<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended June 16, 2000 Commission File No. 1-13881
MARRIOTT INTERNATIONAL, INC.
Delaware 52-2055918
(State of Incorporation) (I.R.S. Employer Identification Number)
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes |X| No |_|
Shares outstanding
Class at July 20, 2000
--------------------------------- ---------------------------------
Class A Common Stock, 240,069,603
$0.01 par value
<PAGE>
MARRIOTT INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
-----------
<S> <C> <C>
Forward-Looking Statements ................................................................ 3
Part I. Financial Information (Unaudited):
Condensed Consolidated Statements of Income -
Twelve and Twenty-Four Weeks Ended June 16, 2000 and June 18, 1999 ................... 4
Condensed Consolidated Balance Sheet -
as of June 16, 2000 and December 31, 1999 ............................................ 5
Condensed Consolidated Statement of Cash Flows -
Twenty-Four Weeks Ended June 16, 2000 and June 18, 1999 .............................. 6
Notes to Condensed Consolidated Financial Statements .................................... 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................................ 14
Quantitative and Qualitative Disclosures About Market Risk .............................. 20
Part II. Other Information and Signatures:
Legal Proceedings ....................................................................... 21
Changes in Securities ................................................................... 21
Defaults Upon Senior Securities ......................................................... 21
Submission of Matters to a Vote of Security Holders ..................................... 21
Other Information ....................................................................... 22
Exhibits and Reports on Form 8-K ........................................................ 22
Signatures .............................................................................. 23
</TABLE>
2
<PAGE>
Forward-Looking Statements
When used throughout this report, the words "believes," "anticipates,"
"expects," "intends," "estimates," "projects," and other similar expressions,
which are predictions of or indicate future events and trends, identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties which could cause actual results to differ materially from those
projected, including: competition within each of our business segments; business
strategies and their intended results; the balance between supply of and demand
for hotel rooms, timeshare units, senior living accommodations and corporate
apartments; our ability to obtain new operating contracts and franchise
agreements; our ability to develop and maintain positive relations with current
and potential hotel and senior living community owners; the effect of
international, national and regional economic conditions; the availability of
capital to allow us and potential hotel and senior living community owners to
fund investments; satisfaction of the conditions to consummation of the
litigation settlement transactions referred to below; and other risks described
from time to time in our filings with the Securities and Exchange Commission,
including those set forth on Exhibit 99 filed herewith. Given these
uncertainties, we caution you not to place undue reliance on such statements. We
also undertake no obligation to publicly update or revise any forward-looking
statement to reflect current or future events or circumstances.
3
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
($ in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
------------------------------ -------------------------------
June 16, June 18, June 16, June 18,
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
SALES .............................................. $ 2,391 $ 2,042 $ 4,558 $ 3,937
OPERATING COSTS AND EXPENSES ....................... 2,144 1,826 4,118 3,528
------------- ------------- ------------- --------------
OPERATING PROFIT BEFORE CORPORATE
EXPENSES AND INTEREST ............................ 247 216 440 409
Corporate expenses ................................. (25) (28) (51) (57)
Interest expense ................................... (27) (11) (50) (22)
Interest income .................................... 5 6 10 13
------------- ------------- ------------- --------------
INCOME BEFORE INCOME TAXES ......................... 200 183 349 343
Provision for income taxes ......................... 74 69 129 129
------------- ------------- ------------- --------------
NET INCOME ......................................... $ 126 $ 114 $ 220 $ 214
============= ============= ============= ==============
DIVIDENDS DECLARED PER SHARE ....................... $ .06 $ .055 $ .115 $ .105
============= ============= ============= ==============
EARNINGS PER SHARE
Basic Earnings Per Share ...................... $ .53 $ .46 $ .91 $ .87
============= ============= ============= ==============
Diluted Earnings Per Share .................... $ .50 $ .42 $ .87 $ .80
============= ============= ============= ==============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
<TABLE>
<CAPTION>
June 16, December 31,
2000 1999
---------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and equivalents ....................................................... $ 410 $ 489
Accounts and notes receivable .............................................. 750 740
Inventory .................................................................. 110 93
Other ...................................................................... 283 278
---------------- -----------------
1,553 1,600
---------------- -----------------
Property and equipment ........................................................ 3,001 2,845
Intangibles ................................................................... 1,815 1,820
Investments in affiliates ..................................................... 336 294
Notes and other receivables ................................................... 548 473
Other ......................................................................... 305 292
---------------- -----------------
$ 7,558 $ 7,324
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ........................................................... $ 561 $ 628
Other ...................................................................... 1,144 1,115
---------------- -----------------
1,705 1,743
---------------- -----------------
Long-term debt ................................................................ 1,958 1,676
Other long-term liabilities ................................................... 1,025 997
Shareholders' equity
ESOP preferred stock
Class A common stock, 255.6 million shares issued .......................... 3 3
