SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 24, 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
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 [_]
Shares outstanding
Class at April 27, 2000
- -------------------------------- ------------------------------
Class A Common Stock, 239,619,008
$0.01 par value
1
MARRIOTT INTERNATIONAL, INC.
INDEX
Page No.
-------------
Forward-Looking Statements.................................................... 3
Part I. Financial Information (Unaudited):
Condensed Consolidated Statement of Income -
Twelve Weeks Ended March 24, 2000 and March 26, 1999.................... 4
Condensed Consolidated Balance Sheet -
as of March 24, 2000 and December 31, 1999.............................. 5
Condensed Consolidated Statement of Cash Flows -
Twelve Weeks Ended March 24, 2000 and March 26, 1999.................... 6
Notes to Condensed Consolidated Financial Statements....................... 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 13
Quantitative and Qualitative Disclosures About Market Risk................. 17
Part II. Other Information and Signatures:
Legal Proceedings.......................................................... 18
Changes in Securities...................................................... 18
Defaults Upon Senior Securities............................................ 18
Submission of Matters to a Vote of Security Holders........................ 18
Other Information.......................................................... 18
Exhibits and Reports on Form 8-K........................................... 19
Signatures................................................................. 20
EXPLANATORY NOTE
As a result of a printer's error, this report on Form 10-Q/A Amendment No. 1
amends our Form 10-Q previously filed on May 4, 2000, to reflect changes made to
the Signatures page and the last paragraph of the Liquidity and Capital
Resources section of Management's Discussion and Analysis.
2
Forward-Looking Statements
When used throughout this report, the words "believes," "anticipates,"
"expects," "intends," "estimates," "projects," and other similar expressions,
which are predictions of or indicate future events and trends, identify forward-
looking statements. Such statements are subject to a number of risks and
uncertainties which could cause actual results to differ materially from those
projected, including: competition within 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 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 and senior living community owners to
fund investments; approval of the Boston Chicken, Inc. reorganization plan
referred to below; satisfaction of the conditions to consummation of the
litigation settlement transactions referred to below; and other risks described
from time to time in our filings with the Securities and Exchange Commission,
including those set forth on Exhibit 99 filed herewith. Given these
uncertainties, we caution you not to place undue reliance on such statements. We
also undertake no obligation to publicly update or revise any forward-looking
statement to reflect current or future events or circumstances.
3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in millions, except per share amounts)
(Unaudited)
Twelve weeks ended
--------------------------------
March 24, March 26,
2000 1999
------------ ------------
SALES.............................................................. $ 2,167 $ 1,895
OPERATING COSTS AND EXPENSES....................................... 1,974 1,702
---------- ---------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST..................................................... 193 193
Corporate expenses................................................. (26) (29)
Interest expense................................................... (23) (11)
Interest income.................................................... 5 7
---------- ---------
INCOME BEFORE INCOME TAXES......................................... 149 160
Provision for income taxes......................................... 55 60
---------- ----------
NET INCOME......................................................... $ 94 $ 100
========== =========
DIVIDENDS DECLARED PER SHARE....................................... $ .055 $ .05
========== =========
EARNINGS PER SHARE
Basic Earnings Per Share.......................................... $ .39 $ .41
========== =========
Diluted Earnings Per Share........................................ $ .37 $ .38
========== =========
See notes to condensed consolidated financial statements.
4
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
March 24, December 31,
2000 1999
---------- -----------
(Unaudited)
ASSETS
Current assets
Cash and equivalents.............................................. $ 372 $ 489
Accounts and notes receivable..................................... 805 740
Inventory......................................................... 117 93
Other............................................................. 270 278
---------- ----------
1,564 1,600
---------- ----------
Property and equipment............................................. 3,098 2,845
Intangibles........................................................ 1,799 1,820
Investments in affiliates.......................................... 284 294
Notes and other receivables........................................ 508 473
Other.............................................................. 297 292
---------- ----------
$ 7,550 $ 7,324
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................. $ 650 $ 628
Other............................................................. 1,019 1,115
---------- ----------
1,669 1,743
---------- ----------
Long-term debt..................................................... 2,068 1,676
Other long-term liabilities........................................ 1,023 997
Shareholders' equity
Class A common stock, 255.6 million shares issued................. 3 3
Additional paid-in capital........................................ 2,755 2,738
Retained earnings................................................. 544 508
Treasury stock, at cost........................................... (472) (305)
Accumulated other comprehensive income............................ (40) (36)
---------- ----------
2,790 2,908
---------- ----------
$ 7,550 $ 7,324
========== ==========
See notes to condensed consolidated financial statements.
