<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 20, 1997 Commission File No. 1-12188
MARRIOTT INTERNATIONAL, INC.
Delaware 52-0936594
- ------------------------ ----------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [_]
Class Shares outstanding
- ------------------- at July 18, 1997
Common Stock $1.00 ------------------
par value per share 127,288,106
<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
20, 1997 and June 14, 1996 4
Condensed Consolidated Balance Sheet -
as of June 20, 1997 and January 3, 1997 5
Condensed Consolidated Statement of Cash Flows -
Twenty-four Weeks Ended June 20, 1997 6
and June 14, 1996
Notes to Condensed Consolidated Financial Statements 7-9
Management's Discussion and Analysis of
Results of Operations and Financial Condition 10-16
Part II. Other Information and Signature:
Legal Proceedings 17
Changes in Securities 17
Defaults Upon Senior Securities 17
Submission of Matters to a Vote of Security Holders 18-19
Other Information 19
Exhibits and Reports on Form 8-K 20
Signature 21
</TABLE>
2
<PAGE>
FORWARD-LOOKING STATEMENTS
When used throughout this report, the words "believes", "anticipates",
"expects", "intends", "hopes" 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 the Company's business segments; the
balance between supply of and demand for hotel rooms, timeshare units and senior
living accommodations; the Company's continued ability to obtain new operating
contracts and franchise agreements; the Company's ability to develop and
maintain positive relations with current and potential hotel and retirement
community owners and contract services clients; the effect of international,
national and regional economic conditions; the availability of capital to fund
investments; the Company's ability to achieve synergies and performance
improvements subsequent to closing on acquisitions; and other risks described
from time to time in the Company's filings with the Securities and Exchange
Commission, including those set forth on Exhibit 99 filed herewith. Given these
uncertainties, readers are cautioned not to place undue reliance on such
statements. The Company also undertakes no obligation to publicly update or
revise any forward-looking statement to reflect current or future events or
circumstances.
3
<PAGE>
PART 1 -- 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 20, June 14, June 20, June 14,
1997 1996 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
SALES
Lodging
Rooms............................. $ 1,061 $ 856 $ 1,959 $ 1,637
Food and beverage................. 393 327 714 630
Other............................. 260 205 491 394
-------- -------- -------- --------
1,714 1,388 3,164 2,661
Contract Services................... 1,164 964 2,318 1,854
-------- -------- -------- --------
2,878 2,352 5,482 4,515
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Lodging
Departmental direct costs
Rooms............................. 232 191 428 375
Food and beverage................. 289 239 528 470
Other operating expenses......... 1,050 843 1,944 1,607
-------- -------- -------- --------
1,571 1,273 2,900 2,452
Contract Services................... 1,120 926 2,233 1,787
-------- -------- -------- --------
2,691 2,199 5,133 4,239
-------- -------- -------- --------
OPERATING PROFIT
Lodging............................. 143 115 264 209
Contract Services................... 44 38 85 67
-------- -------- -------- --------
Operating profit before
corporate expenses and
interest......................... 187 153 349 276
Corporate expenses..................... (21) (16) (42) (31)
Interest expense....................... (34) (23) (53) (37)
Interest income........................ 6 9 11 18
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES............. 138 123 265 226
Provision for income taxes............. 55 48 105 88
-------- -------- -------- --------
NET INCOME............................. $ 83 $ 75 $ 160 $ 138
======== ======== ======= ========
EARNINGS PER SHARE..................... $ .61 $ .55 $ 1.18 $ 1.02
======== ======== ======= ========
DIVIDENDS DECLARED PER SHARE........... $ .09 $ .08 $ .17 $ .16
======== ======== ======= ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
(Unaudited)
<TABLE>
<CAPTION>
June 20, January 3,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents............... $ 351 $ 268
Accounts and notes receivable...... 917 754
Other.............................. 461 410
---------- ----------
1,729 1,432
---------- ----------
Property and equipment.................. 1,938 1,894
Intangible assets....................... 1,820 648
Investments in affiliates............... 519 496
Notes and other receivable.............. 313 293
Other assets............................ 308 312
---------- ----------
$ 6,627 $ 5,075
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable................... $ 944 $ 891
Other current liabilities.......... 1,018 868
---------- ----------
1,962 1,759
---------- ----------
Long-term debt.......................... 1,932 1,010
Other long-term liabilities............. 1,013 749
Convertible subordinated debt........... 303 297
Shareholders' equity....................
Common stock, 128.6 million shares
issued............................ 129 129
Additional paid-in capital......... 668 653
Retained earnings.................. 701 628
Treasury stock, at cost............ (81) (150)
---------- ----------
1,417 1,260
---------- ----------
$ 6,627 $ 5,075
========== ==========
</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 20, June 14,
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ 160 $ 138
Adjustments to reconcile to cash
provided by operations:
Depreciation and amortization...... 82 66
Income taxes and other............. 88 82
Timeshare activity, net............ (9) (2)
Working capital changes............ (28) 3
--------- ---------
Cash provided by operations............ 293 287
--------- ---------
INVESTING ACTIVITIES
Capital expenditures................... (214) (110)
Loan advances.......................... (34) (25)
Loan collections and sales............. 24 67
Acquisitions........................... (854) (319)
Dispositions........................... 183 1
Other.................................. (67) (101)
--------- ---------
Cash used in investing activities...... (962) (487)
--------- ---------
FINANCING ACTIVITIES
Issuances of long-term debt............ 827 301
Repayments of long-term debt........... (9) (63)
Issuances of common stock.............. 21 20
Dividends paid......................... (20) (19)
Purchases of treasury stock............ (67) -
--------- ---------
Cash provided by financing activities.. 752 239
--------- ---------
INCREASE IN CASH AND EQUIVALENTS............. $ 83 $ 39
CASH AND EQUIVALENTS, beginning of period.... 268 219
--------- ---------
CASH AND EQUIVALENTS, end of period.......... $ 351 $ 258
========= =========
</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 of Marriott
International, Inc. and its subsidiaries (the Company) have been prepared
without audit. Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes
the disclosures made are adequate to make the information presented not
misleading. However, the condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended January 3, 1997. Capitalized terms not otherwise defined herein
have the meanings specified in the Annual Report.
In the opinion of the Company, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
the Company as of June 20, 1997 and January 3, 1997, and the results of
operations for the twenty-four weeks and twelve weeks ended June 20, 1997 and
June 14, 1996. Interim results are not necessarily indicative of fiscal year
performance because of seasonal and short-term variations. All material
intercompany transactions and balances between Marriott International, Inc.
and its subsidiaries have been eliminated.
Certain amounts previously presented have been reclassified to conform to
the 1997 presentation.
2. Earnings Per Share
------------------
Earnings per share is computed on a fully diluted basis using the weighted
average number of common shares and common equivalent shares outstanding plus
other potentially dilutive securities which, in the aggregate, totaled 139.0
million and 137.3 million for the twenty-four weeks ended June 20, 1997 and
June 14, 1996, respectively, and 139.2 million and 140.2 million for the
twelve weeks ended June 20, 1997 and June 14, 1996, respectively. Common
equivalent shares are computed using the treasury stock method based on the
higher of average or end of period market prices. The if converted method is
used for convertible subordinated debt.
3. Acquisitions and Dispositions
-----------------------------
Renaissance Hotel Group N.V. On March 29, 1997, the Company acquired
substantially all of the outstanding common stock of Renaissance Hotel Group
N.V. (RHG), an operator and franchisor of 150 hotels in 38 countries under
the Renaissance, New World and Ramada International brands. The total
acquisition cost, of approximately $1 billion, was funded with proceeds from
commercial paper borrowings, supported by the Company's long-term revolving
credit facility. The acquisition has been accounted for using the purchase
method of accounting. The purchase cost has been allocated to the assets
acquired and liabilities assumed based on estimated fair values. Goodwill is
being amortized on a straight line basis over 40 years. Amounts allocated to
management and licensing agreements are being amortized on a straight line
basis over the estimated lives of the agreements.
7
<PAGE>
The Company's reported results of operations include RHG's operating
results from the date of acquisition. Summarized below are the unaudited pro
forma consolidated results of operations of the Company for the twenty-four
weeks ended June 20, 1997 and June 14, 1996, as if RHG had been acquired at the
beginning of the respective periods (in millions, except per share amounts).
<TABLE>
<CAPTION>
Twenty-four weeks ended Twenty-four weeks ended
June 20, 1997 June 14, 1996
----------------------- -----------------------
<S> <C> <C>
Sales $ 5,680 $ 4,902
=========== ===========
Net Income $ 155 $ 126
=========== ===========
Earnings Per Share $ 1.14 $ .93
=========== ===========
</TABLE>
Unaudited pro forma net income includes interest expense on borrowings relating
to the Company's acquisition of RHG's common stock as well as the impact on
historical interest expense of the revaluation of RHG's debt based on the
Company's borrowing cost. Amortization expense included in net income reflects
the impact of the excess of the purchase price over the net tangible assets
acquired. The unaudited pro forma consolidated results of operations are not
intended to reflect the Company's expected future results of operations.
Dr. Henry Cheng Kar-Shun is the Managing Director of New World Development
Company Limited (New World) and, together with his family and affiliated
corporations, owns or otherwise controls a majority of New World's common stock.
Effective June 1, 1997, Dr. Cheng was appointed to the Company's Board of
Directors. Dr. Cheng, New World and their affiliates own all or a portion of 87
hotels that are operated by the Company, and prior to the Company's acquisition
of RHG, owned a majority of RHG common stock. New World and other affiliates of
Dr. Cheng have indemnified RHG, its subsidiaries and the Company for certain
lease, debt, guarantee and other obligations in connection with the formation of
RHG as a hotel management company in 1995.
Property Sales. On April 3, 1997, the Company agreed to sell and leaseback,
under long-term, limited-recourse leases, 14 limited service hotels for
approximately $149 million in cash. Concurrently, the Company paid security
deposits of $15 million, which will be refunded upon expiration of the leases.
These operating leases have initial terms of 17 years, and are renewable at the
option of the Company. On April 11, 1997, the Company sold five senior living
communities for cash consideration of approximately $79 million. The Company
will continue to operate the communities under long-term management agreements.
Forum Group, Inc. On March 25, 1996, a wholly-owned subsidiary of the Company
acquired all of the outstanding shares of common stock of Forum Group, Inc.
(Forum), for total cash consideration of approximately $303 million. The
Company's results of operations include Forum from the acquisition date.
Unaudited pro forma consolidated results of operations of the Company for the
twenty-four weeks ended June 14, 1996, as if Forum had been acquired
8
<PAGE>
at December 29, 1995, would have resulted in sales of $4,564 million, net
income of $135 million, and earnings per share of $1.00.