Additional paid-in capital ................................................. 3,749 2,738
Retained earnings .......................................................... 641 508
Unearned ESOP shares ....................................................... (991) -
Treasury stock, at cost .................................................... (492) (305)
Accumulated other comprehensive income ..................................... (40) (36)
---------------- -----------------
2,870 2,908
---------------- -----------------
$ 7,558 $ 7,324
================ =================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in millions)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-four weeks ended
-------------------------------------
June 16, June 18,
2000 1999
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................................... $ 220 $ 214
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization ......................................... 87 69
Income taxes and other ................................................ 103 63
Timeshare activity, net ............................................... (73) 13
Working capital changes ............................................... (62) 10
----------------- ----------------
Cash provided by operations .............................................. 275 369
----------------- ----------------
INVESTING ACTIVITIES
Acquisitions ............................................................. -- (55)
Dispositions ............................................................. 294 235
Capital expenditures ..................................................... (455) (394)
Note advances ............................................................ (88) (68)
Note collections and sales ............................................... 21 20
Other .................................................................... (103) (96)
----------------- ----------------
Cash used in investing activities ........................................ (331) (358)
----------------- ----------------
FINANCING ACTIVITIES
Commercial paper activity, net .......................................... (21) (107)
Issuance of other long-term debt ......................................... 304 6
Repayment of other long-term debt ........................................ (7) (37)
Issuance of Class A common stock ......................................... 14 34
Dividends paid ........................................................... (27) (25)
Purchase of treasury stock ............................................... (286) (32)
----------------- ----------------
Cash used in financing activities ........................................ (23) (161)
----------------- ----------------
DECREASE IN CASH AND EQUIVALENTS ............................................ (79) (150)
CASH AND EQUIVALENTS, beginning of period ................................... 489 390
----------------- ----------------
CASH AND EQUIVALENTS, end of period ......................................... $ 410 $ 240
================= ================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements present the
results of operations, financial position and cash flows of Marriott
International, Inc. (together with its subsidiaries, we, us or the
Company).
The accompanying condensed consolidated financial statements have not been
audited. We have condensed or omitted certain information and footnote
disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles. We believe the
disclosures made are adequate to make the information presented not
misleading. However, you should read the condensed consolidated financial
statements in conjunction with the consolidated financial statements and
notes to those financial statements included in our Annual Report on Form
10-K (our Annual Report) for the fiscal year ended December 31, 1999.
Capitalized terms not otherwise defined in this quarterly report have the
meanings specified in our Annual Report.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the financial statements, and the reported amounts of sales
and expenses during the reporting period. Accordingly, ultimate results
could differ from those estimates.
In our opinion, the accompanying condensed consolidated financial
statements reflect all adjustments necessary to present fairly our
financial position as of June 16, 2000 and December 31, 1999, the results
of operations for the twelve and twenty-four weeks ended June 16, 2000 and
June 18, 1999 and cash flows for the twenty-four weeks ended June 16, 2000
and June 18, 1999. Interim results may not be indicative of fiscal year
performance because of seasonal and short-term variations. We have
eliminated all material intercompany transactions and balances between
entities included in these financial statements.
7
<PAGE>
2. Earnings Per Share
------------------
The following table reconciles the earnings and number of shares used in
the basic and diluted earnings per share calculations (in millions, except
per share amounts).
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
----------------------------- -----------------------------
June 16, June 18, June 16, June 18,
2000 1999 2000 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Computation of Basic Earnings Per Share
Net income................................... $ 126 $ 114 $ 220 $ 214
Weighted average shares outstanding.......... 239.7 249.5 241.9 247.3
------------ ------------- ------------ -------------
Basic Earnings Per Share .................... $ .53 $ .46 $ .91 $ .87
============ ============= ============ =============
Computation of Diluted Earnings Per Share
Net income................................... $ 126 $ 114 $ 220 $ 214
After-tax interest expense on convertible
subordinated debt......................... - 2 - 4
------------ ------------- ------------ -------------
Net income for diluted earnings per share.... $ 126 $ 116 $ 220 $ 218
============ ============= ============ =============
Weighted average shares outstanding.......... 239.7 249.5 241.9 247.3
Effect of Dilutive Securities
Employee stock purchase plan.............. - 0.1 - 0.1
Employee stock option plan................ 7.0 9.2 6.5 9.4
Deferred stock incentive plan............. 5.1 5.1 5.1 5.3
Convertible subordinated debt................ - 9.5 - 9.5
------------ ------------- ------------ -------------
Shares for diluted earnings per share........ 251.8 273.4 253.5 271.6
============ ============= ============ =============
Diluted Earnings Per Share................... $ .50 $ .42 $ .87 $ .80
============ ============= ============ =============
</TABLE>
We compute the effect of dilutive securities using the treasury stock method and
average market prices during the period. We use the if-converted method for
convertible subordinated debt.