5
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in millions)
(Unaudited)
Twelve weeks ended
-------------------------------
March 24, March 26,
2000 1999
---------- ----------
OPERATING ACTIVITIES
Net income........................................................ $ 94 $ 100
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization................................. 41 33
Income taxes and other........................................ 53 50
Timeshare activity, net....................................... (68) (12)
Working capital changes....................................... (99) (36)
--------- ---------
Cash provided by operations....................................... 21 135
--------- ---------
INVESTING ACTIVITIES
Acquisitions...................................................... - (51)
Dispositions...................................................... 3 186
Capital expenditures.............................................. (247) (205)
Note advances..................................................... (25) (58)
Note collections and sales........................................ 4 5
Other............................................................. (19) (38)
--------- ---------
Cash used in investing activities................................. (284) (161)
--------- ---------
FINANCING ACTIVITIES
Commercial paper activity, net.................................... 394 (13)
Issuance of other long-term debt.................................. 3 2
Repayment of other long-term debt................................. (4) (27)
Issuance of Class A common stock.................................. 3 26
Dividends paid.................................................... (14) (12)
Purchase of treasury stock........................................ (236) (5)
--------- ---------
Cash provided by (used in) financing activities................... 146 (29)
--------- ---------
DECREASE IN CASH AND EQUIVALENTS..................................... (117) (55)
CASH AND EQUIVALENTS, beginning of period............................ 489 390
--------- ---------
CASH AND EQUIVALENTS, end of period.................................. $ 372 $ 335
========= =========
See notes to condensed consolidated financial statements.
6
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements present the
results of operations, financial position and cash flows of Marriott
International, Inc. (together with its subsidiaries, we, us or the Company).
The accompanying condensed consolidated financial statements have not been
audited. We have condensed or omitted certain information and footnote
disclosures normally included in financial statements presented in accordance
with generally accepted accounting principles. We believe the disclosures
made are adequate to make the information presented not misleading. However,
you should read the condensed consolidated financial statements in
conjunction with the consolidated financial statements and notes to those
financial statements included in our Annual Report on Form 10-K (our Annual
Report) for the fiscal year ended December 31, 1999. Capitalized terms not
otherwise defined in this quarterly report have the meanings specified in our
Annual Report.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, and the reported amounts of sales and expenses
during the reporting period. Accordingly, ultimate results could differ from
those estimates.
In our opinion, the accompanying condensed consolidated financial statements
reflect all adjustments necessary to present fairly our financial position as
of March 24, 2000 and December 31, 1999 and the results of operations and
cash flows for the twelve weeks ended March 24, 2000 and March 26, 1999.
Interim results may not be indicative of fiscal year performance because of
seasonal and short-term variations. We have eliminated all material
intercompany transactions and balances between entities included in these
financial statements.
7
2. Earnings Per Share
------------------
The following table reconciles the earnings and number of shares used in the
basic and diluted earnings per share calculations (in millions, except per
share amounts).
Twelve weeks ended
---------------------------------
March 24, March 26,
2000 1999
------------- -------------
Computation of Basic Earnings Per Share
Net income.............................................. $ 94 $ 100
Weighted average shares outstanding..................... 244.1 245.6
---------- -----------
Basic Earnings Per Share................................ $ .39 $ .41
========== ===========
Computation of Diluted Earnings Per Share
Net income.............................................. $ 94 $ 100
After-tax interest expense on convertible
subordinated debt..................................... - 2
---------- -----------
Net income for diluted earnings per share............... $ 94 $ 102
========== ===========
Weighted average shares outstanding..................... 244.1 245.6
Effect of Dilutive Securities
Employee stock option plan............................. 6.1 9.0
Deferred stock incentive plan.......................... 5.1 5.2
Convertible subordinated debt........................... - 9.5
---------- -----------
Shares for diluted earnings per share................... 255.3 269.3
========== ===========
Diluted Earnings Per Share.............................. $ .37 $ .38
========== ===========
We compute the effect of dilutive securities using the treasury stock
method and average market prices during the period. We use the if-converted
method for convertible subordinated debt.
