<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File No. 1-13881
MARRIOTT INTERNATIONAL, INC.
Delaware 52-2055918
(State of Incorporation) (I.R.S. Employer Identification Number)
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
- ------------------------------------------------------------- ---------------------------------------------
Class A Common Stock, $0.01 par value New York Stock Exchange
(243,957,257 shares outstanding as of January 31, 2000) Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
</TABLE>
The aggregate market value of shares of common stock held by non-affiliates at
January 31, 2000 was $5,796,024,530.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Documents Incorporated by Reference
Portions of the Proxy Statement prepared for the 2000 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report.
Index to Exhibits is located on pages 52 through 54.
<PAGE>
PART I
Throughout this report, we refer to Marriott International, Inc., together
with its subsidiaries, as "we," "us," or "the Company."
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are based on
the beliefs and assumptions of our management, and on information currently
available to our management. Forward-looking statements include the information
concerning our possible or assumed future results of operations and statements
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates," or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these forward-
looking statements. We caution you not to put undue reliance on any forward-
looking statements.
You should understand that the following important factors, in addition to
those discussed in Exhibit 99 and elsewhere in this annual report, could cause
results to differ materially from those expressed in such forward-looking
statements.
. competition for each of our business segments;
. business strategies and their intended results;
. the balance between supply of and demand for hotel rooms,
timeshare units, senior living accommodations and corporate
apartments;
. our continued ability to obtain new operating contracts and
franchise agreements;
. our ability to develop and maintain positive relations with
current and potential hotel and senior living community owners;
. the effect of international, national and regional economic
conditions;
. the availability of capital to allow us and potential hotel and
senior living community owners to fund investments;
. the effect that internet hotel reservation channels may have on
the rates that we are able to charge for hotel rooms; and
. other risks described from time to time in our filings with the
Securities and Exchange Commission (the SEC).
ITEMS 1 and 2. BUSINESS AND PROPERTIES
We are a worldwide operator and franchisor of hotels and related lodging
facilities, an operator of senior living communities, and a provider of
distribution services. Our operations are grouped in three business segments,
Lodging, Senior Living Services and Distribution Services, which represented 81,
6, and 13 percent, respectively, of total sales in the fiscal year ended
December 31, 1999.
In our Lodging segment, we operate, develop and franchise lodging
facilities and vacation timesharing resorts. In addition, we provide over 5,100
furnished corporate housing units.
2
<PAGE>
In our Senior Living Services segment we develop and presently operate 144
senior living communities offering independent living, assisted living and
skilled nursing care for seniors in the United States.
Marriott Distribution Services (MDS) supplies food and related products to
external customers and to internal lodging and senior living services operations
throughout the United States.
Financial information by industry segment and geographic area as of
December 31, 1999 and for the three fiscal years then ended, appears in the
Business Segments note to our Consolidated Financial Statements included in this
annual report.
Formation of "New" Marriott International - Spinoff in March 1998
We became a public company in March 1998, when we were spun off (the
Spinoff) as a separate entity by the company formerly named "Marriott
International, Inc." (Old Marriott). Our company - the "new" Marriott
International - was formed to conduct the lodging, senior living and
distribution services businesses formerly conducted by Old Marriott.
The Spinoff was effected through a dividend of one share of our common
stock and one share of our Class A Common Stock for each share of Old Marriott
Common Stock outstanding on March 20, 1998. As the result of a shareholders'
vote at our 1998 annual meeting of shareholders, on May 21, 1998 we converted
all of our outstanding shares of common stock into shares of Class A Common
Stock on a one-for-one basis.
At the same time as the Spinoff, Old Marriott merged its remaining
businesses - food service and facilities management - with the similar
businesses of Sodexho Alliance, S.A. (Sodexho Alliance) in the United States and
Canada, to form Sodexho Marriott Services, Inc. (SMS). We are providing certain
transitional administrative services to SMS, and MDS provides food distribution
services to many of SMS's food service locations.
Lodging
We operate or franchise 1,880 lodging properties worldwide, with 355,883
rooms as of December 31, 1999. In addition, we provide 5,184 furnished corporate
housing units. We believe that our portfolio of fourteen lodging brands - from
luxury to economy to extended stay to corporate housing - is the broadest of any
company in the world, and that we are the leader in the quality tier of the
vacation timesharing business. Consistent with our focus on management and
franchising, we own very few of our lodging properties. Our lodging brands
include:
<TABLE>
<S> <C>
Upscale Full-Service Lodging Extended-Stay Lodging
. Marriott Hotels, Resorts and Suites . Residence Inn
. Renaissance Hotels, Resorts and Suites . TownePlace Suites
. Marriott Executive Apartments
Luxury Lodging
. Ritz-Carlton
Vacation Timesharing
Moderate-Priced and Economy Lodging . Marriott Vacation Club International
. Courtyard . Horizons by Marriott Vacation Club
. Fairfield Inn . The Ritz-Carlton Club
. SpringHill Suites
. Ramada International Hotels and Resorts Corporate Apartments
(Europe, Middle East and Asia/Pacific) . ExecuStay by Marriott
</TABLE>
3
<PAGE>
Company-Operated Lodging Properties
At December 31, 1999, we operated a total of 882 properties (219,880 rooms)
as owned or under long-term management or lease agreements with property owners
(together, the Operating Agreements).
Terms of our management agreements vary, but typically we earn a management
fee which comprises a base fee, which is a percentage of the revenues of the
hotel, and an incentive management fee, which is based on the profits of the
hotel. Our management agreements also typically include reimbursement of costs
(both direct and indirect) of operations. Such agreements are generally for
initial periods of 20 to 30 years, with options to renew for up to 50 additional
years. Our lease agreements also vary, but typically include fixed annual
rentals plus additional rentals based on a percentage of annual revenues in
excess of a fixed amount. Many of the Operating Agreements are subordinated to
mortgages or other liens securing indebtedness of the owners. Additionally, a
number of the Operating Agreements permit the owners to terminate the agreement
if financial returns fail to meet defined levels and we have not cured such
deficiencies.
For units that we manage, we are responsible for hiring, training and
supervising the managers and employees required to operate the facilities and
for purchasing supplies, for which we generally are reimbursed by the owners. We
provide centralized reservation services, and national advertising, marketing
and promotional services, as well as various accounting and data processing
services. For lodging facilities that we manage, we prepare and implement annual
operating budgets that are subject to owner approval.
Franchised Lodging Properties
We have franchising programs that permit the use of certain of our brand
names and our lodging systems by other hotel owners and operators. Under these
programs, we generally receive an initial application fee and continuing royalty
fees, which typically range from four percent to six percent of room revenues
for all brands, plus two percent to three percent of food and beverage revenues
for certain full-service hotels. In addition, franchisees contribute to our
national marketing and advertising programs, and pay fees for use of our
centralized reservation systems. At December 31, 1999, we had 998 franchised
properties (136,003 rooms).
Summary of Properties by Brand
- ------------------------------
As of December 31, 1999 we operated or franchised the following properties
by brand (excluding 5,184 corporate housing rental units):
<TABLE>
<CAPTION>
Company-operated Franchised
------------------------------- -------------------------------
Brand Properties Rooms Properties Rooms
- ------------------------------------------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites 230 100,712 138 39,977
Ritz-Carlton 36 11,878 - -
Renaissance Hotels, Resorts and Suites 76 30,276 20 7,015
Ramada International 7 1,325 19 4,246
Residence Inn 137 18,404 187 20,349
Courtyard 263 40,653 208 26,356
TownePlace Suites 26 2,672 35 3,434
Fairfield Inn 51 7,138 363 31,835
SpringHill Suites 6 654 28 2,791
Marriott Vacation Club International 43 4,641 - -
Marriott Executive Apartments and other 7 1,527 - -
--------- ------------ -------------- ------------
Total 882 219,880 998 136,003
========= ============ ============== ============
</TABLE>
We plan to open approximately 230 hotels (approximately 38,000 rooms)
during 2000. We believe that we have access to sufficient financial resources to
finance our growth, as well as to support our ongoing operations and meet debt
service and other cash requirements. Nonetheless, our ability to sell properties
that we develop, and the ability
4
<PAGE>
of hotel or senior living community developers to build or acquire new Marriott
properties, which are important parts of our growth plans, are partially
dependent on the availability and price of capital.
Marriott Hotels, Resorts and Suites primarily serve business and leisure
travelers and meeting groups at locations in downtown and suburban areas, near
airports and at resort locations. Most Marriott full-service hotels contain from
300 to 500 rooms. Marriott full-service hotels typically have swimming pools,
gift shops, convention and banquet facilities, a variety of restaurants and
lounges and parking facilities. Our 19 convention hotels (approximately 20,100
rooms) are larger and contain up to 1,900 rooms. Marriott resort hotels have
additional recreational facilities, such as tennis courts and golf courses. The
13 Marriott Suites (approximately 3,400 rooms) are full-service suite hotels
that typically contain approximately 250 suites, each consisting of a living
room, bedroom and bathroom. Marriott Suites have only limited meeting space.
We operate conference centers located throughout the United States. Some of
the centers are used exclusively by employees of the sponsoring organization,
while others are marketed to outside meeting groups and individuals. The centers
typically include meeting room space, dining facilities, guestrooms and
recreational facilities.
Room operations contributed the majority of hotel sales for the fiscal year
1999 with the remainder coming from food and beverage operations, recreational
facilities and other services. Although business at many resort properties is
seasonal depending on location, overall hotel profits have been relatively
stable and include only moderate seasonal fluctuations.
<TABLE>
<CAPTION>
Marriott Hotels, Resorts and Suites
Geographic Distribution at December 31, 1999 Hotels
- -------------------------------------------------------------- -------------
<S> <C>
United States (40 states and the District of Columbia)........ 262 (107,752 rooms)
=============
Non-U.S. (46 countries and territories)
Americas (Non-U.S.).......................................... 19
United Kingdom............................................... 27
Continental Europe........................................... 25
Asia......................................................... 21
Africa and the Middle East................................... 11
Australia.................................................... 3
-------------
Total Non-U.S................................................. 106 (32,937 rooms)
=============
</TABLE>
Ritz-Carlton hotels and resorts are renowned for their distinctive
architecture and for the quality of their facilities, dining and guest service.
Most Ritz-Carlton hotels have 200 to 500 guest rooms and typically include
meeting and banquet facilities, a variety of restaurants and lounges, gift
shops, swimming pools and parking facilities. Guests at most of the Ritz-Carlton
resorts have access to additional recreational amenities, such as tennis courts
and golf courses.
<TABLE>
<CAPTION>
Ritz-Carlton Luxury Hotels and Resorts
Geographic Distribution at December 31, 1999 Hotels
- ------------------------------------------------------------ ------------
<S> <C>
United States (10 states)................................... 19 (6,897 rooms)
------------
Non-U.S. (15 countries and territories).................... 17 (4,981 rooms)
============
</TABLE>
Renaissance is a global quality-tier brand which targets business
travelers, group meetings and leisure travelers. Renaissance hotels are
generally located in downtown locations of major cities, in suburban office
parks, near major gateway airports and in destination resorts. Most hotels
contain 300 to 500 rooms; however, a few of the convention hotels are larger,
and some hotels in non-gateway markets, particularly in Europe, are smaller.
Renaissance hotels typically include an all-day dining restaurant, a specialty
restaurant, club floors and lounge, boardrooms, and convention and banquet
facilities. Renaissance resorts have additional recreational facilities
including golf, tennis and water sports.
5
<PAGE>
<TABLE>
<CAPTION>
Renaissance Hotels, Resorts, and Suites
Geographic Distribution at December 31, 1999 Hotels
- ----------------------------------------------------------------- ------------
<S> <C>
United States (17 states and the District of Columbia)........... 39 (17,084 rooms)
============
Non-U.S. (26 countries and territories)
Americas (Non-U.S.)............................................. 8
United Kingdom.................................................. 4
Continental Europe.............................................. 16
Asia............................................................ 22
Africa and the Middle East...................................... 7
------------
Total Non-U.S.................................................... 57 (20,207 rooms)
============
</TABLE>
Ramada International is a moderately-priced brand targeted at business and
leisure travelers. Each full-service Ramada International property includes a
restaurant, a cocktail lounge and full-service meeting and banquet facilities.
Ramada International hotels are located primarily in Europe in major and
secondary cities, near major international airports and suburban office park
locations. We also receive a royalty fee from Cendant Corporation (successor to
HFS, Inc.) and Ramada Franchise Canada Limited for the use of the Ramada name in
the United States and Canada, respectively.
<TABLE>
<CAPTION>
Ramada International
Geographic Distribution at December 31, 1999 Hotels
- ------------------------------------------------------ --------------
<S> <C>
Continental Europe.................................... 13
Asia.................................................. 7
Americas (Non-U.S.)................................... 2
Africa and the Middle East............................ 4
--------------
Total (14 countries and territories).................. 26 (5,571 rooms)
==============
</TABLE>
Residence Inn is the U.S. market leader among extended-stay lodging
products, which caters primarily to business, government and family travelers
who stay more than five consecutive nights. Residence Inns generally have 80 to
130 studio and two-story penthouse suites. Most inns feature a series of
residential style buildings with landscaped walkways, courtyards and
recreational areas. The inns do not have restaurants but offer complimentary
continental breakfast. Each suite contains a fully equipped kitchen, and many
suites have wood-burning fireplaces.
<TABLE>
<CAPTION>
Residence Inn
Geographic Distribution at December 31, 1999 Hotels
- ------------------------------------------------------------ ----------------
<S> <C>
United States (46 states and the District of Columbia)...... 317 (37,717 rooms)
----------------
Canada...................................................... 6 (960 rooms)
----------------
Mexico...................................................... 1 (76 rooms)
================
</TABLE>
Courtyard is our moderate-price limited-service hotel product. Aimed at
individual business and leisure travelers as well as families, Courtyard hotels
maintain a residential atmosphere and typically have 80 to 150 rooms. Well
landscaped grounds include a courtyard with a pool and social areas. Most hotels
feature meeting rooms, limited restaurant and lounge facilities, and an exercise
room. The operating systems developed for these hotels allow Courtyard to be
price-competitive while providing better value through superior facilities and
guest service.
<TABLE>
<CAPTION>
Courtyard
Geographic Distribution at December 31, 1999 Hotels
- ------------------------------------------------------------------- ----------------
<S> <C>
United States (43 states and the District of Columbia)............. 435 (60,619 rooms)
----------------
Non-U.S. (8 countries)............................................ 36 (6,390 rooms)
================
</TABLE>
SpringHill Suites is our all-suite brand in the moderate price tier of
lodging products. SpringHill Suites feature suites that are 25 percent larger
than a typical hotel guest room and offer a broad range of amenities, including
complimentary continental breakfast and exercise facilities. At December 31,
1999, 34 properties (3,445 rooms) were located in 21 states.
6
<PAGE>
TownePlace Suites is a moderately priced, extended-stay hotel product that
is designed to appeal to business and leisure travelers. The typical TownePlace
Suites hotel contains 95 high quality one- and two-bedroom suites. Each suite
has a fully equipped kitchen and separate living area. Each hotel provides
housekeeping services and has on-site exercise facilities, an outdoor pool, 24-
hour staffing and laundry facilities. At December 31, 1999, 61 TownePlace Suites
(6,106 rooms) were located in 25 states.
Fairfield Inn is our economy lodging product which competes directly with
major national economy motel chains. Aimed at cost-conscious individual business
and leisure travelers, a typical Fairfield Inn has 65 to 135 rooms and offers a
swimming pool, complimentary continental breakfast and free local phone calls.
At December 31, 1999, 414 Fairfield Inns (38,973 rooms) were located in 46
states and the District of Columbia.
Marriott Vacation Club International develops, sells and operates vacation
timesharing resorts. Profits are generated from three primary sources: (1)
selling fee simple and other forms of timeshare intervals, (2) operating the
resorts and (3) financing consumer purchases of timesharing intervals.
Many timesharing resorts are located adjacent to Marriott hotels, and
timeshare owners have access to certain hotel facilities during their vacation.
Owners can trade their annual interval for intervals at other Marriott
timesharing resorts or for intervals at certain timesharing resorts not
otherwise sponsored by Marriott through an affiliated exchange company. Owners
also can trade their unused interval for points in the Marriott Rewards frequent
stay program, enabling them to stay at over 1,600 Marriott hotels worldwide.
At December 31, 1999, we had 21 resorts in active sales. In May, 1999, we
announced plans to launch a new vacation ownership resort brand - Horizons by
Marriott Vacation Club (Horizons). Horizons represents our entrance into the
moderate tier which currently accounts for 55 percent of the vacation ownership
market, which is the fastest-growing segment in the hospitality industry. The
first Horizons resort is being built in Orlando, Florida with completion
scheduled for early 2001. Marriott Vacation Club International's owner base
continues to expand, with 140,000 owners at year end 1999, compared to 120,000
in 1998.
<TABLE>
<CAPTION>
Marriott Vacation Club International
Geographic Distribution at December 31, 1999 Resorts Units
- ------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Continental United States.................................... 37 3,891
Hawaii....................................................... 2 248
Caribbean.................................................... 2 262
Europe....................................................... 2 240
--------------- ----------------
Total........................................................ 43 4,641
=============== ================
</TABLE>
Marriott Executive Apartments provide temporary housing for business
executives and others who need quality accommodations outside their home
country, usually for 30 or more days. Some serviced apartments operate under the
Marriott Executive Apartments brand which is designed specifically for the long-
term international traveler. At December 31, 1999, seven serviced apartment
properties (1,527 units), including two Marriott Executive Apartments, were
located in three countries and territories.
ExecuStay provides furnished corporate apartments for stays of one month or
longer nationwide. ExecuStay owns no residential real estate and provides units
through short-term lease agreements with apartment owners and managers.
Other Activities
Marriott Golf manages 27 golf course facilities for us and for other golf
course owners.
We operate 19 systemwide hotel reservation centers, 12 of them in the U.S.
and Canada and seven internationally, that handle reservation requests for
Marriott lodging brands worldwide, including franchised properties. We own one
of the U.S. facilities and lease the others.
Our Architecture and Construction Division assists in the design,
development, construction and refurbishment of lodging properties and senior
living communities and is paid a fee by the owners of such properties.
7
<PAGE>
Competition
We encounter strong competition both as a lodging operator and as a
franchisor. There are over 500 lodging management companies in the United
States, including several that operate more than 100 properties. These operators
are primarily private management firms, but also include several large national
chains that own and operate their own hotels and also franchise their brands.
Management contracts are typically long-term in nature, but most allow the hotel
owner to replace the management firm if certain financial or performance
criteria are not met.
Affiliation with a national or regional brand is prevalent in the U.S.
lodging industry. In 1999, the majority of U.S. hotel rooms were brand-
affiliated. Most of the branded properties are franchises, under which the
operator pays the franchisor a fee for use of its hotel name and reservation
system. The franchising business is fairly concentrated, with the three largest
franchisors operating multiple brands accounting for a significant proportion of
all U.S. rooms.
Outside the United States branding is much less prevalent, and most markets
are served primarily by independent operators. We believe that chain affiliation
will increase in overseas markets as local economies grow, trade barriers are
reduced, international travel accelerates and hotel owners seek the economies of
centralized reservation systems and marketing programs.
Based on lodging industry data, we have approximately a seven percent share
of the U.S. hotel market (based on number of rooms), less than a one percent
share of the lodging market outside the United States and a seven percent share
of annual worldwide timesharing sales of about $7 billion. We believe that our
hotel brands are attractive to hotel owners seeking a management company or
franchise affiliation, because our hotels typically generate higher occupancies
and Revenue per Available Room (REVPAR) than direct competitors in most market
areas. We attribute this performance premium to our success in achieving and
maintaining strong customer preference. Approximately 37 percent of our
ownership resort sales come from additional purchases by or referrals from
existing owners. We believe that the location and quality of our lodging
facilities, our marketing programs, reservation systems and our emphasis on
guest service and satisfaction are contributing factors across all of our
brands.
Properties that we operate or franchise are regularly upgraded to maintain
their competitiveness. Our management, lease, and franchise agreements provide
for the allocation of funds, generally a fixed percentage of revenue, for
periodic renovation of buildings and replacement of furnishing. We believe that
the ongoing refurbishment program is adequate to preserve the competitive
position and earning power of the hotels. We also strive to update and improve
the products and services we offer. We believe that by operating a number of
hotels in each of our brands, we stay in direct touch with customers and react
to changes in the marketplace more quickly than chains which rely exclusively on
franchising.
The Marriott Rewards and Marriott Miles programs enhance repeat guest
business by rewarding frequent travelers with free stays at Marriott hotels or
free travel on 18 participating airlines. Marriott Rewards is a multi-brand
frequent guest program with a total of over 12 million members which covers
eight Marriott brands. We believe that the frequent stay programs generate
substantial repeat business that might otherwise go to competing hotels.
8
<PAGE>
Marriott Senior Living Services
In our Senior Living Services business, we develop and operate both
"independent full-service" and "assisted living" senior living communities and
provide related senior care services. Most are rental communities with monthly
rates that depend on the amenities and services provided. We are one of the
largest U.S. operators of senior living communities in the quality tier.
As shown in the table below, at December 31, 1999 we operated 144 senior
living communities in 29 states.
<TABLE>
<CAPTION>
Communities Units (1)
-------------------- --------------------
<S> <C> <C>
Independent full-service
- owned............................................................... 3 1,193
- operated under long-term agreements................................. 42 11,651
-------------------- --------------------
45 12,844
Assisted living
- owned............................................................... 51 5,621
- operated under long-term agreements 48 6,295
-------------------- --------------------
99 11,916
-------------------- --------------------
Total senior living communities 144 24,760
==================== ====================
</TABLE>
(1) Units represent independent living apartments plus beds in assisted living
and nursing centers.
At December 31, 1999, we operated 45 independent full-service senior living
communities, which offer both independent living apartments and personal
assistance units for seniors. Most of these communities also offer licensed
nursing care.
At December 31, 1999, we also operated 99 assisted living senior living
communities principally under the names "Brighton Gardens by Marriott," "Village
Oaks," and "Marriott MapleRidge." Assisted living senior living communities are
for seniors who benefit from assistance with daily activities such as bathing,
dressing or medication. Brighton Gardens is a quality-tier assisted living
concept which generally has 90 assisted living suites and in certain locations,
30 to 45 nursing beds in a community. In some communities, separate on-site
centers also provide specialized care for residents with Alzheimer's or other
memory-related disorders. Village Oaks is a moderately-priced assisted living
concept which emphasizes companion living and generally has 70 suites in a
community. This concept is geared for the cost conscious senior who benefits
from the companionship of another unrelated individual. Marriott MapleRidge
assisted living communities consist of a cluster of six or seven 14-room
cottages which offer residents a smaller scale, more intimate setting and
family-like living at a moderate price.