8
<PAGE>
3. Acquisition
-----------
ExecuStay Corporation. On February 17, 1999, we completed a cash tender
offer for approximately 44 percent of the outstanding common stock of
ExecuStay Corporation (ExecuStay), a leading provider of leased corporate
apartments in the United States. On February 24, 1999, substantially all of
the remaining common stock of ExecuStay was converted into nonvoting
preferred stock of ExecuStay which we acquired, on March 26, 1999, for
approximately 2.1 million shares of our Class A Common Stock. Our aggregate
purchase price totaled $116 million. We consolidated the operating results
of ExecuStay from February 24, 1999, and have accounted for the acquisition
using the purchase method of accounting. We are amortizing the resulting
goodwill on a straight-line basis over 30 years.
4. Dispositions
------------
Senior Living Services. On April 28, 2000, we sold 14 senior living
communities for cash proceeds of $194 million. We simultaneously entered
into long-term management agreements for the communities with a third party
tenant which leases the communities from the buyer. In connection with the
sale we provided a credit facility to the buyer to be used, if necessary,
to meet its debt service requirements. The buyer's obligation to repay us
under the facility is guaranteed by an unaffiliated third party. We also
extended a limited credit facility to the tenant to cover operating
shortfalls, if any.
Lodging. On June 15, 2000, we agreed to sell, subject to long-term
management agreements, 10 lodging properties for $145 million in cash.
Sales of eight of the properties were completed simultaneously with the
signing of the agreement, and the remaining two properties are expected to
be sold in the fourth quarter of 2000, upon completion of construction. The
properties will be leased from the buyer by an unaffiliated third party
tenant, which has also agreed to become the tenant on nine other properties
sold and leased back by us in 1997 and 1998. We now plan to manage these
nine previously leased properties under long-term management agreements,
and the gains on the sales of these properties will be recognized as our
leases are cancelled throughout 2000.
5. Comprehensive Income
--------------------
Total comprehensive income was $127 million and $113 million, respectively,
for the twelve weeks ended June 16, 2000 and June 18, 1999 and $216 million
and $203 million, respectively, for the twenty-four weeks ended June 16,
2000 and June 18, 1999. The principal difference between net income and
total comprehensive income relates to foreign currency translation
adjustments.
6. Intangible Assets
-----------------
In 1996, MDS became the exclusive provider of distribution services to
Boston Chicken, Inc. (BCI). On October 5, 1998, BCI and its Boston
Market-controlled subsidiaries filed voluntary bankruptcy petitions for
protection under Chapter 11 of the Federal Bankruptcy Code in the U.S.
Bankruptcy Court in Phoenix (the Court). In December 1999, McDonald's
Corporation (McDonald's) announced that it had reached a definitive
agreement to purchase the majority of the assets of BCI subject to
confirmation of the pending BCI plan of reorganization, including Court
approval. In March 2000, MDS reached an agreement with McDonald's on a new
contract providing for continuation of distribution services to Boston
Market restaurants. Because the existing distribution contract was
terminated upon confirmation of the pending reorganization, MDS wrote off
the unamortized balance of the existing investment, resulting in a $15
million pretax charge in the first quarter of 2000. In
9
<PAGE>
June 2000, McDonald's completed its acquisition of Boston Market. MDS is
now providing distribution services under the contract with McDonald's.
7. New Accounting Standards
------------------------
We will adopt Financial Accounting Standard (FAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which we do not expect to
have a material effect on our consolidated financial statements, in or
before the first quarter of 2001.
We will adopt the SEC's Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," in the fourth quarter of 2000.
Implementation of SAB No. 101 is expected to have no impact on annual
earnings or the timing of revenue and profit recognition between quarters
during the year.
8. Business Segments
-----------------
We are a diversified hospitality company operating in three business
segments: Lodging, which includes the development, ownership, operation and
franchising of lodging properties, including vacation timesharing resorts;
Senior Living Services, which consists of the development, ownership and
operation of senior living communities; and Distribution Services, which
operates a wholesale food distribution business. We evaluate the
performance of our segments based primarily on operating profit before
corporate expenses and interest. We do not allocate income taxes at the
segment level.
The following table shows our sales and operating profit by business
segment for the twelve and twenty-four weeks ended June 16, 2000 and June
18, 1999.
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
--------------------------- ----------------------------
June 16, June 18, June 16, June 18,
2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
SALES
Lodging .......................................... $ 1,860 $ 1,659 $ 3,571 $ 3,182
Senior Living Services ........................... 150 124 299 244
Distribution Services ............................ 381 259 688 511
------------ ------------ ------------ -------------
$ 2,391 $ 2,042 $ 4,558 $ 3,937
============ ============ ============ =============
OPERATING PROFIT BEFORE CORPORATE
EXPENSES AND INTEREST
Lodging .......................................... $ 244 $ 210 $ 447 $ 397
Senior Living Services ........................... (3) 1 (1) 3
Distribution Services ............................ 6 5 (6) 9
------------ ------------ ------------ -------------
$ 247 $ 216 $ 440 $ 409
============ ============ ============ =============
</TABLE>
Sales of Distribution Services do not include sales (made at market terms
and conditions) to our other business segments of $43 million and $39
million for the twelve weeks ended June 16, 2000 and June 18, 1999,
respectively, and $82 million and $76 million for the twenty-four weeks
ended June 16, 2000 and June 18, 1999.