8
3. Acquisitions
------------
ExecuStay Corporation. 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.
4. Comprehensive Income
--------------------
Total comprehensive income was $89 million and $90 million, respectively,
for the twelve weeks ended March 24, 2000 and March 26, 1999. The principal
difference between net income and total comprehensive income relates to
foreign currency translation adjustments.
5. Intangible Assets
-----------------
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 reached an agreement with McDonald's on a new contract providing
for continuation of distribution services to Boston Market restaurants. The
new contract, which would replace MDS's existing distribution contract with
BCI, will be subject to confirmation of BCI's pending plan of
reorganization by the Court. Because the existing distribution contract
will be 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. MDS continues to
provide distribution services to BCI and has been receiving payment of
post-petition receivables in accordance with the terms of its contract with
BCI.
6. New Accounting Standards
------------------------
We will adopt Financial Accounting Standard (FAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which we do not expect to
have a material effect on our consolidated financial statements, in or
before the first quarter of 2001.
We will adopt the SEC's Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," in the second quarter of 2000.
Implementation of SAB No. 101 is expected to have no impact on annual
earnings but may shift the timing of revenue and profit recognition to
later quarters during the year.
7. Business Segments
-----------------
We are a diversified hospitality company operating in three business
segments: Lodging, which includes the development, ownership, operation and
franchising of lodging properties including vacation timesharing resorts;
Senior Living Services, which consists of the development, ownership and
operation of senior living communities; and Distribution Services, which
9
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.
The following table shows our sales and operating profit by business
segment for the twelve weeks ended March 24, 2000 and March 26, 1999.
Twelve weeks ended
------------------------------------
March 24, March 26,
2000 1999
------------- -------------
Sales
Lodging.............................................................. $ 1,711 $ 1,523
Senior Living Services............................................... 149 120
Distribution Services................................................ 307 252
---------- ----------
$ 2,167 $ 1,895
========== ==========
Operating profit before corporate
expenses and interest
Lodging.............................................................. $ 203 $ 187
Senior Living Services............................................... 2 2
Distribution Services................................................ (12) 4
---------- ----------
$ 193 $ 193
========== ==========
Sales of Distribution Services do not include sales (made at market terms
and conditions) to our other business segments of $39 million and $37
million for the twelve weeks ended March 24, 2000 and March 26, 1999,
respectively.
8. Contingencies
-------------
We issue guarantees to lenders and other third parties in connection with
financing transactions and other obligations. These guarantees were limited,
in the aggregate, to $179 million at March 24, 2000, including guarantees
involving major customers, with expected funding of zero. As of March 24,
2000, we had extended approximately $336 million of loan commitments to
owners of lodging and senior living properties. Letters of credit
outstanding on our behalf at March 24, 2000, totaled $76 million, the
majority of which related to our self-insurance programs. At March 24, 2000,
we had repurchase obligations of $94 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.
On February 23, 2000, we entered into an agreement, which was subsequently
embodied in a definitive agreement executed on March 9, 2000, to resolve
pending litigation described below involving certain limited partnerships
formed in the mid- to late 1980's. Consummation of the settlement is subject
to numerous conditions, including the receipt of third-party consents and
10
court approval. The agreement was reached with lead counsel to the
plaintiffs in the lawsuits described below, and with the special litigation
committee appointed by the general partner of two of the partnerships,
Courtyard by Marriott Limited Partnership (CBM I) and Courtyard by Marriott
II Limited Partnership (CBM II). Because of the numerous conditions to be
satisfied, including approval by the court and consent of the requisite
holders of limited partnership units, there can be no assurances that the
settlement transactions will be consummated and, if consummated, terms could
differ materially from those described below.
Under the agreement, we will acquire, through an unconsolidated joint
venture with Host Marriott, all of the limited partners' interests in CBM I
and CBM II for approximately $372 million. These partnerships own 120
Courtyard by Marriott hotels. The purchase price will be financed with $185
million in mezzanine debt loaned to the joint venture by us and with equity
contributed in equal shares by us and an affiliate of Host Marriott. We will
continue to manage these 120 hotels under long-term agreements. Also, we and
Host Marriott each have agreed to pay approximately $31 million to the
plaintiffs in the Texas Multi-Partnership lawsuit described below in
exchange for dismissal of the complaints and full releases.
