
Diluted – pro forma | $ | .42 |
| $ | .27 |
| ||
5. | Marriott Rewards |
We defer revenue received from managed, franchised, and Marriott-owned/leased hotels and program partners equal to the fair value of our future redemption obligations.obligation. We recognize the component of revenue from program partners that corresponds to program maintenance services
6. | Comprehensive Income |
Total comprehensive income was $103$114 million and $80 million, for both the twelve weeks ended September 6,March 28, 2003 and March 22, 2002, and September 7, 2001 and $321 million and $337 million, respectively, for the thirty-six weeks ended September 6, 2002 and September 7, 2001.respectively. The principal difference between net income and total comprehensive income for the applicable 20022003 and 20012002 periods relates to foreign currency translation adjustments.
7. | Business Segments |
Twelve weeks ended | Thirty-six weeks ended | |||||||||||
September 6, 2002 | September 7, 2001 | September 6, 2002 | September 7, 2001 | |||||||||
Reported net income | $ | 103 | $ | 101 | $ | 314 | $ | 352 | ||||
Goodwill amortization | — | 7 | — | 22 | ||||||||
Adjusted net income | $ | 103 | $ | 108 | $ | 314 | $ | 374 | ||||
Reported basic earnings per share | $ | .43 | $ | .41 | $ | 1.30 | $ | 1.44 | ||||
Goodwill amortization | — | .03 | — | .09 | ||||||||
Adjusted basic earnings per share | $ | .43 | $ | .44 | $ | 1.30 | $ | 1.53 | ||||
Reported diluted earnings per share | $ | .41 | $ | .39 | $ | 1.23 | $ | 1.36 | ||||
Goodwill amortization | — | .03 | — | .09 | ||||||||
Adjusted diluted earnings per share | $ | .41 | $ | .42 | $ | 1.23 | $ | 1.45 | ||||
Full-Service Lodging, which includes Marriott Hotels |
Select-Service Lodging, which includes |
Extended-Stay Lodging, which includes Residence |
Timeshare, which includes the operation, ownership, development and marketing of timeshare properties under the Marriott Vacation Club |
Synthetic Fuel, which includes the operation of our coal-based synthetic fuel production facilities. Our Synthetic Fuel business generated a tax benefit of |
We evaluate the performance of our segments based primarily on the results of the segment without allocating corporate expenses, interest expense, interest income or income taxes.
We have aggregated the brands and businesses presented within each of our segments considering their similar economic characteristics, types of customers, distribution channels, and the regulatory business environment of the brands and operations within each segment.
Twelve weeks ended | Thirty-six weeks ended | |||||||||||||
September 6, 2002 | September 7, 2001 | September 6, 2002 | September 7, 2001 | |||||||||||
($ in millions) | ||||||||||||||
Sales | ||||||||||||||
Full-Service | $ | 1,194 | $ | 1,170 | $ | 3,714 | $ | 3,779 | ||||||
Select-Service | 231 | 209 | 676 | 645 | ||||||||||
Extended-Stay | 147 | 158 | 416 | 459 | ||||||||||
Timeshare | 297 | 286 | 847 | 764 | ||||||||||
Total Lodging | 1,869 | 1,823 | 5,653 | 5,647 | ||||||||||
Senior Living Services | 179 | 165 | 536 | 494 | ||||||||||
Distribution Services | 351 | 385 | 1,102 | 1,143 | ||||||||||
Synthetic Fuel | 55 | — | 113 | — | ||||||||||
$ | 2,454 | $ | 2,373 | $ | 7,404 | $ | 7,284 | |||||||
Segment Financial Results | ||||||||||||||
Full-Service | $ | 76 | $ | 70 | $ | 265 | $ | 314 | ||||||
Select-Service | 27 | 45 | 95 | 133 | ||||||||||
Extended-Stay | 17 | 21 | 35 | 61 | ||||||||||
Timeshare | 40 | 38 | 110 | 120 | ||||||||||
Total Lodging | 160 | 174 | 505 | 628 | ||||||||||
Senior Living Services | 17 | 3 | 28 | 9 | ||||||||||
Distribution Services | (34 | ) | 1 | (42 | ) | 6 | ||||||||
Synthetic Fuel | (32 | ) | — | (81 | ) | — | ||||||||
$ | 111 | $ | 178 | $ | 410 | $ | 643 | |||||||
Twelve weeks ended | ||||||||
March 28, 2003 | March 22, 2002 | |||||||
Sales | ||||||||
($ in millions) | ||||||||
Full-Service | $ | 1,321 |
| $ | 1,221 |
| ||
Select-Service |
| 234 |
|
| 207 |
| ||
Extended-Stay |
| 124 |
|
| 121 |
| ||
Timeshare |
| 267 |
|
| 254 |
| ||
Total Lodging |
| 1,946 |
|
| 1,803 |
| ||
Synthetic Fuel |
| 68 |
|
| 5 |
| ||
$ | 2,014 |
| $ | 1,808 |
| |||
Segment financial results | ||||||||
($ in millions) | ||||||||
Full-Service | $ | 95 |
| $ | 86 |
| ||
Select-Service |
| 24 |
|
| 28 |
| ||
Extended-Stay |
| 10 |
|
| 8 |
| ||
Timeshare |
| 18 |
|
| 31 |
| ||
Total Lodging |
| 147 |
|
| 153 |
| ||
Synthetic Fuel |
| (59 | ) |
| (6 | ) | ||
$ | 88 |
| $ | 147 |
| |||
Equity in income/(loss) of equity method investees | ||||||||
($ in millions) | ||||||||
Full-Service | $ | 5 |
| $ | (2 | ) | ||
Select-Service |
| (4 | ) |
| (3 | ) | ||
Timeshare |
| (1 | ) |
| — |
| ||
Corporate |
| (1 | ) |
| (1 | ) | ||
$ | (1 | ) | $ | (6 | ) | |||
8. | Contingencies |
We issue guarantees to certain lenders and other third partieshotel owners primarily to obtain long-term management contracts. The guarantees have a stated maximum amount of funding and the terms are generally five years or less. The terms of guarantees to lenders generally require us to fund if cash flows from hotel operations are not adequate to cover annual debt service or to repay the loan at the end of the term. The terms of the guarantees to hotel owners generally require us to fund if specified levels of operating profit are not obtained.
We also enter into project completion guarantees with certain lenders in conjunction with hotels and timeshare units that are being built by us.
Additionally, we enter into guarantees in conjunction with the sale of notes receivable originated by our timeshare business. These guarantees have terms of between seven and ten years. The terms of the guarantees require us to repurchase a limited amount of non-performing loans under certain circumstances. When we repurchase non-performing timeshare loans, we will either collect the outstanding loan balance in full or foreclose on the asset and subsequently resell it.
Our guarantees include $410 million related to Senior Living Services lease obligations and lifecare bonds. The lease obligations and lifecare bonds are primary obligations of Sunrise Assisted Living, Inc. (Sunrise) and CNL Retirement Partners, Inc. (CNL). Marriott International, Inc. has been indemnified by Sunrise and CNL with respect to any guarantee fundings in connection with financing transactionsthese lease obligations and other obligations. Theselifecare bonds. Prior to the sale of the Senior Living Services business these pre-existing guarantees totaled $589were guarantees by Marriott International, Inc. of obligations of consolidated Senior Living Services subsidiaries. Also included are $51 million of guarantees associated with the Sunrise sale transaction.
