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 22, 1996 Commission File No. 1-12188
MARRIOTT INTERNATIONAL, INC.
Delaware 52-0936594
(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 19, 1996
- ------------------- ------------------
Common Stock, $1.00
par value per share 127,677,429
1
MARRIOTT INTERNATIONAL, INC.
INDEX
Page No.
--------
PART I. Financial Information (Unaudited):
Condensed Consolidated Statement of Income -
Twelve Weeks Ended March 22, 1996 and
March 24, 1995 3
Condensed Consolidated Balance Sheet -
March 22, 1996 and December 29, 1995 4
Condensed Consolidated Statement of Cash Flows -
Twelve Weeks Ended March 22, 1996 and March 24, 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Results of Operations
and Financial Condition 8-10
PART II. Other Information and Signature:
Legal Proceedings 11
Changes in Securities 11
Defaults Upon Senior Securities 11
Submission of Matters to a Vote of Security Holders 11
Other Events 11
Exhibits and Reports on Form 8-K 11
Signature 12
- --------------------------------------------------------------------------------
2
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 22, March 24,
1996 1995
--------- ---------
SALES
Lodging
Rooms...................................... $ 781 $ 733
Food and beverage.......................... 303 294
Other...................................... 189 163
------ ------
1,273 1,190
Contract Services............................. 890 823
------ ------
2,163 2,013
------ ------
OPERATING COSTS AND EXPENSES
Lodging
Departmental direct costs
Rooms..................................... 184 172
Food and beverage......................... 231 221
Other operating expenses.................... 764 721
------ ------
1,179 1,114
Contract Services............................. 861 797
------ ------
2,040 1,911
------ ------
OPERATING PROFIT
Lodging....................................... 94 76
Contract Services............................. 29 26
------ ------
Operating profit before corporate expenses
and interest............................... 123 102
Corporate expenses.............................. (15) (17)
Interest expense................................ (14) (8)
Interest income................................. 9 10
------ ------
INCOME BEFORE INCOME TAXES...................... 103 87
Provision for income taxes...................... 40 35
------ ------
NET INCOME...................................... $ 63 $ 52
====== ======
EARNINGS PER SHARE.............................. $ .47 $ .40
====== ======
CASH DIVIDENDS PER SHARE........................ $ .07 $ .07
====== ======
See notes to condensed consolidated financial statements.
3
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
(UNAUDITED)
March 22, December 29,
1996 1995
--------- ------------
ASSETS
Current Assets
Cash and equivalents.......................... $ 322 $ 219
Accounts and notes receivable................. 750 724
Other......................................... 437 433
------ ------
1,509 1,376
------ ------
Property and Equipment.......................... 857 832
Intangibles..................................... 396 402
Investments in Affiliates....................... 571 501
Notes Receivable................................ 196 219
Other Assets.................................... 767 688
------ ------
$4,296 $4,018
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable.............................. $ 857 $ 801
Other current liabilities..................... 776 725
------ ------
1,633 1,526
------ ------
Long-Term Debt.................................. 857 806
Other Long-Term Liabilities..................... 644 632
Shareholders' Equity
Common stock.................................. 129 129
Additional paid-in capital.................... 616 617
Retained earnings............................. 447 395
Treasury stock, at cost....................... (30) (87)
------ ------
1,162 1,054
------ ------
$4,296 $4,018
====== ======
See notes to condensed consolidated financial statements.
4
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
Twelve Weeks Ended
----------------------------
March 22, March 24,
1996 1995
--------- ---------
OPERATING ACTIVITIES
Net income.................................... $ 63 $ 52
Adjustments to reconcile to cash
from operations:
Depreciation and amortization............... 31 27
Income taxes and other...................... 58 37
Timeshare activity, net..................... 9 (47)
Working capital changes..................... (8) (17)
------ ------
Cash from operations.......................... 153 52
------ ------
INVESTING ACTIVITIES
Loans to Host Marriott Corporation............ (11) (46)
Loan repayments from Host Marriott Corporation - 20
Capital expenditures.......................... (44) (31)
Other......................................... (50) (97)
------ ------
Cash used in investing activities............. (105) (154)
------ ------
FINANCING ACTIVITIES
Issuances of long-term debt................... 51 115
Repayments of long-term debt.................. (3) (3)
Issuances of common stock..................... 16 14
Dividends paid................................ (9) (9)
Purchases of treasury stock................... - (2)
------ ------
Cash provided by financing activities......... 55 115
------ ------
INCREASE IN CASH AND EQUIVALENTS................ $ 103 $ 13
====== ======
See notes to condensed consolidated financial statements.
5
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements of Marriott
International, Inc. and its subsidiaries (the "Company") have been prepared
without audit. Certain information and footnote disclosures normally
included in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted. The Company
believes the disclosures made are adequate to make the information presented
not misleading. However, the condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1995. Capitalized terms not otherwise defined
herein have the meanings specified in the Annual Report.