We recorded a pretax charge of $39 million which was included in corporate
expenses in the fourth quarter of 1999, to reflect anticipated settlement
transactions. However, if the foregoing settlement transactions are not
consummated, and either a less favorable settlement is entered into, or the
lawsuits are tried and decided adversely to the Company, we could incur
losses significantly different than the pretax charge associated with the
settlement agreement described above.
Courtyard by Marriott II Limited Partnership 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 285th Judicial District Court of Bexar County,-
Texas, alleging breach of fiduciary duty, breach of contract, fraud,
negligent misrepresentation, tortious interference, violation of the Texas
Free Enterprise and Antitrust Act of 1983 and conspiracy in connection with
the formation, operation and management of CBM II and its hotels. The
plaintiffs sought unspecified damages. On January 29, 1998, two other
limited partners, A.R. Milkes and D.R. Burklew, filed a petition in
intervention seeking to convert the lawsuit into a class action, and a class
was certified. In March 1999, Palm Investors, L.L.C., the assignee of a
number of limited partnership units acquired through various tender offers,
and Equity Resource, an assignee, through various of its funds, of a number
of limited partnership units, filed pleas in intervention, which among other
things added additional claims relating to the 1993 split of Marriott
Corporation and to the 1995 refinancing of CBM II's indebtedness. On August
17, 1999, the general partner of CBM II appointed an independent special
litigation committee to investigate the derivative claims described above
and to recommend to the general partner whether it is in the best interests
of CBM II for the derivative litigation to proceed. The general partner
agreed to adopt the recommendation of the committee. Under Delaware law, the
recommendation of a duly appointed independent litigation committee is
binding on the general partner and the 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. Trial,
which was scheduled to begin in late February, 2000, was postponed pending
approval and consummation of the settlement described above.
11
Texas Multi-Partnership Lawsuit
On March 16, 1998, limited partners in several limited partnerships
sponsored by Host Marriott or its subsidiaries filed a lawsuit, Robert M.
Haas, Sr. and Irwin Randolph Joint Tenants, et al. v. Marriott
International, Inc., et al., in the 57th Judicial District Court of Bexar
County, Texas, alleging that the defendants conspired to sell hotels to the
partnerships for inflated prices and that they charged the partnerships
excessive management fees to operate the partnerships' hotels. The
plaintiffs further allege that the defendants committed fraud, breached
fiduciary duties and violated the provisions of various contracts. A
Marriott International subsidiary manages each of the 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. are among
the several named defendants. The plaintiffs are seeking unspecified
damages.
9. Subsequent Event
----------------
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.
Fundings under the facility are guaranteed by an unaffiliated third party.
We also extended a limited credit facility to the tenant to cover operating
shortfalls, if any.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of our operations for
the twelve weeks ended March 24, 2000 and March 26, 1999. Comparable REVPAR,
room rate and occupancy statistics used throughout this report are based upon
U.S. properties operated by us, except that data for Fairfield Inn also include
comparable franchised units.
Twelve Weeks Ended March 24, 2000 Compared to Twelve Weeks Ended March 26, 1999
- -------------------------------------------------------------------------------
We reported net income of $94 million for the 2000 first quarter on sales of
$2,167 million. This represents a six percent decrease in net income and a 14
percent increase in sales over the first quarter of 1999. Diluted earnings per
share of $.37 for the quarter decreased three percent as compared to the 1999
amount. Overall profit growth in 2000 was curtailed by a $15 million pretax
charge relating to our distribution services business (see "Intangible Assets"
in the footnotes to the condensed consolidated financial statements included in
Item 1. above). Systemwide sales increased to $4.3 billion.
Marriott Lodging reported a nine percent increase in operating profit on 12
percent higher sales. Systemwide lodging sales increased to $3.8 billion.
We added a total of 46 lodging properties (7,300 units) during the first quarter
of 2000, and deflagged 6 properties (1,400 rooms), increasing our total
properties to 1,920 (361,753 units). Properties by brand (excluding 6,200
rental units relating to ExecuStay) are as indicated in the following table.