The maximum potential amount of future fundings and the current carrying amount of the liability for expected future fundings at September 6, 2002, includingMarch 28, 2003 are as follows ($ in millions):
Guarantee type | Maximum | Current liability for | ||||
Debt service | $ | 394 | $ | 12 | ||
Operating profit |
| 317 |
| 9 | ||
Project completion |
| 54 |
| — | ||
Timeshare |
| 11 |
| — | ||
Senior Living Services |
| 461 |
| — | ||
Other |
| 30 |
| — | ||
$ | 1,267 | $ | 21 | |||
Our guarantees involv ing major customers. In addition,include $237 million for commitments which will not be in effect until the underlying hotels are open and we have madebegin to manage the properties. Guarantee fundings to lenders and hotel owners are generally recoverable in the form of a physical completion guarantee relatingloan and are generally repayable to oneus out of future hotel property with minimal expected funding. cash flows and/or proceeds from the sale of hotels.
As of September 6, 2002,March 28, 2003, we had extended approximately $576$194 million of loan commitments to owners of lodging properties and senior living communities under which we expect to fund approximately $80$114 million by January 3, 2003,2, 2004, and $236$27 million in total.
Letters of credit outstanding on our behalf at September 6, 2002March 28, 2003 totaled $94$113 million, the majority of which related to our self-insurance programs. At September 6, 2002, we had repurchase obligations of $68 million related to notes receivable from timeshare interval purchasers, which have been sold with limited recourse. Surety bonds issued on our behalf as of September 6, 2002March 28, 2003 totaled $487$440 million, the majority of which were requested by federal, state,
Litigation and Arbitration
Green Isle litigation. This litigation pertains to The Ritz-Carlton San Juan (Puerto Rico) Hotel, Spa and Casino which we manage under an operating agreement for Green Isle Partners, Ltd., S.E. (Green Isle). On March 30, 2001, Green Isle Partners, Ltd., S.E. (Green Isle) filed a complaint in Federalthe U.S. District Court in Delaware against us (including several of our subsidiaries) and Avendra LLC. We manage The Ritz-Carlton San Juan Hotel, Spa and Casino (the Hotel) located in San Juan, Puerto RicoLLC, asserting claims under an operating agreement with Green Isle dated December 15, 1995 (the Operating Agreement).
On June 25, 2001, Green Isle filed itsa Chapter 11 Bankruptcy Petition in the Southern District of Florida. InFlorida and in that proceeding the bankruptcy court denied Green Isle’s motionsought to reject our operating agreement. The claims against us, including the Ritz-Carlton operatingattempt to eliminate our management agreement without prejudice. On November 11, 2001, the Delaware district court granted defendants’ motion to transfer andin bankruptcy, were subsequently did transfer the mattertransferred to the United StatesU.S. District Court for the district ofin Puerto Rico. On October 7, 2002, the claims made against us wereRico, and dismissed with prejudice, by the United States District Court of Puerto Rico, meaning that the claims may not be refiled or pursued elsewhere. We expect to moveGreen Isle has appealed that decision. A Disclosure Statement and Plan of Reorganization filed in the bankruptcy proceeding on behalf of RECP San Juan Investors LLC and The Ritz-Carlton Hotel Company L.L.C. would operate to dismissdischarge the parallel claim basedGreen Isle litigation claims. A bankruptcy court confirmation hearing on the dismissal with prejudice in federal court. The outcomethat Plan of the bankruptcy proceedingsReorganization is unknown at this time.
CTF/HPI arbitration and litigation. On April 8, 2002, we initiated an arbitration proceeding against CTF Hotel Holdings, Inc. (CTF) and its affiliate, Hotel Property Investments (B.V.I.) Ltd. (HPI), in connection with a dispute over procurement issues for certain Renaissance hotels and resorts that we manage for CTF and HPI. On April 12, 2002, CTF filed a lawsuit in U.S. District Court in Delaware against us and Avendra LLC, alleging that, in connection with
In Town Hotels litigation. On May 23, 2002, In Town Hotels filed suit against us, subsequently amended to include Avendra, LLC in the U.S. District Court infor the Southern District of West Virginia and subsequently filed an amended complaint on August 26, 2002, to include Avendra LLC alleging that, in connection with the management, procurement and rebates related to the Charleston, West Virginia Marriott, we misused confidential information, related to the hotel, improperly allocated corporate overhead to the hotel, engaged in improper self dealing, with regard to procurement and rebates, failed to disclose information related to the above to In Town Hotels, and breached obligations owed to In Town
Hotels by refusing to replace the hotel’s general manager and by opening two additional hotel propertieshotels in the Charleston area, and claimingarea. In Town Hotels claims breach of contract, breach of impliedfiduciary and other duties, of good faith and fair dealing, breach of fiduciary duty, conversion, violation of the West Virginia Unfair Trade Practices Act, fraud, misrepresentation, negligence, violations of the Robinson-Patman Act, and other related causes of action. In Town Hotelsaction, and seeks various remedies, including unspecified compensatory and exemplary damages, return of $18.5 million in management fees, and a declaratory judgment terminating the management agreement.
Senior Housing and Five Star litigation. We and Marriott Senior Living Services, Inc. (SLS) (which on March 28, 2003, became a subsidiary of Sunrise) are party to actions in the Circuit Court for Montgomery County, Maryland and the Superior Court for Middlesex County, Massachusetts both initiated on November 27, 2002. These actions relate to 31 senior living communities that SLS operates for Senior Housing Properties Trust (SNH) and Five Star Quality Care, Inc. (FVE), and SNH/FVE’s attempt to terminate the operating agreements for these communities. In the Massachusetts action, SNH/FVE sought a declaration that the operating agreements between FVE and SLS created a principal-agent relationship, and that SNH/FVE could therefore terminate the agreements at will. The Massachusetts court dismissed that action on March 4, 2003 and entered judgement declaring that (i) the Company could sell the stock of SLS to Sunrise without obtaining SNH/FVE’s consent, (ii) the Company could remove Marriott proprietary marks from the communities and (iii) that the relationship in the operating agreements was not an agency relationship and not terminable other than as set forth in the agreements. SNH/FVE may still appeal this dismissal and declaration.
In the Maryland action, we and SLS are seeking, among other relief, a declaration that SLS is not in default or material breach of the operating agreements and a declaration that SNH/FVE had anticipatorily breached those agreements by violating their termination provisions. Trial in the Maryland action is scheduled to begin in April 2004.
Senior Care Associates litigation. Senior Care Associates LLC (SCA) is the tenant of fourteen Brighton Gardens properties located in a total of ten states. The beneficial owner of the portfolio is one of our wholly-owned subsidiaries which leases the properties to SCA, who in turn has engaged SLS as manager. On March 24, 2003, SCA filed a lawsuit in the United States District Court for the District of Maryland against us and SLS seeking a declaratory judgment and injunctive relief. In the lawsuit SCA states that it presumed that SLS would remove the Marriott trademarks following SLS’s purchase by Sunrise and that SLS would otherwise violate the applicable operating agreements, despite several letters sent from the Company and SLS
assuring SCA that SLS would continue to honor all the terms and conditions of the operating agreements following the sale. SCA seeks a declaration that the sale of SLS to Sunrise breached the operating agreements unless the facilities will continue to operate under the Marriott name and the Marriott standards. On March 24, 2003, the court refused to grant SCA a temporary restraining order against SLS and the Company. We and SLS moved to dismiss this litigation on April 14, 2003.
