SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 29, 2000 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------------------------------------------- ---------------------------------------------
Class A Common Stock, $0.01 par value New York Stock Exchange
(243,655,082 shares outstanding as of January 31, 2001) Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
The aggregate market value of shares of common stock held by non-affiliates at
January 31, 2001 was $8,877,105,533.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Documents Incorporated by Reference
Portions of the Proxy Statement prepared for the 2001 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report.
Index to Exhibits is located on pages 53 through 55.
PART I
Throughout this report, we refer to Marriott International, Inc., together
with its subsidiaries, as "we," "us," or "the Company."
FORWARD-LOOKING STATEMENTS
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 99 and elsewhere in this annual report, could cause
results to differ materially from those expressed in such forward-looking
statements.
. competition for each of our business segments;
. business strategies and their intended results;
. the balance between supply of and demand for hotel rooms,
timeshare units, senior living accommodations and corporate
apartments;
. our continued ability to obtain new operating contracts and
franchise agreements;
. our ability to develop and maintain positive relations with
current and potential hotel and senior living community
owners;
. the effect of international, national and regional economic
conditions;
. the availability of capital to allow us and potential hotel
owners to fund investments;
. the effect that internet hotel reservation channels may have
on the rates that we are able to charge for hotel rooms; and
. other risks described from time to time in our filings with
the Securities and Exchange Commission (the SEC).
ITEMS 1 and 2. BUSINESS AND PROPERTIES
We are a worldwide operator and franchisor of hotels and related lodging
facilities, an operator of senior living communities, and a provider of
distribution services. Our operations are grouped in three business segments,
Lodging, Senior Living Services and Distribution Services, which represented 78,
7, and 15 percent, respectively, of total sales in the fiscal year ended
December 29, 2000.
In our Lodging segment, we operate, develop and franchise lodging facilities
and vacation timesharing resorts. In addition, we provide over 6,900 furnished
corporate housing units.
In our Senior Living Services segment we develop and presently operate 153
senior living communities offering independent living, assisted living and
skilled nursing care for seniors in the United States.
Marriott Distribution Services (MDS) supplies food and related products to
external customers and to internal lodging and senior living services operations
throughout the United States.
2
Financial information by industry segment and geographic area as of December
29, 2000 and for the three fiscal years then ended, appears in the Business
Segments note to our Consolidated Financial Statements included in this annual
report.
Formation of "New" Marriott International - Spinoff in March 1998
We became a public company in March 1998, when we were spun off (the Spinoff)
as a separate entity by the company formerly named "Marriott International,
Inc." (Old Marriott). Our company - the "new" Marriott International - was
formed to conduct the lodging, senior living and distribution services
businesses formerly conducted by Old Marriott.
The Spinoff was effected through a dividend of one share of our common stock
and one share of our Class A Common Stock for each share of Old Marriott Common
Stock outstanding on March 20, 1998. As the result of a shareholders' vote at
our 1998 annual meeting of shareholders, on May 21, 1998 we converted all of our
outstanding shares of common stock into shares of Class A Common Stock on a one-
for-one basis.
At the same time as the Spinoff, Old Marriott merged its remaining businesses
- food service and facilities management - with the similar businesses of
Sodexho Alliance, S.A. (Sodexho Alliance) in the United States and Canada, to
form Sodexho Marriott Services, Inc. (SMS). We are providing certain
transitional administrative services to SMS, and MDS provides food distribution
services to many of SMS's food service locations.
Lodging
We operate or franchise 2,099 lodging properties worldwide, with 390,469 rooms
as of December 29, 2000. In addition, we provide 6,959 furnished corporate
housing units. We believe that our portfolio of lodging brands - from luxury to
economy to extended stay to corporate housing - is the broadest of any company
in the world, and that we are the leader in the quality tier of the vacation
timesharing business. Consistent with our focus on management and franchising,
we own very few of our lodging properties. Our lodging brands include:
Upscale Full-Service Lodging Extended-Stay Lodging
. Marriott Hotels, Resorts and Suites . Residence Inn
. Marriott Conference Centers . TownePlace Suites
. JW Marriott Hotels . Marriott Executive Apartments
. Renaissance Hotels, Resorts and Suites
Luxury Lodging Vacation Timesharing
. Bvlgari Hotels and Resorts/1/ . Marriott Vacation Club International
. Ritz-Carlton . Horizons by Marriott Vacation Club
. The Ritz-Carlton Club
Moderate-Priced and Economy Lodging
. Courtyard Corporate Apartments
. Fairfield Inn . ExecuStay by Marriott
. SpringHill Suites
. Ramada International Hotels, Resorts and Suites
(Europe, Middle East and Asia/Pacific)
/1/ As part of our ongoing strategy to expand our reach through partnerships
with preeminent, world-class companies, in early 2001, we announced our plans to
launch a joint venture with Bulgari SpA to introduce a distinctive new luxury
hotel brand - Bvlgari Hotels and Resorts.
3
Company-Operated Lodging Properties
At December 29, 2000, we operated a total of 931 properties (231,416 rooms) as
owned or under long-term management or lease agreements with property owners
(together, the Operating Agreements).
Terms of our management agreements vary, but typically we earn a management
fee which comprises a base fee, which is a percentage of the revenues of the
hotel, and an incentive management fee, which is based on the profits of the
hotel. Our management agreements also typically include reimbursement of costs
(both direct and indirect) of operations. Such agreements are generally for
initial periods of 20 to 30 years, with options to renew for up to 50 additional
years. Our lease agreements also vary, but typically include fixed annual
rentals plus additional rentals based on a percentage of annual revenues in
excess of a fixed amount. Many of the Operating Agreements are subordinated to
mortgages or other liens securing indebtedness of the owners. Additionally, a
number of the Operating Agreements permit the owners to terminate the agreement
if financial returns fail to meet defined levels and we have not cured such
deficiencies.
For lodging facilities that we manage, we are responsible for hiring, training
and supervising the managers and employees required to operate the facilities
and for purchasing supplies, for which we generally are reimbursed by the
owners. We provide centralized reservation services, and national advertising,
marketing and promotional services, as well as various accounting and data
processing services. For lodging facilities that we manage, we prepare and
implement annual operating budgets that are subject to owner review.
Franchised Lodging Properties
We have franchising programs that permit the use of certain of our brand names
and our lodging systems by other hotel owners and operators. Under these
programs, we generally receive an initial application fee and continuing royalty
fees, which typically range from four percent to six percent of room revenues
for all brands, plus two percent to three percent of food and beverage revenues
for certain full-service hotels. In addition, franchisees contribute to our
national marketing and advertising programs, and pay fees for use of our
centralized reservation systems. At December 29, 2000, we had 1,168 franchised
properties (159,053 rooms).
Summary of Properties by Brand
------------------------------
As of December 29, 2000 we operated or franchised the following properties by
brand (excluding 6,959 corporate housing rental units):
Company-operated Franchised
------------------------------- -------------------------------
Brand Properties Rooms Properties Rooms
----------------------------------------------------- -------------- ------------ -------------- ------------
Marriott Hotels, Resorts and Suites.................. 238 105,396 155 43,825
Ritz-Carlton......................................... 38 13,018 - -
Renaissance Hotels, Resorts and Suites............... 78 30,133 29 9,995
Ramada International................................. 7 1,325 40 7,870
Residence Inn........................................ 139 18,052 215 23,298
Courtyard............................................ 280 43,689 240 30,152
TownePlace Suites.................................... 31 3,290 53 5,242
Fairfield Inn........................................ 52 7,526 387 33,886
SpringHill Suites.................................... 12 1,736 49 4,785
Marriott Vacation Club International................. 47 5,556 - -
Marriott Executive Apartments and other.............. 9 1,695 - -
-------------- ------------ -------------- ------------
Total................................................ 931 231,416 1,168 159,053
============== ============ ============== ============
We plan to open over 200 hotels (more than 35,000 rooms) during 2001. We
believe that we have access to sufficient financial resources to finance our
growth, as well as to support our ongoing operations and meet debt service and
other cash requirements. Nonetheless, our ability to sell properties that we
develop, and the ability of hotel developers to build or acquire new Marriott
properties, which are important parts of our growth plans, are partially
dependent on the availability and price of capital.
4
Marriott Hotels, Resorts and Suites (including JW Marriott Hotels and Marriott
Conference Centers) primarily serve business and leisure travelers and meeting
groups at locations in downtown and suburban areas, near airports and at resort
locations. Most Marriott full-service hotels contain from 300 to 500 rooms.
Marriott full-service hotels typically have swimming pools, gift shops,
convention and banquet facilities, a variety of restaurants and lounges and
parking facilities. Marriott resort hotels have additional recreational
facilities, such as tennis courts and golf courses. The 13 Marriott Suites
(approximately 3,400 rooms) are full-service suite hotels that typically contain
approximately 260 suites, each consisting of a living room, bedroom and
bathroom. Marriott Suites have limited meeting space. Unless otherwise
indicated, references throughout this report to Marriott Hotels, Resorts and
Suites include JW Marriott Hotels and Marriott Conference Centers.
JW Marriott Hotels are located in many of the world's major gateway cities in
upscale business and resort locations. These 13 hotels cater to discerning
upscale travelers seeking a lodging experience of high comfort and prestige.
Most JW Marriott Hotels contain 300 to 450 rooms. In addition to the features
found in a typical Marriott full-service hotel, the facilities and amenities in
the JW Marriott Hotels include valet parking, upgraded in-room amenities, "on-
call" housekeeping, upgraded executive business centers and fitness
centers/spas, and 24-hour room service.
We operate 13 conference centers (3,154 rooms), located throughout the United
States. Some of the centers are used exclusively by employees of the sponsoring
organization, while others are marketed to outside meeting groups and
individuals. The centers typically include meeting room space, dining
facilities, guestrooms and recreational facilities.
Room operations contributed the majority of hotel sales for fiscal year 2000
with the remainder coming from food and beverage operations, recreational
facilities and other services. Although business at many resort properties is
seasonal depending on location, overall hotel profits have been relatively
stable and include only moderate seasonal fluctuations.
Marriott Hotels, Resorts and Suites
Geographic Distribution at December 29, 2000 Hotels
----------------------------------------------------------------------------- -------------
United States (41 states and the District of Columbia)....................... 270 (111,690 rooms)
=============
Non-U.S. (50 countries and territories)
Americas (Non-U.S.)........................................................ 27
Continental Europe......................................................... 26
United Kingdom............................................................. 37
Asia....................................................................... 19
Africa and the Middle East................................................. 11
Australia.................................................................. 3
-------------
Total Non-U.S................................................................ 123 (37,531 rooms)
=============
Ritz-Carlton hotels and resorts are renowned for their distinctive
architecture and for the quality of their facilities, dining and guest service.
Most Ritz-Carlton hotels have 250 to 350 guest rooms and typically include
meeting and banquet facilities, a variety of restaurants and lounges, gift
shops, swimming pools and parking facilities. Guests at most of the Ritz-
Carlton resorts have access to additional recreational amenities, such as tennis
courts and golf courses.
Ritz-Carlton Luxury Hotels and Resorts
Geographic Distribution at December 29, 2000 Hotels
----------------------------------------------------------------------------- --------------
United States (12 states and the District of Columbia)....................... 21 (7,611 rooms)
==============
Non-U.S. (15 countries and territories)..................................... 17 (5,407 rooms)
==============
5
Renaissance is a global quality-tier brand which targets business travelers,
group meetings and leisure travelers. Renaissance hotels are generally located
in downtown locations of major cities, in suburban office parks, near major
gateway airports and in destination resorts. Most hotels contain 300 to 500
rooms; however, a few of the convention hotels are larger, and some hotels in
non-gateway markets, particularly in Europe, are smaller. Renaissance hotels
typically include an all-day dining restaurant, a specialty restaurant, club
floors and lounge, boardrooms, and convention and banquet facilities.
Renaissance resorts have additional recreational facilities including golf,
tennis and water sports.
Renaissance Hotels, Resorts and Suites
Geographic Distribution at December 29, 2000 Hotels
----------------------------------------------------------------------------- --------------
United States (19 states and the District of Columbia)....................... 47 (19,475 rooms)
==============
Non-U.S. (26 countries and territories)
Americas (Non-U.S.)........................................................ 8
Continental Europe......................................................... 16
United Kingdom............................................................. 5
Asia....................................................................... 22
Africa and the Middle East................................................. 8
Australia.................................................................. 1
--------------
Total Non-U.S................................................................ 60 (20,653 rooms)
==============
Ramada International is a moderately-priced brand targeted at business and
leisure travelers. Each full-service Ramada International property includes a
restaurant, a cocktail lounge and full-service meeting and banquet facilities.
Ramada International hotels are located primarily in Europe in major and
secondary cities, near major international airports and suburban office park
locations. We also receive a royalty fee from Cendant Corporation and Ramada
Franchise Canada Limited for the use of the Ramada name in the United States and
Canada, respectively. On December 20, 2000 we announced our plans to convert
approximately 80 Treff hotels to Ramada-Treff hotels. We also entered into an
agreement with Treff hotels for them to develop, over the next five years, ten
new Ramada International hotels per year, primarily in Germany and Switzerland.
Ramada International
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------------------------- --------------
Americas (Non-U.S.)........................................................ 2
Continental Europe......................................................... 31
Asia....................................................................... 10
Africa and the Middle East................................................. 4
--------------
Total (14 countries and territories)....................................... 47 (9,195 rooms)
==============
Residence Inn is the U.S. market leader among extended-stay lodging products,
which caters primarily to business, government and family travelers who stay
more than five consecutive nights. Residence Inns generally have 80 to 150
rooms, with a mix of studio, one bedroom and two-bedroom suites. Most inns
feature a series of residential style buildings with landscaped walkways,
courtyards and recreational areas. The inns do not have restaurants but offer
complimentary continental breakfast. Each suite contains a fully equipped
kitchen, and many suites have wood-burning fireplaces.
Residence Inn
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------------------------- ------------
United States (46 states and the District of Columbia)..................... 345 (40,115 rooms)
==============
Canada..................................................................... 8 (1,159 rooms)
==============
Mexico..................................................................... 1 (76 rooms)
==============
Courtyard is our moderate-price select-service hotel product. Aimed at
individual business and leisure travelers as well as families, Courtyard hotels
maintain a residential atmosphere and typically have 80 to 150 rooms. Well
landscaped grounds include a courtyard with a pool and social areas. Most
hotels feature meeting rooms, limited restaurant and lounge facilities, and an
exercise room. The operating systems developed for these hotels allow Courtyard
to be price-competitive while providing better value through superior facilities
and guest service.
6
Courtyard
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------------------------- --------------
United States (44 states and the District of Columbia)..................... 479 (66,750 rooms)
==============
Non-U.S. (9 countries).................................................... 41 (7,091 rooms)
==============
TownePlace Suites is a moderately priced, extended-stay hotel product that is
designed to appeal to business and leisure travelers. The typical TownePlace
Suites hotel contains 95 high quality studio and two-bedroom suites. Each suite
has a fully equipped kitchen and separate living area. Each hotel provides
housekeeping services and has on-site exercise facilities, an outdoor pool, 24-
hour staffing and laundry facilities. At December 29, 2000, 84 TownePlace Suites
(8,532 rooms) were located in 29 states.
Fairfield Inn is our economy lodging product which competes directly with
major national economy motel chains. Aimed at cost-conscious individual
business and leisure travelers, a typical Fairfield Inn has 65 to 135 rooms and
offers a swimming pool, complimentary continental breakfast and free local phone
calls. At December 29, 2000, 439 Fairfield Inns (41,412 rooms) were located in
46 states and the District of Columbia.
SpringHill Suites is our all-suite brand in the moderate-price tier of lodging
products. SpringHill Suites feature suites that are 25 percent larger than a
typical hotel guest room and offer a broad range of amenities, including
complimentary continental breakfast and exercise facilities. At December 29,
2000, 61 properties (6,521 rooms) were located in 24 states.
Marriott Vacation Club International develops, sells and operates vacation
timesharing resorts. Profits are generated from three primary sources: (1)
selling fee simple and other forms of timeshare intervals, (2) operating the
resorts and (3) financing consumer purchases of timesharing intervals.
Many timesharing resorts are located adjacent to Marriott hotels, and
timeshare owners have access to certain hotel facilities during their vacation.
Owners can trade their annual interval for intervals at other Marriott
timesharing resorts or for intervals at certain timesharing resorts not
otherwise sponsored by Marriott through an affiliated exchange company. Owners
also can trade their unused interval for points in the Marriott Rewards frequent
stay program, enabling them to stay at over 2,000 Marriott hotels worldwide.