Properties as of March 24, 2000
----------------------------------------------------------
Company-operated Franchised
---------------------------- ---------------------------
Properties Rooms Properties Rooms
------------ ------------ ------------- ------------
Marriott Hotels, Resorts and Suites................. 234 102,447 137 39,493
Ritz-Carlton........................................ 35 11,554 - -
Renaissance Hotels, Resorts and Suites.............. 76 30,284 23 8,456
Ramada International................................ 7 1,325 19 4,246
Residence Inn....................................... 136 18,222 197 21,408
Courtyard........................................... 268 41,394 210 26,429
TownePlace Suites................................... 28 2,898 40 3,897
Fairfield Inn....................................... 51 7,138 366 32,086
SpringHill Suites................................... 7 804 34 3,349
Marriott Vacation Club International................ 45 4,796 - -
Marriott Executive Apartments and other............. 7 1,527 - -
--------- --------- ---------- ---------
Total........................................... 894 222,389 1,026 139,364
========= ========= ========== =========
Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 3.1 percent in 2000. Average room rates for
these hotels rose 4.8 percent, while occupancy decreased to 75.6 percent.
These results reflected a slow start to the year, as many travelers
stayed home in early January due to Y2K concerns, followed by a steady pick up
in demand as the first quarter progressed. Occupancy, average daily rate and
REVPAR for each of our principal established brands is shown in the following
table.
13
Twelve weeks ended Change vs.
March 24, 2000 1999
------------------ --------------
Marriott Hotels, Resorts and Suites
Occupancy................................................ 75.9% -1.2% pts.
Average daily rate....................................... $ 147.97 +4.6%
REVPAR................................................... $ 112.33 +3.0%
Ritz-Carlton
Occupancy................................................ 77.5% -0.7% pts.
Average daily rate....................................... $ 251.79 +6.1%
REVPAR................................................... $ 195.14 +5.2%
Renaissance Hotels, Resorts and Suites
Occupancy................................................ 71.6% +0.5% pts.
Average daily rate....................................... $ 140.64 +4.2%
REVPAR................................................... $ 100.67 +4.9%
Residence Inn
Occupancy................................................ 81.0% -0.6% pts.
Average daily rate....................................... $ 102.43 +3.4%
REVPAR................................................... $ 82.95 +2.6%
Courtyard
Occupancy................................................ 76.2% -1.8% pts.
Average daily rate....................................... $ 96.09 +4.4%
REVPAR................................................... $ 73.26 +2.1%
Fairfield Inn
Occupancy................................................ 65.6% -2.6% pts.
Average daily rate....................................... $ 59.44 +4.4%
REVPAR................................................... $ 39.00 +0.5%
Across Marriott's full-service lodging brands (Marriott Hotels, Resorts and
Suites, Ritz-Carlton and Renaissance Hotels, Resorts and Suites), REVPAR for
comparable company-operated U.S. properties grew by an average of 3.5 percent in
the 2000 first quarter. Average room rates for these hotels rose nearly five
percent, while occupancy declined one percentage point to 75 percent.
Our domestic select-service and extended-stay brands (Fairfield Inn, Courtyard,
Residence Inn, SpringHill Suites and TownePlace Suites) have added a net of 162
properties, primarily franchises, since the first quarter of 1999.
REVPAR for comparable Residence Inn, Courtyard and Fairfield Inn brands
increased 1.8 percent during the quarter. While REVPAR comparisons were stronger
in the northeast and west, softer results in the midwest reflected industry
supply growth in certain markets.
Results for international lodging operations rebounded in the 2000 first
quarter, reflecting solid profit growth for properties in Asia and Egypt, as
well as in Europe, despite a decline in the value of the Euro against the U.S.
dollar.
Marriott Vacation Club International posted substantial profit growth in the
2000 first quarter on a 14 percent increase in contract sales. Results
reflected strong sales in our quality-tier timeshare
14
resorts in Hawaii, California, Utah and Aruba. We also began selling fractional
ownership interests at our first two Ritz-Carlton Club resorts in Aspen,
Colorado and St. Thomas, U.S. Virgin Islands.
Marriott Senior Living Services (SLS) posted 24 percent sales growth in the 2000
first quarter, reflecting an increase in occupancy for comparable communities of
five percentage points to 87 percent, and the net addition of 25 units since the
first quarter 1999. Operating profit for the division was flat, as improved
performance for established communities was offset by start-up costs for the new
properties.