Whitehouse Hotel litigation. On April 7, 2003, Whitehouse Hotel Limited Partnership and WH Holdings, L.L.C., the owner of the New Orleans Ritz-Carlton Hotel, filed suit against us and the Ritz-Carlton Hotel Company, L.L.C. (“Ritz-Carlton”) in the Civil District Court for the Parish of New Orleans, Louisiana. Ritz-Carlton manages the hotel under contracts that identify it as an independent contractor, and that contain no territorial restrictions either on other Ritz-Carlton hotels or on Marriott hotels. Whitehouse sought a temporary restraining order and injunction to prevent us from managing, under the JW Marriott flag, the former LeMeridien hotel in New Orleans, claiming that the conversion to a JW Marriott would irreparably injure and damage the Ritz-Carlton hotel. The complaint against us and Ritz-Carlton alleges breach of contract, breach of fiduciary and other duties, violation of the Louisiana Unfair Trade Practices Act, breach of implied duty of good faith, civil conspiracy, and detrimental reliance. In addition to unspecified compensatory damages, Whitehouse seeks to enjoin the Company and Ritz-Carlton from both entering into any agreement to operate the former LeMeridien hotel and using or disclosing any confidential information of the New Orleans Ritz-Carlton, Iberville Suites and Maison Orleans hotels. Whitehouse also seeks a declaration of its right to terminate the operating agreements for cause. The court denied both Whitehouse’s motion for a temporary restraining order on April 11, 2003 and its request for expedited discovery on April 15, 2003.
We believe that each of the foregoing lawsuitsclaims against us isand against SLS are without merit and we intend to vigorously defend against the claims being made against us.them. However, we cannot assure you as to the outcome of any of these lawsuits nor can we currently estimate the range of potential losses to the Company.
Shareholders’ derivative action against our directors.
On January 16, 2003, Daniel and Raizel Taubenfeld filed a shareholder’s derivative action in Delaware state court against each member of our Board of Directors and against Avendra LLC. The company is named as a nominal defendant. The individual defendants are accused of exposing the company to accusations and lawsuits which allege wrongdoing on the part of the company. The complaint alleges that, as a result, the company’s reputation has been damaged leading to business losses and the compelled renegotiation of some management contracts. The substantive allegations of the complaint are derived exclusively from prior press reports. No damage claim is made against us and no specific damage number is asserted as to the lawsuits referenced above, inindividual defendants. Both the second quarter of 2002, we recognized a charge of $7directors and the Company have moved to dismiss this action.
9. | Convertible Debt |
Approximately $70 million in connection with a lawsuit involving the saleface amount of a hotel previously managed by us.
These LYONs which were issued on May 9, 2002, we redeemed for cash the approximately 85 percent of the LYONs that were tendered for mandatory repurchase by the holders.
We classify LYONs as long-term based on our ability and intent to refinance the obligation with long-term debt if we are required to repurchase the LYONs.
10. | Restructuring Costs and Other Charges |
The joint venture can be dissolved at any time with the consent of both members and is scheduled to terminate in March 2012. In the event of dissolution, the joint venture’s assets will generally be distributed in accordance with each member’s capital account. In addition, during certain periods of time commencing in March 2004, first Cendant and later Marriott will have a brief opportunity to cause a mandatory redemption of Marriott’s joint venture equity.
The following table summarizes our remaining restructuring liability ($ in millions):
Restructuring costs and other charges liability at September 6, 2002 | Restructuring costs and other charges liability at December 28, 2001 | |||||
Severance | $ | 3 | $ | 8 | ||
Facilities exit costs | 13 | 18 | ||||
Total restructuring costs | 16 | 26 | ||||
Reserves for guarantees | 23 | 33 | ||||
Other | — | 1 | ||||
Total | $ | 39 | $ | 60 | ||
Restructuring costs and other | Cash | Charges | Restructuring costs and other | |||||||||
Severance | $ | 2 | $ | 1 | $ | — | $ | 1 | ||||
Facilities exit costs |
| 11 |
| — |
| — |
| 11 | ||||
Total restructuring costs |
| 13 |
| 1 |
| — |
| 12 | ||||
Reserves for guarantees |
| 21 |
| 2 |
| — |
| 19 | ||||
Total | $ | 34 | $ | 3 | $ | — | $ | 31 | ||||
11. | Assets Held for Sale – Discontinued Operations |
Senior Living Services
On December 17, 2002, we sold twelve senior living communities to CNL for approximately $89 million in cash. We accounted for the sale under the full accrual method in accordance with FAS No. 66, and we recorded an after-tax loss of approximately $13 million. On December 30, 2002, we entered into definitive agreements to sell our senior living management business to Sunrise and to sell nine senior living communities to CNL. We completed these sales to Sunrise and CNL in addition to the related sale of a parcel of land to Sunrise on March 28, 2003, for $266 million and recognized a gain, net of taxes, of $23 million.
Also, on December 30, 2002, we purchased 14 senior living communities for approximately $15 million in cash, plus the assumption of $227 million in debt, from an unrelated owner. We had previously agreed to provide a form of credit enhancement on the outstanding debt related to these communities. Management has approved and committed to a plan to sell these communities within 12 months. As part of that plan, subsequent to quarter end, on March 31, 2003, we acquired all of the subordinated credit-enhanced mortgage securities relating to the 14 communities in a transaction in which we issued $46 million of unsecured Marriott International, Inc. notes, due April 2004. As a result of the above transactions, at March 28, 2003, the operating results of our Senior Living Services segment are reported in discontinued operations, and the remaining assets are classified as assets held for sale consistedon the balance sheet.
Additional information regarding the Senior Living Services business is as follows ($ in millions):
Twelve weeks ended | ||||||||
March 28, 2003 | March 22, 2002 | |||||||
Income Statement Summary | ||||||||
Sales | $ | 176 |
| $ | 180 |
| ||
Pretax income from operations | $ | 11 |
| $ | 6 |
| ||
Tax provision |
| (4 | ) |
| (2 | ) | ||
Income on operations, net of tax | $ | 7 |
| $ | 4 |
| ||
Pretax gain on disposal | $ | 38 |
| $ | — |
| ||
Tax provision |
| (15 | ) |
| — |
| ||
Gain on disposal, net of tax | $ | 23 |
| $ | — |
| ||
March 28, 2003 | January 3, 2003 | |||||||
Balance Sheet Summary | ||||||||
Property, plant and equipment | $ | 170 |
| $ | 434 |
| ||
Goodwill |
| — |
|
| 115 |
| ||
Other assets |
| 2 |
|
| 54 |
| ||
Liabilities |
| 78 |
|
| 317 |
|
Distribution Services
As of $156 million of property, plant and equipment and $8 million of other related assets. Other liabilities at September 6, 2002 and December 28, 2001 include $3 million and $8 million, respectively, related to assets held for sale. (See Subsequent Events footnote).