The assisted living concepts typically include three meals per day, linen
and housekeeping services, security, transportation, and social and recreational
activities. Additionally, skilled nursing and therapy services are generally
available to Brighton Gardens residents.
Terms of the senior living services management agreements vary but
typically include base management fees, ranging from four to six percent of
revenues, central administrative services reimbursements and incentive
management fees. Such agreements are generally for initial periods of five to 30
years, with options to renew for up to 25 additional years. Under the leases
covering certain of the communities, we pay the owner fixed annual rent plus
additional rent equal to a percentage of the amount by which annual revenues
exceed a fixed amount.
Our Senior Living Services business competes mostly with local and regional
providers of long-term health care and senior living services, although some
national providers are emerging in the assisted living market. We compete by
operating well-maintained facilities, and by providing quality health care, food
service and other services at competitive prices. The reputation for service,
quality care and know how associated with the Marriott name is also attractive
to residents and their families. The Marriott Assisted Living Education Program,
chaired by actress Debbie Reynolds, also demonstrates our commitment to
leadership in the Senior Living Services business. This program aims to increase
awareness of assisted living and to highlight general benefits to adult children
and their senior family members. Additionally, we have focused on developing
relationships with professionals who often refer
9
<PAGE>
seniors to senior living communities, such as hospital discharge planners and
physicians. By educating these groups on the assisted living concept, and
familiarizing them with Marriott products and associates, we generate a
significant volume of referrals that helps our senior living communities to
quickly achieve high, stabilized occupancy levels.
Marriott Distribution Services
MDS is a United States limited-line distributor of food and related supplies,
carrying an average of 3,000 product items per distribution center. This segment
originally focused on purchasing, warehousing and distributing food and supplies
to other Marriott businesses. However, MDS has increased its third-party
business to about 87 percent of total sales volume in the year ended December
31, 1999.
MDS operated a nationwide network of 13 distribution centers at December 31,
1999. Leased facilities are generally built to our specifications, and utilize a
narrow aisle concept and technology to enhance productivity.
Through MDS, we compete with numerous national, regional and local
distribution companies in the $147 billion U.S. food distribution industry. We
attract clients by adopting competitive pricing policies and by maintaining one
of the highest order fill rates in the industry. In addition, our limited
product lines, operating systems, and other economies provide a favorable cost
structure which we are able to leverage in pursuing new business.
Employee Relations
At December 31, 1999, we had approximately 143,000 employees. Approximately
5,500 employees at properties we manage were represented by labor unions. We
believe relations with our employees are positive.
Other Properties
In addition to the operating properties discussed above, we lease an 870,000
square foot office building in Bethesda, Maryland which serves as our
headquarters.
We believe our properties are in generally good physical condition with need
for only routine repair and maintenance.
ITEM 3. LEGAL PROCEEDINGS
Incorporated by reference to the description of legal proceedings in the
"Contingent Liabilities" footnote in the financial statements set forth in Part
II, Item 8, "Financial Statements and Supplementary Data."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE>
Part II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The range of prices of our common stock and dividends declared per share for
the period since the March 27, 1998 Spinoff are as follows. No data are
presented for the period prior to the Spinoff since we were not a publicly-held
company during that time.
<TABLE>
<CAPTION>
Stock Price Dividends
---------------------------------------------
Declared Per
High Low Share
-------------------- ------------------- -----------------
<S> <C> <C> <C>
1998 Second Quarter.... $ 38 7/16 $ 30 1/2 $ 0.095/1/
Third Quarter..... 34 1/2 24 5/8 0.050
Fourth Quarter.... 30 1/4 19 3/8 0.050
</TABLE>
<TABLE>
<CAPTION>
Stock Price Dividends
---------------------------------------------
Declared Per
High Low Share
-------------------- ------------------- -----------------
<S> <C> <C> <C>
1999 First Quarter..... $ 39 15/16 $ 29 $ 0.050
Second Quarter.... 44 1/2 33 0.055
Third Quarter..... 38 1/2 33 5/16 0.055
Fourth Quarter.... 36 1/4 29 9/16 0.055
</TABLE>
/1/ Total of $.045 for the first quarter (declared and paid in the second
quarter), and $.05 second quarter dividend.
At January 31, 2000, there were 243,957,257 shares of Class A Common Stock
outstanding held by 55,987 shareholders of record. Our Class A Common Stock is
traded on the New York Stock Exchange, Chicago Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange.
11
<PAGE>
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table presents summary selected historical financial data for
the Company derived from our financial statements as of and for the five fiscal
years ended December 31, 1999.
Since the information in this table is only a summary and does not provide all
of the information contained in our financial statements, including the related
notes, you should read "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our Consolidated Financial Statements.
Per share data and Shareholders' Equity have not been presented for periods
prior to 1998 because we were not a publicly-held company during that time.
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------------------
1999 1998 1997 1996/1/ 1995
-------- -------- -------- -------- -------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales........................................... $ 8,739 $ 7,968 $ 7,236 $ 5,738 $ 4,880
Operating Profit Before
Corporate Expenses and Interest................ 830 736 609 508 390
Net Income...................................... 400 390 324 270 219
Per Share Data:
Diluted Earnings Per Share...................... 1.51 1.46
Cash Dividends Declared......................... .215 .195
Balance Sheet Data (at end of year):
Total Assets.................................... 7,324 6,233 5,161 3,756 2,772
Long-Term and Convertible Subordinated Debt..... 1,676 1,267 422 681 180
Shareholders' Equity............................ 2,908 2,570
</TABLE>
_______________________
/1/Fiscal year 1996 includes 53 weeks, all other years include 52 weeks.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The following discussion presents an analysis of results of our operations for
fiscal years ended December 31, 1999, January 1, 1999, and January 2, 1998.
Comparable REVPAR, room rate and occupancy statistics used throughout this
report are based on U.S. properties operated by us except for Fairfield Inn,
which data also include franchised units. Systemwide sales and statistics
include data from our owned, leased, managed and franchised properties.
In 1998 we changed our accounting policy to no longer include the working
capital and sales of managed hotels and managed senior living communities in our
financial statements. Instead, our sales include fees earned plus costs
recovered from owners of managed properties. We restated prior periods and all
references in the discussion below refer to financial statement data prepared
under our new accounting policy. This restatement reflects reductions in sales
of $2,240 million for 1998 and $1,810 million for 1997, compared to sales as
previously calculated for those periods.
Consolidated Results
1999 Compared to 1998
Net income increased three percent to $400 million in 1999 and diluted
earnings per share advanced three percent to $1.51. Overall profit growth in
1999 was curtailed by a $39 million pretax charge to reflect an agreement to
settle pending litigation, (refer to the "Contingent Liabilities" footnote in
the financial statements set forth in Part II, Item 8, "Financial Statements and
Supplementary Data") incremental costs of our Year 2000 readiness efforts, and
an operating loss in our senior living services business.
Sales increased 10 percent to $8.7 billion in 1999, reflecting revenue gains
at established hotels, and contributions from new lodging properties and senior
living communities. Systemwide sales grew 10 percent to $17.7 billion in 1999.
1998 Compared to 1997
Net income increased 20 percent to $390 million in 1998. Diluted earnings per
share advanced 23 percent to $1.46, reflecting higher net income and the impact
of share repurchases. Profit growth was driven by strong performance for our
U.S. lodging operations, and improved results for our distribution services
business. Sales grew 10 percent to $8.0 billion, primarily due to the net
addition of 496 hotels (including acquisitions) and 41 senior living communities
from the beginning of 1997 through year-end 1998. Systemwide sales in 1998 were
$16.0 billion, a 21 percent increase compared to the preceding year.
Marriott Lodging
<TABLE>
<CAPTION>
Annual Change
------------------
(dollars in millions) 1999 1998 1997 99/98 98/97
- ------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales............................... $ 7,041 $ 6,311 $ 5,247 +12% +20%
Operating profit.................... 827 704 570 +17% +24%
</TABLE>
1999 Compared to 1998
Marriott Lodging reported a 17 percent increase in operating profit and 12
percent higher sales in 1999. Results reflected higher room rates for U.S.
hotels, contributions from new hotels worldwide, and strong interval sales in
resort timesharing. We estimate that lodging operating profit in 1999 was
attributable to base management fees (27 percent of total), franchise fees (17
percent) and land rent (three percent) that are based on fixed dollar amounts or
percentages of sales. The balance was attributable to our timesharing business
(15 percent), and to incentive management fees and other income based on the
profits of the underlying properties (38 percent).
13
<PAGE>
Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 3.7 percent in 1999. Average room rates for
these hotels rose 3.6 percent, while occupancy remained at 77.5 percent.
Occupancy, average daily rate and REVPAR for each of our principal established
brands is shown in the following table.
<TABLE>
<CAPTION>
Comparable
U.S. properties Systemwide
------------------------------- ----------------------------
Change vs. Change vs.
1999 1998 1999 1998
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites
Occupancy.......................................... 77.5% -0.1% pts. 73.8% -2.1% pts.
Average daily rate................................. $ 140.86 +3.9% $ 132.51 +2.3%
REVPAR............................................. $ 109.22 +3.9% $ 97.79 -0.5%
Ritz-Carlton
Occupancy.......................................... 77.8% +3.4% pts. 75.4% +2.9% pts.
Average daily rate................................. $ 219.37 +5.5% $ 201.51 +4.1%
REVPAR............................................. $ 170.67 +10.3% $ 151.94 +8.3%
Renaissance Hotels, Resorts and Suites
Occupancy.......................................... 70.8% +0.5% pts. 68.7% +0.8% pts.
Average daily rate................................. $ 132.09 +2.1% $ 130.59 +7.1%
REVPAR............................................. $ 93.54 +2.9% $ 89.72 +8.3%
Residence Inn
Occupancy.......................................... 83.0% -0.1% pts. 79.0% -1.6% pts.
Average daily rate................................. $ 99.03 +0.9% $ 98.44 +4.2%
REVPAR............................................. $ 82.23 +0.8% $ 77.77 +2.2%
Courtyard
Occupancy.......................................... 79.3% -0.1% pts. 73.2% -4.4% pts.
Average daily rate................................. $ 91.48 +2.8% $ 89.65 +2.7%
REVPAR............................................. $ 72.53 +2.7% $ 65.62 -3.2%
Fairfield Inn
Occupancy.......................................... 71.0% -2.2% pts. 68.7% -3.7% pts.
Average daily rate................................. $ 58.87 +3.3% $ 59.15 +3.0%
REVPAR............................................. $ 41.80 +0.1% $ 40.64 -2.3%
</TABLE>
International hotel operations posted improved results in 1999, reflecting
profit growth for properties in continental Europe, the Middle East, Latin
America and the Caribbean region.
Marriott Vacation Club International achieved a 22 percent increase in
contract sales in 1999, as well as higher income from resort management. Strong
interval sales were generated at timeshare resorts in Florida, South Carolina,
Hawaii and Spain. During 1999, we had 21 resorts in active sales, including the
initial project (Orlando, Fla.) for Horizons by Marriott Vacation Club, a new
product line targeting the moderate price tier of the timeshare market.
We added a net total of 194 hotels and timesharing resorts (27,600 rooms)
across our lodging brands during 1999.
1998 Compared to 1997
Marriott Lodging reported a 24 percent increase in operating profit and 20
percent higher sales in 1998. Results reflected solid room rate growth at U.S.
hotels, and contributions from new properties worldwide. We added a net
14
<PAGE>
total of 176 hotels and resorts (27,800 rooms) to our lodging system in 1998.
Lodging operating profit in 1998 was attributable to base management fees (28
percent of total), franchise fees (18 percent), land rent and other income
(three percent), resort timesharing (13 percent), and incentive management fees
and other profit participations (38 percent).
Across our lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of six percent in 1998. Average room rates for
these hotels rose more than six percent, well in excess of inflation, while
occupancy dipped one-half percentage point to 78 percent.
<TABLE>
<CAPTION>
Comparable
U.S. properties Systemwide
------------------------------- ----------------------------
Change vs. Change vs.
1998 1997 1998 1997
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites
Occupancy................................................ 78.0% -0.5% pts. 75.9% -0.7% pts.
Average daily rate....................................... $ 137.95 +6.7% $ 129.52 +5.9%
REVPAR................................................... $ 107.60 +6.1% $ 98.31 +4.9%
Ritz-Carlton
Occupancy................................................ 75.4% -2.1% pts. 72.5% -4.9% pts.
Average daily rate....................................... $ 205.48 +8.7% $ 193.53 +3.5%
REVPAR................................................... $ 154.93 +5.8% $ 140.31 -3.1%
Renaissance Hotels, Resorts and Suites
Occupancy................................................ 70.3% +0.7% pts. 67.9% +1.0% pts.
Average daily rate....................................... $ 129.38 +5.4% $ 121.98 -3.2%
REVPAR................................................... $ 90.95 +6.5% $ 82.82 -1.8%
Residence Inn
Occupancy................................................ 83.3% -0.2% pts. 80.6% - pts.
Average daily rate....................................... $ 99.12 +3.9% $ 94.44 +3.8%
REVPAR................................................... $ 82.59 +3.7% $ 76.12 +3.8%
Courtyard
Occupancy................................................ 79.7% -0.7% pts. 77.6% -0.6% pts.
Average daily rate....................................... $ 89.32 +6.8% $ 87.33 +5.8%
REVPAR................................................... $ 71.22 +6.0% $ 67.77 +5.0%
Fairfield Inn
Occupancy................................................ 73.5% -0.4% pts. 72.4% -0.6% pts.
Average daily rate....................................... $ 56.08 +3.6% $ 57.43 +5.1%
REVPAR................................................... $ 41.19 +2.9% $ 41.58 +4.2%
</TABLE>
Results for our international hotel operations declined in 1998, as profit
growth in Europe and Latin America was offset by the impact of difficult
economic conditions in the Asia/Pacific region, and reduced travel in the Middle
East.
Marriott Vacation Club International generated a 10 percent increase in
contract sales in 1998, and higher income from resort management and financing
activities. MVCI reported strong sales activity at major timeshare resorts in
Florida, South Carolina, California, Hawaii, Spain and Aruba.
In March 1998, we increased our ownership interest in The Ritz-Carlton Hotel
Company LLC to 99 percent from 49 percent. Sales for Marriott Lodging were up
11 percent in 1998 before the impact of consolidating this hotel management
company.
15
<PAGE>
Marriott Senior Living Services
<TABLE>
<CAPTION>
Annual Change
--------------------
(dollars in millions) 1999 1998 1997 99/98 98/97
- ----------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales......................... $ 559 $ 479 $ 446 +17% + 7%
Operating (loss) profit....... (18) 15 32 n/m -53%
</TABLE>
1999 Compared to 1998
Marriott Senior Living Services posted a 17 percent increase in sales in 1999,
as we added a net total of 31 new communities (4,216 living units) during the
year. Occupancy for comparable communities increased by nearly one percentage
point to 90 percent in 1999.
The division reported an operating loss in 1999, primarily as a result of $18
million of pre-opening costs for new communities, increased accounts receivable
reserves, and one-time charges associated with our decision to slow new
construction until market conditions improve.
1998 Compared to 1997
Marriott Senior Living Services opened 24 senior living communities in 1998,
including 14 Brighton Gardens, our assisted living brand serving the quality
tier. Profit comparisons for 1998 were affected by the mid-1997 sale of 29
senior living communities which we continue to operate under long-term
agreements. Excluding the impact of this transaction, operating profit for the
division increased by $5 million in 1998. Occupancy for comparable communities
was unchanged for the year.
Marriott Distribution Services
<TABLE>
<CAPTION>
Annual Change
--------------------
(dollars in millions) 1999 1998 1997 99/98 98/97
- ----------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales......................... $ 1,139 $ 1,178 $ 1,543 - 3% - 24%
Operating profit.............. 21 17 7 +24% +143%
</TABLE>
1999 Compared to 1998
Operating profit for Marriott Distribution Services increased 24 percent in
1999 on a modest decline in sales. The division benefited from higher gross
margins per case and reduced inventory losses compared to 1998.
1998 Compared to 1997
Operating profit for Marriott Distribution Services more than doubled in 1998,
while sales declined 24 percent due to a reduction in the total number of
accounts serviced. Results were boosted by the consolidation of distribution
facilities, and realization of significant economies in warehouse operations and
transportation.
Corporate expenses, interest and taxes
1999 Compared to 1998
Corporate expenses increased to $164 million in 1999 primarily due to a $39
million pretax charge associated with an agreement to settle pending litigation,
together with increased systems-related costs, including $22 million of costs
associated with our Year 2000 readiness program, compared to $12 million of Year
2000 readiness program costs in 1998. Interest expense more than doubled to $61
million as a result of borrowings to finance growth outlays and share
repurchases. Our effective income tax rate decreased to approximately 37.3
percent in 1999 from 38.3 percent in 1998, primarily due to the impact of tax-
oriented investments, and increased income in countries with lower effective tax
rates.
16
<PAGE>
1998 Compared to 1997
Corporate expenses rose 25 percent in 1998, and included $12 million of costs
associated with our Year 2000 readiness program. Interest expense increased 36
percent in 1998 as a result of incremental borrowings to finance capital
expenditures and share repurchases. Our effective income tax rate decreased to
approximately 38.3 percent in 1998, from 39 percent in 1997, primarily due to
increased income in countries with lower effective tax rates.
Lodging Development
Marriott Lodging opened 243 properties totaling 36,500 rooms across its brands
in 1999, while 49 hotels (8,900 rooms) exited the system. Highlights of the
year included:
. Twenty-five full-service properties (approximately 7,100 rooms) opened
outside the United States. These include our first hotels in Armenia,
Ecuador, El Salvador, Guam, The Netherlands Antilles, Portugal and Spain.
. Thirty-nine hotels (9,400 rooms) converted from independent status or
competitor chains, including the 504-room Renaissance Worthington Hotel
in Texas, and the 387-room JW Marriott Ihilani Resort & Spa at Ko Olina
on the island of Oahu, Hawaii.
. A record 195 properties (approximately 23,500 rooms) added to our select
service and extended-stay brands, including the renovation and conversion
to Courtyard of historically significant urban properties in
Philadelphia, Washington, D.C., Fort Worth, San Diego and Omaha.
. Development of new Marriott Vacation Club International resorts in
Newport Beach, Calif., Panama City and Miami, Fla., Williamsburg, Va.,
and Maui, Hawaii, and a Horizons by Marriott Vacation Club resort in
Orlando, Fla.
At year-end 1999, we had over 400 hotel properties (approximately 70,000
rooms) under construction or approved for development. We expect to open
approximately 230 hotels and timesharing resorts (38,000 rooms) in 2000. Over a
five-year period (1999 to 2003), we plan to add 175,000 rooms to our lodging
system. These growth plans are subject to numerous risks and uncertainties,
many of which are outside our control. See "Forward-Looking Statements" above
and "Liquidity and Capital Resources" below.
Senior Living Services Development
During 1999, Marriott Senior Living Services neared completion of a major
expansion program involving the opening of 60 new communities over a two-year
period from mid-1998 through mid-2000. The division's development efforts in
1999 were focused on its popular Brighton Gardens assisted living brand, and
Marriott MapleRidge, an assisted living concept designed for seniors who prefer
a more intimate, family-like setting.
Due to oversupply conditions in some senior housing markets, we decided in
1999 to slow development of planned communities. Consequently, a number of
projects in the early stages of development were postponed or cancelled.
Marriott Senior Living Services is continuing to pursue development of new
communities to be financed by third parties, and expects to resume active
development of company-owned projects when market conditions improve.
Ten senior living communities under construction at year end 1999 are
scheduled to open during 2000.
17
<PAGE>
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 are monitoring the status of the capital markets, and are evaluating the
effect, that changes in capital market conditions may have on our ability to
execute our announced growth plans.
Cash From Operations
Cash from operations was $711 million in 1999, $605 million in 1998, and $542
million in 1997. Net income is stated after depreciation expense of $96 million
in 1999, $76 million in 1998 and $68 million in 1997, and after amortization
expense of $66 million in 1999, $64 million in 1998 and $58 million in 1997.
While our timesharing business generates strong operating cash flow, annual
amounts are affected by the timing of cash outlays for the acquisition and
development of new resorts, and cash received from purchaser financing. We
include interval sales we finance in cash from operations when we collect cash
payments or the notes are sold for cash.
Earnings before interest expense, income taxes, depreciation and amortization
(EBITDA) increased to $860 million in 1999, compared to $802 million in 1998 and
$679 million in 1997, and has grown at an 18 percent annual rate since 1995.
We consider EBITDA to be an indicator of our operating performance because it
can be used to measure our ability to service debt, fund capital expenditures
and expand our business. Nevertheless, you should not consider EBITDA an
alternative to net income, operating profit, cash flows from operations, or any
other operating or liquidity measure prescribed by generally accepted accounting
principles.
A substantial portion of our EBITDA is based on fixed dollar amounts or
percentages of sales. These include lodging base management and franchise fees
and land rent. With more than 2,000 hotels and senior living communities in the
Marriott system, no single property or region is critical to our financial
results.
Our ratio of current assets to current liabilities was .92 at December 31,
1999, compared to .94 at January 1, 1999. Each of our businesses minimizes
working capital through strict credit-granting policies, aggressive collection
efforts and high inventory turnover.
Investing Activities Cash Flows
Acquisitions. We continually seek opportunities to enter new markets,
increase market share or broaden service offerings through acquisitions. We
entered the $3 billion corporate housing market in 1999 by acquiring ExecuStay
Corporation, a leading provider of furnished apartments for executives and other
professionals.
In 1998, we increased our ownership interest in The Ritz-Carlton Hotel Company
LLC, a luxury hotel brand and management company, to 99 percent from 49 percent.
We expect to acquire the remaining one percent of this company within the next
several years. In 1997, we acquired Renaissance Hotel Group N.V., an operator
and franchisor of approximately 150 hotels in 38 countries.
Dispositions. Asset sales generated proceeds of $436 million in 1999, $332
million in 1998 and $571 million in 1997. In 1999 we closed on the sales of 22
hotels and nine senior living communities. We also have negotiated asset sales
agreements with aggregate proceeds of $82 million for sales expected to be
completed in 2000 or 2001. We continue to operate these properties under long-
term operating agreements.
Capital Expenditures and Other Investments. Capital expenditures of $929
million in 1999, $937 million in 1998 and $520 million in 1997, included
development and construction of new hotels and senior living communities. Over
time, we expect to sell certain lodging and senior living properties under
development, or to be developed, while continuing to operate them under long-
term agreements.