Marriott Distribution Services (MDS) posted 22 percent sales growth in the 2000
first quarter, reflecting the commencement of service to three large restaurant
chains beginning this year. MDS reported a $12 million operating loss in the
2000 first quarter due to the $15 million pretax write-off of its investment in
a contract with Boston Chicken, Inc. (BCI), a major customer currently
undergoing reorganization in bankruptcy. McDonald's Corporation has entered into
a definitive agreement to acquire substantially all of the assets of BCI,
subject to confirmation of the related plan of reorganization by the Bankruptcy
Court. MDS has reached an agreement with McDonald's to continue providing
distribution services to Boston Chicken restaurants (see "Intangible Assets" in
the footnotes to the condensed consolidated financial statements included in
Item 1. above).
Corporate activity. Interest expense in first quarter 2000 increased by $12
million as a result of borrowings to finance growth outlays and share
repurchases. Corporate expenses decreased $3 million due to systems-related
modification costs of $5 million associated with year 2000 incurred in the first
quarter 1999, offset by incremental costs of $2 million in 2000 associated with
new corporate systems. The effective income tax rate decreased from 37.5
percent to 37.0 percent primarily due to the increased proportion of operations
in countries with lower effective tax rates.
15
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 or senior living community developers to build
or acquire new Marriott-branded properties, which are important parts of our
growth plans, are partially dependent on the availability and cost of capital.
We monitor the status of the capital markets, and regularly evaluate the effect
that changes in capital market conditions may have on our ability to execute our
announced growth plans.
Cash and equivalents totaled $372 million at March 24, 2000, a decrease of $117
million from year end 1999. Net income is stated after recording depreciation
expense of $26 million and $19 million for the twelve weeks ended March 24, 2000
and March 26, 1999, respectively, and after amortization expense of $15 million
and $14 million, respectively, for the same time periods. EBITDA for the twelve
weeks ended March 24, 2000 increased by $9 million, or four percent, to $213
million. EBITDA is an indicator of operating performance which can be used to
measure the Company's ability to service debt, fund capital expenditures and
expand its business. However, EBITDA is not an alternative to net income,
operating profit, cash from operations, or any other operating or liquidity
measure prescribed by generally accepted accounting principles.
Net cash used in investing activities totaled $284 million for the twelve weeks
ended March 24, 2000, and principally consisted of capital expenditures for
lodging properties and notes receivable advances.
We purchased 8.2 million shares of our Class A Common Stock in the twelve weeks
ended March 24, 2000, at a cost of $243 million. As of March 24, 2000, we had
been authorized by our Board of Directors to repurchase an additional 22.3
million shares.
In January 2000, we filed a "universal shelf" registration statement with the
Securities and Exchange Commission which, together with the authority remaining
under a universal shelf registration statement filed in April 1999, permitted us
to offer to the public up to $500 million of securities. On March 27, 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 this offering, after
paying underwriting discounts, commissions and offering expenses. After giving
effect to the issuance of the Series D Notes, we have remaining capacity under
our January 2000 shelf registration statement to offer to the public up to $200
million of debt securities, common stock or preferred stock.
In 1996, MDS became the exclusive provider of distribution services to
Einstein/Noah Bagel Corp. (ENBC), which operates over 460 bagel shops in 29
states. 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 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. MDS continues to distribute to ENBC and has been receiving full
payment in
16
accordance with the terms of its contractual agreement. If the contract were to
terminate, or if ENBC were to cease or substantially reduce its operations, MDS
may be unable to recover some or all of an aggregate of approximately $18
million in contract investment, receivables and inventory.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
There have been no material changes to our exposures to market risk since
December 31, 1999.
17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Incorporated by reference to the description of legal proceedings in the
"Contingencies" footnote in the financial statements set forth in Part I,
"Financial Information."
Item 2. Changes in Securities
- ------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
Item 5. Other Information
- --------------------------
None.
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Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Settlement Agreement dated as of March 9, 2000 among A.R.
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 counsel of record.
10.2 Amended and restated Marriott International, Inc. 1998
Comprehensive Stock and Cash Incentive Plan (incorporated by
reference to Attachment A to the Company's definitive proxy
statement filed on March 23, 2000).
12 Statement of Computation of Ratio of Earnings to Fixed
Charges.
27 Financial Data Schedule for the Company.
99 Forward-Looking Statements.
(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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARRIOTT INTERNATIONAL, INC.
5th day of May, 2000
/s/ Arne M. Sorenson
------------------------------
Arne M. Sorenson
Executive Vice President and
Chief Financial Officer
/s/ Linda A. Bartlett
------------------------------
Linda A. Bartlett
Vice President and Controller
(Principal Accounting Officer)
20