Additional information regarding the distribution services business and sale of certain assets. The charge includes: (1) $25 million related to equipment and facilities leases; (2) $3 million related to the adjustment of the depreciable lives of fixed assets to net realizable values over expected useful lives; and (3) $2 million of other associated charges. We expect to incur other material chargesDistribution Services disposal group is as follows ($ in connection with exiting the business, but we currently are unable to estimate their magnitude.
Twelve weeks ended | ||||||||
March 28, 2003 | March 22, 2002 | |||||||
Income Statement Summary | ||||||||
Sales | $ | — |
| $ | 376 |
| ||
Pretax loss from operations | $ | — |
| $ | (6 | ) | ||
Tax benefit |
| — |
|
| 2 |
| ||
Loss on operations, net of tax | $ | — |
| $ | (4 | ) | ||
Pretax exit costs | $ | (1 | ) | $ | — |
| ||
Tax benefit |
| — |
|
| — |
| ||
Exit costs, net of tax | $ | (1 | ) | $ | — |
| ||
March 28, 2003 | January 3, 2003 | |||||||
Balance Sheet Summary | ||||||||
Property, plant and equipment | $ | 9 |
| $ | 9 |
| ||
Other assets |
| 5 |
|
| 21 |
| ||
Liabilities |
| 23 |
|
| 49 |
|
CONSOLIDATED RESULTS OF OPERATIONS
Continuing Operations
The following discussion presents an analysis of results of our operations for the twelve and thirty-six weeks ended March 28, 2003 and March 22, 2002.
Twelve Weeks Ended March 28, 2003 Compared to Twelve Weeks Ended March 22, 2002
Income from continuing operations, net of taxes increased 6 percent to $87 million and diluted earnings per share from continuing operations advanced 13 percent to $0.36. Sales increased 11 percent to $2 billion. Income from continuing operations reflected $78 million of tax benefits, offset by $59 million of operating losses, associated with our Synthetic Fuel business, and reflecting a 4 percent decline in our lodging business results.
Marriott Lodging, which includes our Full-Service, Select-Service, Extended-Stay, and Timeshare segments, reported a 4 percent decrease in financial results on 8 percent higher sales. The results reflect lower U.S. demand, offset by new unit additions. In addition, there were no timeshare note sale gains in the first quarter of 2003, compared to $14 million in the 2002 first quarter. Lodging sales increased to $1.9 billion and systemwide lodging sales increased to $4.2 billion. The reconciliation of sales to systemwide sales for the first quarter is as follows ($ in millions):
Twelve weeks ended | ||||||
March 28, 2003 | March 22, 2002 | |||||
Lodging sales, as reported | $ | 1,946 | $ | 1,803 | ||
Guest sales revenue generated at franchised properties, excluding revenues which are already included in lodging sales |
| 1,192 |
| 1,106 | ||
Guest sales revenue generated at managed properties, excluding revenues which are already included in lodging sales |
| 1,107 |
| 1,058 | ||
Lodging systemwide sales | $ | 4,245 | $ | 3,967 | ||
We consider Lodging systemwide sales to be a meaningful indicator of our performance because it measures the growth in revenues of all of the properties that carry one of the Marriott brand names. Our growth in profitability is in large part driven by such overall revenue growth.
We have presented a claim with an insurance company for lost management fees from the September 6,11, 2001 terrorist attacks. In the fourth quarter of 2002, we recognized $1 million in income from insurance proceeds; we have not recognized any income in the first quarter of 2003. Although we expect to realize further proceeds, we cannot currently estimate the amounts that may be paid to us.
We added a total of 35 lodging properties (8,028 rooms) during the first quarter of 2003, and September 7, 2001.deflagged one hotel (104 rooms) and two timeshare resorts (78 rooms), increasing our total properties to 2,589 (471,275 rooms). Properties by brand as of March 28, 2003 (excluding 3,920 rental units relating to Marriott ExecuStay) are as indicated in the following table.
Company-Operated | Franchised | |||||||
Brand | Properties | Rooms | Properties | Rooms | ||||
Full-Service Lodging | ||||||||
Marriott Hotels and Resorts | 265 | 113,651 | 193 | 54,456 | ||||
The Ritz-Carlton Hotels | 52 | 16,916 | — | — | ||||
Renaissance Hotels and Resorts | 85 | 33,013 | 44 | 13,894 | ||||
Ramada International | 4 | 727 | 146 | 21,147 | ||||
Select-Service Lodging | ||||||||
Courtyard | 289 | 45,874 | 304 | 39,478 | ||||
Fairfield Inn | 2 | 855 | 506 | 47,895 | ||||
SpringHill Suites | 21 | 3,346 | 78 | 8,022 | ||||
Extended-Stay Lodging | ||||||||
Residence Inn | 133 | 18,204 | 298 | 32,949 | ||||
TownePlace Suites | 34 | 3,665 | 71 | 7,141 | ||||
Marriott Executive Apartments and other | 11 | 2,068 | 1 | 99 | ||||
Timeshare | ||||||||
Marriott Vacation Club International | 44 | 7,211 | — | — | ||||
Horizons by Marriott Vacation Club International | 2 | 212 | — | — | ||||
The Ritz-Carlton Club | 4 | 204 | — | — | ||||
Marriott Grand Residence Club | 2 | 248 | — | — | ||||
Total | 948 | 246,194 | 1,641 | 225,081 | ||||
We consider Revenue per available roomAvailable Room (REVPAR) is calculated by dividing room sales for comparable properties by room nights available to guests for the period. We consider REVPAR to be a meaningful indicator of our performance because it measures the period over period change in room revenues for comparable properties. We calculate REVPAR by dividing room sales for comparable properties by room nights available to guests for the period. REVPAR may not be comparable to similarly titled measures such as revenues. Comparable REVPAR, room rate and occupancyWe have not presented statistics used throughout this report are based upon U.S. properties operated by us, except that data for Fairfield Inn TownePlace Suites and SpringHill Suites also include comparable franchised units. The inclusion of data for comparable franchised units for these three brands provides more meaningful information ascompany-operated North American properties—since these brands are predominantly franchised.