18
<PAGE>
We also expect to continue to make other investments to grow our businesses,
including loans, minority equity investments and development of new timeshare
resorts in connection with adding units to our Lodging business.
We have made loans to owners of hotels and senior living communities which we
operate or franchise. Loans outstanding under this program totaled $295 million
at December 31, 1999 and $213 million at January 1, 1999. Unfunded commitments
aggregating $193 million were outstanding at December 31, 1999. These loans
typically are secured by mortgages on the projects. We participate in a program
with an unaffiliated lender in which we may partially guarantee loans made to
facilitate third party ownership of hotels and senior living services
communities which we operate or franchise.
Cash From Financing Activities
Long-term debt (including convertible subordinated debt at January 1, 1999)
increased by $409 million in 1999 and $845 million in 1998, primarily to finance
our capital expenditure and share repurchase programs.
Our financial objectives include diversifying our financing sources and
optimizing the mix and maturity of our long-term debt. At year-end 1999, our
long-term debt (including commercial paper borrowings of $781 million) had an
average interest rate of 6.4 percent and an average maturity of approximately
5.8 years. The ratio of fixed rate long-term debt to total long-term debt was
53 percent as of December 31, 1999.
We issued $300 million of 10-year senior notes in September 1999 at a yield to
maturity of 8.0 percent, and received net offering proceeds of $296 million. In
1998, we issued a total of $400 million of 5-year and 7-year senior notes at an
average yield to maturity of 6.8 percent and received net offering proceeds of
$396 million.
We have entered into revolving credit agreements which provide for borrowings
of $1.5 billion expiring in March 2003, and $500 million expiring in February
2004. No loans were outstanding at year-end 1999 under these facilities, which
support our commercial paper program and letters of credit. We had $1.2 billion
of unused revolving credit available under these facilities as of December 31,
1999. Borrowings under these facilities bear interest at LIBOR plus a spread,
based on our public debt rating.
We called for mandatory redemption of our Liquid Yield Option Notes (LYONs) in
1999. Approximately 64 percent of LYONs holders elected to convert their notes
to common stock, for which we issued 6.1 million shares. The other 36 percent of
LYONs holders received cash totaling $120 million, which reduced by 3.4 million
common shares the dilutive impact of these convertible debt securities issued by
a predecessor company in 1996. Nine percent of the cash redemption price was
reimbursed to us by the predecessor company (Sodexho Marriott Services, Inc.).
In January 2000, we filed a "universal shelf" registration statement with the
Securities and Exchange Commission. Together with the authority remaining under
a universal shelf registration statement filed in April 1999, this gives us the
flexibility to offer to the public up to $500 million of debt securities, common
stock or preferred stock.
We determine our debt capacity based on the amount and variability of our cash
flows. EBITDA coverage of gross interest cost was 9.1 times in 1999, and cash
flow requirements under our loan agreements were exceeded by a substantial
margin.
Share Repurchases. We periodically repurchase our common stock to replace
shares needed for employee stock plans and for other corporate purposes. We
purchased 10.8 million of our shares in 1999 at an average price of $33 per
share, and 13.7 million shares in 1998 at an average price of $29 per share. On
February 3, 2000 our Board of Directors authorized the repurchase of an
additional 25 million shares.
Dividends. In April 1999, our Board of Directors increased the quarterly cash
dividend by 10 percent to $.055 per share. We plan to continue to reinvest the
major portion of our earnings in our business.
19
<PAGE>
Other Matters
Boston Market
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), and BCI and a franchisee announced closings of approximately 20 percent
of the restaurants in the Boston Market chain. 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 BCI
plan of reorganization, including Court approval. If approved, the purchase is
expected to close in mid-2000, although no date has been established. MDS
continues to provide distribution services to BCI and has been receiving payment
of post-petition balances in accordance with the terms of its contract with BCI.
In addition, the Court approved, and MDS has been paid, substantially all of
MDS's pre-petition accounts receivable balances. Given the uncertainties
involved in BCI's bankruptcy and the planned sale to McDonald's, we cannot
predict the potential effect these events will have on our future results of
operations and financial position. If our contract were to terminate, or if BCI
or McDonald's ceased or further curtailed the operations of Boston Market, MDS
might be unable to recover up to $21 million in contract investment, receivables
and inventory, and MDS could have excess warehouse capacity and rolling stock.
Inflation
Inflation has been moderate in recent years, and has not had a significant
impact on our businesses.
Year 2000 Readiness Disclosure
The "Year 2000 problem" arose because many computer programs and chip-based
embedded technology systems used only the last two digits to refer to a year,
and therefore could not properly recognize a year beginning with "20" instead of
the familiar "19." If not corrected, many computer applications could have
failed or created erroneous results.
State of Readiness. Prior to December 31, 1999, we adopted and completed an
enterprise-wide multi-step process toward Year 2000 readiness of our information
resource systems and other systems that use embedded computer chips. We also
modified operational contingency plans to specifically address Year 2000 issues,
and established information coordination centers to collect and report status
and track and address problems had they occurred during the actual turn of the
century.
As of March 3, 2000, we had not experienced any significant business
disruption as a result of the Year 2000 problem. Although Year 2000 problems may
not become evident until long after January 1, 2000, based on our Year 2000
readiness process and our experience at the end of 1999 and in early 2000, we
also do not expect significant Year 2000 related business disruptions in the
future.
Costs. Many of the costs of Year 2000 compliance have been or will be
reimbursed to us or otherwise paid directly by owners and clients pursuant to
existing contracts. Through December 31, 1999, we have expensed approximately
$34 million of the pretax costs to address the Year 2000 problem. Although we
do not expect to incur significant Year 2000 related costs after December 31,
1999, some of the Year 2000 costs incurred in prior years related to internal
resources which we used to address the Year 2000 Problem. Those resources,
which have now been redeployed, will continue to generate costs in 2000 and
future years.
In addition, the Year 2000 problem heightened the need for timely completion
of previously planned system modernization and replacement projects. We estimate
that we will bear approximately $45 million to $50 million of the pretax costs
for these projects, most of which will be capitalized and amortized over the
useful lives of the assets.
20
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. We manage our
exposure to this risk by monitoring available financing alternatives, and
through development and application of credit granting policies. Our strategy
to manage exposure to changes in interest rates is unchanged from January 1,
1999. Furthermore, we do not foresee any significant changes in our exposure to
fluctuations in interest rates or in how such exposure is managed in the near
future.
The following sensitivity analysis displays how our earnings and the fair
values of certain instruments we hold are affected by changes in interest rates.
We hold notes receivable that earn interest at variable rates. Hypothetically,
an immediate one percentage point change in interest rates would change annual
interest income by $3 million based on the balances of these notes receivable at
December 31, 1999 and January 1, 1999.
Changes in interest rates also impact the fair value of our long-term fixed
rate debt and long-term fixed rate notes receivable. Based on the balances
outstanding at December 31, 1999 and January 1, 1999, a hypothetical immediate
one percentage point change in interest rates would change the fair value of our
long-term fixed rate debt by $41 million and $24 million, respectively, and
would change the fair value of long-term fixed rate notes receivable by
$5 million and $2 million, respectively.
Our commercial paper has been excluded from the above sensitivity analysis.
Although commercial paper is classified as long-term debt based on our ability
and intent to refinance it on a long-term basis, all commercial paper matures
within three months of year-end. As a result, there would be no material
expected change in interest expense or fair value following a reasonably
expected change in interest rates.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial information is included on the pages indicated:
<TABLE>
<CAPTION>
Page
------------
<S> <C>
Report of Independent Public Accountants........................................... 23
Consolidated Statement of Income................................................... 24
Consolidated Balance Sheet......................................................... 25
Consolidated Statement of Cash Flows............................................... 26
Consolidated Statement of Comprehensive Income..................................... 27
Consolidated Statement of Shareholders' Equity..................................... 28
Notes to Consolidated Financial Statements......................................... 29-45
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Marriott International, Inc.:
We have audited the accompanying consolidated balance sheet of Marriott
International, Inc. as of December 31, 1999 and January 1, 1999, and the related
consolidated statements of income, cash flows and comprehensive income for each
of the three fiscal years in the period ended December 31, 1999 and the
consolidated statement of shareholders' equity for the period from March 27,
1998 to December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Marriott
International, Inc. as of December 31, 1999 and January 1, 1999, and the results
of its operations and its cash flows for each of the three fiscal years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Vienna, VA
February 29, 2000
23
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
Fiscal Years Ended December 31, 1999, January 1, 1999 and January 2, 1998
($ in millions, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
SALES.......................................................... $ 8,739 $ 7,968 $ 7,236
OPERATING COSTS AND EXPENSES................................... 7,909 7,232 6,627
-------- -------- --------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST.................................................. 830 736 609
Corporate expenses............................................. (164) (110) (88)
Interest expense............................................... (61) (30) (22)
Interest income................................................ 32 36 32
-------- -------- --------
INCOME BEFORE INCOME TAXES..................................... 637 632 531
Provision for income taxes..................................... 237 242 207
-------- -------- --------
NET INCOME..................................................... $ 400 $ 390 $ 324
======== ======== ========
<CAPTION>
1999 1998 1997
-------- -------- ----------
EARNINGS PER SHARE (pro forma,
unaudited)
----------
Basic Earnings Per Share..................................... $ 1.62 $ 1.56 $ 1.27
======== ======== ==========
Diluted Earnings Per Share................................... $ 1.51 $ 1.46 $ 1.19
======== ======== ==========
</TABLE>
See Notes To Consolidated Financial Statements
24
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1999 and January 1, 1999
($ in millions)
<TABLE>
<CAPTION>
December 31, January 1,
1999 1999
------------ ----------
ASSETS
<S> <C> <C>
Current assets
Cash and equivalents........................................... $ 489 $ 390
Accounts and notes receivable.................................. 740 605
Inventories, at lower of average cost or market................ 93 75
Prepaid taxes.................................................. 220 200
Other.......................................................... 58 63
--------- ---------
1,600 1,333
--------- ---------
Property and equipment............................................... 2,845 2,275
Intangible assets.................................................... 1,820 1,712
Investments in affiliates............................................ 294 228
Notes and other receivables.......................................... 473 434
Other................................................................ 292 251
--------- ---------
$ 7,324 $ 6,233
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.............................................. $ 628 $ 497
Accrued payroll and benefits.................................. 399 345
Self-insurance................................................ 36 42
Other payables and accruals................................... 680 528
--------- ---------
1,743 1,412
--------- ---------
Long-term debt...................................................... 1,676 944
Self-insurance...................................................... 142 179
Other long-term liabilities......................................... 855 805
Convertible subordinated debt....................................... - 323
Shareholders' equity
Class A common stock, 255.6 million shares issued............. 3 3
Additional paid-in capital.................................... 2,738 2,713
Retained earnings............................................. 508 218
Treasury stock, at cost....................................... (305) (348)
Accumulated other comprehensive income........................ (36) (16)
--------- ---------
2,908 2,570
--------- ---------
$ 7,324 $ 6,233
========== =========
</TABLE>
See Notes To Consolidated Financial Statements
25
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Years Ended December 31, 1999, January 1, 1999 and January 2, 1998
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ----------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income............................................... $ 400 $ 390 $ 324
Adjustments to reconcile to cash provided by
operations:
Depreciation and amortization........................ 162 140 126
Income taxes......................................... 87 76 64
Timeshare activity, net.............................. (102) 28 (118)
Other................................................ 19 (22) 88
Working capital changes:
Accounts receivable.................................. (126) (104) (190)
Inventories.......................................... (17) 15 (3)
Other current assets................................. (38) (16) (15)
Accounts payable and accruals........................ 326 98 266
--------- --------- ----------
Cash provided by operations.............................. 711 605 542
--------- --------- ----------
INVESTING ACTIVITIES
Capital expenditures..................................... (929) (937) (520)
Acquisitions............................................. (61) (48) (859)
Dispositions............................................. 436 332 571
Loan advances............................................ (144) (48) (95)
Loan collections and sales............................... 54 169 47
Other.................................................... (143) (192) (190)
--------- --------- ----------
Cash used in investing activities........................ (787) (724) (1,046)
--------- --------- ----------
FINANCING ACTIVITIES
Issuance of long-term debt............................... 831 1,294 16
Repayment of long-term debt.............................. (173) (473) (15)
Redemption of convertible subordinated debt.............. (120) - -
Issuance of Class A common stock......................... 43 15 -
Dividends paid........................................... (52) (37) -
Purchase of treasury stock............................... (354) (398) -
Advances (to) from Old Marriott.......................... - (100) 576
--------- --------- ----------
Cash provided by financing activities.................... 175 301 577
--------- --------- ----------
INCREASE IN CASH AND EQUIVALENTS............................ 99 182 73
CASH AND EQUIVALENTS, beginning of year..................... 390 208 135
--------- --------- ----------
CASH AND EQUIVALENTS, end of year........................... $ 489 $ 390 $ 208
========= ========= ==========
</TABLE>
See Notes To Consolidated Financial Statements
26
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Fiscal Years Ended December 31, 1999, January 1, 1999 and January 2, 1998
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(pro forma,
unaudited)
-----------
<S> <C> <C> <C>
Net income........................................................ $ 400 $ 390 $ 324
Other comprehensive (loss) income:
Foreign currency translation adjustments....................... (18) (3) (10)
Other.......................................................... (2) 6 1
------ ------- ---------
Total other comprehensive (loss) income........................... (20) 3 (9)
------ ------- ---------
Comprehensive income.............................................. $ 380 $ 393 $ 315
====== ======= =========
</TABLE>
27
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Period From March 27, 1998 to December 31, 1999
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Common Class A Additional other
shares common paid-in Retained Treasury stock, comprehensive
outstanding stock capital earnings at cost income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
255.6 Spinoff on March 27, 1998........... $ 3 $ 2,711 $ - $ - $ (23)
- Net income, after the Spinoff....... - - 301 - -
- Dividends ($.195 per share)......... - - (49) - -
1.5 Employee stock plan issuance and
other, after the Spinoff.......... - 2 (34) 50 7
(13.7) Purchase of treasury stock.......... - - - (398) -
- -----------------------------------------------------------------------------------------------------------------------------------
243.4 Balance, January 1, 1999............ 3 2,713 218 (348) (16)
- Net income.......................... - - 400 - -
- Dividends ($.215 per share)......... - - (53) - -
5.5 Employee stock plan issuance
and other......................... - 29 (87) 172 (20)
2.1 ExecuStay acquisition............... - - (4) 67 -
(10.8) Purchase of treasury stock......... - - - (358) -
6.1 Conversion of convertible
subordinated debt................. - (4) 34 162 -
- -----------------------------------------------------------------------------------------------------------------------------------
246.3 Balance at December 31, 1999........ $ 3 $ 2,738 $ 508 $ (305) $ (36)
===================================================================================================================================
</TABLE>
See Notes To Consolidated Financial Statements
28
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements present the results of operations,
financial position and cash flows of Marriott International, Inc. (together with
its subsidiaries, we, us or the Company), formerly New Marriott MI, Inc., as if
we were a separate entity for all periods presented. During periods prior to
March 27, 1998, we were a wholly owned subsidiary of the former Marriott
International, Inc. (Old Marriott) and financial statements for such periods
have been prepared on a combined basis.
On March 27, 1998, all of our issued and outstanding common stock was
distributed, on a pro rata basis, as a special dividend (the Spinoff) to holders
of common stock of Old Marriott, and the Company was renamed "Marriott
International, Inc." Old Marriott's historical cost basis in our assets and
liabilities has been carried over. Old Marriott received a private letter ruling
from the Internal Revenue Service that the Spinoff would be tax-free to it and
its shareholders. For each share of common stock in Old Marriott, shareholders
received one share of our Common Stock and one share of our Class A Common
Stock. On May 21, 1998, all outstanding shares of our Common Stock were
converted, on a one-for-one basis, into shares of our Class A Common Stock.
Also on March 27, 1998, Old Marriott was renamed Sodexho Marriott Services,
Inc. (SMS) and its food service and facilities management business was combined
with the North American operations of Sodexho Alliance, S.A. (Sodexho), a
worldwide food and management services organization.
For purposes of governing certain of the ongoing relationships between us
and SMS after the Spinoff and to provide for orderly transition, we entered into
various agreements with SMS including the Employee Benefits and Other Employee
Matters Allocation Agreement, Liquid Yield Option Notes (LYONs) Allocation
Agreement, Tax Sharing Agreement, Trademark and Trade Name License Agreement,
Noncompetition Agreement, Employee Benefit Services Agreement, Procurement
Services Agreement, Distribution Services Agreement, and other transitional
services agreements. Effective as of the Spinoff date, pursuant to these
agreements, we assumed sponsorship of certain of Old Marriott's employee benefit
plans and insurance programs and succeeded to Old Marriott's liability to LYONs
holders under the LYONs Indenture, nine percent of which was assumed by SMS.
All material intercompany transactions and balances between entities
included in these consolidated financial statements have been eliminated. Sales
by us to SMS of $435 million in 1999, $434 million in 1998, and $434 million in
1997, have not been eliminated. Changes in Investments and Net Advances from Old
Marriott represent our net income, the net cash transferred between Old Marriott
and us, and certain non-cash items.
Prior to the Spinoff, we operated as a unit of Old Marriott, utilizing Old
Marriott's centralized systems for cash management, payroll, purchasing and
distribution, employee benefit plans, insurance and administrative services. As
a result, substantially all cash received by us was deposited in and commingled
with Old Marriott's general corporate funds. Similarly, our operating expenses,
capital expenditures and other cash requirements were paid by Old Marriott and
charged directly or allocated to us. Certain assets and liabilities related to
our operations were managed and controlled by Old Marriott on a centralized
basis. Prior to the Spinoff such assets and liabilities were allocated to us
based on our use of, or interest in, those assets and liabilities. In our
opinion, the methods for allocating costs, assets and liabilities prior to the
Spinoff were reasonable. We now perform these functions independently and the
costs incurred have not been materially different from those allocated prior to
the Spinoff.
29
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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. Certain amounts have been reclassified to conform to the 1999
presentation.
Fiscal Year
Our fiscal year ends on the Friday nearest to December 31. All fiscal years
presented include 52 weeks.
Revenue Recognition
Our sales include fees and reimbursed costs for properties managed by us,
together with sales by lodging properties and senior living communities owned or
leased by us, and sales made by our other businesses. Fees comprise management
fees and franchise fees received from third party owners of lodging properties
and senior living communities. Reimbursed costs comprise costs recovered from
owners of hotels and senior living communities.
Profit Sharing Plan
We contribute to a profit sharing plan for the benefit of employees meeting
certain eligibility requirements and electing participation in the plan.
Contributions are determined annually by the Board of Directors. We recognized
compensation cost of $46 million in 1999, $45 million in 1998 and $36 million in
1997.
Self-Insurance Programs
We are self-insured for certain levels of general liability, workers'
compensation, employment practices and employee medical coverage. Estimated
costs of these self-insurance programs are accrued at the present value of
projected settlements for known and anticipated claims.
Frequent Guest Program
We accrue for the cost of redeeming points awarded to members of our
frequent guest program based on the discounted expected costs of redemption. The
liability for this program was $289 million at December 31, 1999, and $280
million at January 1, 1999, and is included in other long-term liabilities in
the accompanying consolidated balance sheet.
Cash and Equivalents
We consider all highly liquid investments with a maturity of three months
or less at date of purchase to be cash equivalents.
New Accounting Standards
We will adopt FAS No. 133, "Accounting for Derivative Investments 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.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." We adopted SOP 98-5 in the first quarter of 1999 by expensing pre-
opening costs for Company owned lodging and senior living communities as
incurred. The adoption of SOP 98-5 resulted in a pretax expense of $22 million
in 1999.
30
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
RELATIONSHIPS WITH MAJOR CUSTOMERS
In December 1998, Host Marriott Corporation (Host Marriott) reorganized its
business operations to qualify as a real estate investment trust (REIT). In
conjunction with its conversion to a REIT, Host Marriott spun off, in a taxable
transaction, a new company called Crestline Capital Corporation (Crestline). As
part of the Crestline spinoff, Host Marriott transferred to Crestline all of the
senior living communities previously owned by Host Marriott, and Host Marriott
entered into lease or sublease agreements with Crestline for substantially all
of Host Marriott's lodging properties. Our lodging and senior living community
management and franchise agreements with Host Marriott were also assigned to
Crestline. In the case of the lodging agreements, Host Marriott remains
obligated under such agreements in the event that Crestline fails to perform its
obligations thereunder. The lodging agreements now provide for us to manage the
Marriott hotels, Ritz-Carlton hotels, Courtyard hotels and Residence Inns leased
by Crestline. Our consent is required for Crestline to take certain major
actions relating to leased properties that we manage.
We recognized sales of $2,553 million, $2,144 million and $1,700 million
and operating profit before corporate expenses and interest of $221 million,
$197 million and $140 million during 1999, 1998 and 1997, respectively, from
lodging properties owned or leased by Host Marriott. Additionally, Host Marriott
is a general partner in several unconsolidated partnerships that own lodging
properties operated by us under long-term agreements. We recognized sales of
$562 million, $712 million and $1,054 million and operating profit before
corporate expenses and interest of $64 million, $83 million and $122 million in
1999, 1998 and 1997, respectively, from the lodging properties owned by these
unconsolidated partnerships. We also leased land to certain of these
partnerships and recognized land rent income of $24 million in both 1999 and
1998, and $23 million in 1997.
We have provided Host Marriott with financing for a portion of the cost of
acquiring properties to be operated or franchised by us, and may continue to
provide financing to Host Marriott or Crestline in the future. The outstanding
principal balance of these loans was $11 million and $9 million at December 31,
1999 and January 1, 1999, respectively, and we recognized $1 million, $5 million
and $9 million in 1999, 1998 and 1997, respectively, in interest and fee income
under these credit agreements with Host Marriott.
We have guaranteed the performance of Host Marriott and certain of its
affiliates to lenders and other third parties. These guarantees were limited to
$14 million at December 31, 1999. No payments have been made by us pursuant to
these guarantees. We continue to have the right to purchase up to 20 percent of
Host Marriott's outstanding common stock upon the occurrence of certain events
generally involving a change of control of Host Marriott. This right expires in
2017, and Host Marriott has granted an exception to the ownership limitations in
its charter to permit full exercise of this right, subject to certain conditions
related to ownership limitations applicable to REITs generally. We lease land to
Host Marriott that had an aggregate book value of $264 million at December 31,
1999. Most of this land has been pledged to secure debt of the lessees. We have
agreed to defer receipt of rentals on this land, if necessary, to permit the
lessees to meet their debt service requirements.