In 2000, we successfully launched The Ritz-Carlton Club, our luxury vacation
timesharing resort, with two premier locations: St Thomas, U.S. Virgin Islands
and Aspen, Colorado. We also initiated sales at Horizons by Marriott Vacation
Club (Horizons) at a resort in Branson, Missouri and at our flagship resort in
Orlando, Florida. Horizons represents our entrance into the moderate tier
vacation ownership market.
Marriott Vacation Club International's owner base continues to expand, with
182,000 owners at year end 2000, compared to 140,000 in 1999.
Marriott Vacation Club International (all brands)
Geographic Distribution at December 29, 2000 Resorts Units
----------------------------------------------------------------------------- -------------- ---------------
Continental United States.................................................... 40 4,586
Hawaii....................................................................... 2 386
Caribbean.................................................................... 3 285
Europe....................................................................... 2 299
-------------- ---------------
Total........................................................................ 47 5,556
============== ===============
We provide temporary housing (serviced apartments) for business executives and
others who need quality accommodations outside their home country, usually for
30 or more days. Some serviced apartments operate under the Marriott Executive
Apartments brand which is designed specifically for the long-term international
traveler. At December 29, 2000, nine serviced apartment properties (1,695
units), including four Marriott Executive Apartments, were located in five
countries and territories. All Marriott Executive Apartments are located
outside the United States.
ExecuStay provides furnished corporate apartments for stays of one month or
longer nationwide. ExecuStay owns no residential real estate and provides units
primarily through short-term lease agreements with apartment owners and
managers.
7
Other Activities
Marriott Golf manages 26 golf course facilities for us and for other golf
course owners.
We operate 19 systemwide hotel reservation centers, 13 of them in the U.S.
and Canada and six internationally, that handle reservation requests for
Marriott lodging brands worldwide, including franchised properties. We own one
of the U.S. facilities and lease the others.
Our Architecture and Construction Division assists in the design,
development, construction and refurbishment of lodging properties and senior
living communities and is paid a fee by the property owners.
Competition
We encounter strong competition both as a lodging operator and as a
franchisor. There are over 650 lodging management companies in the United
States, including several that operate more than 100 properties. These operators
are primarily private management firms, but also include several large national
chains that own and operate their own hotels and also franchise their brands.
Management contracts are typically long-term in nature, but most allow the hotel
owner to replace the management firm if certain financial or performance
criteria are not met.
Affiliation with a national or regional brand is prevalent in the U.S.
lodging industry. In 2000, the majority of U.S. hotel rooms were brand-
affiliated. Most of the branded properties are franchises, under which the
operator pays the franchisor a fee for use of its hotel name and reservation
system. The franchising business is fairly concentrated, with the three largest
franchisors operating multiple brands accounting for a significant proportion of
all U.S. rooms.
Outside the United States branding is much less prevalent, and most markets
are served primarily by independent operators. We believe that chain affiliation
will increase in overseas markets as local economies grow, trade barriers are
reduced, international travel accelerates and hotel owners seek the economies of
centralized reservation systems and marketing programs.
Based on lodging industry data, we have nearly an eight percent share of
the U.S. hotel market (based on number of rooms), less than a one percent share
of the lodging market outside the United States and a nine percent share of
annual worldwide timesharing sales of about $8 billion. We believe that our
hotel brands are attractive to hotel owners seeking a management company or
franchise affiliation, because our hotels typically generate higher occupancies
and Revenue per Available Room (REVPAR) than direct competitors in most market
areas. We attribute this performance premium to our success in achieving and
maintaining strong customer preference. Approximately 30 percent of our
ownership resort sales come from additional purchases by or referrals from
existing owners. We believe that the location and quality of our lodging
facilities, our marketing programs, reservation systems and our emphasis on
guest service and satisfaction are contributing factors across all of our
brands.
Properties that we operate or franchise are regularly upgraded to maintain
their competitiveness. Our management, lease, and franchise agreements provide
for the allocation of funds, generally a fixed percentage of revenue, for
periodic renovation of buildings and replacement of furnishings. We believe that
the ongoing refurbishment program is adequate to preserve the competitive
position and earning power of the hotels. We also strive to update and improve
the products and services we offer. We believe that by operating a number of
hotels in each of our brands, we stay in direct touch with customers and react
to changes in the marketplace more quickly than chains which rely exclusively on
franchising.
Marriott Rewards is a frequent guest program with a total of over 14
million members, and nine participating Marriott brands. The Marriott Rewards
program yields repeat guest business due to rewarding frequent stayers with
points toward free hotel stays and other rewards, or airline miles with any of
20 participating airline programs. We believe that Marriott Rewards generates
substantial repeat business that might otherwise go to competing hotels.
8
Marriott Senior Living Services
In our Senior Living Services business, we develop and operate both
"independent full-service" and "assisted living" senior living communities and
provide related senior care services. Most are rental communities with monthly
rates that depend on the amenities and services provided. We are one of the
largest U.S. operators of senior living communities in the quality tier.
At December 29, 2000 we operated 153 senior living communities in 30
states.
Communities Units (1)
------------- ------------
Independent full-service
- owned............................................................... 3 1,193
- operated under long-term agreements................................. 42 11,649
------------- ------------
45 12,842
Assisted living
- owned............................................................... 46 5,010
- operated under long-term agreements................................. 62 8,066
------------- ------------
108 13,076
------------- ------------
Total senior living communities......................................... 153 25,918
============= ============
(1) Units represent independent living apartments plus beds in assisted living
and nursing centers.
At December 29, 2000, we operated 45 independent full-service senior living
communities, which offer both independent living apartments and personal
assistance units for seniors. Most of these communities also offer licensed
nursing care.
At December 29, 2000, we also operated 108 assisted living senior living
communities principally under the names "Brighton Gardens by Marriott," "Village
Oaks," and "Marriott MapleRidge." Assisted living communities are for seniors
who benefit from assistance with daily activities such as bathing, dressing or
medication. Brighton Gardens is a quality-tier assisted living concept which
generally has 90 assisted living suites and in certain locations, 30 to 45
nursing beds in a community. In some communities, separate on-site centers also
provide specialized care for residents with Alzheimer's or other memory-related
disorders. Village Oaks is a moderately-priced assisted living concept which
emphasizes companion living and generally has 70 suites in a community. This
concept is geared for the cost conscious senior who benefits from the
companionship of another unrelated individual. Marriott MapleRidge assisted
living communities consist of a cluster of six or seven 14-room cottages which
offer residents a smaller scale, more intimate setting and family-like living at
a moderate price.
The assisted living concepts typically include three meals per day, linen
and housekeeping services, security, transportation, and social and recreational
activities. Additionally, skilled nursing and therapy services are generally
available to Brighton Gardens residents.
Terms of the senior living services management agreements vary but
typically include base management fees, ranging from four to six percent of
revenues, central administrative services reimbursements and incentive
management fees. Such agreements are generally for initial periods of five to 30
years, with options to renew for up to 25 additional years. Under the leases
covering certain of the communities, we pay the owner fixed annual rent plus
additional rent equal to a percentage of the amount by which annual revenues
exceed a fixed amount.
Our Senior Living Services business competes mostly with local and regional
providers of long-term health care and senior living services, although there
are some national providers in the assisted living market. We compete by
operating well-maintained facilities, and by providing quality health care, food
service and other services at competitive prices. The reputation for service,
quality care and know how associated with the Marriott name is also attractive
to residents and their families. We have focused on developing relationships
with professionals who often refer seniors to senior living communities, such as
hospital discharge planners and physicians.
9
Marriott Distribution Services
MDS is a United States limited-line distributor of food and related
supplies, carrying an average of 3,000 product items per distribution center.
This segment originally focused on purchasing, warehousing and distributing food
and supplies to other Marriott businesses. However, MDS has increased its third-
party business to about 89 percent of total sales volume for the year ended
December 29, 2000.
MDS operated a nationwide network of 13 distribution centers at December
29, 2000. Leased facilities are generally built to our specifications, and
utilize a narrow aisle concept and technology to enhance productivity.
Through MDS, we compete with numerous national, regional and local
distribution companies in the $147 billion U.S. food distribution industry. We
attract clients by adopting competitive pricing policies and by maintaining one
of the highest order fill rates in the industry. In addition, our limited
product lines, operating systems, and other economies provide a favorable cost
structure which we are able to leverage in pursuing new business.
Employee Relations
At December 29, 2000, we had approximately 153,000 employees. Approximately
6,350 employees were represented by labor unions. We believe relations with our
employees are positive.
Other Properties
In addition to the operating properties discussed above, we lease an
870,000 square foot office building in Bethesda, Maryland which serves as our
headquarters.
We believe our properties are in generally good physical condition with
need for only routine repair and maintenance.
ITEM 3. LEGAL PROCEEDINGS
Certain legal proceedings which were settled during our 2000 fiscal year
are described in the "Contingent Liabilities" footnote in the financial
statements set forth in Part II, Item 8, "Financial Statements and Supplementary
Data."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
Part II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The range of prices of our common stock and dividends declared per share
for each quarterly period within the last two years are as follows:
Stock Price Dividends
-----------------------------------------------
Declared Per
High Low Share
--------------------- --------------------- ------------------
1999 First Quarter.......... $ 39 15/16 $ 29 $ 0.050
Second Quarter......... 44 1/2 33 0.055
Third Quarter.......... 38 1/2 33 5/16 0.055
Fourth Quarter......... 36 1/4 29 9/16 0.055
Stock Price Dividends
-----------------------------------------------
Declared Per
High Low Share
--------------------- --------------------- ------------------
2000 First Quarter.......... $ 34 3/4 $ 26 1/8 $ 0.055
Second Quarter......... 38 29 1/2 0.060
Third Quarter.......... 42 3/8 34 5/8 0.060
Fourth Quarter......... 43 1/2 34 1/8 0.060
At January 31, 2001, there were 243,655,082 shares of Class A Common Stock
outstanding held by 53,053 shareholders of record. Our Class A Common Stock is
traded on the New York Stock Exchange, Chicago Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange.
11
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table presents summary selected historical financial data for
the Company derived from our financial statements as of and for the five fiscal
years ended December 29, 2000.
Since the information in this table is only a summary and does not provide
all of the information contained in our financial statements, including the
related notes, you should read "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our Consolidated Financial
Statements. Per share data and Shareholders' Equity have not been presented for
periods prior to 1998 because we were not a publicly-held company during that
time.
Fiscal Year
------------------------------------------------------------
2000 1999 1998 1997 1996/1/
--------- --------- --------- --------- --------
(in millions, except per share data)
Systemwide Sales/2/............................... $ 19,781 $ 17,684 $ 16,024 $ 13,196 $ 9,899
Income Statement Data:
Sales............................................. 10,017 8,739 7,968 7,236 5,738
Operating Profit Before Corporate Expenses and
Interest......................................... 922 830 736 609 508
Net Income........................................ 479 400 390 324 270
Per Share Data:
Diluted Earnings Per Share........................ 1.89 1.51 1.46
Cash Dividends Declared........................... .235 .215 .195
Balance Sheet Data (at end of year):
Total Assets...................................... 8,237 7,324 6,233 5,161 3,756
Long-Term and Convertible Subordinated Debt....... 2,016 1,676 1,267 422 681
Shareholders' Equity.............................. 3,267 2,908 2,570
_______________________
/1/ Fiscal year 1996 includes 53 weeks, all other years include 52 weeks.
/2/ Systemwide sales comprise revenues generated from guests at owned, leased,
managed and franchised hotels and senior living communities, together with
sales of our other businesses.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following discussion presents an analysis of results of our operations
for fiscal years ended December 29, 2000, December 31, 1999, and January 1,
1999. Comparable REVPAR, room rate and occupancy statistics used throughout this
report are based on U.S. properties operated by us except for Fairfield Inn,
which data also include franchised units. Systemwide sales and statistics
include data from our franchised properties, in addition to our owned, leased
and managed properties. Systemwide statistics are based on comparable worldwide
units and reflect the impact of foreign exchange rates.
In 1998 we changed our accounting policy to no longer include the working
capital and sales of managed hotels and managed senior living communities in our
financial statements. Instead, our sales include fees earned plus costs
recovered from owners of managed properties.
Consolidated Results
2000 Compared to 1999
Net income increased 20 percent to $479 million and diluted earnings per
share advanced 25 percent to $1.89. Profit growth was driven by our strong U.S.
lodging operations, lower system-related costs associated with the year 2000 and
the impact on the 1999 financial results of a $39 million pretax charge to
reflect a litigation settlement. Results were also impacted by a $15 million
one-time write-off of a contract investment in our Distribution Services segment
in the first quarter of 2000.
Sales increased 15 percent to $10 billion in 2000, reflecting strong
revenue resulting from new and established hotels, contributions from
established Senior Living communities, as well as new customers in our
Distribution Services business. Systemwide sales increased by 12 percent to
$19.8 billion in 2000.
1999 Compared to 1998
Net income increased three percent to $400 million in 1999 and diluted
earnings per share advanced three percent to $1.51. Overall profit growth in
1999 was curtailed by a $39 million pretax charge to reflect an agreement to
settle litigation, incremental costs of our Year 2000 readiness efforts, and an
operating loss in our Senior Living Services business.
Sales increased 10 percent to $8.7 billion in 1999, reflecting revenue
gains at established hotels, and contributions from new lodging properties and
Senior Living communities. Systemwide sales grew 10 percent to $17.7 billion in
1999.
Marriott Lodging
Annual Change
--------------------
(dollars in millions) 2000 1999 1998 00/99 99/98
----------------------------------------------------------------- --------- --------- -------- ------------ -------
Sales............................................................. $7,848 $7,041 $6,311 +11% +12%
Operating profit.................................................. 936 827 704 +13% +17%
2000 Compared to 1999
Marriott Lodging reported a 13 percent increase in operating profit on 11
percent higher sales in 2000. Results reflected solid room rate growth at U.S.
hotels, and contributions from new properties worldwide. Lodging operating
profit in 2000 was attributable to base management fees (28 percent of total),
franchise fees (17 percent), land rent and other income (three percent), resort
timesharing (15 percent), and incentive management fees and other profit
participations (37 percent).
13
Across our full-service lodging brands (Marriott Hotels, Resorts and Suites,
Renaissance Hotels, Resorts and Suites and Ritz-Carlton), REVPAR for comparable
company-operated U.S. properties grew by an average of 7.2 percent in 2000.
Average room rates for these hotels rose 6.3 percent, while occupancy increased
slightly to 77.4 percent. In 2000, as a result of the termination of two Ritz-
Carlton management agreements, we wrote off our $3 million investment in these
contracts. In addition, due to the bankruptcy of the owner of one hotel, we
reserved $6 million of our investment in that management agreement.
Our domestic select-service and extended-stay brands (Residence Inn,
Courtyard, Fairfield Inn, TownePlace Suites and SpringHill Suites) added a total
of 161 properties (18,870 rooms) and deflagged seven properties (1,500 rooms),
primarily franchises, during the 2000 fiscal year. REVPAR for comparable
properties increased 5.5 percent.
Comparable Comparable
U.S. properties Systemwide
---------------------------- ------------------------------
Change vs. Change vs.
2000 1999 2000 1999
---------- ------------- ----------- -------------
Marriott Hotels, Resorts and Suites
Occupancy.................................... 78.2% +0.4% pts. 75.7% +0.4% pts.
Average daily rate........................... $ 149.50 +6.2% $ 136.37 +4.9%
REVPAR....................................... $ 116.95 +6.8% $ 103.27 +5.5%
Ritz-Carlton
Occupancy.................................... 77.5% +0.1% pts. 77.5% +2.0% pts.
Average daily rate........................... $ 242.26 +9.2% $ 228.01 +8.9%
REVPAR....................................... $ 187.75 +9.4% $ 176.75 +11.9%
Renaissance Hotels, Resorts and Suites
Occupancy.................................... 73.3% +2.0% pts. 70.9% +2.7% pts.
Average daily rate........................... $ 142.27 +4.5% $ 119.95 +3.0%
REVPAR....................................... $ 104.35 +7.5% $ 85.07 +7.0%
Residence Inn
Occupancy.................................... 83.5% +0.7% pts. 82.2% +0.8% pts.
Average daily rate........................... $ 104.88 +5.1% $ 102.25 +4.3%
REVPAR....................................... $ 87.61 +6.1% $ 84.10 +5.3%
Courtyard
Occupancy.................................... 78.9% - pts. 77.0% +0.2% pts.