On June 21, 1997, the Company sold 29 retirement communities acquired as part
of the Forum acquisition, to Host Marriott Corporation (together with its
subsidiaries, Host Marriott) for approximately $550 million, including
approximately $87 million to be received as expansions at certain communities
are completed. The $463 million received at closing, which is subject to
adjustment based on finalization of working capital levels at the properties,
was comprised of $205 million in cash, $187 million of outstanding debt, $50
million of notes receivable due in 12 months, and $21 million of notes
receivable due January 1, 2001. The notes receivable from Host Marriott bear
interest at nine percent. Under the terms of sale, Host Marriott purchased
all of the common stock of Forum which, at the time of the sale, included the
29 communities, certain working capital and associated debt. The Company will
continue to operate these communities under long-term management agreements.
4. Commitments
-----------
The Company issues guarantees to lenders and other third parties in
connection with financing transactions and other obligations. These
guarantees are limited, in the aggregate, to $222 million at June 20, 1997,
including $151 million applicable to guarantees by or debt obligations of
Host Marriott, partnerships in which Host Marriott is the general partner or
other affiliated entities. As of June 20, 1997, the Company had extended
approximately $320 million of loan commitments to owners of lodging and
senior living properties. Previously, the Company had a $225 million line of
credit available to Host Marriott which was terminated by mutual consent on
June 19, 1997. Letters of credit outstanding on the Company's behalf at June
20, 1997 totaled $142 million, the majority of which related to the
Company's self-insurance program. At June 20, 1997, the Company had a
repurchase obligation of $75 million related to notes receivable from
timeshare interval purchasers that have been sold with limited recourse. New
World and another affiliate of Dr. Cheng have severally indemnified the
Company for loan guarantees with a maximum funding of $33 million and lease
guarantees by RHG with minimum annual payments of approximately $60 million.
5. New Accounting Standards
------------------------
On January 4, 1997, the Company adopted FAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," with no material effect on the Company's consolidated financial
statements. The Company will adopt FAS No. 128, "Earnings per Share" and FAS
No. 129, "Disclosure of Information about Capital Structure" in the fourth
quarter of 1997, and FAS 130 "Reporting Comprehensive Income" and FAS 131
"Disclosures about Segments of an Enterprise and Related Information" during
1998. These statements are not expected to have a material effect on the
Company's consolidated financial statements.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
- --------------------------------------------------------------------------
Financial Condition
-------------------
RESULTS OF OPERATIONS
Twelve Weeks Ended June 20, 1997 Compared to Twelve Weeks Ended June 14, 1996
- -----------------------------------------------------------------------------
The Company reported net income of $83 million for the second quarter, on sales
of $2,878 million. This represents an 11 percent increase in net income and 22
percent increase in sales over the second quarter of 1996. Earnings per share of
$.61 for the quarter increased 11 percent over the corresponding 1996 quarter.
Excluding the impact of the RHG acquisition, net income and earnings per share
for the quarter were up 19 percent and 18 percent, respectively, on 15 percent
sales growth.
LODGING added a net of 197 hotels (53,106 rooms) during the second quarter of
1997, including 150 hotels (46,496 rooms) as part of the RHG acquisition. The
Company expects to operate and franchise nearly 1,500 hotels (300,000 rooms) by
the end of 1997. Hotels by brand are as follows:
<TABLE>
<CAPTION>
Hotels at June 20, 1997
-------------------------------------
Company-operated Franchised
------------------ -----------------
Brand Units Rooms Units Rooms
- --------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites.......... 198 85,416 121 36,269
Ritz-Carlton................................. 34 11,145 - -
Renaissance.................................. 63 24,398 8 2,587
New World.................................... 15 7,381 - -
Ramada International......................... 32 6,761 36 6,432
Residence Inn................................ 109 14,309 130 14,215
Courtyard.................................... 200 29,370 117 14,419
Fairfield Inn and Suites..................... 51 7,133 266 23,279
TownePlace Suites............................ 1 95 - -
------- ------- ------- -------
Total........................................ 703 186,008 678 97,201
======= ======= ======= =======
</TABLE>
Lodging operating profits were up 24 percent, on a sales increase of 23 percent.
The revenue increase resulted from REVPAR growth across all brands averaging
nine percent, and the net addition of 433 hotels since the beginning of 1996.
This revenue growth resulted in the Company earning higher base management and
franchise fees. Revenue growth also contributed to higher house profits which
resulted in higher incentive management fees.
10
<PAGE>
The following is a summary of average room rates and occupancy statistics for
the second quarter of 1997 and 1996, by brand./1/
<TABLE>
<CAPTION>
Twelve weeks ended
-------------------------------------------
June 20, 1997 June 14, 1996
-------------------- --------------------
Brand Rate Occupancy Rate Occupancy
- -------------------------------------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites......... $ 130.66 81.0% $ 119.30 80.9%
Ritz-Carlton................................ 191.73 82.0% 180.09 76.4%
Renaissance................................. 124.90 74.8% 117.36 74.2%
Residence Inn............................... 95.47 86.7% 88.14 87.5%
Courtyard................................... 84.60 83.8% 78.61 83.5%
Fairfield Inn and Suites.................... 51.33 78.5% 49.69 80.7%
</TABLE>
Sales for Marriott Hotels, Resorts and Suites, which comprise more than 60
percent of total lodging sales, increased nine percent over the prior year. A 10
percent increase in average room rate, and a slight increase in occupancy
generated a REVPAR increase of 10 percent which drove higher base management and
franchise fees. Profit growth reflects higher incentive fees at many hotels and
the addition of 22 properties since the beginning of 1996.
Ritz-Carlton reported an increase in average room rates of seven percent and
occupancy increased six percentage points to 82 percent, resulting in a 14
percent increase in REVPAR. Ritz-Carlton opened a property in Osaka, Japan this
quarter, and is on schedule to open new, managed properties in San Juan, Puerto
Rico and Kuala Lumpur, Malaysia by early 1998.
RHG contributed $183 million in sales during the quarter. After intangible
amortization and interest expense, the RHG acquisition reduced earnings per
share by $.04 and is expected to reduce 1997 earnings per share by $.10 to $.14.
REVPAR increased seven percent, due primarily to room rate increases of six
percent, and a slight increase in occupancy. Integration of RHG into the
Company's payroll, procurement, marketing and sales, and reservation processes
is progressing on schedule. In addition to the 150 properties acquired in the
RHG acquisition, the Company opened four Ramada International properties in
Germany, Japan and Indonesia during the quarter.
Limited-service brands represent about 20 percent of total lodging sales for the
second quarter and each of the brands increased REVPAR for the quarter.
. Residence Inn, the Company's quality extended-stay brand, posted a REVPAR
increase of seven percent, due to an increase in average room rates of
eight percent, to $95.47, offset by a slight decrease in occupancy to 87
percent. Sales increased by 10 percent, primarily due to the addition of 43
properties since the beginning of fiscal year 1996.
. Courtyard, the Company's moderate price lodging brand, achieved a nine
percent increase in sales. Courtyard's average room rates increased eight
percent with no change in
- -----------------------
/1/ Comparable statistics are used throughout this discussion, and are based on
Company-operated U.S. properties. The Ramada International and New World brands
do not have any U.S. properties.
11
<PAGE>
occupancy, resulting in a REVPAR increase of eight percent. Sales and
profits also reflect the addition of 64 units from the beginning of fiscal
year 1996.
. Fairfield Inn and Suites, the Company's economy lodging brand, had an
increase in sales of 10 percent over last year. While occupancy declined to
79 percent for Company-operated units, average room rates increased by
three percent resulting in flat REVPAR which reflects the impact of
aggressive rate increases for the past three years and supply additions in
this segment over the past several years. Sales also increased due to the
addition of 87 units since the beginning of fiscal year 1996, including the
Company's 300th unit in Minneapolis/St. Paul.
Marriott Vacation Club International sold approximately 5,700 timeshare
intervals in the second quarter representing an increase of 15 percent over the
prior year. The Company experienced very strong sales in several locations, and
is on schedule to commence sales at its new resort in Aruba later this year.
Increased profits from resort development were offset by minor operating losses
in Europe and start-up losses at the new Orlando golf institute and training
center.
CONTRACT SERVICES reported operating profit of $44 million on sales of $1,164
million, representing 16 percent and 21 percent increases, respectively, from
the second quarter of 1996.
Profit growth in the mid-teens for Marriott Management Services was paced by its
health care and corporate services groups. Health care was aided by new account
gains, and expansion of services to existing clients. Corporate services
benefited from increased catering sales and positive customer response to its
Crossroads Cuisines retail program. Results for the 1997 second quarter also
were favorably affected by contributions from food service and facilities
management contracts awarded by several major urban school districts in 1996.
Marriott Senior Living Services reported significant profit growth on sales
increases of 16 percent. Sales growth was due to the opening of 10 communities
since the second quarter of 1996, a two percentage point increase in occupancy
to 94 percent, and a four percent increase in per diem rates to $99. Operating
profit growth was a result of the increased sales and improved profitability for
the Forum communities. During the second quarter, the Company opened four new
assisted living communities, including the first two Village Oaks communities
developed for the moderate price market. The Village Oaks communities feature
the companion living concept, and can accommodate approximately 120 residents.
At the end of the quarter, the Company operated 79 communities totaling 15,700
units, and has 20 additional communities under construction. The Company is on
target to meet its goal of 200 communities by the year 2000.
Marriott Distribution Services' sales more than doubled due to the impact of the
new accounts added during 1996. Five new distribution centers were opened in
1996 and the first quarter of 1997 to service this new business. Profits were
lower in the 1997 quarter as a result of the start-up costs associated with
these new centers, and integration of new business into the operations.
12
<PAGE>
CORPORATE ACTIVITY. Interest expense increased 48 percent over the second
quarter of 1996, despite lower effective interest rates, as the average debt
balance increased due to the acquisition of RHG. Interest income decreased from
$9 million to $6 million reflecting reduced loans receivable as a result of the
collection or sale of over $200 million of loans since the second quarter of
1996. Corporate expenses increased due to non-cash items associated with
investments generating significant income tax benefits as well as modest
staffing increases to accommodate growth and new business development. The
effective income tax rate increased from 39 percent to 39.5 percent reflecting
approximately a one percentage point increase due to nondeductible goodwill
amortization associated with the RHG acquisition, partially offset by credits
generated by tax related investments.
Twenty-four weeks ended June 20, 1997 Compared to Twenty-four weeks ended
- -----------------------------------------------------------------------------
June 14, 1996/1/
- ----------------
The Company reported net income of $160 million for the first two quarters, on
sales of $5,482 million. This represents a 16 percent increase in net income and
21 percent increase in sales over the same period in 1996. Earnings per share of
$1.18 for the period increased 16 percent over the corresponding 1996 period.