We are party to agreements which provide for us to manage the senior living
communities owned by Crestline. We recognized sales of $177 million and $173
million and operating profit before corporate expenses and interest of $3
million and $5 million under these agreements during 1999 and 1998,
respectively.
We are party to management agreements with entities owned or affiliated
with another hotel owner which provide for us to manage hotel properties owned
or leased by those entities. We recognized sales of $531 million and $560
million during 1999 and 1998, respectively, from these properties.
31
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
----------- -------------
(in millions)
<S> <C> <C>
Land................................................................ $ 658 $ 580
Buildings and leasehold improvements................................ 1,075 732
Furniture and equipment............................................. 523 399
Timeshare properties................................................ 587 438
Construction in progress 429 490
----------- -------------
3,272 2,639
Accumulated depreciation and amortization........................... (427) (364)
----------- -------------
$ 2,845 $ 2,275
=========== =============
</TABLE>
We record property and equipment at cost, including interest, rent and real
estate taxes incurred during development and construction. Interest capitalized
as a cost of property and equipment totaled $33 million in 1999, $21 million in
1998 and $16 million in 1997. We capitalize replacements and improvements that
extend the useful life of property and equipment. We compute depreciation using
the straight-line method over the estimated useful lives of the assets. We
amortize leasehold improvements over the shorter of the asset life or lease
term.
ACQUISITIONS AND DISPOSITIONS
ExecuStay
On February 17, 1999, we completed a cash tender offer for approximately 44
percent of the outstanding common stock of ExecuStay Corporation (ExecuStay), a
leading provider of leased corporate apartments in the United States. On
February 24, 1999, substantially all of the remaining common stock of ExecuStay
was converted into nonvoting preferred stock of ExecuStay which we acquired, on
March 26, 1999, for approximately 2.1 million shares of our Class A Common
Stock. Our aggregate purchase price totaled $116 million. We consolidated the
operating results of ExecuStay from February 24, 1999, and have accounted for
the acquisition using the purchase method of accounting. We are amortizing the
resulting goodwill on a straight-line basis over 30 years.
The Ritz-Carlton Hotel Company LLC
In 1995, we acquired a 49 percent beneficial ownership interest in The
Ritz-Carlton Hotel Company LLC, which owns the management agreements on the
Ritz-Carlton hotels and resorts, the licenses for the Ritz-Carlton trademarks
and trade name as well as miscellaneous assets. The investment was acquired for
a total consideration of approximately $200 million. On March 19, 1998, we
increased our ownership interest in The Ritz-Carlton Hotel Company LLC to
approximately 99 percent for additional consideration of approximately $90
million. We expect to acquire the remaining one percent within the next several
years. We accounted for the acquisition using the purchase method of accounting.
We allocated the purchase cost to the assets acquired and the liabilities
assumed based on estimated fair values. We amortize the resulting goodwill on a
straight-line basis over 40 years. We amortize the amounts allocated to
management agreements on a straight-line basis over the estimated lives of the
agreements. Prior to March 19, 1998, we accounted for our investment in The
Ritz-Carlton Hotel Company LLC using the equity method of accounting.
For periods prior to March 19, 1998, we included our income from The Ritz-
Carlton Hotel Company LLC in operating profit in the accompanying consolidated
statements of income. We received distributions of $17 million in 1997 from The
Ritz-Carlton Hotel Company LLC. This amount was based upon an annual, cumulative
preferred return on invested capital.
32
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Renaissance Hotel Group N.V.
On March 29, 1997, we acquired substantially all of the outstanding common
stock of Renaissance Hotel Group N.V. (RHG), an operator and franchisor of
approximately 150 hotels in 38 countries under the Renaissance, New World and
Ramada International brands. The purchase cost of approximately $937 million was
funded by Old Marriott. The acquisition has been accounted for using the
purchase method of accounting. Goodwill is being amortized on a straight-line
basis over 40 years. Amounts allocated to management, franchise and license
agreements are being amortized on a straight-line basis over the lives of the
agreements. The purchase cost has been allocated to the assets acquired and
liabilities assumed based on estimated fair values.
We included RHG's operating results from the date of acquisition. Our
unaudited pro forma sales and net income for 1997, calculated as if RHG had been
acquired at the beginning of that year, were $7,383 million and $319 million,
respectively. Unaudited pro forma results of operations include an adjustment
for interest expense of $12 million, as if the acquisition borrowings had been
incurred by us. Amortization expense deducted in determining net income reflects
the impact of the excess of the purchase price over the net tangible assets
acquired. The unaudited pro forma combined results of operations do not reflect
our expected future results of operations.
Forum Group, Inc.
On June 21, 1997, we sold 29 senior living communities acquired as part of
the 1996 Forum acquisition to Host Marriott for approximately $550 million,
resulting in no gain or loss. The consideration included approximately $50
million to be received subsequent to 1997, as expansions at certain communities
are completed. The $500 million of consideration received during 1997 consisted
of $222 million in cash, $187 million of outstanding debt and $91 million of
notes receivable bearing interest at nine percent which were repaid on April 1,
1998. Under the terms of the sale, Host Marriott purchased all of the common
stock of Forum, which at the time of the sale owned the 29 communities, certain
working capital and associated debt. We continue to operate these communities
under long-term management agreements.
Other Dispositions
In 1999, we agreed to sell and leaseback, under long-term, limited-recourse
leases, four hotels for approximately $59 million in cash. At the same time, we
agreed to pay security deposits of $2 million which will be refunded at the end
of the leases. As of December 31, 1999, the sale of one of these hotels had been
completed, resulting in a sales price which exceeded the net book value by $1
million, which we will recognize as a reduction of rent expense over the 15-year
initial lease term. We can renew the leases on all four hotels at our option.
During 1999, we agreed to sell, subject to long-term management agreements,
four hotels and five senior living communities for $55 million and $90 million,
respectively. As of December 31, 1999, sales of all four hotels and three of the
senior living communities had been completed, for a total of $107 million,
resulting in pretax gains of $10 million. We recognized $2 million of the gain
in 1999, and the balance will be recognized provided certain contingencies in
the sales contracts expire.
In 1999, we also sold an 89 percent interest in one hotel, and concurrently
signed a long-term lease on the property. We are accounting for this transaction
under the financing method, and the sales proceeds of $58 million are reflected
as long-term debt in the accompanying consolidated balance sheet.
On December 29, 1998, we agreed to sell and leaseback, under long-term,
limited-recourse leases, 17 hotels for approximately $202 million in cash. At
the same time, we agreed to pay security deposits of $21 million which will be
refunded at the end of the leases. As of December 31, 1999, all of the
properties had been sold, resulting in a sales price which exceeded the net book
value by $19 million, which is being recognized as a reduction of rent expense
over the 15-year initial lease terms.
33
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
During 1998, we agreed to sell, subject to long-term management agreements,
eight lodging properties and 11 senior living communities for consideration of
$183 million and $178 million, respectively. As of December 31, 1999, sales of
all of these properties had been completed, resulting in pretax gains of $69
million. We recognized $21 million and $12 million of these gains in 1999 and
1998, respectively. The balance will be recognized provided certain
contingencies in the sales contracts expire.
On April 3, 1997, we agreed to sell and leaseback, under long-term,
limited-recourse leases, 14 hotels for approximately $149 million in cash. At
the same time, we agreed to pay security deposits of $15 million, which will be
refunded at the end of the leases. As of January 2, 1998, all of the properties
had been sold, resulting in a sales price which exceeded the net book value by
$20 million, which is being recognized as a reduction of rent expense over the
17-year initial lease terms. On October 10, 1997, we agreed to sell and
leaseback, under long-term, limited-recourse leases, another nine limited
service hotels for approximately $129 million in cash. At the same time, we
agreed to pay security deposits of $13 million, which will be refunded at the
end of the leases. At January 1, 1999, all of the properties had been sold,
resulting in a sales price which exceeded the net book value by $17 million,
which is being recognized as a reduction of rent expense over the 15-year
initial lease terms. We can renew all of these leases at our option.
On April 11, 1997, we sold five senior living communities for cash
consideration of approximately $79 million. On September 12, 1997, we agreed to
sell another seven senior living communities for cash consideration of
approximately $95 million. The sale of all of these properties resulted in a
pretax gain of $19 million, which is being recognized over a period of up to
four years, provided contingencies in the sales contracts expire. We continue to
operate all of these communities under long-term management agreements.
We periodically sell, with limited recourse, notes receivable originated by
Marriott Vacation Club International in connection with the sale of timesharing
intervals. Net proceeds from these transactions totaled $195 million in 1999,
$165 million in 1998 and $68 million in 1997. Pretax gains from these
transactions increased by $3 million in 1999 compared to 1998, and by $17
million in 1998 compared to 1997. At December 31, 1999, we had a repurchase
obligation of $86 million with respect to mortgage note sales.
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(in millions)
<S> <C> <C>
Management, franchise and license agreements............................. $ 771 $ 721
Goodwill................................................................. 1,246 1,129
Other.................................................................... 23 23
--------- ---------
2,040 1,873
Accumulated amortization................................................. (220) (161)
--------- ---------
$ 1,820 $ 1,712
========= =========
</TABLE>
We amortize intangible assets on a straight-line basis over periods of
three to 40 years. Intangible amortization expense totaled $62 million in 1999,
$54 million in 1998 and $42 million in 1997.
34
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
INCOME TAXES
Total deferred tax assets and liabilities as of December 31, 1999 and
January 1, 1999, were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
Deferred tax assets..................................................... $ 424 $ 457
Deferred tax liabilities................................................ (340) (417)
------ ------
Net deferred taxes...................................................... $ 84 $ 40
====== ======
</TABLE>
The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as of
December 31, 1999 and January 1, 1999 follows:
<TABLE>
<CAPTION>
1999 1998
--------- -------
(in millions)
<S> <C> <C>
Self-insurance........................................................... $ 74 $ 91
Employee benefits........................................................ 151 145
Deferred income.......................................................... 51 51
Other reserves........................................................... 32 28
Frequent guest program................................................... 44 86
Partnership interests.................................................... (2) (31)
Property, equipment and intangible assets................................ (212) (199)
Finance leases........................................................... - (44)
Other, net............................................................... (54) (87)
--------- -------
Net deferred taxes....................................................... $ 84 $ 40
========= =======
</TABLE>
At December 31, 1999, we had approximately $12 million of tax credits which
expire through 2019.
We have made no provision for U.S. income taxes, or additional foreign
taxes, on the cumulative unremitted earnings of non-U.S. subsidiaries ($145
million as of December 31, 1999) because we consider these earnings to be
permanently invested. These earnings could become subject to additional taxes if
remitted as dividends, loaned to us or a U.S. affiliate, or if we sell our
interests in the affiliates. We cannot practically estimate the amount of
additional taxes which might be payable on the unremitted earnings.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
(in millions)
<S> <C> <C> <C>
Current - Federal....................................... $ 117 $ 164 $ 168
- State......................................... 26 35 34
- Foreign....................................... 24 18 28
---------- --------- ---------
167 217 230
---------- --------- ---------
Deferred - Federal...................................... 58 25 (19)
- State........................................ 12 1 (3)
- Foreign...................................... - (1) (1)
---------- --------- ---------
70 25 (23)
---------- --------- ---------
$ 237 $ 242 $ 207
========== ========= =========
</TABLE>
The current tax provision does not reflect the benefit attributable to us
relating to the exercise of employee stock options of $44 million in 1999, $39
million in 1998 and $38 million in 1997. The taxes applicable to other
comprehensive income are not material.
35
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A reconciliation of the U.S. statutory tax rate to our effective income tax
rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ ----------
<S> <C> <C> <C>
U.S. statutory tax rate................................... 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit............... 3.9 4.1 4.0
Corporate-owned life insurance............................ - (0.3) (0.8)
Tax credits............................................... (5.4) (4.2) (3.4)
Goodwill amortization..................................... 1.8 1.6 1.6
Other, net................................................ 2.0 2.1 2.6
------------- ------------ ----------
Effective rate............................................ 37.3% 38.3% 39.0%
============= ============ ==========
</TABLE>
Cash paid for income taxes, net of refunds, was $150 million in 1999, $164
million in 1998 and $143 million in 1997.
As part of the Spinoff, we entered into a tax sharing agreement with SMS
which reflects each party's rights and obligations with respect to deficiencies
and refunds, if any, of federal, state or other taxes relating to the business
of Old Marriott and the Company prior to the Spinoff.
During periods prior to the Spinoff, we were included in the consolidated
federal income tax return of Old Marriott. The income tax provision reflects the
portion of Old Marriott's historical income tax provision attributable to our
operations. We believe that the income tax provision, as reflected, is
comparable to what the income tax provision would have been if we had filed a
separate return during the periods presented.
LEASES
Our future obligations under operating leases at December 31, 1999, are
summarized below:
<TABLE>
<CAPTION>
(in millions)
-----------
<S> <C>
Fiscal Year
2000........................................................... $ 161
2001........................................................... 157
2002........................................................... 156
2003........................................................... 153
2004........................................................... 150
Thereafter..................................................... 1,496
----------
Total minimum lease payments................................... $ 2,273
==========
</TABLE>
Most leases have initial terms of up to 20 years, and contain one or more
renewal options, generally for five or 10 year periods. The leases provide for
minimum rentals, and additional rentals based on the operations of the leased
property. The total minimum lease payments above include $837 million
representing obligations of consolidated subsidiaries which are non-recourse to
Marriott International, Inc.
Rent expense consists of:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
(in millions)
<S> <C> <C> <C>
Minimum rentals.............................................. $ 153 $ 138 $ 123
Additional rentals........................................... 102 101 127
------- -------- -------
$ 255 $ 239 $ 250
======= ======== =======
</TABLE>
36
<PAGE>
MARRIOTT INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
LONG-TERM DEBT
Our long-term debt at December 31, 1999 and January 1, 1999, consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- ------
(in millions)
<S> <C> <C>
Unsecured debt
Senior notes, average interest rate of 7.2% at December 31, 1999,
maturing through 2009..................................................... $ 701 $ 402
Commercial paper, interest rate of 6.5% at December 31, 1999................ 781 426
Endowment deposits (non-interest bearing)................................... 111 111
Other....................................................................... 101 35
-------- ------
1,694 974
Less current portion......................................................... 18 30
-------- ------
$ 1,676 $ 944
======== ======
</TABLE>
In April 1999, we filed a "universal shelf" registration statement with the
Securities and Exchange Commission. That registration statement, which became
effective on May 4, 1999, originally allowed us to offer to the public up to
$500 million of debt securities, Class A Common Stock and/or preferred stock.
This "universal shelf" format provides us with additional flexibility to meet
our financing needs.
On September 20, 1999, we sold $300 million principal amount of 7-7/8 percent
Series C Notes, which mature in 2009, in a public offering made under our shelf
registration statement. We received net proceeds of approximately $296 million
from this offering, after paying underwriting discounts, commissions and
offering expenses.
In January 2000, we filed a second "universal shelf" registration statement
for $300 million in debt securities, Class A Common Stock and/or preferred
stock, which together with the remaining availability under the April 1999
registration statement, allows us to offer to the public up to $500 million of
securities.
In November 1998, we issued, through a private placement, $400 million of
unsecured senior notes (Series A and B Notes). Proceeds net of discounts totaled
$396 million. On April 23, 1999, we commenced a registered exchange offer to
exchange the privately placed Series A and B Notes for publicly registered new
notes on substantially identical terms. All of the privately placed Series A and
B Notes were tendered for exchange, and new notes were issued to the holders on
May 31, 1999.
In March 1998 and February 1999, respectively, we entered into $1.5 billion
and $500 million multicurrency revolving credit facilities (the Facilities) each
with terms of five years. Borrowings bear interest at the London Interbank
Offered Rate (LIBOR) plus a spread, based on our public debt rating.
Additionally, annual fees are paid on the Facilities at a rate also based on our
public debt rating. Commercial paper, supported by the Facilities, is classified
as long-term debt based on our ability and intent to refinance it on a long-term
basis.
We are in compliance with covenants in our loan agreements which require the
maintenance of certain financial ratios and minimum shareholders' equity, and
also include, among other things, limitations on additional indebtedness and the
pledging of assets.
The 1999 statement of cash flows excludes $215 million of convertible
subordinated debt that was converted to equity in November, 1999, $54 million of
debt that we assumed during 1999, and $15 million of notes receivable we
received in a 1999 asset sale that we subsequently sold for cash. The 1998
statement of cash flows excludes $31 million of notes receivable forgiven as
part consideration for the 1998 acquisition of The Ritz-Carlton Hotel Company
LLC, and $12 million of long-term debt assumed in 1998. The 1997 statement of
cash flows excludes $226 million of debt assumed by Host Marriott, $91 million
of notes receivable related to the sale of 29 senior living communities to Host
Marriott and $12 million of debt assumed in the RHG acquisition. Non-recourse
debt of $62 million extinguished without cash payment in 1997 is not reflected
in the statement of cash flows.
37
<PAGE>
MARRIOTT INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Aggregate debt maturities are: 2000 - $18 million; 2001 - $15 million;
2002 - $795 million; 2003 - $219 million; 2004 - $14 million and $633 million
thereafter.
Cash paid for interest was $63 million in 1999, $23 million in 1998 and $11
million in 1997.
CONVERTIBLE SUBORDINATED DEBT
On March 25, 1996, Old Marriott issued $540 million (principal amount at
maturity) of zero coupon convertible subordinated debt in the form of LYONs due
2011. The LYONs were issued and recorded at a discount representing a yield to
maturity of 4.25 percent. Accretion was recorded as interest expense and an
increase to the carrying value. Gross proceeds from the LYONs issuance were $288
million. Upon consummation of the Spinoff, we assumed the LYONs, and SMS assumed
a nine percent share of the LYONs obligation based on the relative equity values
of SMS and the Company at the Spinoff.
The LYONs were redeemable by us at any time on or after March 25, 1999 for
cash equal to the issue price plus accrued original issue discount. On October
7, 1999, we delivered a mandatory redemption notice to the holders of the LYONs
indicating our plan to redeem them on November 8, 1999 for $619.65 in cash per
LYON. Holders of 347,000 LYONs elected to convert each LYON into 17.52 shares of
our Class A Common Stock and 2.19 shares of SMS common stock prior to the close
of business on November 8, 1999. The aggregate redemption payment for the
remaining 193,000 LYONs totaled $120 million. Pursuant to the LYONs Allocation
Agreement entered into with SMS as part of the Spinoff, SMS funded nine percent
of the aggregate LYONs redemption payment. We funded the redemption payment with
proceeds from commercial paper borrowings. Unamortized deferred financing costs
of $2 million relating to the LYONs that were redeemed were recognized as
interest expense in 1999.
SHAREHOLDERS' EQUITY
Eight hundred million shares of our Class A Common Stock with a par value of
$.01 per share are authorized. Ten million shares of preferred stock, without
par value, are authorized, with none issued.
On March 27, 1998, our Board of Directors adopted a shareholder rights plan
under which one preferred stock purchase right was distributed for each share of
our Class A Common Stock. Each right entitles the holder to buy 1/1000/th/ of a
share of a newly issued series of junior participating preferred stock of the
Company at an exercise price of $175. The rights will be exercisable ten days
after a person or group acquires beneficial ownership of 20 percent or more of
our Class A Common Stock, or begins a tender or exchange for 30 percent or more
of our Class A Common Stock. Shares owned by a person or group on March 27, 1998
and held continuously thereafter are exempt for purposes of determining
beneficial ownership under the rights plan. The rights are nonvoting and will
expire on the tenth anniversary of the adoption of the shareholder rights plan,
unless exercised or previously redeemed by us for $.01 each. If we are involved
in a merger or certain other business combinations not approved by the Board of
Directors, each right entitles its holder, other than the acquiring person or
group, to purchase common stock of either the Company or the acquirer having a
value of twice the exercise price of the right.
As of December 31, 1999, we have been authorized by our Board of Directors to
purchase up to 5.5 million shares of our Class A Common Stock.
38
<PAGE>
MARRIOTT INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
EARNINGS PER SHARE
For periods prior to the Spinoff, the earnings per share calculations are pro
forma, and the number of weighted average shares outstanding and the effect of
dilutive securities are based upon the weighted average number of Old Marriott
shares outstanding, and the Old Marriott effect of dilutive securities for the
applicable period, adjusted (1) for the distribution ratio in the Spinoff of one
share of our Common Stock and one share of our Class A Common Stock for every
share of Old Marriott common stock and (2) to reflect the conversion of our
Common Stock into our Class A Common Stock on May 21, 1998.
The following table illustrates the reconciliation of the earnings and number
of shares used in the basic and diluted earnings per share calculations (in
millions, except per share amounts).
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ------------------- -------------------
(pro forma,
unaudited)
-------------------
<S> <C> <C> <C>
Computation of Basic Earnings Per Share
Net income................................................. $ 400 $ 390 $ 324
Weighted average shares outstanding........................ 247.5 249.8 254.2
----------------- ----------------- -----------------
Basic Earnings Per Share................................... $ 1.62 $ 1.56 $ 1.27
================= ================= =================
Computation of Diluted Earnings Per Share
Net income................................................. $ 400 $ 390 $ 324
After-tax interest expense on convertible
subordinated debt........................................ 7 8 8
----------------- ----------------- -----------------
Net income for diluted earnings per share.................. $ 407 $ 398 $ 332
----------------- ----------------- -----------------
Weighted average shares outstanding........................ 247.5 249.8 254.2
Effect of Dilutive Securities
Employee stock purchase plan............................. 0.2 - 0.1
Employee stock option plan............................... 8.7 8.1 8.7
Deferred stock incentive plan............................ 5.4 5.7 5.4
Convertible subordinated debt.............................. 8.0 9.5 9.5
----------------- ----------------- -----------------
Shares for diluted earnings per share...................... 269.8 273.1 277.9
----------------- ----------------- -----------------
Diluted Earnings Per Share................................. $ 1.51 $ 1.46 $ 1.19
================= ================= =================
</TABLE>
We compute the effect of dilutive securities using the treasury stock method
and average market prices during the period. For periods prior to November 8,
1999, when all of our convertible subordinated debt was redeemed or converted,
we used the if-converted method for purposes of calculating diluted earnings per
share.