10
<PAGE>
9. Contingencies
-------------
We issue guarantees to lenders and other third parties in connection with
financing and other transactions. These guarantees were limited, in the
aggregate, to $180 million at June 16, 2000, including guarantees involving
major customers, with no expected funding. As of June 16, 2000, we had
extended approximately $595 million of loan commitments to owners of
lodging and senior living communities under which we expect to fund $374
million. Letters of credit outstanding on our behalf at June 16, 2000,
totaled $76 million, the majority of which related to our self-insurance
programs. At June 16, 2000, we had repurchase obligations of $100 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, including approval by the court and
consent of the requisite holders of limited partnership units, there can be
no assurances that the settlement transactions will be consummated and, if
consummated, terms could differ materially from those described below.
Under the agreement, we expect to acquire, through an unconsolidated joint
venture with Host Marriott Corporation (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 an estimated $188 million in mezzanine debt loaned
to the joint venture by us and with equity contributed in equal shares by
us and an affiliate of Host Marriott. We will continue to manage these 120
hotels under long-term agreements. Also, we and Host Marriott each have
agreed to pay approximately $31 million to the plaintiffs in the Texas
Multi-Partnership lawsuit described below in exchange for dismissal of the
complaints and full releases. A fairness hearing scheduled for August 28,
2000 has been postponed because certain third party consents required for
consumation of the settlement transaction are taking longer to obtain than
the parties anticipated. We anticipate that a new hearing date will be
scheduled for some time in September.
We recorded a pretax charge of $39 million which was included in corporate
expenses in the fourth quarter of 1999, to reflect the 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.
11
<PAGE>
Courtyard by Marriott II Limited Partnership Litigation
On June 7, 1996, a group of partners in CBM II filed a lawsuit against Host
Marriott, the Company and others, Whitey Ford, et al. v. Host Marriott
Corporation, et al., in the 285th Judicial District Court of Bexar County,
Texas, alleging breach of fiduciary duty, breach of contract, fraud,
negligent misrepresentation, tortious interference, violation of the Texas
Free Enterprise and Antitrust Act of 1983 and conspiracy in connection with
the formation, operation and management of CBM II and its hotels. The
plaintiffs sought unspecified damages. On January 29, 1998, two other
limited partners, A.R. Milkes and D.R. Burklew, filed a petition in
intervention seeking to convert the lawsuit into a class action, and a
class was certified. In March 1999, Palm Investors, L.L.C., the assignee of
a number of limited partnership units acquired through various tender
offers, and Equity Resource, an assignee of a number of limited partnership
units, through various of its funds, filed pleas in intervention, which
among other things added additional claims relating to the 1993 split of
Marriott Corporation and to the 1995 refinancing of CBM II's indebtedness.
On August 17, 1999, the general partner of CBM II appointed an independent
special litigation committee to investigate the derivative claims described
above and to recommend to the general partner whether it was in the best
interests of CBM II for the derivative litigation to proceed. The general
partner agreed to adopt the recommendation of the committee. Under Delaware
law, the recommendation of a duly appointed independent litigation
committee is binding on the general partner and the limited partners.
Following certain adjustments to the underlying complaints, including the
assertion as derivative claims some of the claims previously filed as
individual claims, a final amended class action complaint was filed on
January 6, 2000. Trial, which was scheduled to begin in late February,
2000, was 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 57th Judicial District Court of Bexar
County, Texas, alleging that the defendants conspired to sell hotels to the
partnerships for inflated prices and that they charged the partnerships
excessive management fees to operate the partnerships' hotels. The
plaintiffs further allege that the defendants committed fraud, breached
fiduciary duties and violated the provisions of various contracts. A
Marriott International subsidiary manages each of the hotels involved and,
as to some properties, the Company is the ground lessor and collects rent.
The Company, several Marriott subsidiaries and J.W. Marriott, Jr. are among
the several named defendants. The plaintiffs are seeking unspecified
damages.
10. Employee Stock Ownership Plan
-----------------------------
During the second quarter of 2000 we established an employee stock
ownership plan (the ESOP) to fund employer contributions to the profit
sharing plan. The ESOP acquired 100,000 shares of special-purpose Company
convertible preferred stock (ESOP Preferred Stock) for $1.0 billion. The
ESOP Preferred Stock has a stated value and liquidation preference of
$10,000 per share and pays a quarterly dividend of one percent of the
stated value. It is convertible into our Class A Common Stock at any time
based on the amount of our contributions to the ESOP and the market price
of the common stock on the conversion date, subject to certain caps and a
floor price. We hold a note from the ESOP, which is eliminated in
consolidation, for the purchase price of the ESOP
12
<PAGE>
Preferred Stock. The shares of ESOP Preferred Stock are pledged as
collateral for the repayment of the ESOP's note and those shares are
released from the pledge as principal on the note is repaid. Shares of ESOP
Preferred Stock released from the pledge may be redeemed for cash based on
the value of the common stock into which those shares may be converted.