Company-operated | Franchised | |||||||
Brand | Properties | Rooms | Properties | Rooms | ||||
Full-Service Lodging | ||||||||
Marriott Hotels, Resorts and Suites | 254 | 110,331 | 185 | 52,199 | ||||
The Ritz-Carlton Hotels | 48 | 15,904 | — | — | ||||
Renaissance Hotels, Resorts and Suites | 85 | 32,742 | 38 | 12,254 | ||||
Ramada International | 4 | 727 | 139 | 20,167 | ||||
Marriott Executive Apartments and Other | 10 | 1,909 | 1 | 99 | ||||
Select-Service Lodging | ||||||||
Courtyard | 289 | 45,928 | 289 | 36,974 | ||||
Fairfield Inn | 2 | 890 | 498 | 47,081 | ||||
SpringHill Suites | 20 | 3,187 | 76 | 7,840 | ||||
Extended-Stay Lodging | ||||||||
Residence Inn | 134 | 18,215 | 277 | 30,315 | ||||
TownePlace Suites | 34 | 3,664 | 69 | 6,944 | ||||
Timeshare | ||||||||
Marriott Vacation Club International | 45 | 6,680 | — | — | ||||
Horizons | 2 | 146 | — | — | ||||
The Ritz-Carlton Club | 4 | 143 | — | — | ||||
Marriott Grand Residence Club | 2 | 248 | — | — | ||||
Total | 933 | 240,714 | 1,572 | 213,873 | ||||
Comparable Company-Operated North American Properties | Comparable Systemwide | |||||||||
Twelve weeks ended | Change vs. | Twelve weeks ended | Change vs. | |||||||
Marriott Hotels and Resorts | ||||||||||
Occupancy |
| 68.3% | -0.3% pts. |
| 66.7% | 0.3% pts. | ||||
Average daily rate | $ | 139.32 | -1.7% | $ | 131.70 | -2.4% | ||||
REVPAR | $ | 95.11 | -2.1% | $ | 87.90 | -1.9% | ||||
The Ritz-Carlton Hotels1 | ||||||||||
Occupancy |
| 63.5% | -2.0% pts. |
| 63.5% | -2.0% pts. | ||||
Average daily rate | $ | 255.21 | 2.4% | $ | 255.21 | 2.4% | ||||
REVPAR | $ | 161.97 | -0.8% | $ | 161.97 | -0.8% | ||||
Renaissance Hotels and Resorts | ||||||||||
Occupancy |
| 65.1% | 1.4% pts. |
| 62.4% | 2.0% pts. | ||||
Average daily rate | $ | 133.34 | -2.0% | $ | 124.67 | -2.2% | ||||
REVPAR | $ | 86.81 | 0.1% | $ | 77.84 | 1.0% | ||||
Courtyard | ||||||||||
Occupancy |
| 65.9% | 0.7% pts. |
| 66.7% | 1.1% pts. | ||||
Average daily rate | $ | 94.23 | -1.4% | $ | 93.42 | -1.0% | ||||
REVPAR | $ | 62.08 | -0.3% | $ | 62.27 | 0.6% | ||||
Fairfield Inn | ||||||||||
Occupancy |
| nm | nm |
| 59.9% | 0.7% pts. | ||||
Average daily rate |
| nm | nm | $ | 63.54 | 0.8% | ||||
REVPAR |
| nm | nm | $ | 38.03 | 2.0% | ||||
SpringHill Suites | ||||||||||
Occupancy |
| nm | nm |
| 66.3% | 2.6% pts. | ||||
Average daily rate |
| nm | nm | $ | 81.72 | 1.8% | ||||
REVPAR |
| nm | nm | $ | 54.22 | 6.1% | ||||
Residence Inn | ||||||||||
Occupancy |
| 74.2% | 0.1% pts. |
| 73.7% | 0.7% pts. | ||||
Average daily rate | $ | 97.13 | -2.9% | $ | 94.99 | -2.2% | ||||
REVPAR | $ | 72.10 | -2.8% | $ | 70.04 | -1.2% | ||||
TownePlace Suites | ||||||||||
Occupancy |
| 64.7% | -6.2% pts. |
| 66.5% | -1.6% pts. | ||||
Average daily rate | $ | 62.75 | 5.6% | $ | 63.60 | 1.2% | ||||
REVPAR | $ | 40.59 | -3.6% | $ | 42.30 | -1.2% |
1 | Statistics for The Ritz-Carlton Hotels are for January and February. |
Comparable Company-Operated International Properties | Comparable Systemwide International Properties | |||||||||
Two months ended | Change vs. 2002 | Two months ended | Change vs. | |||||||
Caribbean & Latin America | ||||||||||
Occupancy |
| 69.4% | 6.6% pts. |
| 66.1% | 6.3% pts. | ||||
Average daily rate | $ | 160.05 | 3.6% | $ | 154.45 | 5.1% | ||||
REVPAR | $ | 111.03 | 14.5% | $ | 102.07 | 16.3% | ||||
Continental Europe | ||||||||||
Occupancy |
| 57.3% | 0.2% pts. |
| 54.6% | -0.3% pts. | ||||
Average daily rate | $ | 120.27 | -4.1% | $ | 119.19 | -1.8% | ||||
REVPAR | $ | 68.89 | -3.7% | $ | 65.04 | -2.3% | ||||
United Kingdom | ||||||||||
Occupancy |
| 67.7% | -5.2% pts. |
| 61.2% | -2.8% pts. | ||||
Average daily rate | $ | 145.57 | 1.9% | $ | 122.01 | -5.0% | ||||
REVPAR | $ | 98.49 | -5.3% | $ | 74.63 | -9.2% | ||||
Middle East & Africa | ||||||||||
Occupancy |
| 67.2% | 11.2% pts. |
| 66.5% | 11.7% pts. | ||||
Average daily rate | $ | 91.98 | 11.0% | $ | 91.10 | 10.4% | ||||
REVPAR | $ | 61.81 | 33.3% | $ | 60.57 | 34.1% | ||||
Asia Pacific | ||||||||||
Occupancy |
| 69.0% | 4.7% pts. |
| 69.8% | 3.9% pts. | ||||
Average daily rate | $ | 94.00 | 1.3% | $ | 97.55 | 1.3% | ||||
REVPAR | $ | 64.87 | 8.7% | $ | 68.12 | 7.2% | ||||
For North American properties (except for The Ritz-Carlton Hotels), the following table.
Twelve weeks ended September 6, 2002 | Change vs. Twelve weeks ended September 7, 2001 | ||||||
Marriott Hotels, Resorts and Suites | |||||||
Occupancy | 72.0 | % | -2.4 | % pts. | |||
Average daily rate | $ | 126.21 | -4.7 | % | |||
REVPAR | $ | 90.82 | -7.7 | % | |||
The Ritz-Carlton Hotels | |||||||
Occupancy | 65.8 | % | -1.5 | % pts. | |||
Average daily rate | $ | 206.93 | -6.7 | % | |||
REVPAR | $ | 136.10 | -8.8 | % | |||
Renaissance Hotels, Resorts and Suites | |||||||
Occupancy | 66.1 | % | -2.9 | % pts. | |||
Average daily rate | $ | 120.83 | -3.5 | % | |||
REVPAR | $ | 79.88 | -7.5 | % | |||
Courtyard | |||||||
Occupancy | 73.3 | % | -1.7 | % pts. | |||
Average daily rate | $ | 91.95 | -6.1 | % | |||
REVPAR | $ | 67.41 | -8.2 | % | |||
Fairfield Inn | |||||||
Occupancy | 73.4 | % | 0.1 | % pts. | |||
Average daily rate | $ | 66.51 | -1.0 | % | |||
REVPAR | $ | 48.83 | -0.8 | % | |||
SpringHill Suites | |||||||
Occupancy | 69.4 | % | -0.8 | % pts. | |||
Average daily rate | $ | 78.48 | -1.6 | % | |||
REVPAR | $ | 54.49 | -2.7 | % | |||
Residence Inn | |||||||
Occupancy | 81.9 | % | 0.6 | % pts. | |||
Average daily rate | $ | 97.02 | -7.6 | % | |||
REVPAR | $ | 79.46 | -6.9 | % | |||
TownePlace Suites | |||||||
Occupancy | 79.5 | % | 1.1 | % pts. | |||
Average daily rate | $ | 64.72 | -3.3 | % | |||
REVPAR | $ | 51.43 | -2.0 | % |
Across Marriott’s domestic full-service lodgingour Lodging brands, REVPAR for comparable company-operated U.S.North American properties declined 7.2by an average of 1.5 percent in the first quarter of 2003. Average room rates for these hotels declined 1.5 percent and occupancy remained unchanged from the prior year.