39
<PAGE>
MARRIOTT INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
INVESTMENTS AND NET ADVANCES FROM OLD MARRIOTT
The following is an analysis of Old Marriott's investment in the Company:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(in millions)
<S> <C> <C>
Balance at beginning of year............................ $ 2,586 $ 1,444
Net income.............................................. 89 324
Advances (to) from Old Marriott......................... (100) 576
Employee stock plan issuance and other.................. 116 242
Spinoff on March 27, 1998............................... (2,691) -
--------- ---------
Balance at end of year.................................. $ - $ 2,586
========= =========
</TABLE>
EMPLOYEE STOCK PLANS
In connection with the Spinoff, we issued stock options, deferred shares and
restricted shares with the same value as the respective Old Marriott awards as
of the Spinoff under our 1998 Comprehensive Stock and Cash Incentive Plan
(Comprehensive Plan). Under the Comprehensive Plan, we may award to
participating employees (1) options to purchase our Class A Common Stock (Stock
Option Program and Supplemental Executive Stock Option awards), (2) deferred
shares of our Class A Common Stock and (3) restricted shares of our Class A
Common Stock. In addition we have an employee stock purchase plan (Stock
Purchase Plan). In accordance with the provisions of Opinion No. 25 of the
Accounting Principles Board, we recognize no compensation cost for the Stock
Option Program, the Supplemental Executive Stock Option awards or the Stock
Purchase Plan.
Deferred shares granted to officers and key employees under the Comprehensive
Plan generally vest over 10 years in annual installments commencing one year
after the date of grant. Certain employees may elect to defer receipt of shares
until termination or retirement. We accrue compensation expense for the fair
market value of the shares on the date of grant, less estimated forfeitures. We
awarded 0.4 million deferred shares during 1999. Compensation cost recognized
during 1999, 1998 and 1997 was $15 million, $12 million and $9 million,
respectively.
Restricted shares under the Comprehensive Plan are issued to officers and key
employees and distributed over a number of years in annual installments, subject
to certain prescribed conditions including continued employment. We recognize
compensation expense for the restricted shares over the restriction period equal
to the fair market value of the shares on the date of issuance. We awarded 0.1
million restricted shares under this plan during 1999. We recognized
compensation cost of $4 million, $3 million and $2 million in 1999, 1998 and
1997, respectively.
Under the Stock Purchase Plan, eligible employees may purchase our Class A
Common Stock through payroll deductions at the lower of the market value at the
beginning or end of each plan year.
Employee stock options may be granted to officers and key employees at
exercise prices equal to the market price of our Class A Common Stock on the
date of grant. Nonqualified options expire up to 15 years after the date of
grant. Most options under the Stock Option Program are exercisable in cumulative
installments of one quarter at the end of each of the first four years following
the date of grant. In February 1997, 2.1 million Supplemental Executive Stock
Option awards were awarded to certain of our officers. The options vest after
eight years but could vest earlier if our stock price meets certain performance
criteria. These options have an exercise price of $25 and 0.2 million of them
were forfeited during 1998. None of them were exercised during 1999, 1998 or
1997 and 1.9 million remained outstanding at December 31, 1999.
For the purposes of the following disclosures required by FAS No. 123,
"Accounting for Stock-Based Compensation," the fair value of each option granted
during 1999, 1998 and 1997 was $14, $11 and $13, respectively. We estimated the
fair value of each option granted on the date of grant using the Black-Scholes
option-pricing model, using the assumptions noted in the following table.
40
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Annual dividends...................................... $ .22 $ .20 $ .18
Expected volatility................................... 29% 28% 24%
Risk-free interest rate............................... 6.7% 5.8% 6.2%
Expected life (in years).............................. 7 7 7
</TABLE>
Pro forma compensation cost for the Stock Option Program, the Supplemental
Executive Stock Option awards and employee purchases pursuant to the Stock
Purchase Plan subsequent to December 30, 1994, recognized in accordance with FAS
No. 123, would reduce our net income as follows (in millions, except per share
amounts):
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- ----------
<S> <C> <C> <C>
Net income as reported................................ $ 400 $ 390 $ 324
Pro forma net income.................................. $ 364 $ 366 $ 309
Diluted earnings per share as reported................ $ 1.51 $ 1.46 $ 1.19
Pro forma diluted earnings per share.................. $ 1.38 $ 1.38 $ 1.14
</TABLE>
A summary of our Stock Option Program activity during 1999 and 1998 is
presented below:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------- -----------------------------------
Number of Weighted Number of Weighted
options average exercise options average exercise
(in millions) price (in millions) price
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........... 31.5 $ 19 - $ -
New awards at the Spinoff.................. - - 27.3 16
Granted during the year.................... 6.9 33 6.4 28
Exercised during the year.................. (4.2) 12 (1.5) 11
Forfeited during the year.................. (0.4) 30 (0.7) 20
------------- -------------
Outstanding at end of year................. 33.8 22 31.5 19
============= ================ ============= ================
Options exercisable at end of year......... 19.3 $ 16 19.1 $ 13
============= ================ ============= ================
</TABLE>
At December 31, 1999, 49.2 million shares were reserved under the
Comprehensive Plan (including 31.5 million shares under the Stock Option Program
and 1.9 million shares of the Supplemental Executive Stock Option awards) and
4.2 million shares were reserved under the Stock Purchase Plan.
41
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock options issued under the Stock Option Program outstanding at December
31, 1999 were as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------- ---------------------------------
Weighted Weighted Weighted
Range of Number of average average Number of average
exercise options remaining life exercise options exercise
prices (in millions) (in years) price (in millions) price
- ------------------- -------------- -------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
$ 3 to 5 3.5 6 $ 5 3.5 $ 5
6 to 9 2.2 8 7 2.2 7
10 to 15 4.7 10 13 4.7 13
16 to 24 4.5 12 21 4.1 19
25 to 37 18.9 14 30 4.8 29
- ------------------- -------------- -------------
$ 3 to 37 33.8 12 22 19.3 16
=================== ============== ============== ========== ============= ============
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
We assume that the fair values of current assets and current liabilities are
equal to their reported carrying amounts. The fair values of noncurrent
financial assets and liabilities are shown below.
<TABLE>
<CAPTION>
1999 1998
-------------------------- -----------------------
Carrying Fair Carrying Fair
amount value amount value
-------- --------- --------- ------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Notes and other receivables...................... $ 708 $ 720 $ 606 $ 622
Long-term debt, convertible subordinated
debt and other long-term liabilities........... 1,646 1,568 1,331 1,309
</TABLE>
We value notes and other receivables based on the expected future cash flows
discounted at risk adjusted rates. We determine valuations for long-term debt,
convertible subordinated debt and other long-term liabilities based on quoted
market prices or expected future payments discounted at risk adjusted rates.
CONTINGENT LIABILITIES
We issue guarantees to lenders and other third parties in connection with
financing transactions and other obligations. These guarantees were limited, in
the aggregate, to $193 million at December 31, 1999, including guarantees
involving major customers, with expected funding of zero. As of December 31,
1999, we had extended approximately $352 million of loan commitments to owners
of lodging and senior living properties. Letters of credit outstanding on our
behalf at December 31, 1999, totaled $74 million, the majority of which related
to our self-insurance programs. At December 31, 1999, we had repurchase
obligations of $86 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 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, there can be no assurances
that the settlement transactions will be consummated and, if consummated, terms
could differ materially from those described below.
42
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 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 is included in corporate
expenses in the fourth quarter of 1999, to reflect these 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
On June 7, 1996, a group of partners in CBM II filed a lawsuit against Host
Marriott, the Company and others, Whitey Ford, et al. v. Host Marriott
Corporation, et al., in the 285/th/ Judicial District Court of Bexar County,
Texas, alleging breach of fiduciary duty, breach of contract, fraud, negligent
misrepresentation, tortious interference, violation of the Texas Free Enterprise
and Antitrust Act of 1983 and conspiracy in connection with the formation,
operation and management of CBM II and its hotels. The plaintiffs sought
unspecified damages. On January 29, 1998, two other limited partners, A.R.
Milkes and D. R. Burklew, filed a petition in intervention seeking to convert
the lawsuit into a class action, and a class was certified. In March 1999, Palm
Investors, L.L.C., the assignee of a number of limited partnership units
acquired through various tender offers, and Equity Resource, an assignee,
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, has been postponed pending approval and
consummation of the settlement described above.
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 57/th/ Judicial District Court of Bexar County, Texas, alleging that the
defendants conspired to sell hotels to the partnerships for inflated prices and
that they charged the partnerships excessive management fees to operate the
partnerships' hotels. The plaintiffs further 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.
43
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
BUSINESS SEGMENTS
We are a diversified hospitality company with operations in three business
segments: Lodging, which includes the franchising, ownership, operation and
development of lodging properties including vacation timesharing resorts; Senior
Living Services, which consists of the operation, ownership and development of
senior living communities; and Distribution Services, which operates a wholesale
food distribution business. We evaluate the performance of our segments based
primarily on operating profit before corporate expenses and interest. We do not
allocate income taxes at the segment level.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
(in millions)
<S> <C> <C> <C>
Sales
Lodging................................................... $ 7,041 $ 6,311 $ 5,247
Senior Living Services.................................... 559 479 446
Distribution Services..................................... 1,139 1,178 1,543
----------------- ----------------- -----------------
$ 8,739 $ 7,968 $ 7,236
================= ================= =================
Operating profit (loss) before corporate expenses and
interest
Lodging................................................... $ 827 $ 704 $ 570
Senior Living Services.................................... (18) 15 32
Distribution Services..................................... 21 17 7
----------------- ----------------- -----------------
$ 830 $ 736 $ 609
================= ================= =================
Depreciation and amortization
Lodging................................................... $ 108 $ 99 $ 89
Senior Living Services.................................... 21 19 19
Distribution Services..................................... 6 6 6
Corporate................................................. 27 16 12
----------------- ----------------- -----------------
$ 162 $ 140 $ 126
================= ================= =================
Assets
Lodging................................................... $ 5,159 $ 4,285 $ 3,649
Senior Living Services.................................... 980 905 728
Distribution Services..................................... 187 179 190
Corporate................................................. 998 864 594
----------------- ----------------- -----------------
$ 7,324 $ 6,233 $ 5,161
================= ================= =================
Capital expenditures
Lodging................................................... $ 519 $ 562 $ 271
Senior Living Services.................................... 301 329 227
Distribution Services..................................... 3 2 6
Corporate................................................. 106 44 16
----------------- ----------------- -----------------
$ 929 $ 937 $ 520
================= ================= =================
</TABLE>
Sales of Distribution Services exclude sales (made at market terms and
conditions) to other segments of $166 million, $155 million and $159 million in
1999, 1998 and 1997, respectively.
Segment operating expenses include selling, general and administrative
expenses directly related to the operations of the businesses, aggregating $529
million in 1999, $496 million in 1998 and $435 million in 1997.
The consolidated financial statements include the following related to
international operations: sales of $392 million in 1999, $323 million in 1998,
and $294 million in 1997; operating profit before corporate expenses and
interest of $66 million in 1999, $49 million in 1998, and $50 million in 1997;
and fixed assets of $102 million in 1999, $102 million in 1998, and $112 million
in 1997.
44
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
QUARTERLY FINANCIAL DATA - UNAUDITED
($ in millions, except per share data)
<TABLE>
<CAPTION>
1999/1/
-------------------------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Systemwide sales /2/.......................... $ 3,687 $ 4,235 $ 3,992 $ 5,770 $ 17,684
Sales......................................... 1,895 2,042 1,995 2,807 8,739
Operating profit before corporate expenses
and interest............................... 193 216 188 233 830
Net income.................................... 100 114 96 90 400
Diluted earnings per share /3/................ .38 .42 .36 .34 1.51
____________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
1998/1/
--------------------------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Systemwide sales /2/.......................... $ 3,257 $ 4,001 $ 3,566 $ 5,200 $ 16,024
Sales......................................... 1,715 1,927 1,804 2,522 7,968
Operating profit before corporate expenses
and interest................................. 163 186 164 223 736
Net income.................................... 89 101 86 114 390
Diluted earnings per share /3/................ .33 .37 .32 .44 1.46
____________________________________________________________________________________________________________________________________
</TABLE>
/1/ The quarters consist of 12 weeks, except the fourth quarter, which consists
of 16 weeks.
/2/ Systemwide sales comprise revenues generated from guests at owned, leased,
managed and franchised hotels and senior living communities, together with
sales of our other businesses.
/3/ The sum of the earnings per share for the four quarters may differ from
annual earnings per share due to the required method of computing the
weighted average number of shares in interim periods.
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
46
<PAGE>
PART III
ITEMS 10, 11, 12 and 13.
As described below, certain information appearing in our Proxy Statement to be
furnished to shareholders in connection with the 2000 Annual Meeting of
Shareholders, is incorporated by reference in this Form 10-K Annual Report.
<TABLE>
<S> <C>
ITEM 10. This information is incorporated by reference to the
"Directors Standing For Election," "Directors Continuing
In Office" and "Section 16(a) Beneficial Ownership
Reporting Compliance" sections of our Proxy Statement to
be furnished to shareholders in connection with the 2000
Annual Meeting. Information regarding executive
officers is included below.
ITEM 11. This information is incorporated by reference to the
"Executive Compensation" section of our Proxy Statement
to be furnished to shareholders in connection with the
2000 Annual Meeting.
ITEM 12. This information is incorporated by reference to the
"Stock Ownership" section of our Proxy Statement to be
furnished to shareholders in connection with the 2000
Annual Meeting.
ITEM 13. This information is incorporated by reference to the
"Certain Transactions" section of our Proxy Statement to
be furnished to shareholders in connection with the 2000
Annual Meeting.
</TABLE>
47
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information with respect to our executive officers.
<TABLE>
<CAPTION>
Name and Title Age Business Experience
-------------- --- -------------------
<S> <C> <C>
J. W. Marriott, Jr. 67 Mr. Marriott is Chairman of the Board and Chief Executive Officer of the
Chairman of the Marriott Company. He joined Marriott Corporation (now known as Host Marriott
International, Inc. Board and Chief Corporation) in 1956, became President and a director in 1964, Chief
Executive Officer Executive Officer in 1972 and Chairman of the Board in 1985. Mr.
Marriott also is a director of Host Marriott Corporation, General Motors
Corporation and the Naval Academy Endowment Trust. He serves on the
Board of Trustees of the National Geographic Society and The J. Willard
& Alice S. Marriott Foundation, and the Board of Directors of Georgetown
University, and is a member of the Executive Committee of the World
Travel & Tourism Council and the Business Council. Mr. Marriott has
served as Chief Executive Officer of the Company since its inception in
1997, and served as Chairman and Chief Executive Officer of Old Marriott
from October 1993 to March 1998. Mr. Marriott has served as a director
of the Company since March 1998.
Todd Clist 58 Todd Clist joined Marriott Corporation in 1968. Mr. Clist served as
Vice President; general manager of several hotels before being named Regional Vice
President, North American Lodging President, Midwest Region for Marriott Hotels, Resorts and Suites in
Operations 1980. Mr. Clist became Executive Vice President of Marketing for
Marriott Hotels, Resorts and Suites in 1985, and Senior Vice President,
Lodging Products and Markets in 1989. Mr. Clist was named Executive Vice
President and General Manager for Fairfield Inn in 1990, for both
Fairfield Inn and Courtyard in 1991, and for Fairfield Inn, Courtyard
and Residence Inn in 1993. Mr. Clist was appointed to his current
position in January 1994.
Edwin D. Fuller 54 Edwin D. Fuller joined Marriott in 1972 and held several sales positions
Vice President; before being appointed Vice President of Marketing in 1979. He became
President and Managing Director - Regional Vice President in the Midwest Region 1985, Regional Vice
Marriott Lodging International President of the Western Region in 1988, and in 1990 was promoted to
Senior Vice President & Managing Director of International Lodging, with
a focus on developing the international group of hotels. He was named
Executive Vice President and Managing Director of International Lodging
in 1994, and was promoted to his current position of President and
Managing Director of International Lodging in 1997.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Name and Title Age Business Experience
- ------------------ ------ ---------------------
<S> <C> <C>
Paul E. Johnson, Jr. 52 Paul E. Johnson, Jr. joined Marriott Corporation in 1983 in Corporate
Vice President; Financial Planning & Analysis. In 1987, he was promoted to Group Vice
President - Marriott President of Finance and Development for the Marriott Service Group and
Senior Living Services later assumed responsibility for real estate development for Marriott
Senior Living Services. During 1989, he served as Vice President and
General Manager of Marriott Corporation's Travel Plazas division. Mr.
Johnson subsequently served as Vice President and General Manager of
Marriott Family Restaurants from December 1989 through 1991. In October
1991, he was appointed as Executive Vice President and General Manager
of Marriott Senior Living Services, and in June 1996 he was appointed to
his current position.
Brendan M. Keegan 56 Brendan M. Keegan joined Marriott Corporation in 1971, in the Corporate
Vice President; Organization Development Department and subsequently held several human
Executive Vice President - resources positions, including Vice President of Organization
Human Resources Development and Executive Succession Planning. In 1986, Mr. Keegan was
named Senior Vice President, Human Resources, Marriott Service Group. In
April 1997, Mr. Keegan was appointed Senior Vice President of Human
Resources for our worldwide human resources functions, including
compensation, benefits, labor and employee relations, employment and
human resources planning and development. In February 1998, he was
appointed to his current position.
Robert T. Pras 58 Robert T. Pras joined Marriott Corporation in 1979 as Executive Vice
Vice President; President of Fairfield Farm Kitchens, the predecessor of Marriott
President - Marriott Distribution Services. In 1981, Mr. Pras became Executive Vice President
Distribution Services of Procurement and Distribution. In May 1986, Mr. Pras was appointed to
the additional position of General Manager of Marriott Corporation's
Continuing Care Retirement Communities. He was named Executive Vice
President and General Manager of Marriott Distribution Services in 1990.
Mr. Pras was appointed to his current position in January 1997.
Joseph Ryan 58 Joseph Ryan joined Old Marriott in December 1994 as Executive Vice
Executive Vice President and General President and General Counsel. Prior to that time, he was a partner in
Counsel the law firm of O'Melveny & Myers, serving as the Managing Partner from
1993 until his departure. He joined O'Melveny & Myers in 1967 and was
admitted as a partner in 1976.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Name and Title Age Business Experience
- -------------------- ------ -----------------------
<S> <C> <C>
Horst H. Schulze 59 Horst H. Schulze has served as the President and Chief Operating Officer
Vice President; of The Ritz-Carlton since 1988. Mr. Schulze joined The Ritz-Carlton in
President and Chief Operating 1983 as Vice President, Operations and was appointed Executive Vice
Officer, The Ritz-Carlton Hotel President in 1987. Prior to 1983, he spent nine years with Hyatt Hotels
Company, LLC Corporation where he held several positions including Hotel General
Manager, Regional Vice President and Corporate Vice President. Before
his association with Hyatt, Mr. Schulze worked for Hilton Hotels. Mr.
Schulze began his hotel career in Europe where he completed hotel school
and worked in world-class hotels including the Bellevue Palace and Le
Beau Rivage in Switzerland, the Plaza Athenee in Paris, France, the
Savoy Hotel in London and the Kurhaus/Casino Bad Neuenahr, Germany.
William J. Shaw 54 Mr. Shaw has served as President and Chief Operating Officer of the
Director, President and Chief Company since March 1997 (including service in the same capacity with
Operating Officer Old Marriott until March 1998). Mr. Shaw joined Marriott Corporation in
1974, was elected Corporate Controller in 1979 and a Vice President in
1982. In 1986, Mr. Shaw was elected Senior Vice President--Finance and
Treasurer of Marriott Corporation. He was elected Chief Financial
Officer and Executive Vice President of Marriott Corporation in April
1988. In February 1992, he was elected President of the Marriott Service
Group. Mr. Shaw is also Chairman of the Board of Directors of Sodexho
Marriott Services, Inc. He also serves on the Board of Trustees of the
University of Notre Dame and the Suburban Hospital Foundation. Mr. Shaw
has served as a director of Old Marriott (now named Sodexho Marriott
Services, Inc.) since May 1997, and as a director of the Company since
March 1998.
Arne M. Sorenson 41 Arne M. Sorenson joined Old Marriott in 1996 as Senior Vice President of
Executive Vice President and Chief Business Development. He was instrumental in our acquisition of the
Financial Officer Renaissance Hotel Group in 1997. Prior to joining Marriott, he was a
partner in the law firm of Latham & Watkins in Washington, D.C., where
he played a key role in 1992 and 1993 in the distribution of Old
Marriott by Marriott Corporation. Effective October 1, 1998, Mr.
Sorenson was appointed Executive Vice President and Chief Financial
Officer.
James M. Sullivan 56 James M. Sullivan joined Marriott Corporation in 1980, departed in 1983
Executive Vice President - to acquire, manage, expand and subsequently sell a successful restaurant
Lodging Development chain, and returned to Marriott Corporation in 1986 as Vice President of
Mergers and Acquisitions. Mr. Sullivan became Senior Vice President,
Finance - Lodging in 1989, Senior Vice President - Lodging Development
in 1990 and was appointed to his current position in December 1995.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Name and Title Age Business Experience
- --------------------- ------ -------------------------------
<S> <C> <C>
William R. Tiefel 65 William R. Tiefel joined Marriott Corporation in 1961 and was named
Vice Chairman; President of Marriott Hotels, Resorts and Suites in 1998. He had
Chairman - The Ritz-Carlton Hotel previously served as resident manager and general manager at several
Company, LLC Marriott hotels prior to being appointed Regional Vice President and
later Executive Vice President of Marriott Hotels, Resorts and Suites
and Marriott Ownership Resorts. Mr. Tiefel was elected Executive Vice
President of Marriott Corporation in November 1989. In March 1992, he
was elected President - Marriott Lodging Group and assumed
responsibility for all of Marriott's lodging brands. In May 1998 he was
appointed to his current position.
Stephen P. Weisz 49 Stephen P. Weisz joined Marriott Corporation in 1972 and was named
Vice President; Regional Vice President of the Mid-Atlantic Region in 1991. Mr. Weisz
President - Marriott Vacation Club had previously served as Senior Vice President of Rooms Operations
International before being appointed as Vice President of the Revenue Management
Group. Mr. Weisz became Senior Vice President of Sales and Marketing for
Marriott Hotels, Resorts and Suites in August 1992 and Executive Vice
President - Lodging Brands in August 1994. In December 1996, Mr. Weisz
was appointed President - Marriott Vacation Club International.
</TABLE>
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The response to this portion of Item 14 is submitted under Item 8
of this Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(3) EXHIBITS
Any shareholder who wants a copy of the following Exhibits may
obtain one from us upon request at a charge that reflects the
reproduction cost of such Exhibits. Requests should be made to
the Secretary, Marriott International, Inc., Marriott Drive,
Department 52/862, Washington, D.C. 20058.
