SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 23, 2001 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, 2001
- --------------------- ------------------------------
Class A Common Stock,
$0.01 par value 243,782,263
MARRIOTT INTERNATIONAL, INC.
INDEX
Page No.
--------
Forward-Looking Statements............................................................ 3
Part I. Financial Information (Unaudited):
Condensed Consolidated Statement of Income -
Twelve Weeks Ended March 23, 2001 and March 24, 2000................................ 4
Condensed Consolidated Balance Sheet -
as of March 23, 2001 and December 29, 2000.......................................... 5
Condensed Consolidated Statement of Cash Flows -
Twelve Weeks Ended March 23, 2001 and March 24, 2000................................ 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
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 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 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, 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 23, 2001 March 24, 2000
----------------- -------------------
SALES
Management and franchise fees........................................ $ 204 $ 189
Other................................................................ 828 724
---------------- -------------------
1,032 913
Other revenues from managed properties............................... 1,409 1,254
---------------- -------------------
2,441 2,167
---------------- -------------------
OPERATING COSTS AND EXPENSES
Operating expenses................................................... 806 720
Other costs from managed properties.................................. 1,409 1,254
---------------- -------------------
2,215 1,974
---------------- -------------------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST........................................................ 226 193
Corporate expenses.................................................... (30) (26)
Interest expense...................................................... (22) (23)
Interest income....................................................... 16 5
---------------- -------------------
INCOME BEFORE INCOME TAXES............................................ 190 149
Provision for income taxes............................................ 69 55
---------------- -------------------
NET INCOME............................................................ $ 121 $ 94
================ ===================
DIVIDENDS DECLARED PER SHARE.......................................... $ .060 $ .055
================ ===================
EARNINGS PER SHARE
Basic Earnings Per Share............................................. $ .50 $ .39
================ ===================
Diluted Earnings Per Share........................................... $ .47 $ .37
================ ===================
See notes to condensed consolidated financial statements.
4
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
(Unaudited)
March 23, 2001 December 29, 2000
-------------- -----------------
ASSETS
Current assets
Cash and equivalents................................................ $ 370 $ 334
Accounts and notes receivable....................................... 719 728
Inventory........................................................... 110 97
Other............................................................... 272 256
------------- -------------
1,471 1,415
------------- -------------
Property and equipment............................................... 3,131 3,241
Intangibles.......................................................... 1,834 1,833
Investments in affiliates............................................ 793 747
Notes and other receivables.......................................... 699 661
Other................................................................ 350 340
------------- -------------
$ 8,278 $ 8,237
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................... $ 675 $ 660
Other............................................................... 1,054 1,257
------------- -------------
1,729 1,917
------------- -------------
Long-term debt....................................................... 2,012 2,016
Other long-term liabilities.......................................... 1,078 1,037
Shareholders' equity
ESOP preferred stock................................................ - -
Class A common stock, 255.6 million shares issued................... 3 3
Additional paid-in capital.......................................... 3,454 3,590
Retained earnings................................................... 895 851
Unearned ESOP shares................................................ (462) (679)
Treasury stock, at cost............................................. (381) (454)
Accumulated other comprehensive income.............................. (50) (44)
------------- -------------
3,459 3,267
------------- -------------
$ 8,278 $ 8,237
============= =============
See notes to condensed consolidated financial statements.
5
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in millions)
(Unaudited)
Twelve weeks ended
-------------------------------------------
March 23, 2001 March 24, 2000
----------------- -----------------
OPERATING ACTIVITIES
Net income......................................................... $ 121 $ 94
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization.................................. 46 41
Income taxes and other......................................... 60 53
Timeshare activity, net........................................ (107) (68)
Working capital changes........................................ (94) (99)
------------ ------------
Cash provided by operations........................................ 26 21
------------ ------------
INVESTING ACTIVITIES
Dispositions....................................................... 241 3
Capital expenditures............................................... (125) (247)
Note advances...................................................... (35) (25)
Note collections and sales......................................... 7 4
Other.............................................................. (52) (19)
------------ ------------
Cash provided by (used in) investing activities.................... 36 (284)
------------ ------------
FINANCING ACTIVITIES
Commercial paper activity, net..................................... (298) 394
Issuance of other long-term debt................................... 299 3
Repayment of other long-term debt.................................. (4) (4)
Issuance of Class A common stock................................... 31 3
Dividends paid..................................................... (15) (14)
Purchase of treasury stock......................................... (39) (236)
------------ ------------
Cash (used in) provided by financing activities.................... (26) 146
------------ ------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS........................... 36 (117)
CASH AND EQUIVALENTS, beginning of period............................. 334 489
------------ ------------
CASH AND EQUIVALENTS, end of period................................... $ 370 $ 372
============ ============
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 accounting principles generally accepted in the United States. We
believe the disclosures made are adequate to make the information presented
not misleading. However, you should read the condensed consolidated financial
statements in conjunction with the consolidated financial statements and
notes to those financial statements included in our Annual Report on Form
10-K (our Annual Report) for the fiscal year ended December 29, 2000.