Principal and interest payments on the ESOP's debt are expected to be
forgiven periodically to fund contributions to the ESOP and release shares
of ESOP Preferred Stock. Unearned ESOP shares are reflected within
shareholders' equity and will be amortized as shares of ESOP Preferred
Stock are released and cash is allocated to employees' accounts.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of our operations for
the twelve and twenty-four weeks ended June 16, 2000 and June 18, 1999.
Comparable REVPAR, room rate and occupancy statistics used throughout this
report are based upon U.S. properties operated by us, except that data for
Fairfield Inn also include comparable franchised units.
Twelve Weeks Ended June 16, 2000 Compared to Twelve Weeks Ended June 18, 1999
-----------------------------------------------------------------------------
We reported net income of $126 million for the 2000 second quarter on sales of
$2,391 million. This represents an 11 percent increase in net income and a 17
percent increase in sales over the second quarter of 1999. Diluted earnings per
share of $.50 for the quarter increased 19 percent compared to the 1999 amount.
Systemwide sales increased to $4.8 billion.
Marriott Lodging reported a 16 percent increase in operating profit on 12
percent higher sales. Systemwide lodging sales increased to $4.2 billion.
We added a total of 47 lodging properties (6,200 units) during the second
quarter of 2000, and deflagged five properties (700 units), increasing our total
properties to 1,962 (367,200 units). Properties by brand (excluding 6,700 rental
units relating to ExecuStay) are as indicated in the following table.
<TABLE>
<CAPTION>
Properties as of June 16, 2000
-----------------------------------------------------------
Company-operated Franchised
---------------------------- ------------------------------
Properties Rooms Properties Rooms
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites ....................... 233 102,280 139 40,558
Ritz-Carlton .............................................. 36 11,740 -- --
Renaissance Hotels, Resorts and Suites .................... 76 30,326 23 8,456
Ramada International ...................................... 7 1,325 20 4,300
Residence Inn ............................................. 136 18,222 200 21,709
Courtyard ................................................. 272 41,932 221 27,790
Fairfield Inn .............................................. 51 7,138 375 32,924
TownePlace Suites ......................................... 28 2,898 46 4,485
SpringHill Suites ......................................... 7 804 38 3,754
Marriott Vacation Club International ...................... 45 4,922 -- --
Marriott Executive Apartments and other ................... 9 1,641 -- --
------------- ------------- -------------- --------------
Total .................................................. 900 223,228 1,062 143,976
============= ============= ============== ==============
</TABLE>
Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 7.6 percent in the second quarter 2000. Average
room rates for these hotels rose 5.7 percent and occupancy increased to 81.9
percent. Occupancy, average daily rate and REVPAR for each of our principal
established brands is shown in the following table.
14
<PAGE>
<TABLE>
<CAPTION>
Twelve weeks
ended Change vs.
June 16, 2000 1999
--------------------- ------------------
<S> <C> <C>
Marriott Hotels, Resorts and Suites
Occupancy ....................................... 82.3% +2.0% pts.
Average daily rate .............................. $ 150.29 +5.5%
REVPAR .......................................... $ 123.69 +8.1%
Ritz-Carlton
Occupancy ....................................... 82.6% +1.0% pts.
Average daily rate .............................. $ 252.19 +8.6%
REVPAR .......................................... $ 208.37 +9.9%
Renaissance Hotels, Resorts and Suites
Occupancy ....................................... 77.5% +2.3% pts.
Average daily rate .............................. $ 145.49 +3.9%
REVPAR .......................................... $ 112.72 +7.0%
Residence Inn
Occupancy ....................................... 86.2% +1.4% pts.
Average daily rate .............................. $ 105.54 +4.7%
REVPAR .......................................... $ 90.95 +6.4%
Courtyard
Occupancy ....................................... 82.5% +0.6% pts.
Average daily rate .............................. $ 98.30 +5.6%
REVPAR .......................................... $ 81.08 +6.3%
Fairfield Inn
Occupancy ....................................... 73.9% -0.5% pts.
Average daily rate .............................. $ 61.00 +3.5%
REVPAR .......................................... $ 45.10 +2.9%
</TABLE>
Across our full-service lodging brands (Marriott Hotels, Resorts and Suites,
Ritz-Carlton and Renaissance Hotels, Resorts and Suites), REVPAR for comparable
company-operated U.S. properties grew by an average of 8.2 percent in the 2000
second quarter. Average room rates for these hotels rose 5.6 percent, while
occupancy increased two full percentage points.