<TABLE>
<CAPTION>
Incorporation by Reference
(where a report or registration statement is
indicated below, that document has been previously
Exhibit filed with the SEC and the applicable exhibit is
No. Description incorporated by reference thereto)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Distribution Agreement dated as of September 30, Appendix A in our Form 10 filed on February 13,
1997 with Sodexho Marriott Services, Inc. 1998.
2.2 Agreement and Plan of Merger dated as of Appendix B in our Form 10 filed on February 13,
September 30, 1997 with Sodexho Marriott 1998.
Services, Inc., Marriott-ICC Merger Corp.,
Sodexho Alliance, S.A. and International
Catering Corporation.
2.3 Omnibus Restructuring Agreement dated as of Appendix C in our Form 10 filed on February 13,
September 30, 1997 with Sodexho Marriott 1998.
Services, Inc., Marriott-ICC Merger Corp.,
Sodexho Alliance, S.A. and International
Catering Corporation.
2.4 Amendment Agreement dated as of January 28, 1998 Appendix D in our Form 10 filed on February 13,
among Sodexho Marriott Services, Inc., 1998.
Marriott-ICC Merger Corp., the Company, Sodexho
Alliance, S.A. and International Catering
Corporation.
3.1 Third Amended and Restated Certificate of Exhibit No. 3 to our Form 10-Q for the fiscal
Incorporation of the Company. quarter ended June 18, 1999.
3.2 Amended and Restated Bylaws. Exhibit No. 3.3 to our Form 10-K for the fiscal
year ended January 1, 1999.
</TABLE>
52
<PAGE>
<TABLE>
<S> <C> <C>
3.3 Amended and Restated Rights Agreement dated as Exhibit No. 4.1 to our Form 10-Q for the fiscal
of August 9, 1999 with The Bank of New York, as quarter ended September 10, 1999.
Rights Agent.
4.1 Indenture dated November 16, 1998 with The Chase Exhibit No. 4.1 to our Form 10-K for the fiscal
Manhattan Bank, as Trustee. year ended January 1, 1999.
4.2 Form of 6.625% Series A Note due 2003. Exhibit No. 4.2 to our Form 10-K for the fiscal
year ended January 1, 1999.
4.3 Form of 6.875% Series B Note due 2005. Exhibit No. 4.3 to our Form 10-K for the fiscal
year ended January 1, 1999.
4.4 Form of 7.875% Series C Note due 2009. Exhibit No. 4.1 to our Form 8-K dated September 20,
1999.
10.1 Employee Benefits and Other Employment Matters Exhibit No. 10.1 to our Form 10 filed on February
Allocation Agreement dated as of September 30, 13, 1998.
1997 with Sodexho Marriott Services, Inc.
10.2 1998 Comprehensive Stock and Cash Incentive Plan. Appendix L in our Form 10 filed on February 13,
1998.
10.3 Noncompetition Agreement between Sodexho Exhibit No. 10.1 to our Form 10-Q for the fiscal
Marriott Services, Inc. and the Company. quarter ended March 27, 1998.
10.4 Tax Sharing Agreement with Sodexho Marriott Exhibit No. 10.2 to our Form 10-Q for the fiscal
Services, Inc. and Sodexho Alliance, S.A. quarter ended March 27, 1998.
10.5 Distribution Agreement with Host Marriott Exhibit No. 10.3 to Form 8-K of Old Marriott dated
Corporation, as amended. October 25, 1993; Exhibit No. 10.2 to Form 10-K of
Old Marriott for the fiscal year ended December 29,
1995 (First Amendment); Exhibit Nos. 10.4 and 10.5
to our Form 10-Q for the fiscal quarter ended March
27, 1998 (Second and Third Amendments); and filed
with this report as Exhibit 10.5 (a) (Fourth
Amendment) and Exhibit 10.5 (b) (Fifth Amendment).
10.6 Restated Noncompetition Agreement with Host Exhibit No. 10.6 to our Form 10-Q for the fiscal
Marriott Corporation. quarter ended March 27, 1998.
10.7 $1.5 billion Credit Agreement dated February 19, Exhibit 10.10 to our Form 10-K for the fiscal year
1998 with Citibank, N.A., as Administrative ended January 2, 1998.
Agent, and certain banks.
10.8 $500 million Credit Agreement dated February 2, Exhibit No. 4.8 to our Form 10-K for the fiscal
1999 with Citibank, N.A. as Administrative year ended January 1, 1999.
Agent, and certain banks.
12 Statement of Computation of Ratio of Earnings to Filed with this report.
Fixed Charges.
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C>
21 Subsidiaries of Marriott International, Inc. Filed with this report.
23 Consent of Arthur Andersen LLP. Filed with this report.
27 Financial Data Schedule for the Company. Filed with this report.
99 Forward-Looking Statements. Filed with this report.
</TABLE>
_____________________________
(b) REPORTS ON FORM 8-K
On September 20, 1999, we filed a report describing the issuance of $300
million of 7-7/8 percent Series C Notes due 2009 in an underwritten public
offering.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 we have duly caused this Form 10-K to be signed on our behalf by the
undersigned, thereunto duly authorized, on this 10th day of March, 2000.
MARRIOTT INTERNATIONAL, INC.
By /s/ J.W. Marriott, Jr.
---------------------------
J.W. Marriott, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-K has been signed by the following persons on our behalf in their capacities
and on the date indicated above.
<TABLE>
<S>
PRINCIPAL EXECUTIVE OFFICER:
<C>
/s/ J.W. Marriott, Jr.
- ------------------------------- Chairman of the Board, Chief Executive Officer
J.W. Marriott, Jr. and Director
PRINCIPAL FINANCIAL OFFICER:
/s/ Arne M. Sorenson Executive Vice President,
- -------------------------------- Chief Financial Officer
Arne M. Sorenson
PRINCIPAL ACCOUNTING OFFICER:
/s/ Linda A. Bartlett Vice President, Controller
- ---------------------------------
Linda A. Bartlett
</TABLE>
<TABLE>
<S> <C>
DIRECTORS:
/s/ Henry Cheng Kar-Shun /s/ W. Mitt Romney
- --------------------------------------------------------- --------------------------------------------------------
Henry Cheng Kar-Shun, Director W. Mitt Romney, Director
/s/ Gilbert M. Grosvenor /s/ Roger W. Sant
- --------------------------------------------------------- --------------------------------------------------------
Gilbert M. Grosvenor, Director Roger W. Sant, Director
/s/ Richard E. Marriott /s/ William J. Shaw
- --------------------------------------------------------- --------------------------------------------------------
Richard E. Marriott, Director William J. Shaw, Director
/s/ Floretta Dukes McKenzie /s/ Lawrence M. Small
- --------------------------------------------------------- --------------------------------------------------------
Floretta Dukes McKenzie, Director Lawrence M. Small, Director
/s/ Harry J. Pearce
- ---------------------------------------------------------
Harry J. Pearce, Director
</TABLE>
S-1
<PAGE>
Exhibit 10.5(a)
AMENDMENT NO. 4 DATED AS OF DECEMBER 28, 1998 TO
DISTRIBUTION AGREEMENT DATED AS OF SEPTEMBER 15, 1993
BETWEEN HOST MARRIOTT CORPORATION
AND MARRIOTT INTERNATIONAL, INC.
Host Marriott Corporation (f/k/a Marriott Corporation, "Host
Marriott"), Marriott International, Inc. ("MII") and Host Marriott Services
Corporation desire to adopt this Amendment to the Distribution Agreement between
Host Marriott and MII dated as of September 15, 1993 (the "Original Agreement,"
and, as amended hereby and by that certain Amendment No. 1 to the Original
Agreement dated as of December 29, 1995, that certain Amendment No. 2 to the
Original Agreement dated as of June 21, 1997, that certain Amendment No. 3 to
the Original Agreement dated as of March 3, 1998, and that certain Amendment No.
5 to the Original Agreement dated as December 18, 1998 (the "Distribution
Agreement").
WHEREAS, on or about December 29, 1998, (i) Host Marriott will
distribute approximately 93.6% of the outstanding common stock of Crestline
Capital Corporation, a Maryland corporation ("CCC"), to the shareholders of Host
Marriott and will contribute the remaining 6.4% of such CCC common stock to Host
Marriott, L.P. for delivery to Blackstone Real Estate Advisors L.P. and certain
affiliated entities thereof (or for return to CCC if not delivered to Blackstone
Real Estate Advisors L.P. and its affiliated entities) and (ii) Host Marriott
will merge (the "Merger") into HMC Merger Corporation, a Maryland corporation to
be renamed "Host Marriott Corporation" ("Host REIT"); and
WHEREAS, the parties hereto desire to amend the Distribution Agreement
in connection with such distribution and the Merger.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto hereby agree as follows:
1. Upon the effectiveness of the Merger, Section 6.07 of the
Distribution Agreement shall be amended by adding the following subsections (j)
and (k):
"(j) Notwithstanding anything to the contrary in this Agreement or
otherwise, MII's Right will be limited to the purchase and subsequent ownership
of only such number of shares, if any, as would not (i) cause MII, or any Person
in which MII owns a direct or indirect interest, to own or be deemed (taking
into account the attribution rules of Code Section 318(a), as modified by Code
Section
<PAGE>
856(d)(5)) to own more than 9.9% (the "Disqualification Threshold") of
Host Marriott if MII, or any such other Person in which MII owns a direct or
indirect interest, also owns or would be deemed to own (taking into account the
attribution rules of Code Section 318(a), as modified by Code Section
856(d)(5)), more than 9.9% of Crestline Capital Corporation, a Maryland
corporation ("CCC") (or any Subsidiary of CCC) or any other tenant of real
property leased by Host Marriott or any Subsidiary of Host Marriott (other than
any such lease with MII of any of its Affiliates or Subsidiaries which is in
effect at the time of the effectiveness of the Merger ), (ii) cause any Person
that owns (or is deemed to own (taking into account the attribution rules of
Code Section 318(a), as modified by Code Section 856(d)(5))) a direct or
indirect interest in MII to exceed the Disqualification Threshold with respect
to Host Marriott if such Person owns or would be deemed to own (taking into
account the attribution rules of Code Section 318(a), as modified by Code
Section 856(d)(5)) more than 9.9% of CCC (or any Subsidiary of CCC) or any other
tenant of real property leased by Host Marriott or any Subsidiary of Host
Marriott (other than any such lease with MII of any of its Affiliates or
Subsidiaries which is in effect at the time of the effectiveness of the
Merger), or (iii) in the event that Host Marriott L.P. is or could be considered
a "publicly traded partnership" within the meaning of Code Section 7704, cause
Host Marriott, L.P. to own more than 9.9% of CCC (determined by taking into
account (A) the attribution rules of Code Section 318(a), as modified by Code
Sections 856(d)(5) and 7704(d)(3)(B) and (B) any stock of CCC that Host
Marriott, L.P. is deemed to own under these rules by reason of the ownership of
an interest in Host Marriott, L.P. by Blackstone Real Estate Advisors L.P. or
any of its affiliated entities or any other Person or such other Person's
affiliated entities). In the event that the Right would not be exercisable in
full solely by reason of clause (iii) of the preceding sentence (but not clause
(i) or clause (ii) thereof), MII shall, subject to the conditions set forth
below, have the right to assign that portion (but only such portion) of the
Right that is not exercisable by reason of such clause (iii) (the "Blocked
Portion of the Right"), subject to further reduction as set forth below, to a
Person whose exercise of the assigned Blocked Portion of the Right would not be
precluded by the preceding sentence (applied replacing the term "MII" each place
it appears in clauses (i) and (ii) of such sentence with the following: "MII
and/or any permitted assignee pursuant to the next sentence below"), subject to
the following conditions: (A) Host Marriott and MII shall have obtained from the
Internal Revenue Service, for the mutual benefit of Host Marriott and MII, a
private letter ruling (the user fees and legal fees related to which shall be
shared equally by Host Marriott and MII, provided, however, that in no event
shall Host Marriott be required to pay more than a total of $50,000 with respect
to such fees) to the effect that neither the existence of such assignment right
nor the exercise of such assignment right shall cause MII (or any Person that is
considered pursuant to Code Section 318(a) to own any stock of Host Marriott
considered owned by MII, actually or constructively pursuant to Code Section
318(a)) to be considered for purposes of Code Sections 318(a), 856(d)(2), and
7704(d)(1)(C) and (d)(3)(B) to own all or any portion of the Host Marriott stock
that
-2-
<PAGE>
is subject to the Blocked Portion of the Right, (B) the proposed assignee
shall not be a Person who owns (as opposed to operates) more than fifteen (15)
full-service hotels in competition with full-service hotels owned, directly or
indirectly, by Host Marriott or Host Marriott, L.P. (so long as Host Marriott,
L.P. is controlled by Host Marriott), and in addition, with respect to any
assignment made hereunder at any time following October 8, 2000, the proposed
assignee shall not be a Person who operates a branded hotel chain (whether or
not such operator is also the owner of the brand) that includes, in the
aggregate, more than fifteen (15) full-service hotels, in competition with full-
service hotels operated by Host Marriott or Host Marriott, L.P. (so long as Host
Marriott, L.P. is controlled by Host Marriott), (it being understood that a
Person shall not be deemed to be an owner or operator of full-service hotels in
competition with Host Marriott or Host Marriott, L.P. (so long as Host Marriott,
L.P. is controlled by Host Marriott) solely by virtue of (x) the ownership of
non-controlling interests in hotels or hotel operating companies, either
directly or indirectly through subsidiaries, affiliates or partnerships (where
"control" means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise) or (y) holding a
mortgage or mortgages secured by one or more hotels) and (C) if, at the time of
such assignment, the proposed assignee or any of its Affiliates holds Voting
Stock or options, warrants or other rights (including conversion rights) to
acquire Voting Stock ("Acquisition Rights"), the portion of the Blocked Portion
of the Right which may be assigned to such proposed assignee shall be reduced
such that, immediately following such assignment, the aggregate number of shares
of Voting Stock which the proposed assignee and its Affiliates would own
(assuming for such purpose the exercise in full at such time of the assigned
portion of the Blocked Portion of the Right and the Acquisition Rights) would
not exceed twenty percent (20%) of the total outstanding shares of Voting Stock
(assuming for such purposes the exercise in full at such time of all outstanding
Acquisition Rights). Host Marriott agrees that, upon request of MII, it will
assist MII in preparing the private letter ruling referred to in clause (A) of
the preceding sentence and will join MII in such ruling request.
(k) In the event that Host Marriott shall be advised by its outside
tax counsel in writing after December 29, 1998 that, as the result of a change
in law (including published interpretations by the Internal Revenue Service)
after such date, there is a significant risk to Host Marriott that the
restrictions set forth in the subsection (j) above, would not be effective to
protect the status of Host Marriott as a "real estate investment trust" (a
"REIT") under the applicable provisions of the Code, the parties agree to
negotiate in good faith to develop a modification to subsection (j) in a manner
that would protect the interests of MII in being able to exercise the Right
substantially as and to the extent contemplated in subsection (j) while
permitting Host Marriott to continue to qualify as a REIT under the applicable
provisions of the Code. Conversely, in the event that Host Marriott shall be
advised by its outside tax counsel in writing after December 29, 1998 that, as
the
-3-
<PAGE>
result of a change in law (including published interpretations by the Internal
Revenue Service) after such date, part or all of the restrictions set forth in
the subsection (j) above are not necessary under reasonably foreseeable
circumstances to protect the status of Host Marriott as a REIT under the
applicable provisions of the Code, the parties agree to negotiate in good faith
to develop a modification to subsection (j) in a manner that would protect the
interests of MII in being able to exercise the Right to the maximum extent
practicable without regard to the limitations contemplated in subsection (j)
while ensuring that no such exercise (or right to exercise) will jeopardize Host
Marriott's ability to continue to qualify as a REIT under the applicable
provisions of the Code. In the absence of an agreement between the parties to a
change to subsection (j) in either such event, the limitations in subsection (j)
as set forth herein shall remain in full force and effect.
2. Upon the effectiveness of the Merger, the term "Voting Stock" in
Section 6.07(a) of the Distribution Agreement shall mean shares of common stock,
par value $.01 per share, of Host REIT and any other class of capital stock
having, or capable of having, general voting rights to elect the Directors of
Host REIT, whether or not now authorized or issued."
3. Upon the effectiveness of the Merger, Section 9.06 of the
Distribution Agreement shall be amended by adding the following sentence:
"The foregoing sentence is not intended to, and shall not, cause this
Agreement to bind or to inure to the benefit of CCC or to grant MII any rights
with respect to CCC."
4. Upon effectiveness of the Merger, (i) the Distribution Agreement
shall be binding upon and inure to the benefit of Host REIT and Host REIT shall
assume all the rights and obligations of Host Marriott thereunder and (ii) all
references to "Host Marriott" and "Marriott" in the Distribution Agreement shall
mean "Host REIT."
5. Host REIT represents that, prior to the effectiveness of the
Merger, its Board of Directors shall have duly adopted a resolution and a bylaw
provision exempting the exercise by MII of the Right as to Host REIT, as set
forth in Paragraph 1 above, from the Maryland Business Combination Statute and
the Maryland Control Share Acquisition Statute, respectively, as well as a
resolution exempting certain other transactions between Host REIT and MII or
their respective subsidiaries and a resolution granting MII an irrevocable
exemption under Section 8.2.7 of the Amended and Restated Articles of
Incorporation of Host REIT from the Ownership Limit (as defined in Section 8.1
of the Amended and Restated Articles of Incorporation of Host REIT) to permit
MII to exercise the Right. A copy of such resolutions and bylaw provision are
attached as Annex A
-------
-4-
<PAGE>
hereto. Host REIT covenants that, for as long as MII has the right to exercise
the Right, Host REIT will not revoke or amend such resolutions or amend, alter
or repeal such bylaw provision without the prior written consent of MII. Host
REIT covenants that in the event it adopts a shareholders' rights plan, such
plan shall contain provisions which are consistent with Section 6.07 of the
Distribution Agreement. Host REIT agrees that MII would suffer irreparable
damage in the event any of the foregoing provisions of this Paragraph 5 were not
to be performed in accordance with the terms hereof, and that, in such event,
MII's remedy at law would be inadequate. Host REIT agrees and consents that
temporary and permanent injunctive relief may be granted in favor of MII in any
proceeding which may be brought to enforce any provision of this Paragraph 5
without the necessity of proof of actual damage.
6. Except as specifically amended hereby, the Distribution Agreement
continues in full force and effect without modification and is hereby ratified
and confirmed in all respects.
7. This Amendment may be executed in any number of counterparts,
which, when taken together, shall constitute a single binding instrument.
[signatures appear on the following page]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment No. 4 to be
duly executed and delivered as of December 28, 1998.
MARRIOTT INTERNATIONAL, INC.
By: /s/ Myron D. Walker
---------------------
Name: Myron Walker
Title: Vice President
HOST MARRIOTT CORPORATION
By: /s/ C. G. Townsend
---------------------
Name: C. G. Townsend
---------------------
Title: Senior Vice President
---------------------
HOST MARRIOTT SERVICES CORPORATION
By: /s/ Joe P. Martin
---------------------
Name: J P Martin
---------------------
Title: Senior Vice President
---------------------
The undersigned is executing this Amendment solely for the purpose of
acknowledging and consenting to the provisions of Paragraphs 4 and 5 hereof.
HMC MERGER CORPORATION
By: /s/ C. G. Townsend
---------------------
Name: C. G. Townsend
---------------------
Title: Senior Vice President
---------------------
<PAGE>
Exhibit 10.5(b)
AMENDMENT NO. 5 DATED AS OF DECEMBER 18, 1998 TO
DISTRIBUTION AGREEMENT DATED AS OF SEPTEMBER 15, 1993
BETWEEN HOST MARRIOTT CORPORATION
AND MARRIOTT INTERNATIONAL, INC.
Host Marriott Corporation (f/k/a Marriott Corporation, "Host
Marriott"), Marriott International, Inc. ("MII") and Host Marriott Services
Corporation desire to adopt this Amendment to the Distribution Agreement between
Host Marriott and MII dated as of September 15, 1993 (the "Original Agreement,"
and, as amended hereby and by that certain Amendment No. 1 to the Original
Agreement dated as of December 29, 1995, that certain Amendment No. 2 to the
Original Agreement dated as of June 21, 1997, that certain Amendment No. 3 to
the Original Agreement dated as of March 3, 1998 and that certain proposed
Amendment No. 4 to the Original Agreement expected to be entered into after the
date hereof, the "Distribution Agreement").
WHEREAS, by letter dated December 10, 1998, Southeastern Asset
Management, Inc. ("Southeastern"), an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940, advised Host Marriott that
approximately 135 accounts over which Southeastern has either investment
discretion, voting authority, or both, currently own in the aggregate 40,923,400
shares of Host Marriott Common Stock, or approximately 19.97% of the 204,954,447
shares of Host Marriott Common Stock outstanding on the record date for the Host
Marriott Special Meeting held on December 15, 1998 to approve the merger (the
"Merger") of Host Marriott with and into HMC Merger Corporation, a Maryland
corporation to be renamed "Host Marriott Corporation" ("Host REIT") after the
Merger;
WHEREAS, Host Marriott expects that, on the date hereof, its Board of
Directors will declare a special dividend (the "Special Dividend") to
stockholders of record on December 28, 1998 entitling such stockholders to elect
to receive such Special Dividend in the form of cash or Host Marriott Common
Stock; and
WHEREAS, the parties hereto desire to amend the Distribution Agreement
in connection with such Special Dividend.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto hereby agree as follows:
1. Section 6.07 of the Distribution Agreement shall be amended by
adding and reserving for further Amendment subsections (j) and (k) and adding
subsection (l) as follows:
<PAGE>
(j) [Reserved for proposed Amendment No. 4]
(k) [Reserved for proposed Amendment No. 4]
(l) Notwithstanding anything contained in this Section 6.07 or any
other section of this Agreement, Southeastern Asset Management,
Inc. ("Southeastern"), an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940, shall not be
deemed to have triggered the Right if such Right would otherwise
have been triggered until such time (if ever) as it becomes the
Beneficial Owner of a number of shares of Voting Stock in excess
of the sum (the "Maximum Number") of (i) 40,923,400 shares of
Voting Stock plus (ii) such number of shares of Voting Stock
actually acquired by Southeastern through accounts over which it
exercises investment discretion, voting authority or both as the
result of any election (or deemed election) to receive Voting
Stock in payment of the Special Dividend (or, prior to the date
of any such election or deemed election, such number of shares of
Voting Stock which it can elect to receive in payment of the
Special Dividend) declared by Host Marriott on December 18, 1998
to stockholders of record on December 28, 1998 (as the number
representing the sum of (i) and (ii) may be adjusted to give
effect to stock splits, stock dividends, subdivisions,
combinations, reclassifications or similar events, to the extent
appropriate), which dividend payment obligations will be assumed
by HMC Merger Corporation, a Maryland corporation ("Host REIT"),
in connection with the merger of Host Marriott with and into Host
REIT; provided, however, that if at any time after December 28,
-------- -------
1998, Southeastern shall be the Beneficial Owner of a number of
shares of Voting Stock representing less than 20% of the total
voting power of the then outstanding shares of Voting Stock and
if Southeastern shall become at any time thereafter the
Beneficial Owner of a number of shares of Voting Stock
representing 20% or more of the total voting power of the then
outstanding shares of Voting Stock, Southeastern shall thereupon
be deemed to have triggered the Right; provided further, that if
-------- -------
the number of shares of Voting Stock beneficially owned by
Southeastern is reduced to less than 20% of the total voting
power of the then outstanding Voting Stock as a result of
dispositions of Voting Stock in the ordinary course of trading
for its clients' accounts within a five (5) consecutive trading
day period, and Southeastern reacquires the beneficial ownership
of the number of shares so disposed, again in the ordinary course
-2-
<PAGE>
of trading for its clients' accounts, within twenty (20)
consecutive trading days immediately after such five (5) day
trading period, then such reacquisition (subject always to the
Maximum Number) shall not be deemed to have triggered the Right.