Average daily rate........................... $ 97.68 +5.7% $ 93.51 +4.9%
REVPAR....................................... $ 77.05 +5.7% $ 71.96 +5.1%
Fairfield Inn
Occupancy.................................... 69.7% -1.0% pts. 69.7% -1.0% pts.
Average daily rate........................... $ 61.32 +3.8% $ 61.32 +3.8%
REVPAR....................................... $ 42.75 +2.4% $ 42.75 +2.4%
Results for international lodging operations were favorable in 2000, despite a
decline in the value of the Euro against the U.S. dollar, reflecting strong
demand in the Middle East, Asia, Europe and the Caribbean region.
Marriott Vacation Club International also posted favorable profit growth in
2000, reporting a 34 percent increase in contract sales. The increase in
contract sales reflects interest in our newest brands, Horizons by Marriott
Vacation Club in Orlando, Florida, and The Ritz-Carlton Club resorts in St.
Thomas, U.S. Virgin Islands, and Aspen, Colorado, as well as continued strong
demand for our timeshare properties in Hawaii, Aruba and California. The profit
growth in 2000 was impacted by a $6 million decline in gains from the sale of
notes receivable arising from lower note sale volume. At the end of the year, 24
resorts were in active sales, 23 resorts were sold out and an additional 13
resorts were under development.
The Marketplace by Marriott (Marketplace), our hospitality procurement
business, prepared for its launch as an independent company. In January 2001,
Marriott and Hyatt Corporation
14
formed a joint venture, Avendra LLC, and we each merged our respective
procurement businesses into it. Avendra LLC is an independent professional
procurement services company serving the North American hospitality market and
related industries. Bass Hotels & Resorts, Inc., ClubCorp USA Inc. and Fairmont
Hotels & Resorts, Inc. are expected to join Avendra LLC in 2001.
1999 Compared to 1998
Marriott Lodging reported a 17 percent increase in operating profit and 12
percent higher sales in 1999. Results reflected higher room rates for U.S.
hotels, contributions from new hotels worldwide, and strong interval sales in
resort timesharing. Lodging operating profit in 1999 was attributable to base
management fees (27 percent of total), franchise fees (17 percent) and land rent
(three percent) that are based on fixed dollar amounts or percentages of sales.
The balance was attributable to our timesharing business (15 percent), and to
incentive management fees and other income based on the profits of the
underlying properties (38 percent).
Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 3.7 percent in 1999. Average room rates for
these hotels rose 3.6 percent, while occupancy remained at 77.5 percent.
Occupancy, average daily rate and REVPAR for each of our principal established
brands are shown in the following table.
Comparable Comparable
U.S. properties Systemwide
----------------------------- -----------------------------
Change vs. Change vs.
1999 1998 1999 1998
---------- -------------- ----------- --------------
Marriott Hotels, Resorts and Suites
Occupancy............................................ 77.5% -0.1% pts. 75.6% +0.8% pts.
Average daily rate................................... $ 140.86 +3.9% $ 131.61 +2.3%
REVPAR............................................... $ 109.22 +3.9% $ 99.55 +3.3%
Ritz-Carlton
Occupancy............................................ 77.8% +3.4% pts. 76.4% +3.9% pts.
Average daily rate................................... $ 219.37 +5.5% $ 207.28 +4.8%
REVPAR............................................... $ 170.67 +10.3% $ 158.28 +10.4%
Renaissance Hotels, Resorts and Suites
Occupancy............................................ 70.8% +0.5% pts. 68.1% +0.8% pts.
Average daily rate................................... $ 132.09 +2.1% $ 115.65 -1.5%
REVPAR............................................... $ 93.54 +2.9% $ 78.75 -0.4%
Residence Inn
Occupancy............................................ 83.0% -0.1% pts. 81.9% -0.1% pts.
Average daily rate................................... $ 99.03 +0.9% $ 97.95 +1.7%
REVPAR............................................... $ 82.23 +0.8% $ 80.20 +1.5%
Courtyard
Occupancy............................................ 79.3% -0.1% pts. 77.3% +0.3% pts.
Average daily rate................................... $ 91.48 +2.8% $ 88.59 +2.6%
REVPAR............................................... $ 72.53 +2.7% $ 68.48 +3.0%
Fairfield Inn
Occupancy............................................ 71.0% -2.2% pts. 71.0% -2.2% pts.
Average daily rate................................... $ 58.87 +3.3% $ 58.76 +3.1%
REVPAR............................................... $ 41.80 +0.1% $ 41.75 -
International hotel operations posted improved results in 1999, reflecting
profit growth for properties in continental Europe, the Middle East, Latin
America and the Caribbean region.
15
Marriott Vacation Club International achieved a 22 percent increase in
contract sales in 1999, as well as higher income from resort management. Strong
interval sales were generated at timeshare resorts in Florida, South Carolina,
Hawaii and Spain. During 1999, we had 21 resorts in active sales, including the
initial project (Orlando, Florida) for Horizons by Marriott Vacation Club, a new
product line targeting the moderate price tier of the timeshare market.
Marriott Senior Living Services
Annual Change
--------------------
(dollars in millions) 2000 1999 1998 00/99 99/98
----------------------------------------------- -------- -------- --------- --------- ---------
Sales.......................................... $ 669 $ 559 $ 479 +20% +17%
Operating (loss) profit........................ (18) (18) 15 - n/m
2000 Compared to 1999
Marriott Senior Living Services posted a 20 percent increase in sales in 2000,
reflecting the net addition of nine properties during the year and a four
percentage point increase in occupancy for comparable communities to 88 percent.
Despite the increase in sales, profitability was impacted by start-up
inefficiencies for new properties, higher administrative expenses, pre-opening
costs for new communities, costs related to debt associated with facilities
developed by unaffiliated third parties, and charges associated with our
decision to limit new construction until the market improves, resulting in a
loss of $18 million.
1999 Compared to 1998
Marriott Senior Living Services posted a 17 percent increase in sales in 1999,
as we added a net total of 31 new communities (4,216 living units) during the
year. Occupancy for comparable communities increased by nearly one percentage
point to 90 percent in 1999.
The division reported an operating loss in 1999, primarily as a result of $18
million of pre-opening costs for new communities, increased accounts receivable
reserves, and one-time charges associated with our decision to slow new
construction until market conditions improve.
Marriott Distribution Services
Annual Change
---------------------
(dollars in millions) 2000 1999 1998 00/99 99/98
----------------------------------------------- ---------- --------- --------- --------- ----------
Sales.......................................... $ 1,500 $ 1,139 $ 1,178 +32% -3%
Operating profit............................... 4 21 17 -81% +24%
2000 Compared to 1999
Marriott Distribution Services (MDS) posted a 32 percent increase in sales for
2000, reflecting the commencement of service to three large restaurant chains in
the year. Operating profit declined $17 million as a result of start-up
inefficiencies associated with the new business and a $15 million pretax write-
off of an investment in a contract with Boston Chicken, Inc. and its Boston
Market-controlled subsidiaries, a major customer that filed for bankruptcy in
October 1998. McDonald's Corporation (McDonald's) acquired Boston Market in
2000, and during the first quarter of 2000, MDS entered into an agreement with
McDonald's to continue providing distribution services to Boston Market
restaurants (refer to the "Intangible Assets" footnote in the financial
statements set forth in Part II, Item 8, "Financial Statements and Supplementary
Data").
1999 Compared to 1998
Operating profit for Marriott Distribution Services increased 24 percent in
1999 on a modest decline in sales. The division benefited from higher gross
margins per case and reduced inventory losses compared to 1998.
16
Corporate Expenses, Interest and Taxes
2000 Compared to 1999
Corporate expenses decreased $44 million in 2000 to $120 million primarily due
to a $39 million pretax charge in 1999 associated with a litigation settlement
and systems-related costs associated with Year 2000 that were incurred in 1999,
offset by costs incurred in 2000 associated with new corporate systems and a $3
million charge due to a change in our vacation accrual policy. Interest expense
increased $39 million as a result of borrowings to finance growth outlays and
share repurchases. Interest income increased $23 million primarily due to the
collection of $14 million of interest associated with an international loan that
was previously reserved for and increased advances and loan fundings made during
2000. Our effective income tax rate decreased to approximately 36.8 percent in
2000 from 37.3 percent in 1999 primarily due to increased income in countries
with lower effective tax rates.
1999 Compared to 1998
Corporate expenses increased to $164 million in 1999 primarily due to a $39
million pretax charge associated with an agreement to settle pending litigation,
together with increased systems-related costs, including $22 million of costs
associated with our Year 2000 readiness program, compared to $12 million of Year
2000 readiness program costs in 1998. Interest expense more than doubled to $61
million as a result of borrowings to finance growth outlays and share
repurchases. Our effective income tax rate decreased to approximately 37.3
percent in 1999 from 38.3 percent in 1998, primarily due to the impact of tax-
oriented investments, and increased income in countries with lower effective tax
rates.
Lodging Development
Marriott Lodging opened 238 properties totaling approximately 40,000 rooms
across its brands in 2000, while 19 hotels (approximately 5,400 rooms) exited
the system. Highlights of the year included:
. Twenty-two full-service properties (approximately 5,400 rooms) opened
outside the United States. These include our first hotels in Romania,
Chile and Peru.
. Fifty-five hotels (approximately 11,700 rooms) converted from independent
status or competitor chains, including the 782-room Renaissance Hotel in
Honolulu, Hawaii, the 577-room Renaissance Hotel in Kissimee, Florida, and
the 349-room Renaissance Hotel in Miami Beach, Florida.
. The addition of 161 properties (approximately 18,900 rooms) to our select-
service and extended-stay brands.
. The launch of The Ritz-Carlton Club resorts in Aspen, Colorado and St.
Thomas, U.S. Virgin Islands, the development of a Horizons by Marriott
Vacation Club resort in Branson, Missouri and a new Marriott Vacation Club
International resort in Shadow Ridge, California.
At year-end 2000, we had over 400 hotel properties and more than 70,000 rooms
under construction or approved for development. We expect to open over 200
hotels and timesharing resorts (more than 35,000 rooms) in 2001. Over a five-
year period (1999 to 2003), we plan to add 175,000 rooms to our lodging system.
These growth plans are subject to numerous risks and uncertainties, many of
which are outside our control. See "Forward-Looking Statements" above and
"Liquidity and Capital Resources" below.
17
Senior Living Services Development
Due to oversupply conditions in some senior housing markets, we decided in
1999 to dramatically slow development of planned communities. Consequently, a
number of projects in the early stages of development were postponed or
cancelled. Additional projects were cancelled in the second and fourth quarters
of 2000.
Liquidity and Capital Resources
We believe that we have access to sufficient financial resources to finance
our growth, as well as to support our ongoing operations and meet debt service
and other cash requirements. However, our ability to sell properties that we
develop, and the ability of hotel developers to build or acquire new Marriott-
branded properties, which are important parts of our growth plans, are partially
dependent on the availability and cost of capital. We are monitoring the status
of the capital markets, and are evaluating the effect that changes in capital
market conditions may have on our ability to execute our announced growth plans.
Cash From Operations
Cash from operations was $850 million in 2000, $711 million in 1999, and $605
million in 1998. Net income is stated after depreciation expense of $123
million in 2000, $96 million in 1999, and $76 million in 1998, and after
amortization expense of $72 million in 2000, $66 million in 1999 and $64 million
in 1998. While our timesharing business generates strong operating cash flow,
annual amounts are affected by the timing of cash outlays for the acquisition
and development of new resorts, and cash received from purchaser financing. We
include interval sales we finance in cash from operations when we collect cash
payments or the notes are sold for cash.
Earnings before interest expense, income taxes, depreciation and amortization
(EBITDA) increased to $1,052 million in 2000 compared to $860 million in 1999,
and $802 million in 1998, and has grown at a 19 percent compounded annual rate
since 1995.
We consider EBITDA to be an indicator of our operating performance because it
can be used to measure our ability to service debt, fund capital expenditures
and expand our business. Nevertheless, one should not consider EBITDA an
alternative to net income, operating profit, cash flows from operations, or any
other operating or liquidity measure prescribed by accounting principles
generally accepted in the United States.
A substantial portion of our EBITDA is based on fixed dollar amounts or
percentages of sales. These include lodging base management fees, franchise fees
and land rent. With more than 2,000 hotels and senior living communities in the
Marriott system, no single property or region is critical to our financial
results.
Our ratio of current assets to current liabilities was .74 at December 29,
2000, compared to .92 at December 31, 1999. Each of our businesses minimizes
working capital through cash management, strict credit-granting policies,
aggressive collection efforts and high inventory turnover.
Investing Activities Cash Flows
Acquisitions. We continually seek opportunities to enter new markets,
increase market share or broaden service offerings through acquisitions.
Dispositions. Asset sales generated proceeds of $742 million in 2000, $436
million in 1999 and $332 million in 1998. Proceeds in 2000 are net of $79
million of financing and joint venture investments made by us in connection with
the sales transactions. In 2000 we closed on the sales of 23 hotels and 15
senior living communities, which we continue to operate under long-term
operating agreements. Subsequent to year-end, we closed on five hotels for $221
million.
18
Capital Expenditures and Other Investments. Capital expenditures of $1,095
million in 2000, $929 million in 1999 and $937 million in 1998, included
development and construction of new hotels and senior living communities and
acquisitions of hotel properties. Over time, we expect to sell certain lodging
and senior living properties under development, or to be developed, while
continuing to operate them under long-term agreements.
We also expect to continue to make other investments to grow our businesses,
including loans, minority equity investments and development of new timeshare
resorts in connection with adding units to our lodging business.
On February 23, 2000, we entered into an agreement to resolve litigation
involving certain limited partnerships formed in the mid- to late 1980s. Under
the agreement, we paid $31 million to partners in four limited partnerships and
acquired, through an unconsolidated joint venture (the Courtyard Joint Venture)
with affiliates of Host Marriott Corporation (Host Marriott), substantially all
of the limited partners' interests in two other limited partnerships, Courtyard
by Marriott Limited Partnership (CBM I) and Courtyard by Marriott II Limited
Partnership (CBM II). These partnerships own 120 Courtyard by Marriott hotels.
The Courtyard Joint Venture was financed with equity contributed in equal shares
by us and affiliates of Host Marriott and approximately $200 million in
mezzanine debt provided by us. Our total investment in the joint venture,
including mezzanine debt, is approximately $300 million.
We have made loans to owners of hotels and senior living communities that we
operate or franchise. Loans outstanding under this program totaled $592 million
at December 29, 2000, including the mezzanine debt related to the Courtyard
Joint Venture, $295 million at December 31, 1999, and $213 million at January 1,
1999. Unfunded commitments aggregating $829 million were outstanding at
December 29, 2000, of which $332 million are expected to be funded in 2001 and
$573 million are expected to be funded in total. These loans typically are
secured by mortgages on the projects. We participate in a program with an
unaffiliated lender in which we may partially guarantee loans made to facilitate
third-party ownership of hotels and senior living services communities that we
operate or franchise.
Cash From Financing Activities
Long-term debt increased by $340 million in 2000 and $409 million in 1999,
primarily to finance our capital expenditure and share repurchase programs.
Our financial objectives include diversifying our financing sources,
optimizing the mix and maturity of our long-term debt and reducing our working
capital. At year-end 2000, our long-term debt (including commercial paper
borrowings of $827 million) had an average interest rate of 6.8 percent and an
average maturity of approximately 4.7 years. The ratio of fixed rate long-term
debt to total long-term debt was .59 as of December 29, 2000.
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
January 30, 2001, we had offered and sold to the public $600 million of debt
securities under these registration statements, leaving a balance of $500
million available for future offerings.
In January 2001, we issued, through a private placement, $300 million of seven
percent senior unsecured notes due 2008, and received net proceeds of $297
million. We have agreed to promptly make and complete a registered exchange
offer for these notes and, if required, to implement a resale shelf registration
statement. If we fail to do so on a timely basis, we will pay additional
interest to the holders of these notes.
We have entered into revolving credit agreements that provide for borrowings
of $1.5 billion expiring in March 2003, and $500 million expiring in February
2004. Loans of $26 million were outstanding at December 29, 2000, under these
facilities, which support our commercial paper program and letters of credit.
We had $1.1 billion of unused revolving credit available under these facilities
as of December 29, 2000. Borrowings under these facilities bear interest at
LIBOR plus a spread, based on our public debt rating.