Excluding the impact of the RHG acquisition, net income and earnings per share
for the period were both up 20 percent on 17 percent sales growth.
LODGING operating profits were up 26 percent, on a sales increase of 19 percent.
The revenue increase resulted from REVPAR growth across all brands averaging
nine percent, the addition of 433 hotels since the beginning of 1996, together
with better weather and fewer holidays in the first quarter of 1997. This
revenue growth resulted in the Company earning higher base management and
franchise fees. Revenue growth also contributed to higher house profits which
resulted in higher incentive management fees. The following table is a summary
of year-to-date rate and occupancy statistics by brand.
<TABLE>
<CAPTION>
Twenty-four weeks ended
------------------------------------------
June 20, 1997 June 14, 1996
------------------- -------------------
Brand Rate Occupancy Rate Occupancy
- ------------------------------------------ -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites....... $ 129.65 79.4% $ 118.18 79.6%
Ritz-Carlton.............................. 197.47 80.1% 187.33 76.1%
Renaissance............................... 124.90 74.8% 117.36 74.2%
Residence Inn............................. 94.55 85.2% 87.12 86.7%
Courtyard................................. 83.82 81.8% 77.92 82.0%
Fairfield Inn and Suites.................. 49.72 76.6% 48.39 78.9%
</TABLE>
- ------------------------
/1/ Year-to-date 1996 statistics for REVPAR, occupancy and average room rates
have been adjusted to make them comparable to the 1997 statistics. Due to the
variations in the Company's fiscal year, which ends on the Friday closest to
December 31, the last week of calendar 1995 fell into the first quarter of 1996,
but the last week of calendar 1996 fell into the last quarter of 1996. The
adjusted year-to-date 1996 statistics are based on the same calendar days as the
1997 statistics. Comparable statistics are used throughout this discussion, and
are based on Company-operated U.S. properties. The Ramada International and New
World brands do not have any U.S. properties.
13
<PAGE>
Sales for Marriott Hotels, Resorts and Suites comprised approximately 70 percent
of total lodging sales. Lodging sales for the first two quarters increased 10
percent over the same period in 1996 due to strong REVPAR growth and the
addition of 22 properties since the beginning of 1996. A 10 percent increase in
average room rate and no change in occupancy, generated a REVPAR increase of 10
percent. Profits increased as improved REVPAR generated higher base management
fees and higher house profits, resulting in increased incentive fees at many
hotels.
Ritz-Carlton reported an increase in average room rates of five percent and
occupancy increased four percentage points to 80 percent, resulting in an 11
percent increase in REVPAR.
The Company acquired RHG at the beginning of the second quarter of 1997. Please
see page 11 for discussion.
Limited-service brands represent about 20 percent of total lodging sales for the
first two quarters, and each of the brands increased REVPAR for this period. In
addition, the Company opened the first property under the TownePlace Suites
brand, which is designed to attract extended-stay travelers in the moderate
price range.
. Residence Inn posted a REVPAR increase of seven percent, due to an increase
in average room rates of nine percent, to $95, offset by a decrease in
occupancy to 85 percent. Sales growth in the period, of 12 percent, was
also due to the addition of 43 properties since the beginning of fiscal
year 1996, including its fourth property outside the U.S.
. Courtyard achieved a 10 percent increase in sales. Courtyard's average room
rates increased eight percent, to $84, while occupancy dropped slightly to
82 percent, resulting in a REVPAR increase of seven percent. Sales and
profits also reflect the addition of 64 units from the beginning of fiscal
year 1996. Courtyard opened its 300th unit in Fort Worth, Texas during this
period and expanded its non-U.S. operations to 10 franchised Courtyard
units in the United Kingdom.
. Fairfield Inn and Suites had an increase in sales of 11 percent over last
year. The slight decline in occupancy, to 77 percent for Company-operated
units, was offset by a three percent average room rate increase to $50,
resulting in no change in REVPAR which reflects the impact of aggressive
rate increases for the past three years and supply additions in this market
over the past several years. Sales also increased due to the addition of 87
units since the beginning of fiscal year 1996, including the Company's
300th unit in Minneapolis/St. Paul.
Marriott Vacation Club International sold over 11,000 timeshare intervals in the
first two quarters representing an increase of nearly 26 percent over the prior
year. The Company's increase in sales resulted from very strong performance in
several locations, including its first European location in Marbella, Spain, as
well as Florida and South Carolina. Increased profits from resort development
were offset by reduced financing income, due to lower note sales in the first
quarter of 1997, and minor operating losses in Europe.
CONTRACT SERVICES reported operating profit of $85 million on sales of $2,318
million, representing 27 percent and 25 percent increases, respectively, from
the first two quarters
14
<PAGE>
of 1996. Excluding the impact of the Forum acquisition, sales and operating
profits for the twenty-four weeks ended June 20, 1997 would have increased by 22
percent and 12 percent, respectively over the prior year. This profit growth was
impacted by start-up losses for new senior living communities, new distribution
services accounts and recently opened distribution centers and the impact of the
sale-leaseback of four senior living communities in August 1996.
Marriott Management Services reported increased profits on a seven percent
increase in sales over the first two quarters of 1996. Increases in sales were
due to the increased number of operating days for higher education, school
services and corporate accounts during the period and improved weather, the
acquisition of Russell & Brand Limited, and increased sales on existing
accounts. Profit growth was due to positive response to the Crossroads Cuisine
retail program and cost control throughout the year.
Marriott Senior Living Services more than doubled profits on sales growth of
over 50 percent due to the acquisition of Forum in the second quarter of 1996.
In addition, occupancy rates increased three percentage points, to 94 percent
and average per diem rates also increased by four percent, to $99. Seven
properties opened in the first two quarters, including the Company's first
properties to feature special care centers for people with Alzheimer's and other
memory disorders, and the Company's first two Village Oaks communities.
Marriott Distribution Services more than doubled sales by adding several major
restaurant accounts, including Boston Market, Steak & Ale and Bennigans. Two new
distribution centers were opened in 1997, an increase of five since the second
quarter of last year. Profits declined due to the start-up costs at these new
centers and costs associated with integration of new business.
CORPORATE ACTIVITY. Interest expense increased 43 percent over the first two
quarters of 1996, despite lower effective interest rates, as the average debt
balance increased to finance the RHG acquisition. Interest income decreased from
$18 million to $11 million reflecting reduced loans receivable as a result of
the collection or sale of over $200 million of loans in the second half of 1996.
Corporate expenses increased due to non-cash items associated with investments
generating significant income tax benefits as well as modest staff increases to
accommodate growth and new business development. The effective income tax rate
increased from 39 percent to 39.5 percent reflecting approximately a one
percentage point increase due to nondeductible goodwill amortization associated
with the RHG acquisition, partially offset by credits generated by tax related
investments.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents totaled $351 million at June 20, 1997, an increase of $83
million from year end. Cash provided by operations increased $6 million over the
first two quarters of 1996, to $293 million, as higher net income was offset by
working capital changes. EBITDA increased 22 percent to $400 million. EBITDA is
an indicative measure of the Company's 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.
Cash used in investing activities totaled $962 million for the first two
quarters of 1997, primarily consisting of the RHG acquisition and expenditures
for the construction of limited-service lodging properties and senior living
communities. Cash generated from dispositions of $183 million primarily included
$79 million from the sale of five Senior Living Services communities and $99
million from the sale-leaseback of 10 limited service hotels (the other four
properties discussed in note 3 to the financial statements will be sold during
the remainder of 1997). The Company expects that, over time, it will continue to
sell certain lodging and senior living service properties under development, or
to be developed, while continuing to operate them under long-term agreements.
The Company entered into a $400 million bank facility in February, 1997, which
along with the Company's pre-existing $1 billion revolving credit facility, was
replaced with a single $1.5 billion credit facility on March 27, 1997. This new
facility has a term of five years and bears interest at LIBOR plus a spread,
presently 21.5 basis points, based on the Company's senior debt rating.
Additionally, annual fees are paid on the total facility at a rate, presently 11
basis points, also based on the Company's senior debt rating. On June 20, 1997,
the Company had $584 million available under the facility.
The Company continues to grow its businesses, in part, by investing in new
units. The Company's principal investments will continue to include loans,
minority equity interests, business acquisitions and direct development and
ownership of certain lodging and senior living services projects. The Company
expects that cash generated by operations, together with its borrowing capacity
and proceeds from the sale of assets, will be sufficient to finance its planned
growth and capital requirements.
16
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
There are no material legal proceedings pending against the Company.
Item 2. Changes in Securities
- ------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None.
17
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On May 9, 1997, the Company held its Annual Meeting of Shareholders. The
shareholders (i) re-elected directors Floretta Dukes McKenzie, Roger W. Sant and
Lawrence M. Small to terms of office expiring at the 2000 Annual Meeting of
Shareholders and elected William J. Shaw as a director for a term expiring at
the 1999 Annual Meeting of Shareholders, (ii) ratified an amendment to the
Company's 1995 non-employee directors' deferred stock compensation plan, (iii)
ratified an increase in the number of shares authorized for issuance under the
Company's employee stock purchase plan, (iv) ratified the appointment of Arthur
Andersen, LLP as the Company's independent auditors, (v) defeated a shareholder
proposal to adopt cumulative voting for the election of directors, and (vi)
defeated a shareholder proposal to adopt the fair value method of accounting for
stock-based compensation plans pursuant to Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). The
following table sets forth the votes cast with respect to each of these matters:
<TABLE>
<CAPTION>
MATTER FOR AGAINST WITHHELD ABSTAIN BROKER
NON-VOTES
- ---------------------------------------- ----------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Re-election of 109,774,478 912,507
Floretta Dukes McKenzie
- ---------------------------------------- ----------- ---------- -------- --------- ---------
Re-election of 109,883,730 803,255
Roger W. Sant
- ---------------------------------------- ----------- ---------- -------- --------- ---------
Re-election of 109,895,193 791,792
Lawrence M. Small
- ---------------------------------------- ----------- ---------- -------- --------- ---------
Election of 109,868,099 818,886
William J. Shaw
- ---------------------------------------- ----------- ---------- -------- --------- ---------
Ratification of 1995 106,637,696 3,312,192 737,097
non-employee directors' deferred stock
compensation plan amendment
- ---------------------------------------- ----------- ---------- -------- --------- ---------
Ratification of increase of common 109,169,957 991,832 525,196
stock authorized under the employee
stock purchase plan
- ---------------------------------------- ----------- ---------- -------- --------- ---------
Ratification of appointment of Arthur 109,953,157 351,732 382,096
Andersen, LLP as auditors
- ---------------------------------------- ----------- ---------- -------- --------- ---------
Shareholder proposal on cumulative 19,695,884 79,967,901 1,204,332 9,818,868
voting for the election of directors
- ---------------------------------------- ----------- ---------- -------- --------- ---------
Shareholder proposal to adopt the fair 3,178,126 95,218,916 2,471,075 9,818,868
value method of accounting pursuant to
FAS 123
- ---------------------------------------- ----------- ---------- -------- --------- ---------
</TABLE>
18
<PAGE>
The following elected directors have a term expiring at the Annual Meeting of
Shareholders in the year noted:
<TABLE>
<CAPTION>
DIRECTOR YEAR TERM EXPIRES
- --------------------- -----------------
<S> <C>
J.W. Marriott, Jr. 1999
- --------------------- -----------------
Richard E. Marriott 1998
- --------------------- -----------------
Gilbert M. Grosvenor 1998
- --------------------- -----------------
Harry J. Pearce 1998
- --------------------- -----------------
Mitt Romney 1999
- --------------------- -----------------
</TABLE>
In connection with the RHG acquisition, the Board appointed Dr. Henry Cheng Kar-
Shun as a director of the Company for a term beginning on June 1, 1997, and
expiring at the 2000 Annual Meeting of Shareholders. Shareholders of the Company
will be asked to ratify Dr. Cheng's appointment at the 1998 Annual Meeting of
Shareholders.