Nothing herein is intended to grant, or shall be construed as
granting, to Southeastern, any of its affiliates or any of
Southeastern's funds or accounts a waiver from the ownership
limit (or any provision thereof) under the Charter of Host REIT.
2. Except as specifically amended hereby, the Distribution Agreement
continues in full force and effect without modification and is hereby ratified
and confirmed in all respects.
3. This Amendment may be executed in any number of counterparts,
which, when taken together, shall constitute a single binding instrument.
[signatures appear on the following page]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment No. 5 to be
duly executed and delivered as of December 18, 1998.
MARRIOTT INTERNATIONAL, INC.
By: /s/ Joseph Ryan
_________________________
Name: Joseph Ryan
_________________________
Title: Executive Vice President
_________________________
HOST MARRIOTT CORPORATION
By: /s/ C.G. Townsend
_________________________
Name: Christopher G. Townsend
_________________________
Title: Senior Vice President
_________________________
HOST MARRIOTT SERVICES CORPORATION
By: /s/ Joe P. Martin
_________________________
Name: J.P. Martin
_________________________
Title: Senior Vice President
_________________________
The undersigned is executing this Amendment for the purpose of acknowledging and
consenting to the provisions hereof.
HMC MERGER CORPORATION
By: /s/ C.G. Townsend
_________________________
Name: Christopher G. Townsend
_________________________
Title: Vice President
_________________________
-4-
<PAGE>
Exhibit 12
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in millions, except ratio)
<TABLE>
<CAPTION>
Fiscal year ended
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before income taxes $637 $632 $531 $435 $361
Loss/(income) related to equity method investees (3) 8 8 4 (2)
---- ---- ---- ---- ----
634 640 539 439 359
Add/(deduct):
Fixed charges 152 103 85 89 59
Interest capitalized (33) (21) (16) (9) (8)
Distributed income of equity method investees 2 5 - - -
---- ---- ---- ---- ----
Earnings available for fixed charges $755 $727 $608 $519 $410
==== ==== ==== ==== ====
Fixed charges:
Interest expensed and capitalized $94 $51 $38 $46 $17
Estimate of the interest within rent expense 58 52 47 42 39
Share of interest expense of certain equity
method investees - - - 1 3
---- ---- ---- ---- ----
Total fixed charges $152 $103 $85 $89 $59
==== ==== ==== ==== ====
---- ---- ---- ---- ----
Ratio of earnings to fixed charges 5.0 7.1 7.2 5.8 6.9
==== ==== ==== ==== ====
</TABLE>
(1) "Interest expensed and capitalized" includes amortized premiums,
discounts and capitalized expenses related related to indebtedness.
<PAGE>
Exhibit 21
03/02/2000 Page Number: 1
Marriott International, Inc.
Foreign Subsidiaries
Country of Incorporation
Country: Argentina
Marriott Argentina S.A.
Country: Aruba
Marriott Aruba N.V.
Marriott Resorts Hospitality of Aruba N.V.
Marriott Vacation Club International of Aruba, N.V.
Country: Australia
Mirmar Hotels Pty Limited
Country: Austria
Marriott Hotel-Betriebsgesellschaft, m.b.H
Country: Bahamas
Marriott Ownership Resorts (Bahamas) Limited
Marriott Resorts Hospitality (Bahamas) Limited
New World Hotels (Bahamas) Limited
Country: Barbados
Marriott Foreign Sales Corporation
Country: Belgium
Renaissance Hotels International, S.A.
Country: Bermuda
CL International Insurance Company Ltd.
Crest Management Services, Limited
Marriott International Lodging, Ltd.
Marriott International Services, Ltd.
Ramada International Lodging, Ltd.
Renaissance International Lodging Ltd.
Country: Brazil
Marriott do Brasil Hotelaria Ltda.
Renaissance do Brasil Hoteleria Ltda.
RHI do Brasil Hotelaria Ltda.
<PAGE>
03/02/2000 Page Number: 2
Marriott International, Inc.
Foreign Subsidiaries
Country of Incorporation
Country: Canada
3415546 Canada Inc.
Marriott Hotels of Canada Ltd.
Marriott Lodging (Canada) Ltd.
Marriott Lodging (Canada) Ltd.
MCL Hotel Corporation
Ramada Franchise Canada Inc.
Renaissance Hotels Canada Limited
Toronto Hotel Land Holding Ltd.
Toronto Realty Airport Hotel, Ltd.
Country: Cayman Islands
Renaissance Caribbean Limited
The Ritz-Carlton Hotel Company of the Cayman Islands, Ltd.
Country: Chile
Hoteles de Chile, S.A.
Marriott Chile S.A.
Marriott Inversiones y Servicios Limitada
MORI Chile S.A.
Country: Costa Rica
Marina de Herradura, S.A.
Country: Denmark
Hotelinvest Kalvebod A/S
Marriott Hotels Denmark A/S
Country: Egypt
Ritz Carlton Egypt S.A.E.
Country: France
Marriott de Gestion Hoteliere SNC
<PAGE>
03/02/2000 Page Number: 3
Marriott International, Inc.
Foreign Subsidiaries
Country of Incorporation
Ramcap S.a.r.l.
Renaissance France S.a.r.l.
Country: Germany
Bremen Marriott Hotelmanagement GmbH
Frankfurt Marriott Hotelmanagement GmbH
Hamburg Marriott Hotelmanagement GmbH
Leipzig Marriott Hotelmanagement GmbH
Marriott Hotel Holding GmbH
Marriott Hotels of Germany
Marriott Hotels of Germany GmbH & Company Limited Partnership
Muenchen Marriott Hotelmanagement GmbH
MVCI Holidays GmbH
Penta Hotel Managementgesellchaft mbH
Renaisance Deutchland GmbH (Kopenic)
Ritz-Carlton Wolfsburg Hotelbetriebsgesellschaft mbH
Teltow Ramada Hotel - Gesellschaft mbH
The Ritz-Carlton Hotel Company of Germany, GmbH
Country: Greece
Marriott Hotels Hellas, S.A.
Country: Hong Kong
Marriott Asia Pacific Limited
Marriott Asia Pacific Management Limited
Marriott Hong Kong Limited
Marriott Properties (International) Limited
New World Hotels International (Macau) Limited
<PAGE>
03/02/2000 Page Number: 4
Marriott International, Inc.
Foreign Subsidiaries
Country of Incorporation
New World Hotels International Limited
Ramada China Hotels Limited
Ramada Pacific Limited
Renaissance Management Hong Kong Limited
The Ritz-Carlton Limited
Country: India
Marriott Hotels India Private Limited
Country: Indonesia
PT The Ritz-Carlton Indonesia
Country: Ireland
Noycourt Limited
Noygate Limited
Renaissance Reservations International Limited
Country: Italy
MVCI Holidays S.r.l.
Country: Jamaica
The Ritz-Carlton Hotel Company of Jamaica Limited
Country: Japan
Marriott Terminal Services, Company Ltd.
The Ritz-Carlton Japan, Inc.
Tokyo Marriott Hotel Co., Ltd.
Country: Liberia
New World Management Services Company Limited
Country: Luxembourg
International Hotel Licensing Company S.a.r.l.
Marriott International Licensing Company B.V.
Marriott International Licensing Company, S.a.r.l.
<PAGE>
03/02/2000 Page Number: 5
Marriott International, Inc.
Foreign Subsidiaries
Country of Incorporation
Country: Mexico
cia Hotelera Azteca, S.A. de C.V. (Hoteca)
El Crisa, S.A. de C.V.
Marriott Hotels, S.A. de C.V.
Marriott Mexicana S.A. de C.V.
Marriott Mexico City Partnership, G.P.
Operadora Marriott, S.A. de C.V.
Polserv, S.A. de C.V.
Promociones Marriott, S.A. de C.V.
R.C. Management Company of Mexico, S.A. de C.V.
Ramada International Association de Mexico, S.C.
Royal Marriott S.C.
Servimarr, S.A. de C.V.
The Ritz-Carlton Hotel Company of Mexico, S.A. de C.V.
Country: Netherlands
Marriott Hotels International, B.V.
Marriott Hotels of Amsterdam, B.V.
Marriott International Finance Company B.V.
Marriott International Holding Company B.V.
Marriott RHG Acquisition B.V.
<PAGE>
03/02/2000 Page Number: 6
Marriott International, Inc.
Foreign Subsidiaries
Country of Incorporation
Penta Hotels N.V.
Ramada Hotels International B.V.
Renaissance Hotel Group N.V.
Renaissance Hotels International B.V.
Renaissance Management B.V.
Renaissance Services B.V.
Country: Netherlands Antilles
Diamant Hotel Investments N.V.
Marriott Curacao N.V.
Marriott International Lodging N.V.
Ramada International Lodging N.V.
Renaissance International Lodging N.V.
Renaissance Reservations N.V.
RHG Holding N.V.
Country: New Zealand
Ramada Inns Limited
Country: Peru
Marriott Peru S.A.C.
Country: Singapore
Marriott Hotels Singapore Pte Ltd.
The Ritz-Carlton Hotel Company of Singapore PTE LTD.
<PAGE>
03/02/2000 Page Number: 7
Marriott International, Inc.
Foreign Subsidiaries
Country of Incorporation
Country: Spain
Marriott Hotels, S.L.
MVCI Espana, S.L.
MVCI Holidays, S.L.
MVCI Mallorca, S.L.
MVCI Management, S.L.
R-C Spain, S.L.
Country: Switzerland
Marriott (Schweiz) GmbH
Marriott (Switzerland) Liability Ltd.
Marriott Worldwide Payroll Gmbh
Country: Thailand
Maikhao Ownership (Thailand) Limited
Country: United Kingdom
Cheshunt Hotel Limited
Consolidated Supplies Limited
Marriott Catering Limited
Marriott Commercial Services Limited
Marriott Hotels (Reading) Limited
Marriott Hotels and Catering (Holdings) Limited
<PAGE>
03/02/2000 Page Number: 8
Marriott International, Inc.
Foreign Subsidiaries
Country of Incorporation
Marriott Hotels, Limited
Marriott In-Flight Services Limited
Marriott Restaurants Limited (United Kingdom)
Marriott UK Holdings Limited
MVCI Europe Limited
MVCI Management Europe Limited
Renaissance UK 1 Company
Renaissance UK 2 Company
Renaissance UK 3 Company
The Ritz-Carlton Hotel Limited
Turnford Marriott Hotel
Country: Western Somoa
Marriott Hotels Western Samoa Limited
<PAGE>
03/02/2000 Page Number: 1
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
State: Arizona
Camelback Country Club, Inc. (d/b/a Camelback Golf Club)
State: California
Rancho San Antonio Retirement Services, Inc., A California
Non-profit Mutual Benefit Corporation
State: Colorado
Senior Living of Denver, LLC
State: Delaware
Aeropuerto Shareholder, Inc.
Baltimore Marriott Inner Harbor, L.L.C.
BG Operations, Inc.
Big Boy Properties, Inc.
Brooklyn Hotel Services, Inc.
Camelback Properties Inn, Inc.
Capitol Employment Services, Inc.
Capitol Hotel Services, Inc.
CBM Annex, Inc.
Charleston Marriott, Inc.
Chicago Hotel Services, Inc.
City Center Annex Tenant Corporation
Corporate General, Inc.
Courtyard Annex, Inc.
Courtyard Management Corporation
CR14 Tenant Corporation
CR9 Tenant Corporation
CRTM17 Tenant Corporation
CTYD III Corporation
Customer Survey Associates, Inc.
<PAGE>
03/02/2000 Page Number: 2
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
Desert Springs Real Estate Corporation
Detroit CY Inc.
Detroit Hotel Services, Inc.
Detroit MHS, Inc.
East Side Hotel Services, Inc.
Essex House Condominium Corporation
Execustay Corporation
Fairfield FMC Corporation
Five Star Resort, LLC
Forum Group Payroll, Inc.
Forum-NGH, Inc.
Franchise System Holdings, Inc.
Hearthside of Crete, Inc.
Hearthside of Tinley Park, Inc.
Hearthside Operations, Inc.
Host Restaurants, Inc.
Hunt Valley Courtyard, Inc.
Kapalani, L.P.
LAX Properties, LLC
Leisure Park Venture Limited Partnership
LLB C - HOTEL, L.L.C.
LLB F - INN, L.L.C.
LLB F-Suites, L.L.C.
Marriott Braselton Corporation
Marriott College Food Services, Inc.
<PAGE>
03/02/2000 Page Number: 3
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
Marriott Continuing Care, Inc.
Marriott Distribution Holding Co.
Marriott Distribution Services, Inc.
Marriott Hotel Plano, L.L.C.
Marriott Hotel Services, Inc.
Marriott Hotels of Panama, Inc.
Marriott Hurghada Management, Inc.
Marriott Information Services, Inc.
Marriott International Administrative Services, Inc.
Marriott International Capital Corporation
Marriott International Construction Services, Inc.
Marriott International Design & Construction Services, Inc.
Marriott International JBS Corporation
Marriott International Resorts, L. P.
Marriott Kauai Ownership Resorts, Inc.
Marriott Kauai, Inc.
Marriott Lincolnshire Theatre Corporation
Marriott Market Street Hotel, Inc.
Marriott Mirage City Management, Inc.
Marriott Overseas Company, L.L.C.
Marriott Overseas Owners Services Corporation
Marriott Ownership Resorts, Inc.
Marriott P.R. Management Corporation
Marriott Payroll Services, Inc.
Marriott Ranch Properties, Inc.
<PAGE>
03/02/2000 Page Number: 4
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
Marriott Resort at Seaview, Inc.
Marriott Resorts Sales Company, Inc.
Marriott Resorts, Travel Company, Inc.
Marriott Rewards, Inc.
Marriott Senior Holding Co.
Marriott Senior Living Services, Inc.
Marriott Sharm El Sheikh Management, Inc.
Marriott Signal Capital, L.L.C.
Marriott Vacation Properties of Florida, Inc.
Marriott Wardman Park Investment, Inc.
Marriott Worldwide Management, Inc.
Marriott Worldwide Payroll Corp.
Marriott Worldwide Sales and Marketing, Inc.
Marriott's Desert Springs Development Corporation
Marriott's Greenbelt Hotel Services, Inc.
MC Logding Investment Opportunities, Inc.
Meridian-Indianapolis, L.L.C.
MHSFR II, Inc.
MHSFR, Inc.
MI Holding, L. P.
MI Laguna, LLC
MI Member, LLC
MI Myrtle Beach, LLC
MI Seattle, LLC
MI Tenant LLC
<PAGE>
03/02/2000 Page Number: 5
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
MI Tucson, LLC
MICC(California), LLC
Mid-Atlantic Specialty Restaurants, Inc.
MORI Residences, Inc.
MORI SPC Corp.
MORI SPC II, Inc.
MRC I Funding Corporation
MSLS Investments 12, Inc.
MSLS Investments 16, Inc.
MSLS Investments 17, Inc.
MSLS Investments 18, Inc.
MSLS Investments 19, Inc.
MSLS Investments 20, Inc.
MSLS Investments 21, Inc.
MSLS Investments 22, Inc.
MSLS-MapleRidge, Inc.
MTMG Corporation
Musicians, Inc.
New York Retirement Properties, Inc.
North Drury Lane Productions, Inc.
Osage Beach Hotel, LLC
Potomac Advertising, Inc.
Ramada Franchise Systems (Caribbean), Inc.
Ramada Garni Franchise Systems, Inc.
RC Hotels (Virgin Islands), Inc.
<PAGE>
03/02/2000 Page Number: 6
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
RC Marriott II, Inc.
RC Marriott III, Inc.
RC Marriott, Inc.
RC-UK, Inc.
REN Hollywood, LLC
REN Worthington, LLC
Renaissance Florida Hotel, Inc.
Renaissance Hotel Holdings, Inc.
Renaissance Hotel Management Company, LLC
Renaissance Hotel Operating Company
Renaissance International, Inc.
Renaissance Reservations, Inc.
Renaissance Services, Inc.
Residence Inn by Marriott, Inc.
RHG Finance Corporation
RHG Investments, Inc.
RHHI Acquisition Corp.
RHHI Investment Corp.
RHOC (Canada), Inc.
RHOC (Mexico), Inc.
RINA (International) Inc.
Ritz-Carlton (Virgin Islands), Inc.
Rock Lynnwood/Snohomish GenPar, Inc.
Rock Lynnwood/Snohomish Partners, L.P.
<PAGE>
03/02/2000 Page Number: 7
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
ROCK Partners, L.L.C.
RST4 Tenant LLC
SC Orlando, L.L.C.
Schaumberg/Oakbrook Marriott Hotels, Inc.
Shady Grove Courtyard, Inc.
SHC Eastside II, L.L.C.
Sonoma Reniassance, LLC
Springhill SMC Corporation
St. Louis Airport Hotel, LLC
Staffing Services, Inc.
The MarketPlace by Marriott, L.L.C.
The Ritz-Carlton Development Company, Inc.
The Ritz-Carlton Hotel Company of Puerto Rico, Inc.
The Ritz-Carlton Hotel Company, L.L.C.
The Ritz-Carlton Management Company, L.L.C.
The Ritz-Carlton Sales Company, Inc.
The Ritz-Carlton Title Company, Inc.
The Ritz-Carlton Travel Company, L.L.C.
The Sherman Club, Inc
TownePlace Management Corporation
West Street Hotels, Inc.
Weststock Corporation
State: Florida
Marriott Resorts Title Company, Inc.
Redi-Medical Alert, Inc.
State: Georgia
The Dining Room Corporation
<PAGE>
03/02/2000 Page Number: 8
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
State: Hawaii
F. L. Insurance Corporation
State: Indiana
Forum Cupertino Lifecare, Inc.
Forum Lifecare, Inc.
National Guest Homes, LLC
State: Kansas
Kansas Hospitality Services, Inc.
State: Maryland
Columbia Courtyard, Inc.
Empire Retirement Living Corporation
Marriott International Hotels Inc.
Marriott Worldwide Corporation
MHS Realty Sales, Inc.
MII Conference Center, Inc.
Vanguard Charles Street, LLC
VCS, Inc.
State: Nevada
MI Hotels of Las Vegas, Inc.
State: New York
Marriott Home Care of New York, Inc.
State: South Carolina
Marriott Resorts Hospitality Corporation
State: Texas
Dalrich Club (a non-profit corporation)
Hospitality International, Inc.
Inn Club, a Non-Profit Corp.
Marriott Claims Services Corporation
MHSI Conference Centers of Texas, Inc.
<PAGE>
03/02/2000 Page Number: 9
Marriott International, Inc.
Domestic Subsidiaries
State of Incorporation
The Finish Line Club
The Gazebo Club
The Hearthroom Club
The Legacy Park Club
The Plano Club
The Sherman Club, Inc.
WinBeer, Inc.
State: Utah
Gambits, A Nonprofit Corporation (Incorporated Club)
State: Virgin Islands
New World Hotels International Corporation Limited
New World Hotels Marketing Services Limited
The Ritz-Carlton Club, St. Thomas, Inc.
State: Virgin Islands U.S.
MIFR (Virgin Islands), Inc.
Ramasia International Limited
State: Virginia
Marriott Senior Living Insurance Services, Inc.
State: West Virginia
West Virginia Marriott Hotels, Inc.