Across Marriott’s North American Full-Service lodging brands (Marriott Hotels and Resorts; RenaissanceHotels andResorts;and The Ritz-Carlton Hotels), REVPAR for comparable company-operated North American properties declined 1.7 percent. Average room rates for these hotels declined 4.61.4 percent and occupancy decreased 1.90.2 percentage points to 69.667.5 percent.
Our domestic select-serviceNorth American Select-Service and extended-stayExtended-Stay brands (Fairfield Inn; Courtyard; Residence Inn; SpringHill Suites;and TownePlace Suites) had, for comparable company-operated North American properties, average REVPAR declines of 5.01.0 percent reflecting occupancy declines of 0.3 percentage points and average room rate declines of 4.6 percent.
International lodging reported an increase in the results of operations, declinedreflecting the impact of stronger demand in the Caribbean, Asia, and the Middle East, partially offset by a decline in travel to Europe.
For our Timeshare brands (Marriott Vacation Club International; The Ritz-Carlton Club; Horizons by Marriott Vacation Club International; and Marriott Grand Residence Club) financial results decreased 42 percent, to $18 million. The decline is primarily dueattributable to the decreasefact that there were no timeshare notes sold in international travel. While demand remains soft in Europe, demand strengthened in Japan, Korea and Russia.
Corporate Expenses, Interest and TaxesTaxes. . Interest expense decreasedincreased $7 million, reflecting lower average outstandingthe impact of the mortgage debt balancesassumed in the fourth quarter of 2002 associated with the acquisition of 14 senior living communities, as well as additional share repurchases and lower capitalized interest rates.resulting from fewer projects under construction, primarily related to our timeshare business. Interest income increased slightly to $20 million, before reflecting reserves of $5 million for loans deemed uncollectible at two hotels. Corporate expenses increased $12 million primarily due to the $4 million gain recorded in 2001 on the sale of tax investments, and foreign exchange losses incurred in 2002. Our effective income tax rate decreased from 37.53 percent to $30 million reflecting higher litigation expenses.
The income from continuing operations generated a positivetax benefit of 8.4 percent due$40 million in the first quarter of 2003 compared to a tax provision of $36 million in the impactfirst quarter of the2002. The difference was primarily attributable to our Synthetic Fuel business which generated a tax benefit and tax credits arising from our Synthetic Fuel business andtotaling $78 million in the eliminationfirst quarter of nondeductible goodwill amortization, partially offset by2003 compared to $7 million in the 2001 sale of the affordable housing investments.
Synthetic Fuel.In October 2001, we acquired four coal-based synthetic fuel production facilities (the Facilities) for $46 million in cash. The Synthetic Fuelsynthetic fuel produced at the Facilities qualifies for tax credits based on Section 29 of the Internal Revenue Code. Under Section 29, tax credits are not available for Synthetic Fuelsynthetic fuel produced after 2007. We began operating these Facilities in the first quarter of 2002. We anticipate that theThe operation of the Facilities, together with the benefit arising from the tax credits, has been, and we expect will continue to be significantly accretive to our net income. Although we expect that the Facilities will produce significant operating losses, we anticipate that these will beare more than offset by the tax credits generated under Section 29, which we expect to reduce our income tax expense. In the thirdfirst quarter of 2002,2003, our Synthetic Fuel business reflected sales of $55$68 million and an operatinga loss of $32$59 million, resulting in a tax benefit of $11$21 million and tax credits of $43$57 million.
In January 2003, we entered into a contract with an unrelated third party to Thirty-Six Weeks Ended September 7, 2001
conditions are met. If the conditions are not met by August 31, 2003, neither party will have an obligation to perform under the agreements. If the transaction is consummated, we expect to receive $25 million in promissory notes and cash as well as an earnout based on the amount of synthetic fuel produced. If the transaction is consummated, we expect to account for the first three quarters of 2002 on sales of $7,404 million. This represents an 11 percent decreaseremaining interest in net income and a 2 percent increase in sales over the same period in 2001. Diluted earnings per share of $1.23 for the first three quarters of the year decreased 10 percent compared to 2001. The overall profit decline in 2002 is primarily due to weaker hotel results and losses in our distribution services business associated with management’s decision to exit the distribution services business, partially offset by the lower tax rate associated with our Synthetic Fuel business under the equity method of accounting.
Discontinued Operations
Senior Living Services.
On December 17, 2002, we sold twelve senior living communities to CNL for approximately $89 million in cash. We accounted for the sale under the full accrual method in accordance with FAS No. 66, and strongerwe recorded an after-tax loss of approximately $13 million. On December 30, 2002, we entered into definitive agreements to sell our senior living management business to Sunrise and to sell nine senior living communities to CNL. We completed the sales to Sunrise and CNL in addition to the related sale of a parcel of land to Sunrise on March 28, 2003, for $266 million and recognized a gain, net of taxes, of $23 million.
Also, on December 30, 2002, we purchased 14 senior living communities for approximately $15 million in cash, plus the assumption of $227 million in debt, from an unrelated owner. We had previously agreed to provide a form of credit enhancement on the outstanding debt related to these communities. Management has approved and committed to a plan to sell these communities within 12 months. As part of the plan, subsequent to quarter end, on March 31, 2003, we acquired all of the subordinated credit-enhanced mortgage securities relating to the 14 communities in a transaction in which we issued $46 million of unsecured Marriott International, Inc. notes, due April 2004. As a result of the above transactions, at March 28, 2003, the operating results associated withof our Senior Living Services business segment. Senior Living Services profits included $11segment are reported in discontinued operations, and the remaining assets are classified as assets held for sale on the balance sheet.
Income from discontinued operations, net of taxes and excluding the gain on disposal of $23 million, was $7 million, an increase of pretax$3 million over first quarter 2002 results. The results reflect income associated withfrom the sale of14 properties purchased in the Village Oaks communities. Systemwide sales increased to $14.4 billion.