Item 5. Other Information
- --------------------------
Following its acquisition of RHG, the Company guaranteed the payment of
principal and interest on the $120,000,000 8-7/8% Guaranteed Notes Due 2005 (the
RHG Notes) of RHG Finance Corporation, an RHG subsidiary. The Company
subsequently sought and obtained noteholder consent to conform certain covenants
and other terms of the indenture governing the RHG Notes to those that generally
apply to the various series of senior public debt securities issued under the
indenture between the Company and Chemical Bank, as trustee.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Descriptions
------- ------------
<S> <C>
4 Indenture among RHG Finance Corporation,
as issuer, RHG and the Company, as
guarantors, and The First National Bank
of Chicago, as trustee, consisting of:
(a) Indenture dated as of October 1, 1995
(incorporated by reference to Exhibit
2.02 to RHG's Annual Report on Form 20-F
for the fiscal year ended June 30, 1996);
(b) First Supplemental Indenture dated as
of April 11, 1997 (filed herewith); and
(c) Second Supplemental Indenture dated
as of April 27, 1997 (filed herewith)
10 1995 Non-Employee Directors' Deferred
Stock Compensation Plan (amended and
restated)(incorporated by reference to
Appendix A to Proxy Statement for the
Annual Meeting of Shareholders held on
May 9, 1997)
11 Computation of Earnings Per Share
12 Computation of Ratio of Earnings to Fixed
Charges
99 Forward-Looking Statements
</TABLE>
(b) Reports on Form 8-K
On April 14, 1997, the Company filed a report announcing that it had
completed the acquisition of RHG through a public tender offer.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARRIOTT INTERNATIONAL, INC.
August 1, 1997 /s/ Stephen E. Riffee
________________________________
Stephen E. Riffee
Vice President, Finance and
Chief Accounting Officer
21
<PAGE>
EXHIBIT 4(b)
RHG FINANCE CORPORATION
as the Issuer
and
RENAISSANCE HOTEL GROUP N.V.
as the Guarantor
and
MARRIOTT INTERNATIONAL, INC.
as the Additional Guarantor
and
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
--------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of April 11, 1997
TO
INDENTURE
Dated as of October 1, 1995
--------------
U.S. $120,000,000
8-7/8% Guaranteed Notes due 2005
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of April 11, 1997 (the "First
Supplemental Indenture"), among RHG Finance Corporation, a Delaware
corporation, as the issuer ("RHG Finance"), Renaissance Hotel Group N.V., a
Netherlands corporation, as the guarantor (the "Company"), and Marriott
International, Inc., a Delaware corporation, as the additional guarantor
("Marriott"), and The First National Bank of Chicago, a national banking
association, as trustee (the "Trustee").
RECITALS
--------
WHEREAS, RHG Finance, the Company and the Trustee executed and delivered
the Indenture, dated as of October 1, 1995 (the "Original Indenture"), pursuant
to which the 8-7/8% Guaranteed Notes Due 2005 (the "Securities") of RHG Finance
were issued;
WHEREAS, Section 7.1 of the Original Indenture provides that RHG
Finance, the Company and the Trustee may enter into an indenture supplemental to
the Original Indenture without the consent of any Holder to, among other things,
make any change that does not adversely affect the rights of any Holder in any
material respect;
WHEREAS, Marriott, through an indirect wholly-owned subsidiary, has
acquired substantially all of the Common Stock of the Company;
WHEREAS, Marriott desires to provide for its guarantee (the "Additional
Guarantee") of the payment of principal and interest on the Securities in order
to furnish certain related benefits to holders of the Securities;
WHEREAS, RHG Finance, the Company and Marriott desire to amend the
Original Indenture pursuant to this First Supplemental Indenture to provide for
the Additional Guarantee;
WHEREAS, the execution and delivery of this First Supplemental Indenture
have been duly authorized and approved by resolution of the Board of Directors
of RHG Finance and the Board of Managing Directors of the Company, and have
been duly authorized and approved by Marriott; and
WHEREAS, RHG Finance, the Company and Marriott desire and have requested
the Trustee to join in the execution and delivery of this First Supplemental
Indenture for the purpose of amending the Original Indenture.
NOW THEREFORE, for the equal and ratable benefit of all Holders of the
Securities, the Original Indenture is hereby amended as follows, effective upon
execution hereof by the Trustee:
<PAGE>
ARTICLE ONE
-----------
AMENDMENTS TO ORIGINAL INDENTURE
--------------------------------
Section 1.1 Addition of Marriott as Party. Marriott hereby is made
-----------------------------
a party to the Indenture to the extent hereinafter provided.
Section 1.2 Definitions. Section 1.1 of the Original Indenture
-----------
hereby is amended by adding the following definition in its appropriate
alphabetical position:
"Additional Guarantee" means the guarantee by Marriott of the payment of
--------------------
principal and interest on the Securities pursuant to Section 12.7
hereof.
Section 1.3. Additional Event of Default. Section 4.1(c) of the
---------------------------
Original Indenture hereby is amended in its entirety to read as follows:
(c) the Guarantees of the Company shall cease to be in full force and
effect, or the Company shall deny, disaffirm or fail to perform the Company's
obligations under such Guarantees or the provisions of Article Twelve hereof; or
the Additional Guarantee shall cease to be in full force and effect, or Marriott
shall deny, disaffirm or fail to perform Marriott's obligations under the
Additional Guarantee or the provisions of Section 12.7 hereof; or
Section 1.4. Additional Guarantee. ARTICLE TWELVE of the Original
--------------------
Indenture hereby is amended by adding the following Section in its appropriate
numerical position:
SECTION 12.7 Additional Guarantee of Securities. Marriott
----------------------------------
hereby unconditionally and irrevocably guarantees to each Holder the due
and punctual payment of the principal of and interest (including any
additional interest or other amounts payable in accordance with the
terms of the Securities) on the Securities held by such Holder, when and
as the same shall become due and payable, whether at maturity or by
declaration of acceleration, call for redemption or otherwise, according
to the terms of such Securities and of the Indenture. In case of the
failure of RHG Finance punctually to make any such payment of principal
or interest (including any additional interest or other amounts payable
in accordance with the terms of the Securities), Marriott hereby agrees
to cause any such payment to be made punctually when and as the same
shall become due and payable, whether at maturity or by declaration of
acceleration, call for redemption or otherwise, and as if such payment
were made by RHG Finance.
Marriott hereby agrees that its obligations under this Section
12.7 shall be as if it were principal debtor and not merely surety, and
shall be absolute, irrevocable and unconditional, irrespective of
validity, regularity or enforceability of such Securities or the
Indenture, the absence of any action to enforce the same, any waiver or
consent by the Holder of such Securities with respect to any provisions
thereof or of the Indenture, the recovery of any judgment against RHG
Finance or any action to enforce the same or any other circumstance with
might
2
<PAGE>
otherwise constitute a legal or equitable discharge or defense of a
guarantor. Marriott hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of RHG Finance, any right to require a proceeding first
against RHG Finance, protest or notice with respect to such Securities
or the indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Additional Guarantee will not be discharged except
by complete performance of the obligations contained in such Securities,
this Additional Guarantee and the Indenture. The Company hereby further
agrees that it shall pay or cause to be paid any Additional Amounts on
the Securities or the Additional Guarantee as shall be required pursuant
to Section 3.2 hereof.
No provision of this Additional Guarantee or of the Securities
or this Indenture shall alter or impair the obligations of Marriott set
forth in this Section 12.7, which are absolute and unconditional.
This Additional Guarantee shall be valid and effective upon
execution and delivery of the First Supplemental Indenture by the
parties thereto.
Section 1.5. Conforming Amendments.
---------------------
(a) Each reference to "the Company" in Sections 2.8, 2.9, 3.2, 4.2, 4.3,
4.5, 4.9, 5.4 6.1, 6.3, 6.5, 7.1, 7.2, 7.3, 10.1, 10.10 and 11.1 of the Original
Indenture hereby is amended to substitute in lieu thereof a reference to "the
Company or Marriott" or "the Company and Marriott," as the context requires.
(b) Each reference to "the Guarantee" or "the Guarantees" in Section
3.2, 4.2, 10.1, 10.2, 10.10 and 11.1 of the Original Indenture hereby is amended
to substitute in lieu thereof a reference to "the Guarantee or the Additional
Guarantee" or "the Guarantees or the Additional Guarantee," as the case may be.
ARTICLE TWO
-----------
MISCELLANEOUS
-------------
Section 2.1. Definitions. Capitalized terms used herein without
-----------
definition shall have the respective meanings specified in the Original
Indenture.
Section 2.2. Confirmation of Indenture. Except as specifically
-------------------------
amended and supplemented by this First Supplemental Indenture, the Original
Indenture shall remain in full force and effect and is hereby ratified and
confirmed.
Section 2.3. Concerning the Trustee. The Trustee assumes no duties,
----------------------
responsibilities or liabilities by reason of this First Supplemental Indenture
other than as set forth in the Indenture.
3
<PAGE>
Section 2.4 Governing Law. This Supplemental Indenture and the
-------------
Additional Guarantee shall be governed by, and construed in accordance with the
laws of the State of New York, without regard to principles of conflicts of law.
Section 2.5. Separability. In the event any one or more of the
------------
provisions contained in this First Supplemental Indenture shall for any reason
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
First Supplemental Indenture, which shall be construed as if such invalid,
illegal or unenforceable provision had never been contained therein.
Section 2.6 Counterparts. This First Supplemental Indenture
------------
may be executed in counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be executed and delivered as of the date first above
written.