In the opinion of the Company, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
the Company as of March 22, 1996 and December 29, 1995, and the results of
operations and cash flows for the twelve weeks ended March 22, 1996 and March
24, 1995. Interim results are not necessarily indicative of fiscal year
performance because of the impact of seasonal and short-term variations. All
material intercompany transactions and balances between Marriott
International, Inc., its subsidiaries and consolidated affiliates have been
eliminated.
2. Earnings Per Share
------------------
Earnings per share is computed on a fully diluted basis by dividing net
income by the weighted average number of outstanding common shares plus other
potentially dilutive securities, which totaled 134.8 million and 130.8
million for the twelve weeks ended March 22, 1996 and March 24, 1995,
respectively.
3. New Accounting Standards
------------------------
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" during the first
quarter of 1996. Adoption of SFAS No. 121 did not have a material effect on
the Company's consolidated financial statements. In accordance with SFAS No.
123, "Accounting for Stock Based Compensation," the Company will disclose the
fair value of options granted and stock issued under employee stock purchase
plans in a footnote to its consolidated financial statements for the fiscal
year ending January 3, 1997.
6
4. Commitments
-----------
The Company has guaranteed to lenders and other third-parties the performance
of certain affiliates in connection with financing transactions and other
obligations. These guarantees are limited, in the aggregate, to $325 million
at March 22, 1996, including $148 million applicable to guarantees by or debt
obligations of Host Marriott Corporation ("Host Marriott"). As of March 22,
1996, the Company has extended approximately $100 million of mortgage loan
commitments to unaffiliated owners of lodging and senior living properties.
Also, $33 million of advances to Host Marriott were outstanding, as of March
22, 1996, in accordance with the terms of the $225 million Host Marriott
Credit Agreement. These advances were repaid by Host Marriott early in the
second quarter of 1996.
5. Convertible Subordinated Debt
-----------------------------
On March 25, 1996 the Company received gross proceeds of $288 million through
the issuance of $540 million aggregate principal amount at maturity of Liquid
Yield Option Notes due 2011 (Zero Coupon--Subordinated) (the "LYONs"). The
LYONs were issued at a discount representing a yield to maturity of 4.25%,
and are redeemable, at the Company's option, at any time on or after March
25, 1999. The LYONs are redeemable at the option of the holders on March 25,
1999 and March 25, 2006. Each $1,000 principal amount at maturity of LYONs is
convertible, at any time, into 8.760 shares of the Company's common stock.
6. Acquisitions
------------
On March 25, 1996, a wholly owned indirect subsidiary of the Company acquired
22,341,879 shares, approximately 99.1%, of the outstanding shares of common
stock of Forum Group, Inc. ("Forum"), a leading provider of senior living and
health care services. The Company paid total cash consideration of
approximately $290 million ($13.00 per share) for the common stock it
acquired, plus approximately $7 million for certain warrants to purchase
common stock. The remaining 197,952 shares of outstanding Forum common stock
that are not owned by the Company will be converted into the right to receive
$13.00 per share, in cash, upon the merger of the Company with Forum.
The merger is expected to be completed in June 1996. A Current Report on
Form 8-K, dated March 25, 1996, including unaudited Pro Forma Condensed
Combined Financial Statements of the Company reflecting the acquisition of
Forum, is on file with the Securities and Exchange Commission.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- ---------------------------------------------------------------------------
FINANCIAL CONDITION
-------------------
Results of Operations
- ---------------------
The Company reported net income of $63 million for its 1996 first quarter, a
21 percent increase over $52 million in the corresponding 1995 quarter.
Earnings per share for the quarter were 47 cents, up 18 percent from 40 cents
in the 1995 first quarter. Sales were $2,163 million in the 1996 quarter, an
increase of seven percent from $2,013 million in the preceding year.
Lodging operations recorded a 24 percent increase in operating profit on seven
percent sales growth in the 1996 first quarter. Profits advanced for all
lodging brands, driven by room rate increases in excess of inflation, higher
incentive management fees, and contributions from new properties. Results also
were boosted by strong performance from the Company's vacation club business,
and income from its 49 percent interest in the Ritz-Carlton hotel management
company.
The Company added a net total of 137 hotel properties (22,970 rooms) over the
past 12 months, including properties added from the acquisition of a 49%
interest in The Ritz-Carlton Hotel Company, LLC. A net total of 32 hotel
properties (3,760 rooms) was added during the first quarter of 1996. Among the
first quarter additions was the new 612-room Ritz-Carlton Millenia Singapore.
The Marriott International Lodging Group now encompasses 1,069 properties
totaling more than 212,000 rooms and over 2,500 timesharing units.
Marriott Hotels, Resorts and Suites, the Company's full-service lodging
division, reported average room rates of $118 for comparable U.S. properties, a
five percent gain over the 1995 quarter. Occupancy rose one percentage point,
to 75 percent. International hotels also posted higher sales and profits, paced
by contributions from recently opened full-service hotel properties.
The Company's three limited-service lodging product lines all reported growth
in revenue per available room (REVPAR) of five percent or more for comparable
units in the 1996 first quarter.