19
We called for mandatory redemption of our Liquid Yield Option Notes (LYONs) in
1999. Approximately 64 percent of LYONs holders elected to convert their notes
to common stock, for which we issued 6.1 million shares. The other 36 percent
of LYONs holders received cash totaling $120 million, which reduced by 3.4
million common shares the dilutive impact of these convertible debt securities
issued by a predecessor company in 1996. Nine percent of the cash redemption
price was reimbursed to us by our predecessor company (Sodexho Marriott
Services, Inc.).
We determine our debt capacity based on the amount and variability of our cash
flows. EBITDA coverage of gross interest cost was 6.9 times in 2000, and cash
flow requirements under our loan agreements were exceeded by a substantial
margin. At December 29, 2000, we had public debt ratings of BBB+ and Baa1 from
Standard and Poor's and Moody's, respectively.
Share Repurchases. We periodically repurchase our common stock to replace
shares needed for employee stock plans and for other corporate purposes. We
purchased 10.8 million of our shares in 2000 at an average price of $31 per
share, and 10.8 million shares in 1999 at an average price of $33 per share. As
of December 29, 2000, we had been authorized by our Board of Directors to
repurchase an additional 19.6 million shares.
Dividends. In August 2000, our Board of Directors increased the quarterly
cash dividend by nine percent to $.06 per share.
Other Matters
Einstein/Noah Bagel Corporation
In 1996, MDS became the exclusive provider of distribution services to
Einstein/Noah Bagel Corp. (ENBC), which operates over 490 bagel shops in 29
states and the District of Columbia. In March 2000, ENBC disclosed that its
independent auditors had expressed substantial doubt about ENBC's ability to
continue as a going concern, due to its inability to meet certain financial
obligations. On April 27, 2000, ENBC and its majority-owned operating
subsidiary filed voluntary bankruptcy petitions for protection under Chapter 11
of the Federal Bankruptcy code in the U.S. Bankruptcy Court for the District of
Arizona in Phoenix. On April 28, 2000, the bankruptcy court approved a $31
million debtor-in-possession credit facility to allow for operation of the
companies during reorganization, and also approved the payment in the ordinary
course of business of prepetition trade creditor claims, including those of MDS,
subject to recovery by the debtors under certain circumstances. On July 27,
2000, the Bankruptcy Court entered an order approving ENBC's assumption of the
MDS contract. MDS continues to distribute to ENBC and has been receiving full
payment in accordance with the terms of its contractual agreement. If ENBC were
to cease or substantially reduce its operations, MDS may be unable to recover
some or all of an aggregate of approximately $5 million in contract investment
and $13 million in receivables and inventory.
Inflation
Inflation has been moderate in recent years, and has not had a significant
impact on our businesses.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. We manage our
exposure to this risk by monitoring available financing alternatives and through
development and application of credit granting policies. Our strategy to manage
exposure to changes in interest rates is unchanged from December 31, 1999.
Furthermore, we do not foresee any significant changes in our exposure to
fluctuations in interest rates or in how such exposure is managed in the near
future.
The following sensitivity analysis displays how our earnings and the fair
values of certain instruments we hold are affected by changes in interest rates.
We hold notes receivable that earn interest at variable rates.
Hypothetically, an immediate one percentage point change in interest rates would
change annual interest income by $3 million, based on the balances of these
notes receivable at December 29, 2000 and December 31, 1999.
Changes in interest rates also impact the fair value of our long-term fixed
rate debt and long-term fixed rate notes receivable. Based on the balances
outstanding at December 29, 2000, and December 31, 1999, a hypothetical
immediate one percentage point change in interest rates would change the fair
value of our long-term fixed rate debt by $50 million and $41 million,
respectively, and would change the fair value of long-term fixed rate notes
receivable by $22 million and $5 million, respectively.
Although commercial paper is classified as long-term debt (based on our
ability and intent to refinance it on a long-term basis) all commercial paper
matures within two months of year-end. Based on the balances of commercial
paper outstanding at December 29, 2000, and December 31, 1999, a hypothetical
one percentage point change in interest rates would change interest by $8
million for both periods, on an annualized basis.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial information is included on the pages indicated:
Page
----------
Report of Independent Public Accountants........................................... 23
Consolidated Statement of Income................................................... 24
Consolidated Balance Sheet......................................................... 25
Consolidated Statement of Cash Flows............................................... 26
Consolidated Statement of Comprehensive Income..................................... 27
Consolidated Statement of Shareholders' Equity..................................... 28
Notes to Consolidated Financial Statements......................................... 29-46
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Marriott International, Inc.:
We have audited the accompanying consolidated balance sheet of Marriott
International, Inc. and subsidiaries as of December 29, 2000 and December 31,
1999, and the related consolidated statements of income, cash flows and
comprehensive income for each of the three fiscal years in the period ended
December 29, 2000 and the consolidated statement of shareholders' equity for
each of the two fiscal years ended December 29, 2000 and the period from March
27, 1998 to January 1, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
an audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marriott International, Inc.
and subsidiaries as of December 29, 2000 and December 31, 1999, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 29, 2000 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Vienna, Virginia
January 30, 2001
23
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
Fiscal Years Ended December 29, 2000, December 31, 1999 and January 1, 1999
($ in millions, except per share amounts)
2000 1999 1998
------------ ------------- -------------
SALES.............................................. $ 10,017 $ 8,739 $ 7,968
OPERATING COSTS AND EXPENSES....................... 9,095 7,909 7,232
------------ ------------- -------------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST...................................... 922 830 736
Corporate expenses................................. (120) (164) (110)
Interest expense................................... (100) (61) (30)
Interest income.................................... 55 32 36
------------ ------------- -------------
INCOME BEFORE INCOME TAXES......................... 757 637 632
Provision for income taxes......................... 278 237 242
------------ ------------- -------------
NET INCOME......................................... $ 479 $ 400 $ 390
============ ============= =============
Basic Earnings Per Share.......................... $ 1.99 $ 1.62 $ 1.56
============ ============= =============
Diluted Earnings Per Share........................ $ 1.89 $ 1.51 $ 1.46
============ ============= =============
See Notes To Consolidated Financial Statements
24
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
December 29, 2000 and December 31, 1999
($ in millions)
December 29, December 31,
2000 1999
--------------- ---------------
ASSETS
Current assets
Cash and equivalents......................................... $ 334 $ 489
Accounts and notes receivable................................ 728 740
Inventories, at lower of average cost or market.............. 97 93
Prepaid taxes................................................ 197 220
Other........................................................ 59 58
--------------- ---------------
1,415 1,600
--------------- ---------------
Property and equipment........................................ 3,241 2,845
Intangible assets............................................. 1,833 1,820
Investments in affiliates..................................... 747 294
Notes and other receivables................................... 661 473
Other......................................................... 340 292
--------------- ---------------
$ 8,237 $ 7,324
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................................. $ 660 $ 628
Accrued payroll and benefits................................. 440 399
Self-insurance............................................... 27 36
Other payables and accruals.................................. 790 680
--------------- ---------------
1,917 1,743
--------------- ---------------
Long-term debt................................................ 2,016 1,676
Self-insurance................................................ 122 142
Other long-term liabilities................................... 915 855
Shareholders' equity
ESOP preferred stock......................................... - -
Class A common stock, 255.6 million shares issued............ 3 3
Additional paid-in capital................................... 3,590 2,738
Retained earnings............................................ 851 508
Unearned ESOP shares......................................... (679) -
Treasury stock, at cost...................................... (454) (305)
Accumulated other comprehensive income....................... (44) (36)
--------------- ---------------
3,267 2,908
--------------- ---------------
$ 8,237 $ 7,324
=============== ===============
See Notes To Consolidated Financial Statements
25
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Years Ended December 29, 2000, December 31, 1999 and January 1, 1999
($ in millions)
2000 1999 1998
-------------- -------------- --------------
OPERATING ACTIVITIES
Net income.............................................. $ 479 $ 400 $ 390
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization.......................... 195 162 140
Income taxes........................................... 133 87 76
Timeshare activity, net................................ (195) (102) 28
Other.................................................. 48 19 (22)
Working capital changes:
Accounts receivable.................................... (53) (126) (104)
Inventories............................................ (4) (17) 15
Other current assets................................... 28 (38) (16)
Accounts payable and accruals.......................... 219 326 98
-------------- -------------- --------------
Cash provided by operations............................. 850 711 605
-------------- -------------- --------------
INVESTING ACTIVITIES
Capital expenditures.................................... (1,095) (929) (937)
Acquisitions............................................ - (61) (48)
Dispositions............................................ 742 436 332
Loan advances........................................... (389) (144) (48)
Loan collections and sales.............................. 93 54 169
Other................................................... (377) (143) (192)
-------------- -------------- --------------
Cash used in investing activities....................... (1,026) (787) (724)
-------------- -------------- --------------
FINANCING ACTIVITIES
Commercial paper, net................................... 46 355 426
Issuance of long-term debt.............................. 338 366 868
Repayment of long-term debt............................. (26) (63) (473)
Redemption of convertible subordinated debt............. - (120) -
Issuance of Class A common stock........................ 58 43 15
Dividends paid.......................................... (55) (52) (37)
Purchase of treasury stock.............................. (340) (354) (398)
Advances to Old Marriott................................ - - (100)
-------------- -------------- --------------
Cash provided by financing activities................... 21 175 301
-------------- -------------- --------------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS.............. (155) 99 182
CASH AND EQUIVALENTS, beginning of year.................. 489 390 208
-------------- -------------- --------------
CASH AND EQUIVALENTS, end of year........................ $ 334 $ 489 $ 390
============== ============== ==============
See Notes To Consolidated Financial Statements
26
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Fiscal Years Ended December 29, 2000, December 31, 1999 and January 1, 1999
($ in millions)
2000 1999 1998
------------ ------------ -----------
Net income................................................... $ 479 $ 400 $ 390
Other comprehensive (loss) income:
Foreign currency translation adjustments.................... (10) (18) (3)
Other....................................................... 2 (2) 6
------------ ------------ -----------
Total other comprehensive (loss) income...................... (8) (20) 3
------------ ------------ -----------
Comprehensive income......................................... $ 471 $ 380 $ 393
============ ============ ===========
See Notes To Consolidated Financial Statements
27
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Period From March 27, 1998 to December 29, 2000
(in millions, except per share amounts)
Acumulated
Common Class A Additional other
shares common paid-in Retained Unearned Treasury comprehensive
outstanding stock capital earnings ESOP shares stock, at cost income
----------------------------------------------------------------------------------------------------------------------------------
255.6 Spinoff on March 27, 1998......... $ 3 $ 2,711 $ - $ - $ - $ (23)
- Net income, after the Spinoff..... - - 301 - - -
- Dividends ($.195 per share)....... - - (49) - - -
1.5 Employee stock plan issuance and
other, after the Spinoff.......... - 2 (34) - 50 7
(13.7) Purchase of treasury stock........ - - - - (398) -
----------------------------------------------------------------------------------------------------------------------------------
243.4 Balance, January 1, 1999.......... 3 2,713 218 - (348) (16)
- Net income........................ - - 400 - - -
- Dividends ($.215 per share)....... - - (53) - - -
5.5 Employee stock plan issuance -
and other......................... - 29 (87) 172 (20)
2.1 ExecuStay acquisition............. - - (4) - 67 -
(10.8) Purchase of treasury stock........ - - - - (358) -
6.1 Conversion of convertible -
subordinated debt................. - (4) 34 162 -
----------------------------------------------------------------------------------------------------------------------------------
246.3 Balance at December 31, 1999...... 3 2,738 508 - (305) (36)
- Net income........................ - - 479 - - -
- Dividends ($.235 per share)....... - - (56) - - -
5.5 Employee stock plan issuance
and other......................... - 852 (80) (679) 186 (8)
(10.8) Purchase of treasury stock........ - - - - (335) -
----------------------------------------------------------------------------------------------------------------------------------
241.0 Balance at December 29, 2000...... $ 3 $ 3,590 $ 851 $ (679) $ (454) $ (44)
==================================================================================================================================
See Notes To Consolidated Financial Statements
28
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The 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), formerly New Marriott MI, Inc., as if
we were a separate entity for all periods presented. During periods prior to
March 27, 1998, we were a wholly owned subsidiary of the former Marriott
International, Inc. (Old Marriott).
On March 27, 1998, all of our issued and outstanding common stock was
distributed, on a pro rata basis, as a special dividend (the Spinoff) to holders
of common stock of Old Marriott, and the Company was renamed "Marriott
International, Inc." Old Marriott's historical cost basis in our assets and
liabilities has been carried over. Old Marriott received a private letter ruling
from the Internal Revenue Service that the Spinoff would be tax-free to it and
its shareholders. For each share of common stock in Old Marriott, shareholders
received one share of our Common Stock and one share of our Class A Common
Stock. On May 21, 1998, all outstanding shares of our Common Stock were
converted, on a one-for-one basis, into shares of our Class A Common Stock.
Also on March 27, 1998, Old Marriott was renamed Sodexho Marriott Services,
Inc. (SMS) and its food service and facilities management business was combined
with the North American operations of Sodexho Alliance, S.A. (Sodexho), a
worldwide food and management services organization.
For purposes of governing certain of the ongoing relationships between us
and SMS after the Spinoff and to provide for orderly transition, we entered into
various agreements with SMS including the Employee Benefits and Other Employee
Matters Allocation Agreement, Liquid Yield Option Notes (LYONs) Allocation
Agreement, Tax Sharing Agreement, Trademark and Trade Name License Agreement,
Noncompetition Agreement, Employee Benefit Services Agreement, Procurement
Services Agreement, Distribution Services Agreement, and other transitional
services agreements. Effective as of the Spinoff date, pursuant to these
agreements, we assumed sponsorship of certain of Old Marriott's employee benefit
plans and insurance programs and succeeded to Old Marriott's liability to LYONs
holders under the LYONs Indenture, nine percent of which was assumed by SMS.
All material intercompany transactions and balances between entities
included in these consolidated financial statements have been eliminated. Sales
by us to SMS of $350 million in 2000, $435 million in 1999 and $434 million in
1998, have not been eliminated. Changes in Investments and Net Advances from Old
Marriott represent our net income, the net cash transferred between Old Marriott
and us, and certain non-cash items.
Prior to the Spinoff, we operated as a unit of Old Marriott, utilizing Old
Marriott's centralized systems for cash management, payroll, purchasing and
distribution, employee benefit plans, insurance and administrative services. As
a result, substantially all cash received by us was deposited in and commingled
with Old Marriott's general corporate funds. Similarly, our operating expenses,
capital expenditures and other cash requirements were paid by Old Marriott and
charged directly or allocated to us. Certain assets and liabilities related to
our operations were managed and controlled by Old Marriott on a centralized
basis. Prior to the Spinoff such assets and liabilities were allocated to us
based on our use of, or interest in, those assets and liabilities. In our
opinion, the methods for allocating costs, assets and liabilities prior to the
Spinoff were reasonable. We now perform these functions independently and the
costs incurred have not been materially different from those allocated prior to
the Spinoff.
29
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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, and the reported amounts
of sales and expenses during the reporting period. Accordingly, ultimate results
could differ from those estimates. Certain prior year amounts have been
reclassified to conform to the 2000 presentation.
Fiscal Year
Our fiscal year ends on the Friday nearest to December 31. All fiscal years
presented include 52 weeks.
Revenue Recognition
Our sales include fees and reimbursed costs for properties managed by us,
together with sales by lodging properties and senior living communities owned or
leased by us, and sales made by our other businesses. Fees comprise management
fees, incentive fees and franchise fees received from third party owners of
lodging properties and senior living communities. We recognize base fees and
reimbursed costs as revenue when earned in accordance with the contract. In
accordance with Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements," base fees and incentive management fees are accrued as
earned based on the profitability of the hotel, subject to the specific terms of
each individual contract.
Profit Sharing Plan
We contribute to a profit sharing plan for the benefit of employees meeting
certain eligibility requirements and electing participation in the plan.
Contributions are determined annually by the Board of Directors. We recognized
compensation cost from profit sharing of $55 million in 2000, $46 million in
1999 and $45 million in 1998.
Self-Insurance Programs
We are self-insured for certain levels of general liability, workers'
compensation, employment practices and employee medical coverage. Estimated
costs of these self-insurance programs are accrued at the present value of
projected settlements for known and anticipated claims.
Frequent Guest Program
We accrue for the cost of redeeming points awarded to members of our
frequent guest program based on the discounted expected costs of redemption. The
liability for this program was $554 million at December 29, 2000, and $433
million at December 31, 1999, of which $310 million and $289 million,
respectively, are included in other long-term liabilities in the accompanying
consolidated balance sheet.