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 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.
In our opinion, the accompanying condensed consolidated financial statements
reflect all normal and recurring adjustments necessary to present fairly our
financial position as of March 23, 2001 and December 29, 2000 and the results
of operations and cash flows for the twelve weeks ended March 23, 2001 and
March 24, 2000. Interim results may not be indicative of fiscal year
performance because of seasonal and short-term variations. We have eliminated
all material intercompany transactions and balances between entities included
in these financial statements.
Revenue Recognition
Our sales include (1) management and franchise fees, (2) sales of lodging
properties and senior living communities owned or leased by us, and sales
made by our other businesses; and (3) certain other revenues from properties
managed by us. Management fees comprise a base fee, which is a percentage of
the revenues of hotels or senior living communities, and an incentive fee,
which is based on unit profitability. Franchise fees comprise initial
application fees and continuing royalties generated from our franchise
programs, which permit the use of certain of our brand names by hotel owners
and operators. Other revenues from managed properties include direct and
indirect costs that are reimbursed to us by lodging and senior living
community owners for properties that we manage. Other revenues include sales
of hotel properties and senior living communities owned or leased by us,
along with sales from our timeshare, ExecuStay and distribution services
businesses.
We recognize base fees as revenue when earned in accordance with the
contract. In interim periods we recognize incentive fees that would be due as
if the contract were to terminate at that date.
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 23, 2001 March 24, 2000
--------------------- ---------------------
Computation of Basic Earnings Per Share
Net income................................................. $ 121 $ 94
Weighted average shares outstanding........................ 243.7 244.1
-------------- --------------
Basic Earnings Per Share................................... $ .50 $ .39
============== ==============
Computation of Diluted Earnings Per Share
Net income................................................. $ 121 $ 94
============== ==============
Weighted average shares outstanding........................ 243.7 244.1
Effect of Dilutive Securities
Employee stock option plan................................ 8.7 6.1
Deferred stock incentive plan............................. 5.2 5.1
-------------- --------------
Shares for diluted earnings per share...................... 257.6 255.3
============== ==============
Diluted Earnings Per Share................................. $ .47 $ .37
============== ==============
We compute the effect of dilutive securities using the treasury stock method
and average market prices during the period. The calculation of diluted
earnings per share for 2001 excludes 5.7 million options granted in 2001, the
inclusion of which would have an antidilutive impact for the period.
8
3. 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 $580 million at March 23, 2001 and $554
million at December 29, 2000, of which $354 million and $310 million,
respectively, are included in other long-term liabilities in the accompanying
consolidated balance sheet.
4. Dispositions
------------
In the first quarter of 2001, we closed on sales of eight lodging properties
and one senior living community for cash proceeds of $241 million, resulting
in gains of $5 million. We recognized $4 million of the gain and the balance
will be recognized as certain contingencies in the sales contracts expire. We
will continue to operate seven of these hotels under long-term management
agreements.
5. Comprehensive Income
--------------------
Total comprehensive income was $115 million and $89 million, for the twelve
weeks ended March 23, 2001 and March 24, 2000, respectively. The difference
between net income and total comprehensive income primarily relates to
foreign currency translation adjustments, and changes in the market value of
investments available for sale.
6. New Accounting Standards
------------------------
In the first quarter of 2001, we adopted Financial Accounting Standards (FAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which resulted in no material impact to our financial statements.
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
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 23, 2001 and March 24, 2000.