Our domestic select-service and extended-stay brands (Residence Inn, Courtyard,
Fairfield Inn, TownePlace Suites and SpringHill Suites) added a net of 37
properties, primarily franchises, during the second quarter of 2000. REVPAR for
comparable properties increased 6.1 percent to $78. While REVPAR comparisons
were stronger in the northeast and west, softer results in the midwest reflected
industry supply growth in certain markets.
Results for International Lodging operations continued to be favorable in the
second quarter 2000, reflecting strong demand in the Middle East, Asia as well
as Europe, despite a decline in the value of the Euro against the U.S. dollar.
Marriott Vacation Club International also posted favorable profit growth in the
2000 second quarter on a 26 percent increase in contract sales. Results reflect
continued strong demand for timeshares in Hawaii, Aruba and California, as well
as a growing interest in our newest timeshare brands, Horizons in Orlando,
Florida and Ritz-Carlton Club resorts in St. Thomas, U.S. Virgin Islands, and
Aspen, Colorado.
15
<PAGE>
The Marketplace by Marriott (Marketplace), our hospitality procurement
business, reported a 45 percent increase in revenues in the second quarter. Late
this year, Marketplace will be combined with Rosemont purchasing, Hyatt
Corporation's affiliated procurement business, to form an independent
comprehensive electronic procurement network servicing the hospitality industry.
Marriott Senior Living Services posted 21 percent sales growth in the 2000
second quarter, reflecting the addition of 26 properties operated in the last 12
months and an increase in occupancy for comparable communities to 87 percent.
Despite the increase in sales, profitability was hurt by start-up inefficiencies
for new properties, preopening expenses and write-offs relating to development
cancellations, resulting in a $3 million operating loss.
Marriott Distribution Services (MDS) posted a 47 percent increase in sales in
the 2000 second quarter, 23 percent growth in cases shipped and 20 percent
profit growth, reflecting the commencement of service to three large restaurant
chains beginning this year.
Corporate activity. Interest expense in second quarter 2000 increased by $16
million as a result of borrowings to finance growth and share repurchases, as
well as higher interest rates. Corporate expenses decreased $3 million primarily
due to a non-cash foreign exchange gain. The effective income tax rate decreased
from 37.5 percent to 37.0 percent primarily due to the increased proportion of
operations in countries with lower effective tax rates.
Twenty-Four Weeks Ended June 16, 2000 Compared to Twenty-Four Weeks Ended
-------------------------------------------------------------------------
June 18, 1999
-------------
We reported net income of $220 million for the first half of 2000 on sales of
$4,558 million. This represents a three percent increase in net income and a 16
percent increase in sales over the same period in 1999. Diluted earnings per
share of $.87 for the quarter increased nine percent compared to 1999.
Systemwide sales increased to $9.1 billion.
Marriott Lodging reported a 13 percent increase in operating profit on 12
percent higher sales. Systemwide lodging sales increased to $8 billion.
We added a total of 93 lodging properties (13,500 units) during the first half
of 2000, and deflagged 11 properties (2,100 units).
16
<PAGE>
Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 5.5 percent in 2000. Average room rates for
these hotels rose 5.3 percent, while occupancy increased to 78.9 percent.
Occupancy, average daily rate and REVPAR for each of our principal established
brands is shown in the following table.
<TABLE>
<CAPTION>
Twenty-four
weeks ended Change vs.
June 16, 2000 1999
---------------------- ------------------
<S> <C> <C>
Marriott Hotels, Resorts and Suites
Occupancy ....................................... 79.1% +0.4% pts.
Average daily rate .............................. $ 149.18 +5.1%
REVPAR .......................................... $ 118.01 +5.6%
Ritz-Carlton
Occupancy ....................................... 80.6% +0.3% pts.
Average daily rate .............................. $ 252.04 +7.6%
REVPAR .......................................... $ 203.14 +8.0%
Renaissance Hotels, Resorts and Suites
Occupancy ....................................... 75.1% +1.6% pts.
Average daily rate .............................. $ 144.77 +4.0%
REVPAR .......................................... $ 108.70 +6.2%
Residence Inn
Occupancy ....................................... 83.7% +0.5% pts.
Average daily rate .............................. $ 103.83 +4.2%
REVPAR .......................................... $ 86.90 +4.9%
Courtyard
Occupancy ....................................... 79.4% -0.5% pts.
Average daily rate .............................. $ 97.24 +5.0%
REVPAR .......................................... $ 77.17 +4.3%
Fairfield Inn
Occupancy ....................................... 69.8% -1.7% pts.
Average daily rate .............................. $ 60.27 +4.1%
REVPAR .......................................... $ 42.06 +1.6%
</TABLE>
Across our full-service lodging brands (Marriott Hotels, Resorts and Suites,
Ritz-Carlton and Renaissance Hotels, Resorts and Suites), REVPAR for comparable
company-operated U.S. properties grew by an average of six percent during the
first half of 2000. Average room rates for these hotels rose 5.2 percent, while
occupancy increased to 78.6 percent.