Cash and Equivalents
We consider all highly liquid investments with a maturity of three months
or less at date of purchase to be cash equivalents.
New Accounting Standards
We will adopt Financial Accounting Standard (FAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which will not have a material
effect on our consolidated financial statements, in the first quarter of 2001.
In the fourth quarter of 2000, we adopted SAB No. 101. The implementation
of SAB No. 101 did not have a material impact on annual or quarterly earnings.
In the fourth quarter of 2000, we adopted FAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
The implementation of FAS No. 140 resulted in increased footnote disclosures,
but did not have an effect on our consolidated financial statements.
30
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." We adopted SOP 98-5 in the first quarter of 1999 by expensing pre-
opening costs for Company-owned lodging and senior living communities as
incurred. The adoption of SOP 98-5 resulted in a pretax expense of $22 million
in 1999.
RELATIONSHIPS WITH MAJOR CUSTOMERS
In December 1998, Host Marriott Corporation (Host Marriott) reorganized its
business operations to qualify as a real estate investment trust (REIT). In
conjunction with its conversion to a REIT, Host Marriott spun off, in a taxable
transaction, a new company called Crestline Capital Corporation (Crestline). As
part of the Crestline spinoff, Host Marriott transferred to Crestline all of the
senior living communities previously owned by Host Marriott, and Host Marriott
entered into lease or sublease agreements with subsidiaries of Crestline for
substantially all of Host Marriott's lodging properties. Our lodging and senior
living community management and franchise agreements with Host Marriott were
also assigned to these Crestline subsidiaries. The lodging agreements now
provide for us to manage the Marriott hotels, Ritz-Carlton hotels, Courtyard
hotels and Residence Inn hotels leased by the lessee. Our consent is required
for the lessee to take certain major actions relating to leased properties that
we manage. Effective as of January 1, 2001, a Host Marriott taxable subsidiary
acquired the lessee entities for the full-service hotels in the United States
and took an assignment of the lessee entities' interests in the leases for the
hotels in Canada.
We recognized sales of $2,746 million, $2,553 million and $2,144 million
and operating profit before corporate expenses and interest of $235 million,
$221 million and $197 million during 2000, 1999 and 1998, respectively, from
lodging properties owned or leased by Host Marriott. Additionally, Host Marriott
is a general partner in several unconsolidated partnerships that own lodging
properties operated by us under long-term agreements. We recognized sales of
$622 million, $562 million and $712 million and operating profit before
corporate expenses and interest of $72 million, $64 million and $83 million in
2000, 1999 and 1998, respectively, from the lodging properties owned by these
unconsolidated partnerships. We also leased land to certain of these
partnerships and recognized land rent income of $26 million in 2000 and $24
million in both 1999 and 1998.
In December 2000, we acquired, through an unconsolidated joint venture (the
Courtyard Joint Venture) with an affiliate of Host Marriott, 120 Courtyard by
Marriott hotels. Prior to the formation of the Courtyard Joint Venture, Host
Marriott was a general partner in the unconsolidated partnerships that owned the
120 Courtyard by Marriott hotels. Included above in amounts recognized from
lodging properties owned by unconsolidated partnerships are sales of $345
million, $334 million and $295 million, operating profit before corporate
expenses and interest of $53 million, $50 million and $53 million and land rent
income of $19 million in 2000 and $18 million in both 1999 and 1998, related to
the 120 Courtyard by Marriott hotels.
We have provided Host Marriott with financing for a portion of the cost of
acquiring properties to be operated or franchised by us, and may continue to
provide financing to Host Marriott in the future. The outstanding principal
balance of these loans was $9 million and $11 million at December 29, 2000, and
at December 31, 1999, respectively, and we recognized $1 million, $1 million and
$5 million in 2000, 1999 and 1998, respectively, in interest and fee income
under these credit agreements with Host Marriott.
We have guaranteed the performance of Host Marriott and certain of its
affiliates to lenders and other third parties. These guarantees were limited to
$12 million at December 29, 2000. No payments have been made by us pursuant to
these guarantees. We continue to have the right to purchase up to 20 percent of
Host Marriott's outstanding common stock upon the occurrence of certain events
generally involving a change of control of Host Marriott. This right expires
2017, and Host Marriott has granted an exception to the ownership limitations in
its charter to permit full exercise of this right, subject to certain conditions
related to ownership limitations applicable to REITs generally. We lease land to
Host Marriott that had an aggregate book value of $264 million at December 29,
2000. Most of this land has been pledged to secure debt of the lessees. We have
agreed to defer receipt of rentals on this land, if necessary, to permit the
lessees to meet their debt service requirements.
31
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
We are party to agreements which provide for us to manage the senior living
communities owned by Crestline. We recognized sales of $185 million, $177
million and $173 million and operating profit before corporate expenses and
interest of $3 million, $3 million and $5 million under these agreements during
2000, 1999 and 1998, respectively.
We are party to management agreements with entities owned by or affiliated
with another hotel owner which provide for us to manage hotel properties owned
or leased by those entities. We recognized sales of $557 million, $531 million
and $560 million during 2000, 1999, and 1998, respectively, from these
properties.
PROPERTY AND EQUIPMENT
2000 1999
------------ -----------
($ in millions)
Land................................................................ $ 597 $ 658
Buildings and leasehold improvements................................ 1,240 1,075
Furniture and equipment............................................. 647 523
Timeshare properties................................................ 914 587
Construction in progress............................................ 349 429
------------ -----------
3,747 3,272
Accumulated depreciation and amortization........................... (506) (427)
------------ -----------
$ 3,241 $ 2,845
============ ===========
We record property and equipment at cost, including interest, rent and real
estate taxes incurred during development and construction. Interest capitalized
as a cost of property and equipment totaled $52 million in 2000, $33 million in
1999 and $21 million in 1998. We capitalize replacements and improvements that
extend the useful life of property and equipment. We compute depreciation using
the straight-line method over the estimated useful lives of the assets (three to
40 years). We amortize leasehold improvements over the shorter of the asset life
or lease term.
ACQUISITIONS AND DISPOSITIONS
ExecuStay
On February 17, 1999, we completed a cash tender offer for approximately 44
percent of the outstanding common stock of ExecuStay Corporation (ExecuStay), a
leading provider of leased corporate apartments in the United States. On
February 24, 1999, substantially all of the remaining common stock of ExecuStay
was converted into nonvoting preferred stock of ExecuStay, which we acquired, on
March 26, 1999, for approximately 2.1 million shares of our Class A Common
Stock. Our aggregate purchase price totaled $116 million. We consolidated the
operating results of ExecuStay from February 24, 1999, and have accounted for
the acquisition using the purchase method of accounting. We are amortizing the
resulting goodwill on a straight-line basis over 30 years.
The Ritz-Carlton Hotel Company, L.L.C.
In 1995, we acquired a 49 percent beneficial ownership interest in The
Ritz-Carlton Hotel Company, L.L.C., which owns the management agreements on the
Ritz-Carlton hotels and resorts, the licenses for the Ritz-Carlton trademarks
and trade name, as well as miscellaneous assets. The investment was acquired for
a total consideration of approximately $200 million. On March 19, 1998, we
increased our ownership interest in The Ritz-Carlton Hotel Company, L.L.C. to
approximately 99 percent for additional consideration of approximately $90
million. We expect to acquire the remaining one percent within the next several
years. We accounted for the acquisition using the purchase method of accounting.
We allocated the purchase cost to the assets acquired and the liabilities
assumed based on estimated fair values. We amortize the resulting goodwill on a
straight-line basis over 40 years. We amortize the amounts allocated to
management agreements on a straight-line basis over the estimated lives of the
agreements. Prior to March 19, 1998, we accounted for our investment in The
Ritz-Carlton Hotel Company, L.L.C. using the equity method of accounting.
32
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Dispositions
In the fourth quarter of 2000 we sold land, at book value, for $46 million
to a joint venture in which we hold a minority interest. The joint venture plans
to build a resort hotel, which will be partially funded with up to $92 million
of mezzanine financing to be provided by us. We have also provided the joint
venture with a $45 million senior debt service guarantee.
In 2000, we sold and leased back, under long-term, limited-recourse leases,
three lodging properties and one senior living community for an aggregate
purchase price of $118 million. We agreed to pay a security deposit of $3
million for the lodging properties, which will be refunded at the end of the
leases. The sales price exceeded the net book value by $4 million, which is
being recognized as a reduction of rent expense over the 15-year initial lease
terms.
In 2000, we agreed to sell 23 lodging properties for $519 million in cash.
We will continue to operate the hotels under long-term management agreements. As
of December 29, 2000, sales of 17 of those properties had been completed for
$461 million, resulting in pretax gains of $27 million. We recognized $9 million
of the net gains in 2000, and will recognize the remainder in subsequent years
provided certain contingencies in the sales contracts expire. Unaffiliated
third-party tenants will lease 13 of the properties from the buyers. In 2000,
one of these tenants replaced us as the tenant on nine other properties sold and
leased back by us in 1997 and 1998. We now manage these nine previously leased
properties under long-term management agreements, and gains on the sale of these
properties of $15 million were recognized as our leases were cancelled
throughout 2000. In connection with the sale of four of the properties, we
provided $39 million of mezzanine funding and agreed to provide the buyer with
up to $161 million of additional loans to finance future acquisitions of
Marriott-branded hotels. We also acquired a minority interest in the joint
venture that purchased the four hotels.
On April 28, 2000, we sold 14 senior living communities for cash proceeds
of $194 million. We simultaneously entered into long-term management agreements
for the communities with a third-party tenant, which leases the communities from
the buyer. In connection with the sale we provided a credit facility to the
buyer to be used, if necessary, to meet its debt service requirements. The
buyer's obligation to repay us under the facility is guaranteed by an
unaffiliated third party. We also extended a limited credit facility to the
tenant to cover operating shortfalls, if any.
In 1999, we sold an 89 percent interest in one hotel, and concurrently
signed a long-term lease on the property. We are accounting for this transaction
under the financing method, and the sales proceeds of $58 million are reflected
as long-term debt in the accompanying consolidated balance sheet.
In 1999, we agreed to sell and leaseback, under long-term, limited-recourse
leases, four hotels for approximately $59 million in cash. At the same time, we
agreed to pay security deposits of $2 million, which will be refunded at the end
of the leases. As of December 29, 2000, all of the properties had been sold,
resulting in a sales price that exceeded the net book value by $4 million,
which we will recognize as a reduction of rent expense over the 15-year initial
lease terms. We can renew the leases on all four hotels at our option.
During 1999, we sold four hotels and three senior living communities for
$55 million and $52 million, respectively, resulting in pretax gains of $10
million. We recognized $2 million of the gain in both 2000 and 1999, and the
balance will be recognized provided certain contingencies in the sales contracts
expire. We operate these hotels under long-term management agreements.
33
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
On December 29, 1998, we agreed to sell and leaseback, under long-term,
limited-recourse leases, 17 hotels for approximately $202 million in cash. At
the same time, we agreed to pay security deposits of $21 million, which will be
refunded at the end of the leases. As of December 31, 1999, all of the
properties had been sold, resulting in a sales price that exceeded the net book
value by $19 million, which is being recognized as a reduction of rent expense
over the 15-year initial lease terms.
During 1998, we agreed to sell, subject to long-term management agreements,
eight lodging properties and 11 senior living communities for consideration of
$183 million and $178 million, respectively. As of December 31, 1999, sales of
all of these properties had been completed, resulting in pretax gains of $69
million. We recognized $8 million, $21 million and $12 million of these gains in
2000, 1999 and 1998, respectively. The balance will be recognized provided
certain contingencies in the sales contracts expire.
ASSET SECURITIZATIONS
We periodically sell, with limited recourse, through qualified special
purpose entities ("SPEs"), notes receivable originated by Marriott Vacation Club
International in connection with the sale of timeshare intervals. We continue to
service the notes and transfer all proceeds collected to the SPEs. We retain
servicing assets and beneficial interests in the securitizations in the form of
interest-only strips. The beneficial interests are limited to the present value
of cash available after paying financing expenses, program fees, and absorbing
credit losses. Gains from the sales of notes receivable totaled $22 million in
2000, $29 million in 1999, and $26 million in 1998.
At the date of securitization and at the end of each reporting period, we
estimate the fair value of the interest-only strips and servicing assets using a
discounted cash flow model. These transactions utilize interest rate swaps to
protect the net interest margin associated with the beneficial interest, and the
interest-only strips are treated as "Available for Sale" securities under the
provisions of FAS No. 115, with changes in fair values reported through other
comprehensive income in the accompanying consolidated balance sheet. The key
assumptions used in measuring the fair value of the interest-only strips at the
time of securitization and at the end of each reporting period during the year
ended December 29, 2000, were as follows: average discount rate of 7.82 percent;
average expected annual prepayments, including defaults, of 12.72 percent; and
expected weighted average life of prepayable notes receivable of 86 months. Our
key assumptions are based on experience. To date, actual results have not
materially affected the carrying value of the beneficial interests.
Cash flows between us and third-party purchasers during the year ended
December 29, 2000, were as follows: net proceeds to us from new securitizations
of $144 million, repurchases by us of delinquent loans (over 150 days overdue)
of $12 million, servicing fees received by us of $2 million and cash flows
received on retained interests of $18 million.
On December 12, 2000, we repurchased notes receivable with a principal
balance of $359 million and immediately sold those notes, along with $19 million
of additional notes, in a $378 million securitization to an investor group. Net
proceeds from these transactions of $9 million are included in the net proceeds
from securitizations of $144 million disclosed above. We realized a gain of $3
million, primarily associated with the $19 million of additional notes sold,
which is included in the $22 million gain on the sales of notes receivable for
fiscal year 2000 disclosed above.
At December 29, 2000, $439 million of principal remains outstanding in all
securitizations in which we have a retained interest-only strip. Delinquencies
of more than 90 days at December 29, 2000, amounted to $1 million. Loans
repurchased by the Company, net of obligors subsequently curing delinquencies,
during the year ended December 29, 2000, amounted to $7 million. We have been
able to resell timeshare units underlying repurchased loans without incurring
material losses.
We have completed a stress test on the net present value of the interest-
only strips and the servicing assets with the objective of measuring the change
in value associated with independent changes in individual key variables. The
methodology used applied unfavorable changes that would be considered
statistically significant for the key variables of prepayment rate, discount
rate, and weighted average remaining term. The net present value of the
interest-only strips and servicing assets was $72 million at December 29, 2000,
before any stress test changes were applied. An increase of 100 basis points in
the prepayment rate would decrease the year-end valuation by
34
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
$2 million, or two percent, and an increase of 200 basis points in the
prepayment rate would decrease the year-end valuation by $3 million, or four
percent. An increase of 100 basis points in the discount rate would decrease the
year-end valuation by $1 million, or two percent, and an increase of 200 basis
points in the discount rate would decrease the year-end valuation by $3 million,
or four percent. A decline of two months in the weighted average remaining term
would decrease the year-end valuation by $1 million, or two percent, and a
decline of four months in the weighted average remaining term would decrease the
year-end valuation by $2 million, or four percent.
INTANGIBLE ASSETS
2000 1999
----------- ----------
($ in millions)
Management, franchise and license agreements............................. $ 861 $ 771
Goodwill................................................................. 1,245 1,246
Other.................................................................... 7 23
----------- ----------
2,113 2,040
Accumulated amortization................................................. (280) (220)
----------- ----------
$ 1,833 $ 1,820
=========== ==========
We amortize intangible assets on a straight-line basis over periods of
three to 40 years. Intangible amortization expense totaled $64 million in 2000,
$62 million in 1999 and $54 million in 1998.
In 1996, MDS became the exclusive provider of distribution services to
Boston Chicken, Inc. (BCI). On October 5, 1998, BCI and its Boston Market-
controlled subsidiaries filed voluntary bankruptcy petitions for protection
under Chapter 11 of the Federal Bankruptcy Code in the U.S. Bankruptcy Court in
Phoenix (the Court). In December 1999, McDonald's Corporation (McDonald's)
announced that it had reached a definitive agreement to purchase the majority of
the assets of BCI subject to confirmation of the pending BCI plan of
reorganization, including Court approval. In March 2000, MDS entered into an
agreement with McDonald's providing for continuation of distribution services to
Boston Market restaurants. Because the existing distribution contract was
terminated upon confirmation of the pending reorganization, MDS wrote off the
unamortized balance of the existing investment, resulting in a $15 million
pretax charge in the first quarter of 2000. In June 2000, McDonald's completed
its acquisition of Boston Market. MDS is now providing distribution services
under the new contract with McDonald's.