RHG FINANCE CORPORATION
By: /s/ Myron D. Walker
------------------------------
Name: Myron Walker
Title: Vice President
RENAISSANCE HOTEL GROUP N.V.
By: /s/ Michael A. Stein
------------------------------
Name: Michael A. Stein
Title: Executive Director
MARRIOTT INTERNATIONAL, INC.
By: /s/ C. B. Handlon
------------------------------
Name: Carolyn B. Handlon
Title: Vice President and
Assistant Treasurer
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Steven M. Wagner
------------------------------
Name: Steven M. Wagner
Title: Vice President
4
<PAGE>
EXHIBIT 4(c)
RHG FINANCE CORPORATION
as the Issuer
and
RENAISSANCE HOTEL GROUP N.V.
as the Guarantor
and
MARRIOTT INTERNATIONAL, INC.
as the Additional Guarantor
and
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
____________________
SECOND SUPPLEMENTAL INDENTURE
Dated as of April 25, 1997
TO
INDENTURE
Dated as of October 1, 1995
____________________
U.S. $120,000,000
8-7/8% Guaranteed Notes due 2005
<PAGE>
SECOND SUPPLEMENTAL INDENTURE, dated as of April 25, 1997 (the "Second
Supplemental Indenture"), among RHG Finance Corporation, a Delaware
corporation, as the issuer ("RHG Finance"), Renaissance Hotel Group N.V., a
Netherlands corporation, as the guarantor (the "Company"), and Marriott
International, Inc., a Delaware corporation, as the additional guarantor
("Marriott"), and The First National Bank of Chicago, a national banking
association, as trustee (the "Trustee").
RECITALS
--------
WHEREAS, RHG Finance, the Company and the Trustee executed and
delivered the Indenture, dated as of October 1, 1995, as amended by that certain
First Supplemental Indenture referred to below (the "Indenture"), pursuant to
which the 8-7/8% Guaranteed Notes due 2005 (the "Securities") of RHG Finance
were issued;
WHEREAS, RHG Finance, the Company, Marriott and the Trustee have
executed and delivered the First Supplemental Indenture, dated as of April 11,
1997 (the "First Supplemental Indenture") adding Marriott as the additional
guarantor of the Securities;
WHEREAS, Section 7.2 of the Indenture provides that RHG Finance, the
Company, Marriott and the Trustee may enter into a supplemental indenture to
add provisions to or change or eliminate provisions of the Indenture with the
written consent of the Holders of at least a majority in aggregate principal
amount of the Securities then outstanding;
WHEREAS, the execution and delivery of this Second Supplemental
Indenture have been duly authorized and approved by resolution of the Board of
Directors of RHG Finance and the Board of Managing Directors of the Company, and
have been duly authorized and approved by Marriott;
WHEREAS, RHG Finance, on behalf of itself, the Company and Marriott has
solicited the consent of the Holders of the Securities to certain amendments
(the "Amendments") to the Indenture pursuant to that certain Consent
Solicitation Statement, dated April 16, 1997 (the "Consent Solicitation");
WHEREAS, Holders representing at least a majority in aggregate principal
amount of the Securities have consented to the Amendments and pursuant to
Section 6.2 of the Indenture, evidence of such consent has been proved to the
Trustee in a manner which the Trustee has deemed satisfactory; and
WHEREAS, RHG Finance, the Company and Marriott desire and have
requested the Trustee to join in the execution and delivery of this Second
Supplemental Indenture for the purpose of amending the Indenture.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, it is mutually covenanted and agreed for the equal and
ratable benefit of all Holders of the Securities as follows, effective upon
execution hereof by the Trustee:
1
<PAGE>
ARTICLE ONE
-----------
AMENDMENTS TO INDENTURE
-----------------------
Section 1.1 Deleted Definitions. Section 1.1 of the Indenture is
-------------------
hereby amended by deleting each of the following definitions in its entirety:
"Asset Disposition"
-----------------
"Board of Directors"
------------------
"Capital Stock"
-------------
"Capitalized Lease"
-----------------
"Capitalized Lease Obligation"
----------------------------
"Common Stock"
------------
"Conflicts of Interest Policy"
----------------------------
"Consolidated EBITDA"
-------------------
"Consolidated Fixed Charges"
--------------------------
"Consolidated Fixed Charge Coverage Ratio"
----------------------------------------
"Consolidated Net Assets"
-----------------------
"Consolidated Net Income"
-----------------------
"Credit Agreement"
----------------
"Currency Agreement"
------------------
"Debt"
----
"Fair Market Value"
-----------------
"GAAP"
----
"Incurrence"
----------
"Indemnification Agreement"
-------------------------
"Independent Director"
--------------------
"Interest Rate Agreement"
-----------------------
2
<PAGE>
"Investment"
----------
"Issue Date"
----------
"Lien"
----
"Management Agreement Acquisition"
--------------------------------
"Merger"
------
"New World Development"
---------------------
"New World Group Member"
----------------------
"Officer"
-------
"Officer's Certificate"
---------------------
"Opinion of Counsel"
------------------
"Outstanding"
-----------
"Paying Agent"
------------
"Permitted Liens"
---------------
"Preferred Stock"
---------------
"Property"
--------
"Qualifying Capital Stock"
------------------------
"Redeemable Stock"
----------------
"Restricted Payment"
------------------
"Subsidiary"
----------
"Voting Stock"
------------
"Wholly Owned Subsidiary"
-----------------------
Section 1.2 Added Definitions. Section 1.1 of the Indenture is
-----------------
hereby amended by adding the following definitions in their appropriate
alphabetical location:
"Acquisition Cost" means all costs incurred or assumed by any Person
----------------
in connection with the acquisition by purchase or otherwise of any
property or asset which would in accordance with GAAP be capitalized as
the cost of such property or asset on a balance sheet of such Person.
3
<PAGE>
"Attributable Debt" with respect to any Sale and Leaseback Transaction
-----------------
that is subject to the restrictions described under Section 3.9 means
the present value of the minimum rental payments called for during the
term of the lease (including any period for which such lease has been
extended), determined in accordance with GAAP, discounted at a rate
that, at the inception of the lease, the lessee would have incurred to
borrow over a similar term the funds necessary to purchase the leased
assets.
"Board of Directors" or "Board of Managing Directors" means, with
------------------
respect to any Person, either the board of directors or board of
managing directors of the Person, or any committee of that board duly
authorized to act hereunder or any director or directors and/or officer
or officers of the Person to whom that board or committee shall have
delegated its authority.
"Capitalized Lease Obligations" of any Person means the obligations of
-----------------------------
such Person to pay rent or other amounts under a lease that is required
to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of such obligation shall be the capitalized amount
thereof determined in accordance with GAAP.
"Consolidated Net Assets" means the total amount of assets of Marriott
-----------------------
and its Subsidiaries (less applicable depreciation, amortization and
other valuation reserves), after deducting therefrom all current
liabilities of Marriott and its Subsidiaries (other than intercompany
liabilities and the current portion of long-term debt and Capitalized
Lease Obligations), all as set forth on the latest consolidated balance
sheet of Marriott prepared in accordance with GAAP.
"Cost of Construction" means all costs incurred or assumed by any
--------------------
Person in connection with the construction or development of any
property or asset including land which in accordance with GAAP would be
capitalized and included within the cost of such property or asset on a
balance sheet of such Person.
"Debt" means notes, bonds, debentures or other similar evidences of
----
indebtedness for borrowed money or any guarantee of any of the
foregoing, including any Debt of any other Person (including any
Unrestricted Subsidiary) to the extent that such Debt is assumed or
guaranteed by Marriott or any of its Restricted Subsidiaries.
"Discharged" shall have the meaning set forth in Section 9.2.
----------
"GAAP" means generally accepted accounting principles in the United
----
States as in effect on December 1, 1993.
"Lien" means any mortgage, pledge, lien, encumbrance or other security
----
interest to secure payment of Debt.
"Officer" means the Chairman of the Board of Directors, the Chief
-------
Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, any
4
<PAGE>
Vice President (whether or not designated by a number or numbers or a
word or words added before or after the title "Vice President"), any
other officer, the Treasurer, the Secretary, any Assistant Treasurer or
Assistant Secretary or the General Counsel or Associate General Counsel
or Assistant General Counsel of RHG Finance or, in the case of the
Company or Marriott, any person holding similar office, including,
without limitation, any Director or Executive Director.
"Officer's Certificate" means a certificate signed by the Chairman of
---------------------
the Board of Directors, the Chief Executive Officer, the President, the
Chief Operating Officer, the Chief Financial Officer, or any Vice
President (whether or not designated by a number or numbers or a word or
words added before or after the title "Vice President") or any other
officer and by the Treasurer or the Secretary, any Assistant Treasurer
or Assistant Secretary or the General Counsel or Associate General
Counsel or Assistant General Counsel of RHG Finance (or, in the case of
the Company or Marriott, any person holding similar office, including,
without limitation, any Director or Executive Director) and delivered to
the Trustee. Each such certificate shall comply with Section 314 of the
Trust Indenture Act of 1939 and include the statements provided for in
Section 10.5.
"Opinion of Counsel" means, unless the context otherwise states, an
------------------
opinion in writing signed by legal counsel who may be an employee of or
counsel to RHG Finance, the Company or Marriott or who may be other
counsel satisfactory to the Trustee. Each such opinion shall comply with
Section 314 of the Trust Indenture Act and include the statements
provided for in Section 10.5, if and to the extent required hereby.
"Outstanding" when used with respect to Securities, means, as of the
-----------
date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore canceled by the
Trustee or delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose
payment, money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than RHG
Finance, the Company or Marriott) in trust or set aside and
segregated in trust by RHG Finance (if RHG Finance shall act as
its own Paying Agent) for the Holders of such Securities;
(iii) Securities, except to the extent provided in
Article Nine, with respect to which RHG Finance, the Company or
Marriott has effected defeasance and/or covenant defeasance as
provided in this Indenture; and
(iv) Mutilated, destroyed, lost or stolen
Securities which have become or are about to become due and
payable which have been paid pursuant to Section 2.8 hereof or
in exchange for or in lieu of which other Securities
5
<PAGE>
have been authenticated and delivered pursuant to this
Indenture, other than any such Securities in respect of which
there shall have been presented to the Trustee proof
satisfactory to it that such Securities are being held by a bona
fide purchaser in whose hands the Securities are valid
obligations of RHG Finance;
provided, however, that in determining whether the Holders of the
-------- -------
requisite principal amount of Outstanding Securities have given any
request, demand, authorization, direction, notice, consent or waiver
under this Indenture, and for the purpose of making the calculations
required by Section 313 of the Trust Indenture Act, Securities owned by
RHG Finance, the Company, Marriott or any other obligor upon the
Securities or any Affiliate of RHG Finance, the Company, Marriott or
such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in making such calculation or in relying upon any such
request, demand, authorization, direction, notice, consent or waiver,
only Securities which the Trustee knows to be so owned shall be so
disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect
to such Securities and that the pledgee is not RHG Finance, the Company,
Marriott or any other obligor upon the Securities or any Affiliate of
the Company, Marriott or such other obligor.