Our domestic select-service and extended-stay brands (Residence Inn, Courtyard,
Fairfield Inn, TownePlace Suites and SpringHill Suites) added a net of 168
properties, primarily franchises, since the second quarter of 1999. During the
first half of 2000, REVPAR for these brands increased 4.3 percent.
Results for international lodging operations were favorable during the first
half of 2000, reflecting strong demand in the Middle East, Asia as well as
Europe, despite a decline in the value of the Euro against the U.S. dollar.
Marriott Vacation Club International posted strong growth during the first half
of 2000 on a 20 percent increase in contract sales. Results reflect continued
solid demand for
17
<PAGE>
timeshares in Hawaii, Aruba and California as well as a growing interest in our
newest brands, Horizons in Orlando, Florida and Ritz-Carlton Club resorts in St.
Thomas, U.S. Virgin Islands, and Aspen, Colorado.
Marriott Senior Living Services posted a 23 percent increase in sales in the
first half of 2000, reflecting an increase in occupancy for comparable
communities to 87 percent. Despite the increase in sales, profitability was hurt
by start-up inefficiencies for new properties, preopening expenses and write-
offs relating to development cancellations, resulting in a $1 million operating
loss.
Marriott Distribution Services (MDS) posted a 35 percent increase in sales,
reflecting the commencement of service to three large restaurant chains
beginning this year. The operating profits associated with the new business were
more than offset by a $15 million pretax write-off of its investment in a
contract with Boston Chicken, Inc. (BCI), a major customer that filed for
bankruptcy in October 1998. McDonald's Corporation (McDonald's) acquired Boston
Market in 2000, and during the first quarter of 2000, MDS reached an agreement
with McDonald's to continue providing distribution services to Boston Market
restaurants (see "Intangible Assets" in the footnote to the consolidated
financial statements included in Item 1).
Corporate activity. Interest expense increased $28 million in the 2000 period as
a result of borrowings to finance growth outlays and share repurchases.
Corporate expenses decreased $6 million due to system-related modification costs
associated with year 2000 that were incurred in the first half of 1999, offset
by costs incurred in 2000 associated with new corporate systems and a non-cash
foreign exchange gain. The effective income tax rate decreased from 37.5 percent
to 37 percent primarily due to the increased proportion of operations in
countries with lower effective tax rates.
18
<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 monitor the status of the capital markets, and regularly evaluate the effect
that changes in capital market conditions may have on our ability to execute our
announced growth plans.
Cash and equivalents totaled $410 million at June 16, 2000, a decrease of $79
million from year end 1999. Cash provided by operations decreased 25 percent
compared to the same period in 1999 as a result of timeshare activity and
changes in working capital associated with timing difference. Net income is
stated after recording depreciation expense of $55 million and $39 million for
the twenty-four weeks ended June 16, 2000 and June 18, 1999, respectively, and
after amortization expense of $32 million and $30 million, respectively, for the
same time periods. Earnings before interest expense, income taxes, depreciation
and amortization (EBITDA) for the twenty-four weeks ended June 16, 2000
increased by $52 million, or 12 percent, to $486 million. EBITDA is an indicator
of operating performance which can be used to measure the Company's ability to
service debt, fund capital expenditures and expand its business. However, EBITDA
is not an alternative to net income, operating profit, cash from operations, or
any other operating or liquidity measure prescribed by generally accepted
accounting principles.
Net cash used in investing activities totaled $331 million for the twenty-four
weeks ended June 16, 2000, and consisted of capital expenditures for lodging
properties and notes receivable advances offset by disposition proceeds
primarily from the sale of 14 senior living communities and 10 lodging
properties.
We purchased 9.7 million shares of our Class A Common Stock in the twenty-four
weeks ended June 16, 2000, at a cost of $291 million. As of June 16, 2000, we
had been authorized by our Board of Directors to repurchase an additional 20.8
million shares.
In January 2000, we filed a "universal shelf" registration statement with the
Securities and Exchange Commission which, together with the authority remaining
under a universal shelf registration statement filed in April 1999, permitted us
to offer to the public up to $500 million of securities. On March 27, 2000, we
sold $300 million principal amount of 8-1/8 percent Series D Notes, which mature
in 2005, in a public offering made under our shelf registration statements. We
received net proceeds of approximately $298 million from this offering, after
paying underwriting discounts, commissions and offering expenses. After giving
effect to the issuance of the Series D Notes, we have remaining capacity under
our January 2000 shelf registration statement to offer to the public up to $200
million of debt securities, common stock or preferred stock.