Thirty-six weeks ended September 6, 2002 | Change vs. Thirty-six weeks ended September 7, 2001 | ||||||
Marriott Hotels, Resorts and Suites | |||||||
Occupancy | 71.6 | % | -2.6 | % pts. | |||
Average daily rate | $ | 136.77 | -6.6 | % | |||
REVPAR | $ | 97.99 | -9.9 | % | |||
The Ritz-Carlton Hotels | |||||||
Occupancy | 68.4 | % | -1.5 | % pts. | |||
Average daily rate | $ | 235.09 | -8.4 | % | |||
REVPAR | $ | 160.75 | -10.4 | % | |||
Renaissance Hotels, Resorts and Suites | |||||||
Occupancy | 66.7 | % | -4.0 | % pts. | |||
Average daily rate | $ | 131.53 | -4.7 | % | |||
REVPAR | $ | 87.68 | -10.1 | % | |||
Courtyard | |||||||
Occupancy | 70.8 | % | -3.8 | % pts. | |||
Average daily rate | $ | 95.17 | -6.3 | % | |||
REVPAR | $ | 67.42 | -11.1 | % | |||
Fairfield Inn | |||||||
Occupancy | 68.1 | % | -0.6 | % pts. | |||
Average daily rate | $ | 65.16 | -1.3 | % | |||
REVPAR | $ | 44.38 | -2.2 | % | |||
SpringHill Suites | |||||||
Occupancy | 70.1 | % | 1.5 | % pts. | |||
Average daily rate | $ | 78.88 | -3.7 | % | |||
REVPAR | $ | 55.32 | -1.6 | % | |||
Residence Inn | |||||||
Occupancy | 78.9 | % | -1.2 | % pts. | |||
Average daily rate | $ | 98.27 | -9.0 | % | |||
REVPAR | $ | 77.51 | -10.4 | % | |||
TownePlace Suites | |||||||
Occupancy | 74.8 | % | 2.3 | % pts. | |||
Average daily rate | $ | 63.40 | -7.3 | % | |||
REVPAR | $ | 47.42 | -4.3 | % |
Distribution Services.
As of cost containment initiatives, lower depreciation expense due toJanuary 3, 2003, through a combination of sale and transfer of nine facilities and the classificationtermination of all operations at four facilities, we completed our exit of the Village Oaks communitiesdistribution services business. Accordingly, we present the exit costs and the operating results for our distribution services business as discontinued operations for the twelve weeks ended March 28, 2003 and March 22, 2002, and the remaining assets are classified as held for sale at March 28, 2003 and $3 million of lower amortization expense associated with our adoption of FAS No. 142 inJanuary 3, 2003. In the first quarter of 2002. These were partially offset by higher casualty insurance costs. Occupancy for comparable communities was 83.5 percent in2003, we incurred exit costs of $1 million, primarily related to ongoing compensation costs associated with the first three quarters of 2002, relatively stable with a year ago.
We have credit facilities which support our commercial paper program and letters of credit. At September 6, 2002,March 28, 2003, our cash balances combined with our available borrowing capacity under the credit facilities amounted to nearly $2 billion. We consider these resources, together with cash we expect to generate from operations, adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, meet debt service and fulfill other cash requirements. requirements, including the repayment of $200 million of senior notes due in November 2003.
We monitor the status of the capital markets, and regularly evaluate the effect that changes in capital market conditions may have on our ability to execute our announced growth plans. We expect that part of our financing and liquidity needs will continue to be met through commercial paper borrowings and access to long-term committed credit facilities. If conditions in the lodging industry deteriorate, we may be unable to place some or all of our commercial paper, and may have to rely more on bank borrowings which may carry a higher cost than commercial paper.
Cash and equivalents totaled $311$525 million at September 6, 2002, a decreaseMarch 28, 2003, an increase of $506$327 million from year-end 2001, primarily resulting fromyear end 2002. We increased our cash position as a result of the repayment of debt. Net income is stated after recording depreciation expense of $96 million and $93 million foruncertainty associated with the thirty-six weeks ended September 6, 2002 and September 7, 2001, respectively, and after amortization expense of $32 million and $54 million, respectively, for the same time periods. war in Iraq.
Earnings before interest expense, income taxes, depreciation and amortization (EBITDA) for the thirty-six weeks ended September 6, 2002 decreased by $241 million, or 36 percent, to $536 million. Excluding the impact of ourfrom continuing operations and EBITDA from continuing operations, excluding Synthetic Fuel business,are financial measures that are not presented in accordance with accounting principles generally accepted in the United States. We consider EBITDA would have decreased by $165 million, or 21 percent,from continuing operations to $612 million. EBITDA isbe an indicator of operating performance, which can be used to measure our ability to service debt, fund capital expenditures and expand our business. We also consider the presentation of EBITDA howeverfrom continuing operations, excluding our Synthetic Fuel business to provide a useful supplemental measure to investors because the significant losses produced by our Synthetic Fuel Facilities are more than offset by the tax credits generated, which reduce our income tax expense. However, EBITDA is not an alternative to net income, operating profit,financial results, cash flows from operations, or any other operating or liquidity measure prescribed by accounting principles generally accepted in the United States.
EBITDA (from continuing operations) for the twelve weeks ended March 28, 2003 decreased by $61 million, or 36 percent, to $107 million. Excluding the impact of the $57 million EBITDA decrease from our Synthetic Fuel business, EBITDA would have decreased by $9 million, or 5 percent to $164 million.
The reconciliation of income from continuing operations, before income taxes to EBITDA and to EBITDA, excluding Synthetic Fuel is as follows:
Twelve weeks ended | ||||||||
($ in millions) | March 28, 2003 | March 22, 2002 | ||||||
Income from continuing operations, before taxes | $ | 47 |
| $ | 118 |
| ||
Interest expense |
| 26 |
|
| 19 |
| ||
Depreciation |
| 29 |
|
| 22 |
| ||
Amortization |
| 5 |
|
| 9 |
| ||
EBITDA from continuing operations | $ | 107 |
| $ | 168 |
| ||
Synthetic Fuel loss, before taxes |
| 59 |
|
| 6 |
| ||
Depreciation – Synthetic Fuel |
| (2 | ) |
| (1 | ) | ||
EBITDA from continuing operations, excluding Synthetic Fuel | $ | 164 |
| $ | 173 |
| ||
Net cash provided by investing activities totaled $193$229 million for the thirty-sixtwelve weeks ended September 6, 2002,March 28, 2003, and consisted primarily of proceeds from the dispositionsale of seven lodging properties, our interest in a hotelsenior living management business to Sunrise and residential project under development, fivethe sale of nine senior living communities and a parcel of land parcels, partially offset byto CNL, and proceeds from a loan sale, net of capital expenditures and notes receivable advances and equity investments.
In April 1999, January 2000, and January 2001, we filed “universal shelf” registration statements with the Securities and Exchange Commission in the amounts of $500 million, $300 million and $300 million, respectively. As of September 6, 2002,March 28, 2003, we had offered and sold to the public under these registration statements, $300 million of debt securities at 77/8 %,%, due 2009 and $300 million at 81/8%, due 2005, leaving a balance of $500 million available for future offerings.
Approximately $70 million in face amount of 7 percent senior unsecured notes, due 2008, and received net proceeds of $297 million. We completed a registered exchange offer for these notes on January 15, 2002.