"Paying Agent" means any Person (including RHG Finance acting as Paying
------------
Agent) authorized by RHG Finance, the Company and Marriott to pay the
principal of or interest on any Securities on behalf of RHG Finance or
any amount due and payable under the Guarantee on behalf the Company, or
under the Additional Guarantee on behalf of Marriott.
"Principal Property" means (i) a parcel of improved or unimproved real
------------------
estate or other physical facility or depreciable asset of Marriott or a
Subsidiary, the net book value of which on the date of determination
exceeds 2% of Consolidated Net Assets and (ii) any group of parcels of
real estate, other physical facilities, and/or depreciable assets of
Marriott and/or its Subsidiaries, the net book value of which, when sold
in one or a series of Related Sale and Leaseback Transactions or
securing Debt issued in respect of such Principal Properties, on the
date of determination exceeds 2% of the Consolidated Net Assets. For
purposes of the foregoing, "Related Sale and Leaseback Transactions"
refers to any two or more such contemporaneous transactions which are on
substantially similar terms with substantially the same parties.
"Restricted Subsidiary" means any Subsidiary organized and existing
---------------------
under the laws of the United States of America and the principal
business of which is carried on within the United States of America (x)
which owns or is a lessee pursuant to a capital lease of any property of
the type described in clause (i) of the definition of Principal Property
or (y) in which the investment of Marriott and all its
6
<PAGE>
Subsidiaries exceeds 5% of Consolidated Net Assets as of the date of
such determination other than, in the case of either clause (x) or (y),
(i) Subsidiaries of which the principal business is Marriott's timeshare
or senior living services businesses, (ii) each Subsidiary the major
part of whose business consists of finance, banking, credit, leasing,
insurance, financial services or other similar operations, or any
combination thereof, and (iii) each Subsidiary formed or acquired after
December 1, 1993 for the purpose of developing new assets or acquiring
the business or assets of another person and which does not acquire all
or any substantial part of the business or assets of Marriott or any
Restricted Subsidiary.
"Sale and Leaseback Transaction" has the meaning set forth in Section
------------------------------
3.9.
"Subsidiary" means any corporation of which at least a majority of the
----------
outstanding stock having by the terms thereof ordinary voting power to
elect a majority of the directors of such corporation, irrespective of
whether or not, at the time, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the
happening of any contingency, is at the time, directly or indirectly,
owned by Marriott or by one or more Subsidiaries thereof, or by Marriott
and one or more Subsidiaries.
"Successor Additional Amounts" shall have the meaning set forth in
----------------------------
Section 3.10.
"Successor Company" shall have the meaning set forth in Section 8.1.
-----------------
"Successor Person" shall have the meaning set forth in Section 3.10.
----------------
"Unrestricted Subsidiary" means any subsidiary of Marriott other than a
-----------------------
Restricted Subsidiary.
Section 1.3 Deleted Covenants. The text of each of the following
-----------------
Sections of the Indenture is hereby deleted in its entirety and replaced, in
each case, by the words "Intentionally Omitted":
Section 3.10 Limitation on Debt of the Company
---------------------------------
Section 3.11 Limitation on Debt and Preferred Stock of Subsidiaries
------------------------------------------------------
Section 3.12 Limitation on Restricted Payments
---------------------------------
Section 3.13 Limitation on Transfer of Assets
--------------------------------
Section 3.14 Limitations on Restrictions on Subsidiary Dividends
---------------------------------------------------
and Other Distributions
- ------------------------
Section 1.4. Amended Covenants. Each of the following Sections of the
-----------------
Indenture is hereby amended to read in its entirety as follows:
7
<PAGE>
Section 3.5 Paying Agents.
-------------
Whenever RHG Finance shall appoint a Paying Agent other than the
Trustee, it will cause such Paying Agent to execute and deliver to the Trustee
an instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section,
(a) that it will hold all sums received by it as such agent for the
payment of the principal of or interest on the Securities (whether such sums
have been paid to it by RHG Finance or by any other obligor on the Securities)
in trust for the benefit of the Holders of the Securities or of the Trustee,
(b) that it will give the Trustee notice of any failure by RHG Finance
(or by any other obligor on the Securities) to make any payment of the principal
of or interest on the Securities when the same shall be due and payable, and
(c) that it will pay any such sums so held in trust by it to the Trustee
upon the Trustee's written request at any time during the continuance of the
failure referred to in clause (b) above.
RHG Finance will, on or prior to each due date of the principal of or
interest on the Securities, deposit with the Paying Agent a sum sufficient to
pay such principal or interest, and (unless such Paying Agent is the Trustee)
RHG Finance will promptly notify the Trustee of any failure to take such action.
If RHG Finance shall act as its own Paying Agent, it will, on or before
each due date of the principal of or interest on the Securities, set aside,
segregate and hold in trust for the benefit of the Holders of the Securities a
sum sufficient to pay such principal or interest so becoming due. RHG Finance
will promptly notify the Trustee of any failure to take such action.
Anything in this Section to the contrary notwithstanding, RHG Finance
may at any time, for the purpose of obtaining satisfaction and discharge of this
Indenture or for any other reason, pay or cause to be paid to the Trustee all
sums held in trust by RHG Finance or any paying agent hereunder, as required by
this Section, such sums to be held by the Trustee upon the trusts herein
contained.
Anything in this Section to the contrary notwithstanding, the agreement
to hold sums in trust as provided in this Section are subject to the provisions
of Sections 9.5 and 9.6.
8
<PAGE>
Section 3.8 Limitation on Liens.
-------------------
Except as described in Section 3.18, so long as any of the Securities
shall be Outstanding, Marriott will not create, assume or suffer to exist, or
permit any Restricted Subsidiary to create, assume or suffer to exist, any Lien
of or upon any (i) Principal Property of Marriott or any Restricted Subsidiary
or (ii) any shares of capital stock or Debt issued by any Restricted Subsidiary
and owned by Marriott or any Restricted Subsidiary, without making effective
provision whereby all of the Securities (together with, if Marriott shall so
determine, any other indebtedness or any other obligation of Marriott or such
Restricted Subsidiary then existing or thereafter created that is not
subordinate to the Securities) shall be secured equally and ratably with (or
prior to) any Debt thereby secured as long as such Debt shall be so secured;
provided that the foregoing restriction shall not apply to:
(a) Liens existing on the date of this Second Supplemental Indenture;
(b) Liens existing on (i) Principal Property at the time of
acquisition thereof by Marriott or a Restricted Subsidiary or (ii) property or
indebtedness of, or an equity interest in, any corporation at the time such
corporation becomes a Restricted Subsidiary;
(c) Liens to secure Debt with respect to all or any part of the
Acquisition Cost or the Cost of Construction or improvement of one or more
Principal Properties acquired or constructed by Marriott or a Restricted
Subsidiary, provided such Debt is incurred and related Liens are created not
later than 24 months after acquisition or completion of construction (including
any improvements on an existing property), whichever is later, and such Debt
does not exceed the aggregate amount of the Acquisition Cost of all such
properties and/or the Cost of Construction thereof;
(d) Liens on shares of capital stock or Debt issued by one or more
Restricted Subsidiaries to secure Debt with respect to all or part of the
Acquisition Cost of such Restricted Subsidiary or Restricted Subsidiaries;
provided such Debt is incurred and related Liens are created not later than 24
months after the acquisition of such Restricted Subsidiary or Restricted
Subsidiaries and such Debt does not exceed the aggregate amount of the
Acquisition Cost of such Restricted Subsidiary or Restricted Subsidiaries;
(e) Liens in favor of any domestic or foreign government or
governmental body or any of their agencies and instrumentalities, to secure
partial progress, advance or other payments pursuant to any contract or statute
or to secure any Debt incurred for the purpose of financing all or any part of
the Acquisition Cost or the Cost of Construction or improvement of the property
subject to such Liens;
(f) in the case of a Restricted Subsidiary, Liens in favor of
Marriott or another Restricted Subsidiary; and
(g) any extension, renewal or replacement, in whole or in part,
of any Liens referred to in the foregoing clauses (a) through (f) or of any Debt
secured thereby,
9
<PAGE>
provided that the principal amount of Debt secured thereby shall not exceed
- --------
(x) the greater of (i) the principal amount secured thereby at the time of such
extension, renewal or replacement and (ii) 80% of the fair market value (in the
opinion of Marriott's Board of Directors) of the properties subject to such
extension, renewal or replacement plus (y) any costs incurred in connection
with such extension, renewal or replacement, and that such extension, renewal
or replacement of Liens shall be limited to properties which had previously
been subject to such Liens.
Section 3.9 Limitation on Sale and Leaseback Transactions.
---------------------------------------------
Except as described in Section 3.18, so long as any of the
Securities shall be Outstanding, Marriott will not enter into, or permit any
Restricted Subsidiary to enter into, any arrangement with any lessor (other than
Marriott or a Restricted Subsidiary), providing for the leasing to Marriott or a
Restricted Subsidiary for a period of more than three years (including renewals
at the option of the lessee) of any Principal Property that has been or is to be
sold or transferred by Marriott or such Restricted Subsidiary to such lessor or
to any other Person, to which funds have been or are to be advanced by such
lessor or other Person on the security of the leased property (in this Article
Three called "Sale and Leaseback Transactions") unless either:
(a) Marriott or such Restricted Subsidiary would be entitled,
pursuant to Section 3.8, to create, assume or suffer to exist a Lien on the
property to be leased without equally and ratably securing the Securities, or
(b) Marriott within 240 days after the effective date of such
Sale and Leaseback Transaction (whether made by Marriott or a Restricted
Subsidiary) applies to the retirement, repayment or other discharge of the
Securities, or Debt ranking on a parity with the Additional Guarantee, an amount
not less than (x) the greater of (i) the net cash proceeds of the sale of the
property leased pursuant to such Sale and Leaseback Transaction or (ii) the fair
market value (in the opinion of Marriott's Board of Directors) of such property
at the time of entering into such Sale and Leaseback Transaction less (y) the
fair market value (in the opinion of Marriott's Board of Directors) of any non-
cash proceeds of the sale of such property provided, that, such non-cash
proceeds shall be considered "Principal Property" acquired on the date the
property sold in the Sale and Leaseback Transaction was acquired by Marriott or
any of its Subsidiaries for purposes of Sections 3.8 and 3.9.