Courtyard, the Company's moderate price lodging product, achieved a seven
percent increase in average room rates for comparable units, to $76. Occupancy
remained at 78 percent.
Fairfield Inn, the Company's economy lodging product, posted average room
rates for comparable units of $46, an 11 percent increase over the first quarter
of 1995. Occupancy declined to 75% from 78% in the preceding year due to the
planned shift to higher rated business.
8
Residence Inn, the Company's extended stay lodging product, reported an
increase in average room rates for comparable units of five percent, to $86,
while occupancy declined less than one-half percentage point, remaining above
84%.
Marriott Vacation Club International generated substantial profit growth in
the 1996 first quarter, paced by strong sales at timesharing resorts in Desert
Springs, California, and Kauai, Hawaii, as well as higher financing income. The
number of timeshare intervals sold rose 20 percent over the 1995 first quarter.
Contract Services reported an operating profit increase of 12 percent for the
-----------------
1996 first quarter, on eight percent sales growth.
Marriott Management Services posted gains in both sales and profits for the
quarter despite the impact of weather-related closings in its education and
corporate accounts. The division benefited from solid performance by its health
care operations, as well as contributions from the United Kingdom-based cleaning
and catering company acquired in late 1995.
Marriott Senior Living Services achieved strong sales and profit increases
during the 1996 first quarter, as the eight assisted living communities opened
in 1995 continued to fill up rapidly. Occupancy for comparable communities
increased nearly one percentage point, to 96%. Shortly after quarter-end, the
Company successfully completed a tender offer for Forum Group, Inc. ("Forum"), a
major operator of senior living communities. With the addition of Forum, the
division now has 69 facilities with more than 14,500 living units, including a
new full-service community which opened during the 1996 first quarter.
Marriott Distribution Services, which supplies food and related products to
the Company's operations and external clients, added major new customers and
generated increased sales in the 1996 first quarter. Profits were flat,
reflecting disruptions in service caused by severe winter weather in several
regions, and start-up costs at new facilities. The division opened distribution
centers in Texas and in central Florida during the quarter.
Interest expense rose $6 million in the 1996 first quarter largely as a result
of incremental borrowings to finance business growth. Corporate expenses were
reduced 12%, reflecting higher income from certain investments. The Company's
effective tax rate declined one percentage point to 39% in the 1996 quarter, due
to the impact of certain investments and tax credits.
Liquidity and Capital Resources
- -------------------------------
Cash and equivalents totaled $322 million at March 22, 1996, an increase of
$103 million from year-end 1995, reflecting increased cash flow from operations
and proceeds from commercial paper issued to finance the acquisition of Forum
Group, Inc. subsequent to quarter-end. Cash flow from operations increased $101
million over 1995 principally due to higher earnings and 1996 proceeds from the
sale of timeshare notes receivable.
9
EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) increased 21% to $148 million for the first quarter of 1996. The
Company's cash flow coverage of total interest cost continues to substantially
exceed the level required under its credit facilities.
Cash used in investing activities totaled $105 million. Major items during
the 1996 first quarter included $57 million invested in connection with Host
Marriott's acquisition of a controlling interest in two full-service hotels
(over 900 rooms) in Mexico City, which will be added to the Company-operated
hotel system during 1996, and $44 million for capital expenditures.
During the first quarter, the Company filed a shelf registration with the
Securities and Exchange Commission which provides for the issuance, from time to
time, of up to $500 million in debt in addition to $50 million which remains
available under another shelf registration. At the end of the 1996 first
quarter, the Company had approximately $850 million available under its $1
billion revolving credit facility.
The Company plans to grow its Lodging and Contract Services businesses, in
part, by investing to add new units. Such investments will continue to include
mortgage loans, minority equity interests, business acquisitions and direct
ownership of certain lodging and senior living services projects. The Company
expects that cash generated by operations, together with its borrowing capacity,
will be sufficient to finance its planned growth and capital requirements.
Forward-Looking Statements
- --------------------------
Statements in this report which are not strictly historical are "forward-
looking" and are subject to the many risks and uncertainties which affect the
Company's businesses. These uncertainties, which include competition within the
lodging and contract services industries, the balance between supply and demand
for hotel rooms, timesharing resorts and senior living facilities, the Company's
continued ability to obtain new management contracts and franchise agreements,
the effect of economic conditions, and the availability of capital to finance
planned growth, are described in the Company's filings with the Securities and
Exchange Commission, including Exhibit 99.1 to this report.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
There are no material legal proceedings pending against the Company.
Part I, Item 3 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1995 is incorporated by reference.
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 Events
- ---------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit
No. Description
12 Computation of Ratio of Earnings to Fixed Charges
99.1 Forward-Looking Statements
99.2 Part I, Item 3 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1995
(b) Reports on Form 8-K
On February 16, 1996, the Company filed a report describing its agreement to
acquire Forum Group, Inc. and merge it with the Company's Senior Living
Services business.
11
SIGNATURE
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.
May 3, 1996 /s/ Michael A. Stein
------------------------------------
Michael A. Stein
Executive Vice President,
Chief Financial Officer and
Acting Corporate Controller
12