9
Twelve weeks ended
-----------------------------------------------------------------------------------------------
March 23, 2001 March 24, 2000
-------------------------------------------------- --------------------------------------------
Senior Senior
Living Distribution Living Distribution
Sales Lodging Services Services Total Lodging Services Services Total
------- -------- -------- ----- ------- -------- -------- -----
Management and franchise
fees ................. $ 196 $ 8 $ - $ 204 $ 183 $ 6 $ - $ 189
Other ................... 391 76 361 828 343 74 307 724
------- ------- ------- ------- ------- ------- ------- -------
587 84 361 1,032 526 80 307 913
Other revenues from
managed properties ..... 1,328 81 - 1,409 1,185 69 - 1,254
------- ------- ------- ------- ------- ------- ------- -------
1,915 165 361 2,441 1,711 149 307 2,167
------- ------- ------- ------- ------- ------- ------- -------
Operating costs and
expenses
Other.................... 364 83 359 806 323 78 319 720
Other costs from
managed properties ..... 1,328 81 - 1,409 1,185 69 - 1,254
------- ------- ------- ------- ------- ------- ------- -------
1,692 164 359 2,215 1,508 147 319 1,974
------- ------- ------- ------- ------- ------- ------- -------
Operating profit
before corporate
expenses and interest .. $ 223 $ 1 $ 2 $ 226 $ 203 $ 2 $ (12) $ 193
======= ======= ======= ======= ======= ======= ======= =======
Sales of Distribution Services do not include sales (made at market terms and
conditions) to our other business segments of $39 million for each of the twelve
weeks ended March 23, 2001 and March 24, 2000.
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 $240 million at March 23, 2001, 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 March 23, 2001, we had extended
approximately $862 million of loan commitments to owners of lodging
properties and senior living communities under which we currently expect to
fund approximately $305 million by December 28, 2001, and $474 million in
total. Letters of credit outstanding on our behalf at March 23, 2001, totaled
$52 million, the majority of which related to our self-insurance programs. At
March 23, 2001, we had repurchase obligations of $47 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.
In addition to the foregoing, we are from time to time involved in legal
proceedings which could, if adversely decided, result in losses to the
Company. Although we believe that the lawsuit described below is without
merit, and we intend to vigorously defend against the claims being made
against us, we cannot assure you as to the outcome of this lawsuit nor can we
currently estimate the range of any potential loss to the Company.
10
On March 30, 2001, Green Isle Partners, Ltd., S.E. (Green Isle) filed a 63-
page complaint in Federal district court in Delaware against The Ritz-Carlton
Hotel Company, L.L.C., the Ritz-Carlton Hotel Company of Puerto Rico, Inc.
(Ritz-Carlton Puerto Rico), Marriott International, Inc., Marriott
Distribution Services, Inc., Marriott International Capital Corp. and Avendra
L.L.C. (Green Isle partners, Ltd. S.E., v. The Ritz-Carlton Hotel Company,
L.L.C., et al, civil action no. 01-202). Ritz-Carlton Puerto Rico manages The
Ritz-Carlton San Juan Hotel, Spa and Casino located in San Juan, Puerto Rico
under an operating agreement with Green Isle dated December 15, 1995 (the
Operating Agreement).
The claim asserts 11 causes of action: three Racketeer Influenced and Corrupt
Organizations Act (RICO) claims, together with claims based on the Robinson-
Patman Act, breach of contract, breach of fiduciary duty, aiding and abetting
a breach of fiduciary duty, breach of implied duties of good faith and fair
dealing, common law fraud and intentional misrepresentation, negligent
misrepresentation, and fiduciary accounting. The complaint does not request
termination of the Operating Agreement.
The claim includes allegations of: (i) national, non-competitive contracts
and attendant kick-back schemes; (ii) concealing transactions with
affiliates; (iii) false entries in the books and manipulation of accounts
payable and receivable; (iv) excessive compensation schemes and fraudulent
expense accounts; (v) charges of prohibited overhead costs to the project;
(vi) charges of prohibited procurement costs; (vii) inflation of Group
Service Expense; (viii) the use of prohibited or falsified revenues;
(ix) attempts to oust Green Isle from ownership; (x) creating a financial
crisis and then attempting to exploit it by seeking an economically
oppressive contract in connection with a loan; (xi) providing incorrect cash
flow figures; and (xii) failing appropriately to reveal and explain revised
cash flow figures.
The complaint seeks as damages the $140 million which Green Isle claims to
have invested in the hotel (which includes $85 million in third party debt),
which the plaintiffs seek to treble to $420 million under RICO and the
Robinson-Patman Act.
A response to the complaint is required to be filed by the defendants by
May 18, 2001.
11
9. Subsequent Events
-----------------
Disposition
In the second quarter we sold land, at book value, for $31 million to a joint
venture which plans to build two resort hotels in Orlando, Florida, for $547
million. We will provide development services and have guaranteed completion
of the project. The initial owners of the venture have the right to sell 20
percent of the venture's equity to us upon the opening of the hotels. At
opening we also expect to hold approximately $120 million in mezzanine loans
advanced to the project. We have provided the venture with additional credit
facilities for certain amounts due under the first mortgage loan and to
provide for limited minimum returns to the equity investors in the early
years of the project, although we expect fundings under such support to be
less than $5 million.