Section 3.10 Company Merger or Consolidation. The Company
-------------------------------
covenants that it shall not consolidate with or merge into another Person, or
convey, transfer or lease its properties and assets substantially as an entirety
to, any Person (the "Successor Person") if such Successor Person is not
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia or The Netherlands, unless:
(I) the Successor Person shall expressly agree by
supplemental indenture (A) to indemnify the Holder of each Security
against (1) any tax, assessment or governmental charge imposed upon such
Holder or required to be withheld or
10
<PAGE>
deducted from any payment to such Holder as a consequence of such
consolidation, merger, conveyance, transfer or lease, and (2) any costs
or expenses of the act of such consolidation, merger, conveyance,
transfer or lease, and (B) that all payments pursuant to the Securities
or the Guarantees in respect of the principal of and interest on the
Securities, as the case may be, shall be made without withholding or
deduction for, or on account of, any present or future taxes, duties,
assessments or governmental charges of whatever nature imposed or levied
by or on behalf of the jurisdiction of organization of the Successor
Person or any political subdivision or taxing authority thereof or
therein, unless such taxes, duties, assessments or governmental charges
are required by such jurisdiction or any such subdivision or authority
to be withheld or deducted, in which case the Successor Person will pay
by way of additional interest such additional amounts of, or in respect
of, principal and interest ("Successor Additional Amounts") as will
----------------------------
result (after deduction of such taxes, duties, assessments or
governmental charges and any additional taxes, duties, assessments or
governmental charges payable in respect of such) in the payment to each
Holder of a Security of the amounts which would have been payable
pursuant to the Securities or the Guarantees, as the case may be, had no
such withholding or deduction been required, except that no Successor
Additional Amounts shall be so payable for or on account of:
(1) any tax, duty, assessment or other governmental
charge which would not have been imposed but for the fact that
such Holder:
(a) was a resident, domiciliary or national of,
or engaged in business or maintained a permanent
establishment or was physically present in, the
jurisdiction of organization of the Successor Person or
otherwise had some connection with the jurisdiction of
organization of the Successor Person other than the mere
ownership of, or receipt of payment under, such Security
or Guarantee;
(b) presented such Security or Guarantee for
payment in the jurisdiction of organization of the
Successor Person, unless such Security or Guarantee
could not have been presented for payment elsewhere; or
(c) presented such Security or Guarantee more
than thirty (30) days after the date on which the
payment in respect of such Security or Guarantee first
became due and payable or provided for, whichever is
later, except to the extent that the Holder would have
been entitled to such Successor Additional Amounts if it
had presented such Security or Guarantee for payment on
any day within such period of thirty (30) days;
(2) any estate, inheritance, gift, sale, transfer,
personal property or similar tax, assessment or other
governmental charge;
11
<PAGE>
(3) any tax, duty, assessment or other governmental
charge which is payable otherwise than by withholding or deduction
from payments of (or in respect of) principal of or interest on the
Securities or the Guarantees;
(4) any tax, duty, assessment or other governmental
charge that is imposed or withheld by reason of the failure to comply by
the Holder or the beneficial owner of a Security with a request of the
Successor Person, RHG Finance or the Company, as the case may be,
addressed to the Holder (a) to provide information concerning the
nationality, residence or identity of the Holder or such beneficial
owner or (b) to make any declaration or other similar claim or satisfy
any information or reporting requirement, which, in the case of (a) or
(b), is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing jurisdiction as a precondition to
exemption from all or part of such tax, duty, assessment or other
governmental charge; or
(5) any combination of items (1), (2), (3) and (4 );
nor shall Successor Additional Amounts be paid with respect to any payment
of the principal of or interest on any such Security to any Holder who is a
fiduciary or partnership or other than the sole beneficial owner of such
payment to the extent such payment would be required by the laws of the
jurisdiction of organization of the Successor Person (or any taxing authority
thereof or therein) to be included in the income for tax purposes of a
beneficiary or settlor with respect to such fiduciary or a member of such
partnership or a beneficial owner who would not have been entitled to such
Additional Amounts of interest had it been the Holder of the Security;
or
(II) Marriott in its sole discretion expressly agrees by supplemental
indenture to assume all obligations otherwise applicable to a Successor Person
pursuant to Subsection 3.10(I) above, in which case no supplemental indenture
as referenced in such Subsection 3.10(I) shall be required of a Successor
Person in connection with a consolidation, merger or conveyance, transfer or
lease of assets of the Company to a Person that is not organized and validly
existing under the laws of the United States, any State thereof or the District
of Columbia or The Netherlands, and none of the provisions of Subsection
3.10(I) shall be applicable to such Successor Person.
In connection with the execution and delivery of any supplemental
indenture pursuant to this Section 3.10, the Successor Person (with respect to a
supplemental indenture pursuant to Subsection 3.10(I)) or Marriott (with respect
to a supplemental indenture pursuant to Subsection 3.10(II)) shall deliver to
the Trustee an Officer's Certificate and an Opinion of Counsel stating that such
supplemental indenture complies with the applicable provisions of this
Indenture, and that all conditions precedent herein provided for relating to
such transaction have been complied with.
12
<PAGE>
Section 3.15 Reports by Marriott; Exchange Listing of Securities.
---------------------------------------------------
(a) Marriott will:
(1) file with the Trustee, within 15 days after Marriott is
required to file the same with the SEC, copies of the annual reports and
of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may from time to time by
rules and regulations prescribe) which Marriott may be required to file
with the SEC pursuant to Section 13 or Section 15(d) of the Exchange Act
or, if Marriott is not required to file information, documents or
reports pursuant to either of said Sections, then it will file with the
Trustee and the SEC, in accordance with rules and regulations prescribed
from time to time by the SEC, such of the supplementary and periodic
information, documents and reports which may be required pursuant to
Section 13 of the Exchange Act, in respect of a security listed and
registered on a national securities exchange as may be required from
time to time in such rules and regulations;
(2) file with the Trustee and the SEC, in accordance with
rules and regulations prescribed from time to time by the SEC, such
additional information, documents and reports with respect to compliance
by the Marriott with the conditions and covenants of this Indenture as
may be required from time to time by such rules and regulations; and
(3) transmit to all Holders of Securities, in the manner
and to the extent provided in Section 3.16, within 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by Marriott pursuant to
paragraphs (1) and (2) of this Section and as may be required by rules
and regulations prescribed from time to time by the SEC.
(b) None of RHG Finance, the Company or Marriott shall have any
obligation to maintain the listing of the Securities on the New York Stock
Exchange or any national securities exchange or other trading facility, or
to continue the registration of the Securities under the Securities
Exchange Act of 1934.0
Section 1.5. Added Covenants. Each of the following Sections is hereby
---------------
added to the Indenture in its appropriate numerical position:
Section 3.17 Corporate Existence. So long as the Securities
shall be Outstanding, subject to Article Eight, Marriott will do or
cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence, rights (charter and statutory) and
franchises; provided, however, that Marriott shall not be required to
preserve any such right or franchise if Marriott shall determine that
the preservation thereof is no longer desirable in the conduct of the
business of Marriott.
Section 3.18 Exempted Liens and Sale and Leaseback
-------------------------------------
Transactions. Notwithstanding the restrictions on Liens and Sale and
------------
Leaseback Transactions contained
13
<PAGE>
in Section 3.8 and 3.9, Marriott or any Restricted Subsidiary may
create, assume or suffer to exist Liens or enter into Sale and Leaseback
Transactions not otherwise permitted as contained in Sections 3.8 and
3.9, provided that at the time of such event, and after giving effect
thereto, the sum of outstanding Debt secured by such Liens plus all
Attributable Debt in respect of such Sale and Leaseback Transactions
entered into, measured in each case, at the time any Lien is incurred or
any Sale and Leaseback Transaction is entered into, by Marriott and
Restricted Subsidiaries does not exceed the greater of (i) $250 million
or (ii) 10% of Consolidated Net Assets. For purposes of the foregoing
sentence, the Debt of any Person other than Marriott or any Restricted
Subsidiary which is secured by a Lien on Principal Property of Marriott
or any Restricted Subsidiary or capital stock or Debt issued by any
Restricted Subsidiary shall be deemed to be an amount equal to the
lesser of (i) the amount of such Debt or (ii) the fair market value (in
the opinion of Marriott's Board of Directors) of the property of
Marriott and its Restricted Subsidiaries which is encumbered by such
Lien.
Section 3.19 Waiver of Certain Covenants. Marriott may omit
---------------------------
in any particular instance to comply with any term, provision or
condition set forth in Sections 3.8, 3.9, 3.17, and 3.18 with respect to
the Securities if before the time for such compliance the Holders of at
least a majority in principal amount of the Outstanding Securities
shall, by act of such Holders (pursuant to Section 6.1), either waive
such compliance in such instance or generally waive compliance with such
term, provision or condition, but no such waiver shall extend to or
affect such term, provision or condition except to the extent expressly
so waived, and, until such waiver shall become effective, the
obligations of Marriott and the duties of the Trustee in respect of any
such term, provision or condition shall remain in full force and effect.
Section 1.6 Omitted Remedies Of The Trustee And Securityholders On
------------------------------------------------------
Event Of Default. The text of each of the following Sections is hereby deleted
- ----------------
in its entirety and replaced, in each case, by the words "Intentionally
Omitted":
Section 4.1(f)
Section 4.1(g)
Section 4.1(j)
Section 1.7 Amended Remedies Of The Trustee And Securityholders On
------------------------------------------------------
Event Of Default. Each of the following Subsections of Section 4.1 of the
- ----------------
Indenture is hereby amended to read in its entirety as follows:
(d) failure on the part of RHG Finance, the Company and
Marriott duly to observe or perform any other of the covenants
or agreements on the respective parts of RHG Finance, the
Company and Marriott contained in the Securities or in this
Indenture for a period of 60 days after the date on which
written notice specifying such failure, stating that such notice
is a "Notice of Default" hereunder and demanding that
14
<PAGE>
RHG Finance, the Company and Marriott remedy the same, shall have been
given by registered or certified mail, return receipt requested, to each
of RHG Finance, the Company and Marriott by the Trustee, or to each of
RHG Finance, the Company and Marriott by the Holders of at least 25% in
aggregate principal amount of the Securities at the time Outstanding; or
(e) default (i) in the payment of any principal on any
debt for borrowed money of Marriott or any Restricted Subsidiary of
Marriott (excluding any non-recourse debt), in an aggregate principal
amount in excess of the greater of (a) $75 million or (b) 4% of
Consolidated Net Assets, when due at its final maturity after giving
effect to any applicable grace period and the holder thereof shall have
taken affirmative action to enforce the payment thereof, or (ii) in the
performance of any term or provision of any debt for borrowed money of
Marriott or any Restricted Subsidiary of Marriott (excluding any non-
recourse debt) in an aggregate principal amount in excess of the greater
of (a) $75 million or (b) 4% of Consolidated Net Assets that results in
such debt becoming or being declared due and payable prior to the date
on which it would otherwise become due and payable, unless, in the case
of either clause (i) or (ii) above, (x) such acceleration or action to
enforce payment, as the case may be, has been rescinded or annulled, (y)
such debt has been discharged or (z) a sum sufficient to discharge in
full such debt has been deposited in trust by or on behalf of Marriott,
in each case, within a period of 10 days after there has been given, by
registered or certified mail, to Marriott by the Trustee or to Marriott
and the Trustee by the Holders of at least 25% in principal amount of
the Outstanding Securities, a written notice specifying such default or
defaults and stating that such notice is a "Notice of Default"
hereunder; or
(h) the entry of a decree of order for relief in respect
of Marriott by a court having jurisdiction in the premises in an
involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or State bankruptcy,
insolvency or other similar law, or a decree or order adjudging Marriott
a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of Marriott under any applicable Federal or State law, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Marriott or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
(i) the commencement by Marriott of a voluntary case
under the Federal bankruptcy laws, as now or hereafter constituted, or
any other applicable Federal or State bankruptcy, insolvency or other
similar law, or the consent by it to the entry of an order for relief in
an involuntary case
15
<PAGE>
under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of Marriott or of any substantial part of its
property, or the making by it of an assignment for the benefit
of its creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the
taking of corporate action by Marriott in furtherance of any
such action;
Section 1.8 Amended Consolidation, Merger, Sale Or Conveyance
-------------------------------------------------
Provisions. Each of the following Sections is hereby amended to read in its
- ----------
entirety as follows:
Section 8.1 RHG Finance and Marriott May Consolidate, etc.,
-----------------------------------------------
Only on Certain Terms.