In 1996, MDS became the exclusive provider of distribution services to
Einstein/Noah Bagel Corp. (ENBC), which operates over 460 bagel shops in 29
states. In March 2000, ENBC disclosed that its independent auditors had
expressed substantial doubt about ENBC's ability to continue as a going concern,
due to its inability to meet certain financial obligations. On April 27, 2000,
ENBC and its majority-owned operating subsidiary filed voluntary bankruptcy
petitions for protection under Chapter 11 of the Federal Bankruptcy code in the
U.S. Bankruptcy Court for the District of Arizona in Phoenix. On April 28, 2000,
the bankruptcy court approved a $31
19
<PAGE>
million debtor-in-possession credit facility to allow for operation of the
companies during reorganization, and also approved the payment in the ordinary
course of business of prepetition trade creditor claims, including those of MDS,
subject to recovery by the debtors under certain circumstances. MDS continues to
distribute to ENBC and has been receiving full payment in accordance with the
terms of its contractual agreement. If the contract were to terminate, or if
ENBC were to cease or substantially reduce its operations, MDS may be unable to
recover some or all of an aggregate of approximately $5 million in contract
investment and $12 million in receivables and inventory.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
------------------------------------------------------------------
There have been no material changes to our exposures to market risk since
December 31, 1999.
20
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
Incorporated by reference to the description of legal proceedings in the
"Contingencies" footnote in the financial statements set forth in Part I,
"Financial Information."
Item 2. Changes in Securities
------------------------------
In April 2000, we issued 100,000 shares of our ESOP Convertible Preferred Stock
(the "ESOP Stock") for $1.0 billion to an employee stock ownership plan (the
"ESOP") that we established to fund employer contributions to our profit sharing
plan. The issuance of the ESOP Stock qualified as a private placement under
Section 4(2) of the Securities Act of 1933, as amended. We received a note
receivable from the ESOP for the purchase price of the ESOP Stock. The ESOP
Stock has a stated value and liquidation value of $10,000 per share and pays a
quarterly dividend of one percent of the stated value. It is convertible into
our common stock at any time based on the amount of our contributions to the
ESOP and the market price of our common stock on the conversion date, subject to
certain caps and a floor price.
Item 3. Defaults Upon Senior Securities
----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
We held our Annual Meeting of Shareholders on April 28, 2000. The shareholders,
(1) re-elected directors Henry Cheng Kar-Shun, Floretta Dukes McKenzie, Roger W.
Sant and Lawrence M. Small to terms of office expiring at the 2003 Annual
Meeting of Shareholders; (2) ratified the appointment of Arthur Andersen LLP as
independent auditors; (3) ratified an increase of 15 million shares of our Class
A Common Stock authorized for issuance under Marriott International, Inc.'s 1998
Comprehensive Stock and Cash Incentive Plan; and (4) defeated a shareholder
proposal to adopt cumulative voting for the election of directors. The following
table sets forth the votes cast with respect to each of these matters.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
MATTER FOR AGAINST WITHHELD ABSTAIN
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Re-election of Henry Cheng Kar-Shun 2,055,699,120 59,981,030
-------------------------------------------------------------------------------------------------------------
Re-election of Floretta Dukes McKenzie 2,097,714,070 17,966,080
-------------------------------------------------------------------------------------------------------------
Re-election of Roger W. Sant 2,099,670,230 16,009,920
-------------------------------------------------------------------------------------------------------------
Re-election of Lawrence M. Small 2,100,279,410 15,400,740
-------------------------------------------------------------------------------------------------------------
Ratification of appointment of Arthur
Andersen LLP as independent auditors 2,104,329,950 4,060,390 7,289,810
-------------------------------------------------------------------------------------------------------------
Ratification of an increase of 15 million
shares of the Company's Class A Common
Stock authorized for issuance under
Marriott International, Inc.'s 1998
Comprehensive Stock and Cash
Incentive Plan 1,450,714,840 437,699,200 13,009,170
-------------------------------------------------------------------------------------------------------------
Proposal to adopt cumulative voting for
the election of directors 263,803,880 1,595,176,360 42,442,970
-------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Item 5. Other Information
--------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1 Certificate of Designation, Preferences and Rights of
the Marriott International, Inc. ESOP Convertible
Preferred Stock.
3.2 Certificate of Designation, Preferences and Rights of
the Marriott International, Inc. Capped Convertible
Preferred Stock.
12 Statement of Computation of Ratio of Earnings to
Fixed Charges.
27 Financial Data Schedule for the Company.
99 Forward-Looking Statements.
(b) Reports on Form 8-K
On March 27, 2000, we filed a report describing the issuance of $300
million of 8-1/8 percent Series D Notes due April 1, 2005 in an
underwritten public offering.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARRIOTT INTERNATIONAL, INC.
28th day of July, 2000
/s/ Arne M. Sorenson
-------------------------------
Arne M. Sorenson
Executive Vice President and
Chief Financial Officer
/s/ Linda A. Bartlett
-------------------------------
Linda A. Bartlett
Vice President and Controller
(Principal Accounting Officer)
23