Convertible Debt
On May 3, 2001 we agreed to the sale of zero-coupon convertible senior notes
due 2021, known as LYONs. We anticipate gross proceeds of approximately $353
million. The initial purchaser of the LYONs will also have a 30-day option to
purchase additional LYONs to cover over-allotments which would give us
approximately $52 million in additional gross proceeds.
The LYONs will be convertible into approximately 6.4 million shares of
Marriott International Class A common stock assuming the over-allotment
option is exercised. The LYONs will carry a yield to maturity of 0.75
percent. We may not redeem the LYONs prior to May 8, 2004, but may at the
option of the holders be required to purchase the LYONs at their accreted
value on May 8 of each of 2002, 2004, 2011 and 2016. We may choose to pay
the purchase price for redemptions or repurchases in cash and/or common
shares. The offering is scheduled to close on May 8, 2001.
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 23, 2001 and March 24, 2000. 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 23, 2001 Compared to Twelve Weeks Ended March 24, 2000
- -------------------------------------------------------------------------------
We reported net income of $121 million for the 2001 first quarter on sales of
$2,441 million. This represents a 29 percent increase in net income and a 13
percent increase in sales over the first quarter of 2000. Diluted earnings per
share of $.47 for the quarter increased 27 percent as compared to the 2000
amount. Overall profit growth in 2001 was favorably impacted by a $15 million
pretax charge, recorded in the first quarter of 2000, related to the write-off
of a contract investment by our distribution services business. Systemwide
sales increased 11 percent for the quarter, to $4.7 billion.
Marriott Lodging reported a 10 percent increase in operating profit on 12
percent higher sales. Systemwide lodging sales increased to $4.2 billion.
We added a total of 66 lodging properties (11,500 units) during the first
quarter of 2001, and deflagged two properties (500 rooms), increasing our total
properties to 2,163 (401,472 rooms). Properties by brand (excluding 7,000
rental units relating to ExecuStay) are as indicated in the following table.
Properties as of March 23, 2001
-----------------------------------------------------------
Company-operated Franchised
------------------------- -----------------------
Properties Rooms Properties Rooms
---------- ----- ---------- -----
Marriott Hotels, Resorts and Suites............ 241 107,280 160 45,002
Ritz-Carlton................................... 39 13,246 - -
Renaissance Hotels, Resorts and Suites......... 81 30,856 32 10,636
Ramada International........................... 5 1,068 57 10,289
Residence Inn.................................. 130 17,241 232 25,065
Courtyard...................................... 284 44,290 245 30,759
TownePlace Suites.............................. 34 3,612 55 5,462
Fairfield Inn.................................. 52 7,526 395 34,834
SpringHill Suites.............................. 13 1,872 52 5,084
Marriott Vacation Club International........... 47 5,617 - -
Marriott Executive Apartments and other........ 9 1,733 - -
--- ------- ----- -------
Total........................................ 935 234,341 1,228 167,131
=== ======= ===== =======
13
Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 2.5 percent in the first quarter of 2001.
Average room rates for these hotels rose 5.5 percent, while occupancy decreased
to 72.9 percent. Management and franchise fees grew 7.1 percent over first
quarter 2000. The operating results reflect the impact of a weaker economy,
weather conditions in the Northeast, relatively flat group business and
increases in labor and energy costs. Occupancy, average daily rate and REVPAR
for each of our principal established brands are shown in the following table.
Twelve weeks ended Change vs.
March 23, 2001 2000
---------------------------- -----------------
Marriott Hotels, Resorts and Suites
Occupancy ................................... 73.2% -2.6% pts.
Average daily rate .......................... $ 155.47 +5.2%
REVPAR ...................................... $ 113.76 +1.5%
Ritz-Carlton
Occupancy ................................... 71.2% -6.6% pts.
Average daily rate .......................... $ 289.25 +11.0%
REVPAR ...................................... $ 205.95 +1.6%
Renaissance Hotels, Resorts and Suites
Occupancy ................................... 70.5% -2.0% pts.
Average daily rate .......................... $ 150.23 +4.5%
REVPAR ...................................... $ 105.89 +1.6%
Residence Inn
Occupancy ................................... 79.5% -1.0% pts.
Average daily rate .......................... $ 110.42 +6.1%
REVPAR ...................................... $ 87.77 +4.7%
Courtyard
Occupancy ................................... 73.5% -1.1% pts.
Average daily rate .......................... $ 102.60 +6.5%
REVPAR ...................................... $ 75.44 +4.9%
Fairfield Inn
Occupancy ................................... 62.7% -2.0% pts.
Average daily rate .......................... $ 62.76 +4.9%
REVPAR ...................................... $ 39.32 +1.6%
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 1.6 percent in
the 2001 first quarter. Average room rates for these hotels rose nearly 5.5
percent, while occupancy declined 2.8 percentage points to 72.7 percent.