SHAREHOLDERS' EQUITY
Eight hundred million shares of our Class A Common Stock with a par value
of $.01 per share are authorized. Ten million shares of preferred stock, without
par value, are authorized, with none issued.
On March 27, 1998, our Board of Directors adopted a shareholder rights plan
under which one preferred stock purchase right was distributed for each share of
our Class A Common Stock. Each right entitles the holder to buy 1/1000th of a
share of a newly issued series of junior participating preferred stock of the
Company at an exercise price of $175. The rights will be exercisable 10 days
after a person or group acquires beneficial ownership of 20 percent or more of
our Class A Common Stock, or begins a tender or exchange for 30 percent or more
of our Class A Common Stock. Shares owned by a person or group on March 27,
1998, and held continuously thereafter are exempt for purposes of determining
beneficial ownership under the rights plan. The rights are nonvoting and will
expire on the tenth anniversary of the adoption of the shareholder rights plan,
unless exercised or previously redeemed by us for $.01 each. If we are involved
in a merger or certain other business combinations not approved by the Board of
Directors, each right entitles its holder, other than the acquiring person or
group, to purchase common stock of either the Company or the acquirer having a
value of twice the exercise price of the right.
As of December 29, 2000, we had been authorized by our Board of Directors
to repurchase an additional 19.6 million shares of our Class A Common Stock.
35
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued
During the second quarter of 2000 we established an employee stock
ownership plan (the ESOP) solely to fund employer contributions to the profit
sharing plan. The ESOP acquired 100,000 shares of special-purpose Company
convertible preferred stock (ESOP Preferred Stock) for $1 billion. The ESOP
Preferred Stock has a stated value and liquidation preference of $10,000 per
share, pays a quarterly dividend of one percent of the stated value, and is
convertible into our Class A Common Stock at any time based on the amount of our
contributions to the ESOP and the market price of the common stock on the
conversion date, subject to certain caps and a floor price. We hold a note from
the ESOP, which is eliminated upon consolidation, for the purchase price of the
ESOP Preferred Stock. The shares of ESOP Preferred Stock are pledged as
collateral for the repayment of the ESOP's note, and those shares are released
from the pledge as principal on the note is repaid. Shares of ESOP Preferred
Stock released from the pledge may be redeemed for cash based on the value of
the common stock into which those shares may be converted. Principal and
interest payments on the ESOP's debt are expected to be forgiven periodically to
fund contributions to the ESOP and release shares of ESOP Preferred Stock.
Unearned ESOP shares are reflected within shareholders' equity and are amortized
as shares of ESOP Preferred Stock are released and cash is allocated to
employees' accounts.
INCOME TAXES
Total deferred tax assets and liabilities as of December 29, 2000, and
December 31, 1999, were as follows:
2000 1999
------------ -----------
($ in millions)
Deferred tax assets...................................................... $ 471 $ 424
Deferred tax liabilities................................................. (399) (340)
------------ -----------
Net deferred taxes....................................................... $ 72 $ 84
============ ===========
The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as of
December 29, 2000, and December 31, 1999, were as follows:
2000 1999
------------ -----------
($ in millions)
Self-insurance........................................................... $ 65 $ 74
Employee benefits........................................................ 169 151
Deferred income.......................................................... 45 51
Other reserves........................................................... 13 32
Frequent guest program................................................... 65 44
Timeshare operations..................................................... (21) (10)
Property, equipment and intangible assets................................ (213) (231)
Other, net............................................................... (51) (27)
------------ -----------
Net deferred taxes....................................................... $ 72 $ 84
============ ===========
At December 29, 2000, we had approximately $26 million of tax credits that
expire through 2020.
We have made no provision for U.S. income taxes, or additional foreign
taxes, on the cumulative unremitted earnings of non-U.S. subsidiaries ($186
million as of December 29, 2000) because we consider these earnings to be
permanently invested. These earnings could become subject to additional taxes if
remitted as dividends, loaned to us or a U.S. affiliate, or if we sell our
interests in the affiliates. We cannot practically estimate the amount of
additional taxes that might be payable on the unremitted earnings.
36
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued
The provision for income taxes consists of:
2000 1999 1998
----------- ------------ ------------
($ in millions)
Current - Federal....................................... $ 216 $ 117 $ 164
- State......................................... 28 26 35
- Foreign....................................... 26 24 18
----------- ------------ ------------
270 167 217
----------- ------------ ------------
Deferred - Federal...................................... (2) 58 25
- State........................................ 10 12 1
- Foreign...................................... - - (1)
----------- ------------ ------------
8 70 25
----------- ------------ ------------
$ 278 $ 237 $ 242
=========== ============ ============
The current tax provision does not reflect the benefits attributable to us
relating to our ESOP of $109 million in 2000 or the exercise of employee stock
options of $42 million in 2000, $44 million in 1999 and $39 million in 1998. The
taxes applicable to other comprehensive income are not material.
A reconciliation of the U.S. statutory tax rate to our effective income tax
rate follows:
2000 1999 1998
---------- ----------- ----------
U.S. statutory tax rate................................... 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit............... 3.6 3.9 4.1
Foreign income............................................ (1.4) (0.3) 0.7
Corporate-owned life insurance............................ - - (0.3)
Tax credits............................................... (3.1) (5.4) (4.2)
Goodwill amortization..................................... 1.6 1.8 1.6
Other, net................................................ 1.1 2.3 1.4
---------- ----------- ----------
Effective rate............................................ 36.8% 37.3% 38.3%
========== =========== ==========
Cash paid for income taxes, net of refunds, was $145 million in 2000, $150
million in 1999 and $164 million in 1998.
As part of the Spinoff, we entered into a tax sharing agreement with SMS,
which reflects each party's rights and obligations with respect to deficiencies
and refunds, if any, of federal, state or other taxes relating to the business
of Old Marriott and the Company prior to the Spinoff.
During periods prior to the Spinoff, we were included in the consolidated
federal income tax return of Old Marriott. The income tax provision reflects the
portion of Old Marriott's historical income tax provision attributable to our
operations. We believe that the income tax provision, as reflected, is
comparable to what the income tax provision would have been if we had filed a
separate return during the periods presented.
37
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued
LEASES
Our future obligations under operating leases at December 29, 2000, are
summarized below:
Fiscal Year ($ in millions)
----------- ---------------
2001.................................................. $ 176
2002.................................................. 174
2003.................................................. 168
2004.................................................. 165
2005.................................................. 163
Thereafter............................................ 1,914
--------
Total minimum lease payments.......................... $ 2,760
========
Most leases have initial terms of up to 20 years, and contain one or more
renewal options, generally for five- or 10-year periods. The leases provide for
minimum rentals, and additional rentals based on the operations of the leased
property. The total minimum lease payments above include $1,399 million
representing obligations of consolidated subsidiaries that are non-recourse to
Marriott International, Inc.
Rent expense consists of:
2000 1999 1998
-------- --------- ---------
($ in millions)
Minimum rentals............................................. $ 149 $ 158 $ 138
Additional rentals.......................................... 97 102 101
-------- --------- ---------
$ 246 $ 260 $ 239
======== ========= =========
LONG-TERM DEBT
Our long-term debt at December 29, 2000, and December 31, 1999, consisted
of the following:
2000 1999
------------------ ------------------
($ in millions)
Senior notes, average interest rate of 6.9% at December 29, 2000,
maturing through 2009................................................ $ 1,001 $ 701
Commercial paper, interest rate of 7.3% at December 29, 2000.......... 827 781
Endowment deposits (non-interest bearing)............................. 108 111
Other................................................................. 122 101
------------------ ------------------
2,058 1,694
Less current portion................................................... (42) (18)
$ 2,016 $ 1,676
================== ==================
The debt is unsecured with the exception of $15 million, which is secured
by real estate.
In April 1999, January 2000 and January 2001, we filed "universal shelf"
registration statements with the Securities and Exchange Commission in the
amount of $500 million, $300 million and $300 million, respectively. As of
January 30, 2001, we had offered and sold to the public $600 million of debt
securities under these registration statements, leaving a balance of $500
million available for future offerings.
38
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In January 2001, we issued, through a private placement, $300 million of
seven percent Series E Notes due 2008, and received net proceeds of $297
million. We have agreed to promptly make and complete a registered exchange
offer for these notes and, if required, to implement a resale shelf registration
statement. If we fail to do so on a timely basis, we will pay additional
interest to the holders of these notes.
In March 2000, we sold $300 million principal amount of 8-1/8 percent
Series D Notes, which mature in 2005, in a public offering made under our shelf
registration statements. We received net proceeds of approximately $298 million
from the offering, after paying underwriting discounts, commissions and offering
expenses.
In September 1999, we sold $300 million principal amount of 7-7/8 percent
Series C Notes, which mature in 2009, in a public offering made under our shelf
registration statement. We received net proceeds of approximately $296 million
from this offering, after paying underwriting discounts, commissions and
offering expenses.
In November 1998, we sold, through a private placement, $400 million of
unsecured senior notes (Series A and B Notes). Proceeds net of discounts totaled
$396 million. On April 23, 1999, we commenced a registered exchange offer to
exchange the privately placed Series A and B Notes for publicly registered new
notes on substantially identical terms. All of the privately placed Series A and
B Notes were tendered for exchange, and new notes were issued to the holders on
May 31, 1999.
In March 1998 and February 1999, respectively, we entered into $1.5 billion
and $500 million multicurrency revolving credit facilities (the Facilities) each
with terms of five years. Borrowings bear interest at the London Interbank
Offered Rate (LIBOR) plus a spread, based on our public debt rating.
Additionally, annual fees are paid on the Facilities at a rate also based on our
public debt rating. Commercial paper, supported by the Facilities, is classified
as long-term debt based on our ability and intent to refinance it on a long-term
basis.
We are in compliance with covenants in our loan agreements, which require
the maintenance of certain financial ratios and minimum shareholders' equity,
and also include, among other things, limitations on additional indebtedness and
the pledging of assets.
The 2000 statement of cash flows excludes $79 million of financing and
joint venture investments made by us in connection with asset sales. The 1999
statement of cash flows excludes $215 million of convertible subordinated debt
that was converted to equity in November 1999, $54 million of debt that we
assumed during 1999, and $15 million of notes receivable we received in a 1999
asset sale that we subsequently sold for cash. The 1998 statement of cash flows
excludes $31 million of notes receivable forgiven as part consideration for the
1998 acquisition of The Ritz-Carlton Hotel Company, L.L.C., and $12 million of
long-term debt assumed in 1998.
Aggregate debt maturities are: 2001 - $42 million; 2002 - $14 million;
2003 - $834 million; 2004 - $220 million; 2005 - $515 million; and $433 million
thereafter.
Cash paid for interest was $125 million in 2000, $63 million in 1999 and
$23 million in 1998.
CONVERTIBLE SUBORDINATED DEBT
On March 25, 1996, Old Marriott issued $540 million (principal amount at
maturity) of zero coupon convertible subordinated debt in the form of LYONs due
2011. The LYONs were issued and recorded at a discount representing a yield to
maturity of 4.25 percent. Accretion was recorded as interest expense and an
increase to the carrying value. Gross proceeds from the LYONs issuance were $288
million. Upon consummation of the Spinoff, we assumed the LYONs, and SMS assumed
a nine percent share of the LYONs obligation based on the relative equity values
of SMS and the Company at the Spinoff.
39
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The LYONs were redeemable by us at any time on or after March 25, 1999, for
cash equal to the issue price plus accrued original issue discount. On October
7, 1999, we delivered a mandatory redemption notice to the holders of the LYONs
indicating our plan to redeem them on November 8, 1999, for $619.65 in cash per
LYON. Holders of 347,000 LYONs elected to convert each LYON into 17.52 shares of
our Class A Common Stock and 2.19 shares of SMS common stock prior to the close
of business on November 8, 1999. The aggregate redemption payment for the
remaining 193,000 LYONs totaled $120 million. Pursuant to the LYONs Allocation
Agreement entered into with SMS as part of the Spinoff, SMS funded nine percent
of the aggregate LYONs redemption payment. We funded the redemption payment with
proceeds from commercial paper borrowings. Unamortized deferred financing costs
of $2 million relating to the LYONs that were redeemed were recognized as
interest expense in 1999.
EARNINGS PER SHARE
For periods prior to the Spinoff, the earnings per share calculations are
pro forma, and the number of weighted average shares outstanding and the effect
of dilutive securities are based upon the weighted average number of Old
Marriott shares outstanding, and the Old Marriott effect of dilutive securities
for the applicable period, adjusted (1) for the distribution ratio in the
Spinoff of one share of our Common Stock and one share of our Class A Common
Stock for every share of Old Marriott common stock and (2) to reflect the
conversion of our Common Stock into our Class A Common Stock on May 21, 1998.
The following table illustrates the reconciliation of the earnings and
number of shares used in the basic and diluted earnings per share calculations
(in millions, except per share amounts).
2000 1999 1998
----------- ----------- ----------
Computation of Basic Earnings Per Share
Net income.............................................. $ 479 $ 400 $ 390
Weighted average shares outstanding..................... 241.0 247.5 249.8
----------- ----------- -----------
Basic Earnings Per Share................................ $ 1.99 $ 1.62 $ 1.56
=========== =========== ===========
Computation of Diluted Earnings Per Share
Net income.............................................. $ 479 $ 400 $ 390
After-tax interest expense on convertible
subordinated debt...................................... - 7 8
----------- ----------- -----------
Net income for diluted earnings per share............... $ 479 $ 407 $ 398
----------- ----------- -----------
Weighted average shares outstanding..................... 241.0 247.5 249.8
Effect of Dilutive Securities
Employee stock purchase plan........................... 0.1 0.2 -
Employee stock option plan............................. 7.5 8.7 8.1
Deferred stock incentive plan.......................... 5.4 5.4 5.7
Convertible subordinated debt........................... - 8.0 9.5
----------- ----------- -----------
Shares for diluted earnings per share................... 254.0 269.8 273.1
----------- ----------- -----------
Diluted Earnings Per Share.............................. $ 1.89 $ 1.51 $ 1.46
=========== =========== ===========
We compute the effect of dilutive securities using the treasury stock
method and average market prices during the period. For periods prior to
November 8, 1999, when all of our convertible subordinated debt was redeemed or
converted, we used the if-converted method for purposes of calculating diluted
earnings per share.
40
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
INVESTMENTS AND NET ADVANCES FROM OLD MARRIOTT
The following is an analysis of Old Marriott's investment in the Company:
1998
---------------
($ in millions)
Balance at beginning of year............................ $ 2,586
Net income.............................................. 89
Advances to Old Marriott................................ (100)
Employee stock plan issuance and other.................. 116
Spinoff on March 27, 1998............................... (2,691)
-----------
Balance at end of year.................................. $ -
===========
EMPLOYEE STOCK PLANS
In connection with the Spinoff, we issued stock options, deferred shares
and restricted shares with the same value as the respective Old Marriott awards
as of the Spinoff under our 1998 Comprehensive Stock and Cash Incentive Plan
(Comprehensive Plan). Under the Comprehensive Plan, we may award to
participating employees (1) options to purchase our Class A Common Stock (Stock
Option Program and Supplemental Executive Stock Option awards), (2) deferred
shares of our Class A Common Stock and (3) restricted shares of our Class A
Common Stock. In addition we have an employee stock purchase plan (Stock
Purchase Plan). In accordance with the provisions of Opinion No. 25 of the
Accounting Principles Board, we recognize no compensation cost for the Stock
Option Program, the Supplemental Executive Stock Option awards or the Stock
Purchase Plan.
Deferred shares granted to officers and key employees under the
Comprehensive Plan generally vest over 10 years in annual installments
commencing one year after the date of grant. Certain employees may elect to
defer receipt of shares until termination or retirement. We accrue compensation
expense for the fair market value of the shares on the date of grant, less
estimated forfeitures. We granted 0.9 million deferred shares during 2000.
Compensation cost recognized during 2000, 1999 and 1998 was $18 million, $15
million and $12 million, respectively.
Restricted shares under the Comprehensive Plan are issued to officers and
key employees and distributed over a number of years in annual installments,
subject to certain prescribed conditions including continued employment. We
recognize compensation expense for the restricted shares over the restriction
period equal to the fair market value of the shares on the date of issuance. We
awarded 0.1 million restricted shares under this plan during 2000. We recognized
compensation cost of $4 million, $4 million and $3 million in 2000, 1999 and
1998, respectively.
Under the Stock Purchase Plan, eligible employees may purchase our Class A
Common Stock through payroll deductions at the lower of the market value at the
beginning or end of each plan year.