<PAGE>
03/02/2000 Page Number: 1
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
"CbM" means "Courtyard by Marriott"
"RI" means "Residence Inn"
"FibM" means "Fairfield Inn by Marriott"
"MVCI" means "Marriott Vacation Club International"
Corporation: Courtyard Management Corporation
State Assumed Name
AR Little Rock CbM
AZ Phoenix Mesa CbM, Camelback CbM, Phoenix Airport CbM,
Scottsdale CbM,
Tuscon CbM
AZ Phoexnix MetroCenter CbM
AZ Scottsdale Downtown Courtyard
CA Courtyard by Marriott
CA Novato Courtyard by Marrott
CA Pleasant Hills Courtyard
CO Denver Airport CbM, Boulder CbM, Denver SE CbM
CT Norwalk CbM, Hartford CbM
DE Wilmington CbM, (1102 West Street & 48 Geofry Drive)
FL Courtyard by Marriott
GA Executive Park CbM, Roswell CbM, Atlanta Perimeter CbM,
Atlanta Airport CbM,
Midtown CbM
GA Macon CbM, Atlanta Delk Road CbM, Agusta CbM
GA Peachtree Corners CbM, Atlanta Airport South CbM
GA Peachtree-Dunwoody CbM, Cumberland Center CbM, Gwinnett Mall
CbM, Jimmy Carter CbM
GA Savannah CbM, Columbus CbM
GA Windy Hill CbM, Northlake CbM, Atlanta Airport South CbM,
Atlanta Preimeter CbM, Atlanta Airport CbM
IA Des Moines/Clive CbM, Quad Cities CbM
IL Arlington Heights CbM, Arlington Heights South CbM,
Chicago/Deerfield CbM, Chicago Downtown CbM
IL Chicago-Highland Park CbM, Chicago/Lincolnshire CbM,
Glenview CbM, Naperville CbM
IL Oakbrook Terrace CbM, O'Hare CbM, Rockford CbM, Waukegan CbM,
Wood Dale CbM
IN Courtyard by Marriott
KY Courtyard by Marriott
LA Baton Rouge CbM
LA Courtyard by Marriott (Metarie, LA)
MA Lowell CbM, Stoughton CbM, Milford CbM
MD Courtyard by Marriott
MI Dearborn CbM, Detroit Airport CbM, Livonia CbM, Warren CbM,
Southfield CbM, Troy CbM
MI Detroit/Novi CbM
MI Southfield CbM, Livonia CbM, Warren CbM, Detroit Airport CbM,
Dearborn CbM, Auburn Hills CbM
MI Troy CbM, Auburn Hills CbM
MN Eden Prairie CbM, Medota Heights CbM
MO Creve Coeur CbM
MO Earth City CbM
MO Kansas City Airport CbM, St. Louis-Westport CbM
MO St. Louis CbM, South Kansas City CbM
NC Charlotte Arrowood CbM
NC Charlotte South Park CbM, Charlotte University CbM
NC Fayetteville CbM, Greensboro CbM
NC Raleigh Airport CbM, Raleigh-Cary Cbm, Raleigh CbM
NJ Courtyard by Marriott
<PAGE>
03/02/2000 Page Number: 2
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
NM Courtyard by Marriott
NV Courtyard by Marriott
NY Fishkill CbM, Poughkeepsie CbM, Rochester CbM, Rye CbM,
Syracuse CbM, Tarrytown CbM
OH Blue Ash CbM, Dayton Mall CbM, Toledo CbM, Worthington CbM
OH Dublin CbM
OK Oklahoma City CbM
OR Portland CbM
PA Pittsburg CbM
PA Willow Grove CbM, Pittsburgh CbM, Devon CbM, Valley Forge CbM,
Philadelphia CbM
RI Middletown CbM
SC Columbia NW CbM
TN Nashville Airport CbM, Park Avenue, Memphis CbM, Memphis
Airport CbM, Chattanooga CbM, Brentwood CbM (Expires 3/23/2004)
TX DFW Courtyard North
TX Las Colinas CbM, Dallas North Park CbM, Arlington CbM,
San Antonio CbM
TX Plano CbM, Fort Worth CbM, Dallas Northeast CbM, Dallas
Stemmons CbM
TX San Antonio Airport CbM, San Antonio Medical Center CbM,
Bedford CbM, Addison CbM, LBJ @ Josey CbM
VA Brookfield CbM
VA Courtyard by Marriott
VA Dulles South CbM, Rosslyn CbM
VA Fairoaks CbM
VA Herndon CbM,
VA Manassas CbM, Charlottesville CbM
VA Richmond Innsbrook CbM (Henrico County)
WA Courtyard by Marriott
Corporation: CTYD III Corporation
State Assumed Name
CA Courtyard by Marriott
FL Courtyard by Marriott
IL Courtyard by Marriott
IN Courtyard by Marriott
KY Courtyard by Marriott
MD Courtyard by Marriott
NJ Courtyard by Marriott
NM Courtyard by Marriott
NV Courtyard by Marriott
WA Courtyard by Marriott
Corporation: Detroit Hotel Services, Inc.
State Assumed Name
MI Detroit Marriott at Renaissance Center
Corporation: Detroit MHS, Inc.
State Assumed Name
MI Detroit Marriott At Renaissance Center
Corporation: Empire Assisted Living, Inc.
State Assumed Name
NY Brighton Gardens
Corporation: Empire Retirement Living Corporation
State Assumed Name
NY Brighton Gardens
Corporation: Fairfield FMC Corporation
State Assumed Name
AZ Scottsdale Fairfield Inn by Marriott (FibM), Phoenix FibM,
Flagstaff FibM
CA Anaheim Fairfield Inn
<PAGE>
03/02/2000 Page Number: 3
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
CA Buena Park FibM, Placentia FibM
CA Rancho Cordova FibM, Ontario FibM
CT Hartford Airport FibM (Windsor/Windsor Lock)
DE Wilmington FibM
FL Gainsville FibM
FL Miami West FibM, Winter Park FibM
FL Orlando International Drive FibM
GA Atlanta Gwinnett Mall FibM, Atlanta Northlake FibM
IA Cedar Rapids FibM, Des Moines FibM
IL Bloomington/Normal FibM, Chicago Lansing FibM, Glenview FibM,
Peoria FibM, Rockford FibM, Willowbrook FibM
IN Fort Wayne FibM
IN Indianapolis Castleton FibM, Indianapolis Castelton FibM,
Indianapolis College Park FibM
KY Florence FibM, Louisville East FibM
ME Portland FibM
MI Detroit Airport FIbM, Detroit Madison FibM, Detroit West FibM,
Detroit Warren FibM, Kalmazoo FibM
MO St. Louis Hazelwood FibM
NC Charlotte Airport FibM, Charlotte Northeast FibM
NC Greensboro Highpoint FibM, Durham FibM
NC Rocky Mount FIbM, Fayetteville FIbM, Raleigh Northeast FIbM,
Wilmington FIbM
NH Merrimack Fairfield FibM
NV Las Vegas FibM
NY Lancaster FiibM, Syracuse FibM
OH Akron FIbM, Cincinnati Sharonville FibM, Cleveland Brook Park FibM,
Cleveland Willoughby FibM
OH Cleveland WIlloughby FibM
OH Columbus North & West FibM, Dayton FibM, Toledo Holland FibM
PA Pittsburgh/Warrendale FibM, Harrisburg West FibM
SC Greenville FibM, Hilton Head FibM
TN Johnson City FibM, Jackson FibM, Chattanooga FibM
TX Arlington Fairfield Suites
VT Burlington Colchester FibM
WI Milwaukee FibM, Madison FibM
Corporation: Forum-NGH, Inc.
State Assumed Name
AL Galleria Oaks Guest Home
AZ Village Oaks at Glendale
FL Village Oaks at Melbourne
FL Village Oaks at Orange Park
FL Village Oaks at Southpoint
IN Village Oaks at Fort Wayne
IN Village Oaks at Greenwood
NV VIllage Oaks at Las Vegas
TX VIllage Oaks at Cielo Vista, NGH/Marriott
TX Village Oaks at Farmers Branch
TX Village Oaks at Hollywood Park
Corporation: Marriott Continuing Care, Inc.
State Assumed Name
FL Calusa Harbor
Corporation: Marriott Home Care of New York, Inc.
State Assumed Name
NY Brighton Gardens
Corporation: Marriott Hotel Services, Inc.
State Assumed Name
<PAGE>
03/02/2000 Page Number: 4
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
AZ Marriott Camelback Inn Resort
CA Anaheim Marriott
CA Costa Mesa Marriott Suites
CA La Jola Marriott Hotel
CA Los Angeles Airport Marriott, Newport Beach Marriott Hotel
CA Marriott's Desert Springs Resort and Spa
CA Marriott's Rancho Las Palmas Resort
CA Monterey Marriott Hotel
CA Napa Valley Marriott Hotel
CA Santa Clara Marriott Hotel
CO Denver West Marriott Hotel
CT Stamford Marriott Hotel (Stamford & Rocky Hill)
FL Cafe Waterside
FL Champions
FL Fort Lauderdale Marina, Tampa Airport
FL IL Terrazzo
FL Miami Beach Marriott At South Beach
FL Miami International Airport Marriott
FL SPA Waterside
FL Tampa Marriott Waterside
GA Atlanta Norcross Marriott Hotel
GA Atlanta Perimeter Center Hotel
HI J.W. Marriott Ihilani Resort & Spa
HI Maui Marriott Resort and Ocean Club
IL Chicago Deerfield Marriott Suites, Chicago Marriott Downtown Hotel,
Chicago Marriott Oakbrook Hotel
IL Lincolnshire Catering
MA Marriott Long Wharf
MD Bethesda Marriott Hotel, Washington Gaithersburg Marriott Hotel
MI Detroit Romulus Marriott Hotel, Detroit Metro Airport
Marriott Hotel
MN Minneapolis City Center Marriott Hotel
MO St. Louis Pavilion Marriott Hotel, St. Louis Airport Marriott,
Kansas City Airport Marriott
MO Tan-Tar-A Marriott Resort
NH Nashua Marriott Hotel
NJ Glenpoint Marriott Hotel, Princeton Marriott Hotel, Somerset
Marriott Hotel
NJ Hanover Marriott Hotel
NJ Park Ridge Marriott Hotel, Newark Airport Marriott Hotel,
Marriott's Seaview Golf Resort
NY Long Island Marriott Hotel, Westchester Marriott Hotel
NY New York Marriott Financial Center Hotel
OK Oklahoma City Marriott Hotel
OR Portland Marriott Hotel
PA Philadelphia Airport Marriott Hotel
PA Philadelphia Marriott Hotel
TN Nashville Airport Marriott Hotel
TX Dallas Marriott Quorum, Houston Airport Marriott
VA Crystal City Marriott Hotel
VA Marriott's Westfields Conference Center
VA Westfield's Marriott
VA Westfields Golf Club (Fairfax file date)
Corporation: Marriott International, Inc.
State Assumed Name
AZ Mountain Shadows Resort, Mountain Shadows, Marriott's Mountain
Shadows Resort
CA Courtyard by Marriott
CA Irvine Marriott Hotel
<PAGE>
03/02/2000 Page Number: 5
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
CA La Jolla Marriott Hotel
CA Los Angeles Airport Marriott
CA San Diego Marriott Hotel Marina
FL Destinations by Marriott
FL Hawk's Landing Steakhouse & Grille
FL Tampa Marriott Waterside
HI Maui Marriott Resort
IL Chicago Marriott O'Hare
MI Courtyard by Marriott, Fairfield Inn
NY Laguardia Marriott
NY Marriott's Wind Watch Hotel and Golf Club, Long Island Marriott
Hotel and Conference Center
NY New York Marriott East Side
NY New York Marriott Financial Center Hotel
NY New York Marriott Marquis Hotel
NY Westchester Marriott, New York Marriott Marquis
OH Fairfield Inn
TN Fairfield Inn
Corporation: Marriott Kauai Ownership Resorts, Inc.
State Assumed Name
CA (MVCI) Orange County
CA Marriott Vacation Club International (MVCI)
CO MVCI
HI MVCI - Registration Number: 234405
NY MVCI
TX MVCI
UT MVCI
Corporation: Marriott Ownership Resorts, Inc.
State Assumed Name
AL Marriott Vacation Club International (MVCI)
CA MVCI
CO MVCI
CT MVCI
DE MVCI
FL Faldo Golf Institute by Marriott
FL Horizons By Marriott Vacation Club
FL MVCI
GA MVCI
HI MVCI
IL Horizons by Marriott Vacation Club
IL MVCI
KY MVCI
MA MVCI
MD MVCI
MN MVCI
NC MVCI
NH MVCI
NJ Horizons by Marriott Vacation Club
NJ MVCI
NV MVCI
NY Horizons by Marriott Vacation Club
NY MVCI
OH MVCI
OR MVCI
RI MVCI
SC MVCI
<PAGE>
03/02/2000 Page Number: 6
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
TX MVCI
UT MVCI
VA MVCI
WA MVCI
Corporation: Marriott Resorts Hospitality Corporation
State Assumed Name
CA Marriott Vacation Club International (MVCI)
CO MVCI
FL MVCI
GA MVCI
KY MVCI One
MA MVCI
MD MVCI
MN MVCI
NC MVCI
NH MVCI
NJ MVCI
NV MVCI
OH MVCI
OR MVCI
SC MVCI
TX MVCI
UT MVCI
VA MVCI
VA Tidewater's Sweets and Sundries
WA MVCI
Corporation: Marriott Resorts Sales Company, Inc.
State Assumed Name
CO Marriott Vacation Club International (MVCI)
Corporation: Marriott Resorts Title Company, Inc.
State Assumed Name
ME Marriott Resorts Title, Inc.
Corporation: Marriott Resorts, Travel Company, Inc.
State Assumed Name
CA Marriott Vacation Club International (MVCI)
FL MVCI
GA MVCI
KY MVCI Two
MD MVCI
MN MVCI
NC MVCI
NH MVCI
NJ MVCI
NV MVCI
OH MVCI
OR MVCI
SC MVCI
TX MVCI
UT MVCI
VA MVCI
Corporation: Marriott Senior Living Services, Inc.
State Assumed Name
AZ Brighton Gardens
AZ The Forum Pueblo Norte
CA Brighton Gardens
<PAGE>
03/02/2000 Page Number: 7
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
CA Brighton Gardens Carlsbad
CA Brighton Gardens Carmel Valley
CA Brighton Gardens of Yorba Linda
CA Brighton Gardens San Dimas
CA Brighton Gardens Villa Service
CA Marriott's MapleRidge of Hemet
CA Marriott's MapleRidge of Laguna Creek
CA Villa Valencia
CT Brighton Gardens of Stamford
CT Edgehill/Continuing Care Retirement Community of Greater
Stamford, Inc.
DE Stonegates
FL Brighton Gardens
FL Brighton Gardens
FL Brighton Gardens (in Boynton Beach)
FL Brighton Gardens by Marriott
FL Brighton Gardens by Marriott of Maitland
FL Brighton Gardens by Marriott of Venice
FL Brighton Gardens by Marriott of West Palm Beach
FL Brighton Gardens of Boca Raton
FL Brighton Gardens of Boynton Beach
FL Brighton Gardens of Naples
FL Brighton Gardens of Tampa
FL Calusa Harbour
FL Marriott Home Health Services
FL Stratford Court (in Boca Raton, Palm Harbour)
FL The Horizon Club (in Deerfield)
GA Brighton Gardens of Buckhead
IL Brighton Gardens by Marriott of Prospect Heights & Burr Ridge
NC Brighton Gardens of Raleigh
NC Brighton Gardens of Winston-Salem
NJ Brighton Gardens of Edison
NJ Brighton Gardens of Middletown
NY Brighton Gardens
PA The Quadrangle (in Pennsylvania)
TN Brighton Gardens of Brentwood
TX Brighton Gardens by Marriott of Austin
TX Brighton Gardens by Marriott of San Antonio & Bexar County
TX Brighton Gardens by Marriott of Tanglewood
TX Brighton Gardens, (in Dallas County)
VA Belvoir Woods Health Care Center
VA Brighton Gardens (in Virginia Beach)
VA Brighton Gardens of Arlington
VA The Colonnades
VA The Fairfax
Corporation: MI Hotels of Las Vegas, Inc.
State Assumed Name
NV Courtyard by Marriott
NV Courtyard by Marriott, Residence Inn by Marriott, Las Vegas
Marriott Suites
NV Residence Inn by Marriott
Corporation: MSLS Investments 20, Inc.
State Assumed Name
TX Champion Oaks Guest Home
Corporation: MSLS-MapleRidge, Inc.
State Assumed Name
CA Marriott's Mapleridge of Palm Springs
Corporation: National Guest Homes, LLC
<PAGE>
03/02/2000 Page Number: 8
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
State Assumed Name
TX HGH Assisted Living
Corporation: Renaissance Hotel Operating Company
State Assumed Name
FL Renaissance Orlando Resort
MA Renaissance Bedford Hotel
Corporation: Residence Inn by Marriott, Inc.
State Assumed Name
AZ Phoenix Airport-Tempe RI, Scottsdale RI, Flagstaff RI
AZ Phoenix Residence Inn
AZ Tucson RI
CA Anaheim RI, Fountain Valley RI, Irvine RI, Placentia RI,
Costa Mesa RI
CA Bakersfield RI
CA Beverly Hills RI
CA Fremont RI
CA LaJolla RI, Rancho Bernardo RI, Kearney Mesa RI
CA Long Beach RI, Arcadia RI, Manhattan Beach RI, Torrance RI
CA MIRI Mesa Residence Inn
CA Pleasant Hills RI
CA Sacramento-Natomas RI
CA San Jose RI
CA San Mateo RI
CA San Ramon RI
CA Silicon Valley I & II RI, San Jose RI, Mountain View RI
CO Colorado Springs RI, Denver Downtown RI, Boulder RI,
Denver South RI
DE Wilmington RI
FL Boca Raton RI
FL Jacksonville RI
FL Lake Buena Vista RI,
FL Pensacola RI
FL St. Petersburg RI
GA Atlanta Midtown RI, Atlanta Alpharetta RI, Atlanta Airport RI,
Atlanta Buckhead RI
GA Atlanta Perimeter Mall RI
IL Chicago O'Hare RI, Deerfield-Chicago RI, Chicago Downtown RI,
Chicago Lombard
RI
IN Fort Wayne RI
IN Indianapolis North RI
KY Louisville RI, Lexington RI
LA Bossier City RI
MA Boston Tewksbury RI, Meriden RI, Boston Westborough RI, Danvers RI
MA Cambridge Residence Inn by Marriott
MD Annapolis RI, Bethesda RI
MI East Lansing RI, Dearborn RI, Ann Arbor RI, Troy Central RI
MI Troy South RI, Southfield Michigan RI, Warren RI, Grand Rapids RI,
Kalamazoo RI
MN Eden Prairie RI
MO St. Louis Chesterfield RI, St. Louis Galleria RI, St. Louis
Westport RI
NC Charlotte North RI
NC Durham RI, Greensboro RI
NC Raleigh RI,
NC Winston-Salem RI
NE Omaha Central RI
NM Santa Fe RI, Albuquerque RI
NV Las Vegas Hughes Center
NV Las Vegas RI
NY East Syracuse RI
OH Akron RI, Blue Ash RI, Cincinnati North RI, Columbus East &
North RI
<PAGE>
03/02/2000 Page Number: 9
Marriott International, Inc.
Domestic Corporations
Assumed Names Report
OH Dayton North & South RI, Dublin Ohio RI, Toledo RI
OK Oklahoma City RI
PA Willow Grove RI, Philadelphia Airport RI, Greentree RI, Berwyn RI
SC Columbia RI
TN Maryland Farms RI, Memphis RI
TX Dallas Central Expressway RI, Dallas Market Center RI, Houston
Astrodome RI,
Houston Clear Lake RI
TX Houston Southwest RI, Las Colinas RI, Lubbock RI, Tyler RI
TX San Antonio Residence Inn by Marriott (Bexar, Travis Counties)
UT Residence Inn at the Cottonwoods
VA Herndon RI
WA Residence Inn Redmon
WI Green Bay RI
Corporation: Springhill SMC Corporation
State Assumed Name
TX Arlington Springhill Suites
Corporation: The Ritz-Carlton Hotel Company, L.L.C.
State Assumed Name
DC The Fairfax Club (see note)
HI The Ritz-Carlton, Kapalua
MA The Ritz-Carlton, Boston
VA The Ritz-Carlton, Tysons Corner
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, dated February 29, 2000, included in this Form 10-K, into the
Company's previously filed Registration Statements Files No. 333-48407,
No. 333-48417, No. 333-58747, No. 333-77093, No. 333-77827 and No. 333-94697.
Vienna, VA
March 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-02-1998 JAN-01-1999 DEC-31-1999
<PERIOD-START> JAN-04-1997 JAN-03-1998 JAN-02-1999
<PERIOD-END> JAN-02-1998 JAN-01-1999 DEC-31-1999
<CASH> 208 390 489
<SECURITIES> 0 0 0
<RECEIVABLES> 489 605 740
<ALLOWANCES> 0 0 0
<INVENTORY> 91 75 93
<CURRENT-ASSETS> 992 1,333 1,600
<PP&E> 1,537 2,275 2,845
<DEPRECIATION> 312 364 427
<TOTAL-ASSETS> 5,161 6,233 7,324
<CURRENT-LIABILITIES> 1,250 1,412 1,743
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 3 3
<OTHER-SE> 2,586 2,567 2,905
<TOTAL-LIABILITY-AND-EQUITY> 5,161 6,233 7,324
<SALES> 7,236 7,968 8,739
<TOTAL-REVENUES> 7,236 7,968 8,739
<CGS> 0 0 0
<TOTAL-COSTS> 6,627 7,232 7,909
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 22 30 61
<INCOME-PRETAX> 531 632 637
<INCOME-TAX> 207 242 237
<INCOME-CONTINUING> 324 390 400
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 324 390 400
<EPS-BASIC> 1.27 1.56 1.62
<EPS-DILUTED> 1.19 1.46 1.51
</TABLE>
<PAGE>
EXHIBIT 99
Forward-Looking Statements
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report or presented elsewhere by management.
Dependence on Others: Our present growth strategy for development of additional
lodging and senior living facilities entails entering into and maintaining
various arrangements with present and future property owners, including Host
Marriott Corporation, Crestline Capital Corporation and New World Development
Company Limited. There can be no assurance that any of our current strategic
arrangements will continue, or that we will be able to enter into future
collaborations.
Contract Terms for New Units: The terms of the operating contracts, distribution
agreements, franchise agreements and leases for each of our lodging facilities
and senior living communities are influenced by contract terms offered by our
competitors at the time such agreements are entered into. Accordingly, we
cannot assure you that contracts entered into or renewed in the future will be
on terms that are as favorable to us as those under existing agreements.
Competition: The profitability of hotels, vacation timeshare resorts, senior
living communities, and distribution centers we operate is subject to general
economic conditions, competition, the desirability of particular locations, the
relationship between supply of and demand for hotel rooms, vacation timeshare
resorts, senior living facilities, and distribution services, and other factors.
We generally operate in markets that contain numerous competitors and our
continued success will depend, in large part, upon our ability to compete in
such areas as access, location, quality of accommodations, amenities,
specialized services, cost containment and, to a lesser extent, the quality and
scope of food and beverage services and facilities.
Supply and Demand: The lodging industry may be adversely affected by (1) supply
additions, (2) international, national and regional economic conditions, (3)
changes in travel patterns, (4) taxes and government regulations which influence
or determine wages, prices, interest rates, construction procedures and costs,
and (5) the availability of capital to allow us and potential hotel and senior
living community owners to fund investments. Our timeshare and senior living
service businesses are also subject to the same or similar uncertainties and,
accordingly, we cannot assure you that the present level of demand for timeshare
intervals and senior living communities will continue, or that there will not be
an increase in the supply of competitive units, which could reduce the prices at
which we are able to sell or rent units.
Internet Reservation Channels: A significant percentage of our hotel rooms are
booked through internet travel intermediaries such as Expedia, Travelocity and
Priceline. As this percentage increases, these intermediaries may be able to
obtain higher commissions, reduced room rates or other significant contract
concessions from us. Moreover, some of these internet travel intermediaries are
attempting to commoditize hotel rooms, by increasing the importance of price and
general indicators of quality (such as "three-star downtown hotel") at the
expense of brand identification. These agencies hope that consumers will
eventually develop brand loyalties to their reservations systems rather than to
our lodging brands. If this happens our business and profitability may be
significantly harmed.