Our domestic select-service and extended-stay brands (Fairfield Inn, Courtyard,
Residence Inn, SpringHill Suites and TownePlace Suites) have added a net of 154
properties, primarily franchises, since the first quarter of 2000. REVPAR for
comparable properties increased 4.9 percent while occupancy decreased 1.2
percentage points and average room rates increased 6.6 percent.
Results for international lodging operations were favorable as a result of
profit growth in Asia, Europe, and the Middle East. In addition, 26 percent of
our worldwide rooms opened in the 2001 first quarter were outside of the U.S.
14
Marriott Vacation Club International posted substantial profit growth in the
2001 first quarter on a 19 percent increase in contract sales. Results reflected
strong demand at resorts in California, Hawaii, Utah, Florida and Aruba. Note
sale gains of $13 million compared to $7 million in the prior year also
contributed to stronger comparisons. We sold $62 million in notes compared to
$52 million in the year ago quarter, and we benefited from wider financing
spreads.
The overall lodging profit margin, before other revenues and other costs from
managed properties, declined versus the year earlier quarter. Margins were
impacted by higher sales and marketing costs in the timeshare brands, as well as
newly leased properties that have not yet reached stabilized occupancy levels.
Marriott Senior Living Services (SLS) posted 11 percent sales growth in the 2001
first quarter, reflecting a four percentage point increase in occupancy for
comparable communities to 85 percent. The company operates 152 facilities
(25,800 units).
Marriott Distribution Services (MDS) posted an 18 percent increase in sales in
the 2001 first quarter reflecting the commencement of new contracts in 2001 and
increased sales from contracts established in 2000. Operating profit of $2
million compared favorably to an operating loss of $12 million in the first
quarter 2000, due to the prior year write-off of the $15 million investment in a
contract with Boston Market, Inc., offset by operating inefficiencies due to the
commencement of new contracts.
Corporate activity. Interest expense in first quarter 2001 decreased by $1
million reflecting slightly lower average borrowings. Interest income increased
substantially to $16 million for the quarter, due to income associated with
higher loan balances, including the loans made to the Courtyard joint venture in
the fourth quarter of 2000. Corporate expenses increased $4 million reflecting
the $6 million write-off of an investment in a technology partner and $3 million
associated with the start-up of Avendra, LLC, offset by the reversal of a long-
standing $10 million insurance reserve related to a lawsuit at one of our
hotels. Because recent events confirmed that this exposure is now negligible, we
reversed the reserve during the quarter. The effective income tax rate
decreased from 37.0 percent to 36.5 percent primarily due to the increased
proportion of operations in countries with lower effective tax rates and the
impact of the tax advantaged investments we have made in recent years.
Avendra LLC. In January 2001 we contributed our hospitality procurement
business into a newly formed joint venture, together with the procurement
business of Hyatt Hotels Corporation. The joint venture, Avendra LLC, is an
independent professional procurement services company serving the North American
hospitality market and selected industries. Bass Hotels and Resorts, Inc.,
ClubCorp USA Inc., and Fairmont Hotels and Resorts, Inc. joined Avendra LLC in
May 2001.
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 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 $370 million at March 23, 2001, an increase of $36
million from year end 2000. Net income is stated after recording depreciation
expense of $29 million and $26 million for the twelve weeks ended March 23, 2001
and March 24, 2000, respectively, and after amortization expense of $17 million
and $15 million, respectively, for the same time periods. EBITDA for the twelve
weeks ended March 23, 2001 increased by $45 million, or 21 percent, to $258
million. The increase reflects growth in lodging operations and the impact of
the prior year $15 million write-off of our investment contract in our
Distribution Services business. 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 provided by investing activities totaled $36 million for the twelve
weeks ended March 23, 2001, and consisted primarily of the disposition of eight
lodging properties, offset by capital expenditures for lodging properties and
notes receivable advances.
We purchased 1.2 million shares of our Class A Common Stock in the twelve weeks
ended March 23, 2001, at a cost of $48 million. As of March 23, 2001, we were
authorized by our Board of Directors to repurchase an additional 18.4 million
shares.
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
March 23, 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 7%
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 registration statement. If we fail
to do so on a timely basis, we will pay additional interest to the holders of
these notes.
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
16
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. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
There have been no material changes to our exposures to market risk since
December 29, 2000.
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
----------- -----------
12 Statement of Computation of Ratio of Earnings to Fixed
Charges.
99 Forward-Looking Statements.
(b) Reports on Form 8-K
None
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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.
4th day of May, 2001
/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