Employee stock options may be granted to officers and key employees at
exercise prices equal to the market price of our Class A Common Stock on the
date of grant. Nonqualified options expire 10 years after the date of grant,
except those issued from 1990 through 2000, which expire 15 years after the date
of the grant. Most options under the Stock Option Program are exercisable in
cumulative installments of one quarter at the end of each of the first four
years following the date of grant. In February 1997, 2.1 million Supplemental
Executive Stock Option awards were awarded to certain of our officers. The
options vest after eight years but could vest earlier if our stock price meets
certain performance criteria. These options have an exercise price of $25 and
0.2 million of them were forfeited during 1998. None of them were exercised
during 2000, 1999 or 1998 and 1.9 million remained outstanding at December 29,
2000. The annual grant of options under the Comprehensive Plan, which occurred
in November 1999 and previous years, was moved to February, commencing in 2001.
For the purposes of the following disclosures required by FAS No. 123,
"Accounting for Stock-Based Compensation," the fair value of each option granted
during 2000, 1999 and 1998 was $15, $14 and $11, respectively. We estimated the
fair value of each option granted on the date of grant using the Black-Scholes
option-pricing model, using the assumptions noted in the following table:
41
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2000 1999 1998
---------- ---------- ----------
Annual dividends....................................... $ .24 $ .22 $ .20
Expected volatility.................................... 30% 29% 28%
Risk-free interest rate................................ 5.8% 6.7% 5.8%
Expected life (in years)............................... 7 7 7
Pro forma compensation cost for the Stock Option Program, the Supplemental
Executive Stock Option awards and employee purchases pursuant to the Stock
Purchase Plan subsequent to December 30, 1994, recognized in accordance with FAS
No. 123, would reduce our net income as follows (in millions, except per share
amounts):
2000 1999 1998
------------- ------------ ------------
Net income as reported................................ $ 479 $ 400 $ 390
Pro forma net income.................................. $ 435 $ 364 $ 366
Diluted earnings per share as reported................ $ 1.89 $ 1.51 $ 1.46
Pro forma diluted earnings per share.................. $ 1.71 $ 1.38 $ 1.38
A summary of our Stock Option Program activity during 2000, 1999 and 1998
is presented below:
Number of Weighted
options average exercise
(in millions) price
------------- -----------------
Outstanding at March 27, 1998 - $ -
New awards at the Spinoff............................ 27.3 16
Granted during the year.............................. 6.4 28
Exercised during the year............................ (1.5) 11
Forfeited during the year............................ (0.7) 20
------------ ------------
Outstanding at January 1, 1999........................ 31.5 19
------------ ------------
Granted during the year.............................. 6.9 33
Exercised during the year............................ (4.2) 12
Forfeited during the year............................ (0.4) 30
------------ ------------
Outstanding at December 31, 1999....................... 33.8 22
------------ ------------
Granted during the year.............................. 0.6 36
Exercised during the year............................ (3.9) 16
Forfeited during the year............................ (0.5) 32
------------ ------------
Outstanding at December 29, 2000...................... 30.0 $ 23
============ ============
There were 20.5 million, 19.3 million and 19.1 million exercisable options
under the Stock Option Program at December 29, 2000, December 31, 1999, and
January 1, 1999, respectively, with weighted average exercise prices of $19, $16
and $13, respectively.
At December 29, 2000, 59.4 million shares were reserved under the
Comprehensive Plan (including 30.0 million shares under the Stock Option Program
and 1.9 million shares of the Supplemental Executive Stock Option awards) and
3.0 million shares were reserved under the Stock Purchase Plan.
42
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock options issued under the Stock Option Program outstanding at December
29, 2000, were as follows:
Outstanding Exercisable
------------------------------------------------ ------------------------------
Weighted Weighted Weighted
Range of Number of average average Number of average
exercise options remaining life exercise options exercise
prices (in millions) (in years) price (in millions) price
----------------- ------------- -------------- ------------- -------------- ------------
$ 3 to 5 2.7 6 $ 5 2.7 $ 5
6 to 9 1.8 7 7 1.8 7
10 to 15 3.8 9 13 3.9 13
16 to 24 3.7 10 20 3.7 20
25 to 37 17.8 13 31 8.4 30
38 to 43 0.2 15 41 - 42
---------- -----------
$ 3 to 43 30.0 11 $ 23 20.5 $ 19
================== ========== ============== ============= =========== ==============
FAIR VALUE OF FINANCIAL INSTRUMENTS
We assume that the fair values of current assets and current liabilities are
equal to their reported carrying amounts. The fair values of noncurrent
financial assets and liabilities are shown below.
2000 1999
----------------------------- -------------------------
Carrying Fair Carrying Fair
amount value amount value
------------ ------------ ----------- ----------
($ in millions) ($ in millions)
Notes and other receivables................... $ 1,180 $ 1,206 $ 708 $ 720
Long-term debt and other long-term
liabilities................................ 1,998 1,974 1,646 1,568
We value notes and other receivables based on the expected future cash flows
discounted at risk adjusted rates. We determine valuations for long-term debt
and other long-term liabilities based on quoted market prices or expected future
payments discounted at risk adjusted rates.
CONTINGENT LIABILITIES
We issue guarantees to lenders and other third parties in connection with
financing and other transactions. These guarantees were limited, in the
aggregate, to $256 million at December 29, 2000, including guarantees involving
major customers, with minimal expected funding. In addition, we have made
physical completion guarantees relating to two hotel properties with minimal
expected funding. As of December 29, 2000, we had extended approximately $829
million of loan commitments to owners of lodging and senior living communities
under which we expect to fund approximately $332 million by December 28, 2001,
and $573 million in total. Letters of credit outstanding on our behalf at
December 29, 2000, totaled $73 million, the majority of which related to our
self-insurance programs. At December 29, 2000, we had repurchase obligations of
$41 million related to notes receivable from timeshare interval purchasers,
which have been sold with limited recourse.
New World Development and another affiliate of Dr. Cheng, a director of the
Company, have severally indemnified us for guarantees by us of leases with
minimum annual payments of approximately $59 million.
43
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
On February 23, 2000, we entered into an agreement, which was subsequently
embodied in a definitive agreement executed on March 9, 2000, to resolve the
litigation described below involving certain limited partnerships formed in the
mid- to late 1980s. The agreement was reached with lead counsel to the
plaintiffs in the lawsuits described below, and with the special litigation
committee appointed by the general partner of two of the partnerships, Courtyard
by Marriott Limited Partnership (CBM I) and Courtyard by Marriott II Limited
Partnership (CBM II). The agreement was amended on September 23, 2000, to
increase the amount that CBM I settlement class members were to receive after
deduction of court-awarded attorneys' fees and expenses and to provide that the
defendants, including the Company, would pay a portion of the attorneys' fees
and expenses of the CBM I settlement class.
Under the agreement, we acquired, through an unconsolidated joint venture with
affiliates of Host Marriott Corporation (Host Marriott), substantially all of
the limited partners' interests in CBM I and CBM II. These partnerships own 120
Courtyard by Marriott hotels. We continue to manage the 120 hotels under long-
term agreements. The joint venture was financed with equity contributed in
equal shares by us and an affiliate of Host Marriott and approximately $200
million in mezzanine debt provided by us. Our total investment in the joint
venture, including the mezzanine debt, is approximately $300 million. Final
court approval of the CBM I and CBM II settlements was granted on October 24,
2000, and became effective on December 8, 2000.
The agreement also provided for the resolution of litigation with respect to
four other limited partnerships. On September 28, 2000, the court entered a
final order with respect to those partnerships, and on that same date, we and
Host Marriott each paid into escrow approximately $31 million for payment to the
plaintiffs in the Texas Multi-Partnership lawsuit described below in exchange
for dismissal of the complaints and full releases.
We recorded a pretax charge of $39 million, which was included in corporate
expenses in the fourth quarter of 1999, to reflect the settlement transactions.
Courtyard by Marriott II Limited Partnership Litigation
On June 7, 1996, a group of partners in CBM II filed a lawsuit against Host
Marriott, the Company and others, Whitey Ford, et al. v. Host Marriott
Corporation, et al., in the 285/th/ Judicial District Court of Bexar County,
Texas, alleging breach of fiduciary duty, breach of contract, fraud, negligent
misrepresentation, tortious interference, violation of the Texas Free Enterprise
and Antitrust Act of 1983 and conspiracy in connection with the formation,
operation and management of CBM II and its hotels. The plaintiffs sought
unspecified damages. On January 29, 1998, two other limited partners, A.R.
Milkes and D.R. Burklew, filed a petition in intervention seeking to convert the
lawsuit into a class action, and a class was certified. In March 1999, Palm
Investors, L.L.C., the assignee of a number of limited partnership units
acquired through various tender offers, and Equity Resource, an assignee of a
number of limited partnership units, through various of its funds, filed pleas
in intervention, which among other things added additional claims relating to
the 1993 split of Marriott Corporation and to the 1995 refinancing of CBM II's
indebtedness. On August 17, 1999, the general partner of CBM II appointed an
independent special litigation committee to investigate the derivative claims
described above and to recommend to the general partner whether it was in the
best interests of CBM II for the derivative litigation to proceed. The general
partner agreed to adopt the recommendation of the committee. Under Delaware
law, the recommendation of a duly appointed independent litigation committee is
binding on the general partner and the limited partners. Following certain
adjustments to the underlying complaints, including the assertion as derivative
claims some of the claims previously filed as individual claims, a final amended
class action complaint was filed on January 6, 2000. The lawsuit was dismissed
as part of the settlement described above.
Texas Multi-Partnership Lawsuits
On March 16, 1998, limited partners in several limited partnerships sponsored
by Host Marriott or its subsidiaries filed a lawsuit, Robert M. Haas, Sr. and
Irwin Randolph Joint Tenants, et al. v. Marriott International, Inc., et al.,
Case No. 98-CI-04092, in the 57/th/ Judicial District Court of Bexar County,
Texas, alleging that the defendants conspired to sell hotels to the partnerships
for inflated prices and that they charged the partnerships excessive management
fees to operate the partnerships' hotels. The plaintiffs further alleged that
the defendants committed fraud, breached fiduciary duties and violated the
provisions of various contracts. A Marriott International subsidiary manages
each of the hotels involved and, as to some properties, the Company is the
ground lessor and collects rent. The Company, several Marriott subsidiaries and
J.W. Marriott, Jr. were among the several named defendants. This lawsuit was
resolved as part of the settlement described above.
44
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
BUSINESS SEGMENTS
We are a diversified hospitality company with operations in three business
segments: Lodging, which includes the franchising, ownership, operation and
development of lodging properties including vacation timesharing resorts; Senior
Living Services, which consists of the operation, ownership and development of
senior living communities; and Distribution Services, which operates a wholesale
food distribution business. We evaluate the performance of our segments based
primarily on operating profit before corporate expenses and interest. We do not
allocate income taxes at the segment level.
2000 1999 1998
------------- --------------- ------------
($ in millions)
Sales
Lodging................................................... $ 7,848 $ 7,041 $ 6,311
Senior Living Services.................................... 669 559 479
Distribution Services..................................... 1,500 1,139 1,178
------------ -------------- ------------
$ 10,017 $ 8,739 $ 7,968
============ ============== ============
Operating profit (loss) before corporate expenses and
interest
Lodging................................................... $ 936 $ 827 $ 704
Senior Living Services.................................... (18) (18) 15
Distribution Services..................................... 4 21 17
------------ -------------- ------------
$ 922 $ 830 $ 736
============ ============== ============
Depreciation and amortization
Lodging................................................... $ 131 $ 108 $ 99
Senior Living Services.................................... 28 21 19
Distribution Services..................................... 6 6 6
Corporate................................................. 30 27 16
------------ -------------- ------------
$ 195 $ 162 $ 140
============ ============== ============
Assets
Lodging................................................... $ 6,481 $ 5,159 $ 4,285
Senior Living Services.................................... 784 980 905
Distribution Services..................................... 194 187 179
Corporate................................................. 778 998 864
------------ -------------- ------------
$ 8,237 $ 7,324 $ 6,233
============ ============== ============
Capital expenditures
Lodging................................................... $ 965 $ 519 $ 562
Senior Living Services.................................... 76 301 329
Distribution Services..................................... 6 3 2
Corporate................................................. 48 106 44
------------ -------------- ------------
$ 1,095 $ 929 $ 937
============ ============== ============
Sales for Distribution Services exclude sales (made at market terms and
conditions) to other segments of $176 million, $166 million and $155 million in
2000, 1999 and 1998, respectively.
Segment operating expenses include selling, general and administrative
expenses directly related to the operations of the businesses, aggregating $682
million in 2000, $592 million in 1999 and $496 million in 1998.
The consolidated financial statements include the following related to
international operations: sales of $455 million in 2000, $392 million in 1999
and $323 million in 1998; operating profit before corporate expenses and
interest of $73 million in 2000, $66 million in 1999 and $49 million in 1998;
and fixed assets of $241 million in 2000, $137 million in 1999 and $102 million
in 1998.
45
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
QUARTERLY FINANCIAL DATA - UNAUDITED
($ in millions, except per share data)
2000/1/
-------------------------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------------- --------------- --------------- --------------- -------------
Systemwide sales/2/........................... $ 4,259 $ 4,800 $ 4,483 $ 6,239 $ 19,781
Sales......................................... 2,167 2,391 2,303 3,156 10,017
Operating profit before corporate expenses
and interest.................................. 193 247 216 266 922
Net income.................................... $ 94 $ 126 $ 110 $ 149 $ 479
Diluted earnings per share.................... $ .37 $ .50 $ .43 $ .59 $ 1.89
1999/1/
-------------------------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------------- --------------- --------------- --------------- -------------
Systemwide sales /2/.......................... $ 3,687 $ 4,235 $ 3,992 $ 5,770 $ 17,684
Sales......................................... 1,895 2,042 1,995 2,807 8,739
Operating profit before corporate expenses
and interest................................. 193 216 188 233 830
Net income.................................... $ 100 $ 114 $ 96 $ 90 $ 400
Diluted earnings per share /3/................ $ .38 $ .42 $ .36 $ .34 $ 1.51
/1/ The quarters consist of 12 weeks, except the fourth quarter, which consists
of 16 weeks.
/2/ Systemwide sales comprise revenues generated from guests at owned, leased,
managed and franchised hotels and senior living communities, together with
sales of our other businesses.
/3/ In 1999 the sum of the earnings per share for the four quarters differs
from annual earnings per share due to the required method of computing the
weighted average number of shares in interim periods.
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
47
PART III
ITEMS 10, 11, 12 and 13.
As described below, certain information appearing in our Proxy Statement to be
furnished to shareholders in connection with the 2001 Annual Meeting of
Shareholders, is incorporated by reference in this Form 10-K Annual Report.
ITEM 10. This information is incorporated by reference to the
"Directors Standing For Election," "Directors Continuing
In Office" and "Section 16(a) Beneficial Ownership
Reporting Compliance" sections of our Proxy Statement to
be furnished to shareholders in connection with the 2001
Annual Meeting. Information regarding executive
officers is included below.
ITEM 11. This information is incorporated by reference to the
"Executive Compensation" section of our Proxy Statement
to be furnished to shareholders in connection with the
2001 Annual Meeting.
ITEM 12. This information is incorporated by reference to the
"Stock Ownership" section of our Proxy Statement to be
furnished to shareholders in connection with the 2001
Annual Meeting.
ITEM 13. This information is incorporated by reference to the
"Certain Transactions" section of our Proxy Statement to
be furnished to shareholders in connection with the 2001
Annual Meeting.
48
EXECUTIVE OFFICERS
Set forth below is certain information with respect to our executive officers.
Name and Title Age Business Experience
-------------------------------------- ----- ----------------------------------------------------------
J. W. Marriott, Jr. 68 Mr. Marriott is Chairman of the Board and Chief Executive
Chairman of the Marriott Officer of the Company. He joined Marriott Corporation
International, Inc. Board and Chief (now known as Host Marriott Corporation) in 1956, became
Executive Officer President and a director in 1964, Chief Executive Officer
in 1972 and Chairman of the Board in 1985. Mr. Marriott
also is a director of Host Marriott Corporation, General
Motors Corporation and the Naval Academy Endowment Trust.
He serves on the Board of Trustees of the National
Geographic Society and The J. Willard & Alice S. Marriott
Foundation, and the Board of Directors of Georgetown
University, and is a member of the Executive Committee of
the World Travel & Tourism Council and the Business
Council. Mr. Marriott has served as Chief Executive
Officer of the Company since its inception in 1997, and
served as Chairman and Chief Executive Officer of Old
Marriott from October 1993 to March 1998. Mr. Marriott
has served as a director of the Company since March 1998.