The following tables summarizetable summarizes our contractual obligationsobligations:
Payments Due by Period | |||||||||||||||
Contractual Obligations | Total | Before January 2, 2004 | 1-3 years | 4-5 years | After 5 years | ||||||||||
($ in millions) | |||||||||||||||
Debt | $ | 2,160 | $ | 222 | $ | 546 | $ | 505 | $ | 887 | |||||
Operating Leases | |||||||||||||||
Recourse |
| 970 |
| 83 |
| 176 |
| 122 |
| 589 | |||||
Non-recourse |
| 544 |
| 13 |
| 69 |
| 96 |
| 366 | |||||
Total Contractual Cash Obligations | $ | 3,674 | $ | 318 | $ | 791 | $ | 723 | $ | 1,842 | |||||
The totals above exclude recourse minimum lease payments of $2 million associated with the discontinued Distribution Services business, due as follows: less than one year $1 million; and commitments:
Payments Due by Period | |||||||||||||||
Contractual Obligations | Total | Before January 3, 2003 | 1–3 years | 4–5 years | After 5 years | ||||||||||
($ in millions) | |||||||||||||||
Debt | $ | 1,793 | $ | 1 | $ | 814 | $ | 284 | $ | 694 | |||||
Operating Leases | |||||||||||||||
Recourse | 1,353 | 53 | 262 | 198 | 840 | ||||||||||
Non-recourse | 689 | 3 | 78 | 116 | 492 | ||||||||||
Total Contractual Cash Obligations | $ | 3,835 | $ | 57 | $ | 1,154 | $ | 598 | $ | 2,026 | |||||
The following table summarizes our commitments:
Amount of Commitment Expiration Per Period | |||||||||||||||
Other Commercial Commitments | Total Amounts Committed | Before January 2, 2004 | 1-3 years | 4-5 years | After 5 years | ||||||||||
($ in millions) | |||||||||||||||
Guarantees | $ | 1,256 | $ | 76 | $ | 248 | $ | 349 | $ | 583 | |||||
Timeshare note repurchase obligations |
| 11 |
| — |
| 2 |
| — |
| 9 | |||||
Total | $ | 1,267 | $ | 76 | $ | 250 | $ | 349 | $ | 592 | |||||
Our guarantees include $237 million for commitments which reflectswill not be in effect until the portion of debt becoming due by September 12, 2003.
Amount of Commitment Expiration Per Period | |||||||||||||||
Other Commercial Commitments | Total Amounts Committed | Before January 3, 2003 | 1–3 years | 4 – 5 years | After 5 years | ||||||||||
($ in millions) | |||||||||||||||
Guarantees | $ | 589 | $ | 71 | $ | 109 | $ | 264 | $ | 145 | |||||
Timeshare note repurchase obligations | 68 | — | — | — | 68 | ||||||||||
Total | $ | 657 | $ | 71 | $ | 109 | $ | 264 | $ | 213 | |||||
Share RepurchasesCRITICAL ACCOUNTING POLICIES
Our accounting policies, which are in compliance with principles generally accepted in the United States, require us to apply methodologies, estimates and judgments that have a significant impact on the results we report in our financial statements. In our annual report on Form 10-K we have discussed those policies that we believe are critical and require the use of complex judgment in their application. Since the date of that Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions applied under them.
SHARE REPURCHASES
We purchased 3.84.9 million shares of our Class A Common Stock during the thirty-sixtwelve weeks ended September 6, 2002.March 28, 2003 at an average price of $31.28 per share. As of September 6, 2002,March 28, 2003, we were authorized by our Board of Directors to repurchase 9.718.1 million shares.
AvendraAVENDRA
In January 2001, Marriott and Hyatt Corporation formed a joint venture, Avendra LLC (Avendra), to be an independent professional procurement services company serving the North American hospitality market and related industries. Six Continents Hotels, Inc., ClubCorp USA Inc., and Fairmont Hotels & Resorts, Inc., joined Avendra in March 2001. We and the other four members contributed our respective procurement businesses to Avendra. Currently, our interest in Avendra is slightly less than 50 percent.
Avendra generally does not purchase and resell goods and services; instead, its customers purchase goods and services directly from Avendra’s vendors on terms negotiated by Avendra. Avendra earns revenue through agreements with its vendors which provide that the vendors pay Avendra an unrestricted allowance for purchases by its customers. Our hotel management agreements treat vendor-generated
unrestricted allowances in three separate ways, and the requirements of those agreements are reflected in our Procurement Services Agreement with Avendra (PSA).
For purchases of goods and services by the majority of Marriott’s managed hotels, Avendra is permitted to retain unrestricted allowances, in an amount sufficient only to recover Avendra’s properly allocated costs of providing procurement services. Other management contracts allow Avendra to retain vendor allowances and earn a return which is competitive in the industry. This amount is capped by the PSA. Lastly, for purchases of goods and services by hotels owned by one of Marriott’s hotel owners, Avendra is not permitted to retain any of such unrestricted allowances; instead, Avendra charges a negotiated fee to Marriott, and Marriott in turn charges a negotiated fee to that owner. In 2001, we returned to hotels that we manage approximately $8 million in cash rebates from Avendra, and its predecessor Marketplace by Marriott. If Marriott franchised hotels (not managed by Marriott) elect to purchase through Avendra, they negotiate separately with Avendra and are not bound by the terms of the PSA for our managed hotels. We account for our interest in Avendra under the equity method and recognized a lossincome of $1$0.1 million in 2001.
There have been no material changes to our exposures to market risk since December 28, 2001.
In September and October 2002April 2003, we carried out an evaluation, under the supervision and with the participation of the company’sCompany’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 and 15d-14. Management necessarily applied its judgement in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management’s control objectives. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective to timely alert them to any material information relating to the companyCompany (including its consolidated subsidiaries) that must be included in our periodic SEC filings.
The legal proceedings and claims described under the heading captioned “Contingencies” in Note 8 of the “Contingencies” footnote in the financial statementsNotes to Condensed Consolidated Financial Statements set forth in Part I, “Financial Information”.
None.
None.
None.
Securities Authorized for Issuance under Equity Compensation Plans.
The following table sets forth information about the non-audit services performed by our independent auditors during the period covered by this report.
Equity Compensation Plan Information
(a) | (b) | (c) | |||||||
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||
Equity compensation plans approved by shareholders | $ | 39,412,991 | $ | 29.13 | $ | 22,680,2231 | |||
Equity compensation plans not approved by shareholders2 |
| — |
| — | |||||
Total | $ | 39,412,991 | $ | 22,680,223 | |||||
1 | Consists of 21,200,455 securities in the 2002 Comprehensive Stock and Cash Incentive Plan and 1,479,768 securities in the Employee Stock Purchase Plan. |
2 | All of the Company’s equity compensation plans have been approved by shareholders. |
(a) | Exhibits |
Exhibit No. | Description | |
10-1 | Stock Purchase Agreement dated as of | |
10-2 | Amendment | |
12 | Statement of Computation of Ratio of Earnings to Fixed Charges. | |
99-1 | Forward-Looking Statements. | |
99-2 | Sarbanes-Oxley Act – Section 906 Certifications. |
(b) | Reports on Form 8-K |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MARRIOTT INTERNATIONAL, INC. | ||
2ndday of May, 2003 | ||
/s/ Arne M. Sorenson | ||
Arne M. Sorenson | ||
Executive Vice President and Chief Financial Officer | ||
/s/ Michael J. Green | ||
Michael J. Green | ||
Vice President Finance and Principal Accounting Officer |
I, J.W. Marriott, Jr., certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Marriott International, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being |
b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
May 2, 2003
/s/ J.W. | ||
J.W. Marriott, Jr. | ||
Chairman of the Board and Chief Executive Officer |
I, Arne M. Sorenson, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Marriott International, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being |
b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
May 2, 2003
/s/ | ||
Arne M. Sorenson | ||
Executive Vice President and Chief Financial Officer |
35