Simon Cooper 55 Simon Cooper joined Marriott International in 1998 as
Vice President; President of Marriott Lodging Canada and Senior Vice
President and Chief Operating Officer, President of Marriott Lodging International. In 2000,
The Ritz-Carlton Hotel Company, L.L.C. the New England Region was added to his Canadian
responsibilities. Prior to joining Marriott, Mr. Cooper
was President and Chief Operating Officer of Delta Hotels
and Resorts. Mr. Cooper is the Chairman of the Board of
Governors for University of Guelph. He is a fellow of
the Board of Trustees for the Educational Institute of
the American Hotel and Motel Association and is a member
of the Board for the Canadian Tourism Commission. In
February 2001, Mr. Cooper was appointed to his current
position.
Edwin D. Fuller 55 Edwin D. Fuller joined Marriott in 1972 and held several
Vice President; sales positions before being appointed Vice President of
President and Managing Director - Marketing in 1979. He became Regional Vice President in
Marriott Lodging International the Midwest Region in 1985, Regional Vice President of
the Western Region in 1988, and in 1990 was promoted to
Senior Vice President & Managing Director of
International Lodging, with a focus on developing the
international group of hotels. He was named Executive
Vice President and Managing Director of International
Lodging in 1994, and was promoted to his current position
of President and Managing Director of International
Lodging in 1997.
49
Name and Title Age Business Experience
-------------------------------------- ------- ----------------------------------------------------------
Brendan M. Keegan 57 Brendan M. Keegan joined Marriott Corporation in 1971, in
Vice President; the Corporate Organization Development Department and
Executive Vice President - subsequently held several human resources positions,
Human Resources including Vice President of Organization Development and
Executive Succession Planning. In 1986, Mr. Keegan was
named Senior Vice President, Human Resources, Marriott
Service Group. In April 1997, Mr. Keegan was appointed
Senior Vice President of Human Resources for our
worldwide human resources functions, including
compensation, benefits, labor and employee relations,
employment and human resources planning and development.
In February 1998, he was appointed to his current
position.
William W. McCarten 52 William W. McCarten was named as President of Marriott
Vice President; Services Group (Marriott Senior Living Services and
President - Marriott Services Group Marriott Distribution Services) in January 2001. Most
recently, Mr. McCarten served as President and Chief
Executive Officer of HMS Host Corporation (formerly Host
Marriott Services Corporation) from 1995 to December
2000. He joined Marriott Corporation in 1979, was
elected Vice President, Corporate Controller and Chief
Accounting Officer in 1985 and Senior Vice President in
1986. He was named Executive Vice President, Host and
Travel Plazas in 1991 and President, Host and Travel
Plazas in 1992. In 1993 he became President of Host
Marriott Corporation's Operating Group and in 1995 was
elected President and Chief Executive Officer and a
director of HMS Host Corporation. Mr. McCarten is a past
chairman on the Advisory Board of the McIntire School at
the University of Virginia.
Terry Petty 51 Terry Petty joined Marriott Corporation in 1984 as Vice
Executive Vice President; President of Marketing and Planning for the newly
North American Lodging Operations acquired Host International business and subsequently held the
following positions: Vice President of Consumer
Marketing, Marriott Hotels; General Manager, Atlanta
Perimeter Marriott Hotel; Vice President of Operations
for Marriott Vacation Club International, and Senior Vice
President of Hotels for the Western Region. In March
2000, Mr. Petty was appointed to his current position.
Joseph Ryan 59 Joseph Ryan joined Old Marriott in December 1994 as
Executive Vice President and General Executive Vice President and General Counsel. Prior to
Counsel that time, he was a partner in the law firm of O'Melveny
& Myers, serving as the Managing Partner from 1993 until
his departure. He joined O'Melveny & Myers in 1967 and
was admitted as a partner in 1976.
50
Name and Title Age Business Experience
-------------------------------------- ------- ----------------------------------------------------------
William J. Shaw 55 Mr. Shaw has served as President and Chief Operating
Director, President and Officer of the Company since March 1997 (including
Chief Operating Officer service in the same capacity with Old Marriott until
March 1998). Mr. Shaw joined Marriott Corporation in
1974, was elected Corporate Controller in 1979 and a Vice
President in 1982. In 1986, Mr. Shaw was elected Senior
Vice President--Finance and Treasurer of Marriott
Corporation. He was elected Chief Financial Officer and
Executive Vice President of Marriott Corporation in April
1988. In February 1992, he was elected President of the
Marriott Service Group. Mr. Shaw is also Chairman of the
Board of Directors of Sodexho Marriott Services, Inc. He
also serves on the Board of Trustees of the University of
Notre Dame and the Suburban Hospital Foundation. Mr. Shaw
has served as a director of Old Marriott (now named
Sodexho Marriott Services, Inc.) since May 1997, and as a
director of the Company since March 1998.
Arne M. Sorenson 42 Arne M. Sorenson joined Old Marriott in 1996 as Senior
Executive Vice President and Vice President of Business Development. He was
Chief Financial Officer instrumental in our acquisition of the Renaissance Hotel
Group in 1997. Prior to joining Marriott, he was a
partner in the law firm of Latham & Watkins in
Washington, D.C., where he played a key role in 1992 and
1993 in the distribution of Old Marriott by Marriott
Corporation. Effective October 1, 1998, Mr. Sorenson was
appointed Executive Vice President and Chief Financial
Officer.
James M. Sullivan 57 James M. Sullivan joined Marriott Corporation in 1980,
Executive Vice President - departed in 1983 to acquire, manage, expand and
Lodging Development subsequently sell a successful restaurant chain, and
returned to Marriott Corporation in 1986 as Vice
President of Mergers and Acquisitions. Mr. Sullivan
became Senior Vice President, Finance - Lodging in 1989,
Senior Vice President - Lodging Development in 1990 and
was appointed to his current position in December 1995.
William R. Tiefel 66 William R. Tiefel joined Marriott Corporation in 1961 and
Vice Chairman; was named President of Marriott Hotels, Resorts and
Chairman - The Ritz-Carlton Hotel Suites in 1988. He had previously served as Resident
Company, L.L.C. Manager and General Manager at several Marriott hotels
prior to being appointed Regional Vice President and
later Executive Vice President of Marriott Hotels,
Resorts and Suites and Marriott Ownership Resorts. Mr.
Tiefel was elected Executive Vice President of Marriott
Corporation in November 1989. In March 1992, he was
elected President - Marriott Lodging Group and assumed
responsibility for all of Marriott's lodging brands. In
May 1998, he was appointed to his current position.
51
Name and Title Age Business Experience
-------------------------------------- ------- ------------------------------------------------------------
Stephen P. Weisz 50 Stephen P. Weisz joined Marriott Corporation in 1972 and
Vice President; was named Regional Vice President of the Mid-Atlantic
President - Marriott Vacation Club Region in 1991. Mr. Weisz had previously served as
International Senior Vice President of Rooms Operations before being
appointed as Vice President of the Revenue Management
Group. Mr. Weisz became Senior Vice President of Sales
and Marketing for Marriott Hotels, Resorts and Suites in
August 1992 and Executive Vice President - Lodging Brands
in August 1994. In December 1996, Mr. Weisz was
appointed President - Marriott Vacation Club
International.
52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The response to this portion of Item 14 is submitted under Item 8
of this Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable
and therefore have been omitted.
(3) EXHIBITS
Any shareholder who wants a copy of the following Exhibits may
obtain one from us upon request at a charge that reflects the
reproduction cost of such Exhibits. Requests should be made to the
Secretary, Marriott International, Inc., Marriott Drive, Department
52/862, Washington, D.C. 20058.
Incorporation by Reference
(where a report or registration statement is
indicated below, that document has been previously
Exhibit filed with the SEC and the applicable exhibit is
No. Description incorporated by reference thereto)
------------------------------------------------------------------------------------------------------------------
2.1 Distribution Agreement dated as of September 30, Appendix A in our Form 10 filed on February 13,
1997 with Sodexho Marriott Services, Inc. 1998.
2.2 Agreement and Plan of Merger dated as of Appendix B in our Form 10 filed on February 13,
September 30, 1997 with Sodexho Marriott 1998.
Services, Inc., Marriott-ICC Merger Corp.,
Sodexho Alliance, S.A. and International
Catering Corporation.
2.3 Omnibus Restructuring Agreement dated as of Appendix C in our Form 10 filed on February 13,
September 30, 1997 with Sodexho Marriott 1998.
Services, Inc., Marriott-ICC Merger Corp.,
Sodexho Alliance, S.A. and International
Catering Corporation.
2.4 Amendment Agreement dated as of January 28, 1998 Appendix D in our Form 10 filed on February 13,
among Sodexho Marriott Services, Inc., 1998.
Marriott-ICC Merger Corp., the Company, Sodexho
Alliance, S.A. and International Catering
Corporation.
3.1 Third Amended and Restated Certificate of Exhibit No. 3 to our Form 10-Q for the fiscal
Incorporation of the Company. quarter ended June 18, 1999.
3.2 Amended and Restated Bylaws. Exhibit No. 3.3 to our Form 10-K for the fiscal
year ended January 1, 1999.
53
3.3 Amended and Restated Rights Agreement dated as Exhibit No. 4.1 to our Form 10-Q for the fiscal
of August 9, 1999 with The Bank of New York, as quarter ended September 10, 1999.
Rights Agent.
3.4 Certificate of Designation, Preferences and Exhibit No. 3.1 to our Form 10-Q for the fiscal
Rights of the Marriott International, Inc. ESOP quarter ended June 16, 2000.
Convertible Preferred Stock.
3.5 Certificate of Designation, Preferences and Exhibit No. 3.2 to our Form 10-Q for the fiscal
Rights of the Marriott International, Inc. quarter ended June 16, 2000.
Capped Convertible Preferred Stock.
4.1 Indenture dated November 16, 1998 with The Chase Exhibit No. 4.1 to our Form 10-K for the fiscal
Manhattan Bank, as Trustee. year ended January 1, 1999.
4.2 Form of 6.625% Series A Note due 2003. Exhibit No. 4.2 to our Form 10-K for the fiscal
year ended January 1, 1999.
4.3 Form of 6.875% Series B Note due 2005. Exhibit No. 4.3 to our Form 10-K for the fiscal
year ended January 1, 1999.
4.4 Form of 7.875% Series C Note due 2009. Exhibit No. 4.1 to our Form 8-K dated September 20,
1999.
4.5 Form of 8.125% Series D Note due 2005. Exhibit No. 4.1 to our Form 8-K dated March 28,
2000.
4.6 Form of 7.0% Series E Note due 2008. Exhibit No. 4.1 (f) to our Form S-3 filed on
January 17, 2001.
10.1 Employee Benefits and Other Employment Matters Exhibit No. 10.1 to our Form 10 filed on February
Allocation Agreement dated as of September 30, 13, 1998.
1997 with Sodexho Marriott Services, Inc.
10.2 1998 Comprehensive Stock and Cash Incentive Plan. Appendix L in our Form 10 filed on February 13,
1998.
10.3 Noncompetition Agreement between Sodexho Exhibit No. 10.1 to our Form 10-Q for the fiscal
Marriott Services, Inc. and the Company. quarter ended March 27, 1998.
10.4 Tax Sharing Agreement with Sodexho Marriott Exhibit No. 10.2 to our Form 10-Q for the fiscal
Services, Inc. and Sodexho Alliance, S.A. quarter ended March 27, 1998.
10.5 Distribution Agreement with Host Marriott Exhibit No. 10.3 to Form 8-K of Old Marriott dated
Corporation, as amended. October 25, 1993; Exhibit No. 10.2 to Form 10-K of
Old Marriott for the fiscal year ended December 29,
1995 (First Amendment); Exhibit Nos. 10.4 and 10.5
to our Form 10-Q for the fiscal quarter ended March
27, 1998 (Second and Third Amendments); and Exhibit
nos. 10.5 (a) and 10.5 (b) to our Form 10-K for the
fiscal year ended December 31, 1999 (Fourth and
Fifth Amendments); filed herewith (Sixth Amendment).
54
10.6 Restated Noncompetition Agreement with Host Exhibit No. 10.6 to our Form 10-Q for the fiscal
Marriott Corporation. quarter ended March 27, 1998.
10.7 $1.5 billion Credit Agreement dated February 19, Exhibit No. 10.10 to our Form 10-K for the fiscal
1998 with Citibank, N.A., as Administrative year ended January 2, 1998.
Agent, and certain banks.
10.8 $500 million Credit Agreement dated February 2, Exhibit No. 4.8 to our Form 10-K for the fiscal
1999 with Citibank, N.A. as Administrative year ended January 1, 1999.
Agent, and certain banks.
10.9 Settlement Agreement dated as of March 9, 2000 Exhibit No. 10.1 to our Form 10-Q/A for the fiscal
among A. R. Milkes, Robert M. Haas, Sr., and quarter ended March 24, 2000.
other plaintiffs and intervenors identified
therein and the Company, Host Marriott
Corporation, and other identified defendants,
each by and through their respective counsel of
record.
10.10 Amended and restated Marriott International, Attachment A to the Company's definitive proxy
Inc. 1998 Comprehensive Stock and Cash Incentive statement filed on March 23, 2000.
Plan.
10.11 First Amendment to the Settlement Agreement Exhibit No. 10 to our Form 10-Q for the fiscal
dated as of September 23, 2000 among A.R. quarter ended September 8, 2000.
Milkes, Robert M. Haas, Sr., and other
plaintiffs and intervenors identified therein
and the Company, Host Marriott Corporation, and
other identified defendants, each by and through
their respective counsels of record.
12 Statement of Computation of Ratio of Earnings to Filed with this report.
Fixed Charges.
21 Subsidiaries of Marriott International, Inc. Filed with this report.
23 Consent of Arthur Andersen LLP. Filed with this report.
99 Forward-Looking Statements. Filed with this report.
_____________________________
(b) REPORTS ON FORM 8-K
On February 24, 2000, we filed a report describing a tentative agreement to
resolve pending litigation involving certain limited partnerships which we
expected to result in a pretax charge of $30 million to $40 million. The
agreement became definitive on March 9, 2000, and as a result we recorded a $39
million pretax charge in the fourth quarter of 1999. We also described our
plans to form an unconsolidated joint venture with Host Marriott Corporation to
acquire all of the limited partners' interests in Courtyard by Marriott Limited
Partnership and Courtyard by Marriott II Limited Partnership, for approximately
$372 million.
On March 27, 2000, we filed a report describing the issuance of $300
million of 8-1/8 percent Series D Notes due April 1, 2005 in an underwritten
public offering.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 we have duly caused this Form 10-K to be signed on our behalf by the
undersigned, thereunto duly authorized, on this 16th day of March, 2001.
MARRIOTT INTERNATIONAL, INC.
By /s/ J.W. Marriott, Jr.
---------------------------------
J.W. Marriott, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-K has been signed by the following persons on our behalf in their capacities
and on the date indicated above.
PRINCIPAL EXECUTIVE OFFICER:
/s/ J.W. Marriott, Jr.
---------------------------------------------------------- Chairman of the Board, Chief Executive Officer
J.W. Marriott, Jr. and Director
PRINCIPAL FINANCIAL OFFICER:
/s/ Arne M. Sorenson
---------------------------------------------------------- Executive Vice President,
Arne M. Sorenson Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Linda A. Bartlett
---------------------------------------------------------- Vice President, Controller
Linda A. Bartlett
DIRECTORS:
/s/ Henry Cheng Kar-Shun /s/ W. Mitt Romney
----------------------------------------------------------- ----------------------------------------------------------
Henry Cheng Kar-Shun, Director W. Mitt Romney, Director
/s/ Gilbert M. Grosvenor /s/ Roger W. Sant
---------------------------------------------------------- ----------------------------------------------------------
Gilbert M. Grosvenor, Director Roger W. Sant, Director
/s/ Richard E. Marriott /s/ William J. Shaw
---------------------------------------------------------- ----------------------------------------------------------
Richard E. Marriott, Director William J. Shaw, Director
/s/ Floretta Dukes McKenzie /s/ Lawrence M. Small
---------------------------------------------------------- ----------------------------------------------------------
Floretta Dukes McKenzie, Director Lawrence M. Small, Director
/s/ Harry J. Pearce
----------------------------------------------------------
Harry J. Pearce, Director
S-1