---------------------
So long as any Securities shall be Outstanding, neither RHG
Finance nor Marriott shall consolidate with or merge into any other
corporation or other Person or convey, transfer or lease its properties
and assets substantially as an entirety to any Person (such successor
corporation or Person, as the case may be, shall in this Article 8 be
referred to as the "Successor Company"), unless
(1) the Successor Company shall be organized and
existing under the laws of the United States of America or any
State or the District of Columbia, and shall expressly assume by
an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of and premium, if any, and
interest (and Additional Amounts, if any) on all the Securities
and the performance of every covenant of this Indenture and in
the Securities on the part of RHG Finance or Marriott, as the
case may be, to be performed or observed;
(2) immediately after giving effect to such transaction,
no Event of Default, and no event that, after notice or lapse of
time, or both, would become an Event of Default, shall have
happened and be continuing;
(3) if, as a result of any such consolidation or merger
or such conveyance, transfer or lease, any Principal Property of
Marriott or any Restricted Subsidiary would become subject to a
Lien that would not be permitted by this Indenture, or Marriott
or such Successor Company takes such steps as are necessary
effectively to secure the Securities equally and ratably with
(or, at the option of Marriott, prior to) all indebtedness
secured thereby; and
(4) RHG Finance or Marriott, as the case may be, has
delivered to the Trustee an Officer's Certificate and an Opinion
of Counsel each stating that such consolidation, merger,
conveyance, transfer or lease and such supplemental indenture
comply with this Article, and that all conditions precedent
herein provided for relating to such transaction have been
complied with.
Section 8.2 Successor Company Substituted.
-----------------------------
16
<PAGE>
Upon any consolidation with or merger into any other corporation
or other Person, or any conveyance, transfer or lease of the properties
and assets of RHG Finance or Marriott substantially as an entirety in
accordance with Section 8.1, the Successor Company or person formed by
such consolidation or into which RHG Finance or Marriott is merged or to
which such conveyance, transfer or lease is made shall succeed to, and
be substituted for, and may exercise every right and power of, RHG
Finance or Marriott, as the case may be, under this Indenture with the
same effect as if such Successor Company or person had been named as RHG
Finance or Marriott, as the case may be, herein, and thereafter, except
in the case of a lease, the predecessor corporation shall be relieved of
all obligations and covenants under this Indenture and the Securities.
Section 1.9 Deleted Consolidation, Merger, Sale Or Conveyance
-------------------------------------------------
Provision. The text of Section 8.3 is hereby deleted in its entirety and
- ---------
replaced by the words "Intentionally Omitted".
Section 1.10 Deleted Defeasance Provision. The text of Section 9.6 is
----------------------------
hereby deleted in its entirety and replaced by the words "Intentionally
Omitted".
Section 1.11 Amended Discharge and Defeasance Provisions.
-------------------------------------------
The text of the following parenthetical in Subsection 9.1(a)(iii)(B)
"(other than moneys repaid by the Trustee or any paying agent to RHG Finance in
accordance with Section 9.6)" is hereby deleted in its entirety and replaced by
the text "(other than moneys repaid by the Trustee or any paying agent to RHG
Finance, the Company or Marriott in accordance with the second paragraph of
Section 9.4)".
In addition, each of the following Sections hereby is amended to
read in its entirety as follows:
Section 9.2 Defeasance Upon Deposit of Moneys or U.S.
-----------------------------------------
Government Obligations.
----------------------
At the option of RHG Finance, the Company or Marriott,
either (a) each of RHG Finance, the Company and Marriott, shall
be deemed to have been Discharged (a s defined below) from its,
or their, obligations with respect to the Securities ("legal
defeasance option") or (b) each of RHG Finance, the Company and
Marriott shall cease to be under any obligation to comply with
any term, provision or condition set forth in Sections 3.8
through 3.14, 3.18, 3.19 and 8.1 with respect to the Securities
("covenant defeasance option") at any time after the applicable
conditions set forth below have been satisfied:
(1) RHG Finance, the Company or Marriott shall
have deposited or caused to be deposited irrevocably
with the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the
benefit of the Holders of the Securities (i) money in an
amount, or (ii) U.S. Government Obligations (as defined
below) which through the payment of interest and
principal in respect thereof in accordance with their
terms will provide, not later than one day before the
due date of any payment, money in an amount, or (iii) a
17
<PAGE>
combination of (i) and (ii), sufficient, in the opinion (with
respect to (i) and (ii)) of a nationally recognized firm of
independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and
discharge each installment of principal (including any mandatory
sinking fund payments) of and premium, if any, and interest on,
the Outstanding Securities on the dates such installments of
interest or principal and premium are due (including Additional
Amounts, if any, known at the time of such deposit);
(2) such deposit shall not cause the Trustee with
respect to the Securities to have a conflicting interest for
purposes of the Trust Indenture Act with respect to the
Securities, provided that RHG Finance, the Company or Marriott
may remove the Trustee and substitute a new Trustee if otherwise
permitted by Article Five;
(3) if the Securities are then listed on any national
securities exchange, RHG Finance, the Company or Marriott shall
have delivered to the Trustee an Opinion of Counsel or a letter
or other document from such exchange to the effect that the
exercise by RHG Finance, the Company or Marriott of its option
under this Section would not cause such Securities to be
delisted;
(4) no Event of Default or event (including such
deposit) which, with notice or lapse of time or both, would
become an Event of Default with respect to the Securities shall
have occurred and be continuing on the date of such deposit and,
with respect to the legal defeasance option only, no Event of
Default under Section 4.1(h) or Section 4.1(i) or event which
with the giving of notice or lapse of time, or both, would
become an Event of Default under Section 4.1(h) or Section
4.1(i) shall have occurred and be continuing on the 91st day
after such date; and
(5) in the event of legal defeasance, RHG Finance, the
Company or Marriott shall have delivered to the Trustee an
Opinion of Counsel or a ruling from the Internal Revenue Service
to the effect that the Holders of the Securities will not
recognize income, gain or loss for Federal income tax purposes
as a result of such deposit, defeasance or Discharge.
Notwithstanding the foregoing, if RHG Finance, the Company or Marriott
exercises its covenant defeasance option and an Event of Default under
Section 4.1(h) or Section 4.1(i) or event which with the giving of
notice or lapse of time, or both, would become an Event of Default under
Section 4.1(h) or Section 4.1(i) shall have occurred and be continuing
on the 91st day after the date of such deposit, the obligations of RHG
Finance, the Company or Marriott referred to under the definition of
covenant defeasance option with respect to the Securities shall be
reinstated.
"Discharged" means that RHG Finance, the Company or Marriott, as
applicable, shall be deemed to have paid and discharged the entire
indebtedness represented by, and obligations under, the Securities and
to have satisfied all the obligations under this Indenture relating to
the Securities (and the Trustee, at the expense of RHG Finance, the
18
<PAGE>
Company or Marriott, shall execute proper instruments acknowledging the
same), except (A) the rights of Holders of Securities to receive, from
the trust fund described in clause (1) above, payment of the principal
of (and premium, if any) and interest (and Additional Amounts, if any)
on such Securities when such payments are due, (B) the obligations of
RHG Finance, the Company or Marriott to pay Additional Amounts, if any,
to the extent that funds to pay such Additional Amounts have not be
deposited as provided in subsection 9.2(1) above; (C) the obligations of
RHG Finance, the Company and Marriott with respect to the Securities
under Sections 2.5, 2.6, 2.7, 2.8, 2.10, 3.3 and 9.3 and (D) the rights,
powers, trusts, duties and immunities of the Trustee hereunder.
Section 9.3 Deposited Moneys and U.S. Government,
-------------------------------------
Obligations to Be Held in Trust.
-------------------------------
All moneys and U.S. Government Obligations deposited with the
Trustee pursuant to Section 9.2 in respect of the Securities shall be
held in trust and applied by it, in accordance with the provisions of
the Securities and this Indenture, to the payment, either directly or
through any Paying Agent (including RHG Finance acting as its own Paying
Agent) as the Trustee may determine, to the Holders of the Securities,
of all sums due and to become due thereon for principal (and premium, if
any) and interest (and Additional Amounts), if any, but such money need
not be segregated from other funds except to the extent required by law.
Section 9.4 Repayment to RHG Finance, the Company or
----------------------------------------
Marriott.
--------
The Trustee and any Paying Agent shall promptly pay or return
to RHG Finance, the Company or Marriott upon demand of RHG Finance, the
Company or Marriott, as applicable, any moneys or U.S. Government
Obligations held by them at any time that are not required for the
payment of the principal of (and premium, if any) and interest (and
Additional Amounts, if any) on the Securities for which money or U.S.
Government Obligations have been deposited pursuant to Section 9.2.
Any money deposited with the Trustee or the Paying Agent, or
then held by RHG Finance, the Company or Marriott, in trust for the
payment of the principal of (and premium, if any) or interest (and
Additional Amounts, if any) on the Securities and remaining unclaimed
for two years after such principal (and premium, if any) or interest
(and Additional Amounts, if any) has become due and payable (including
any money held by the Trustee or any Paying Agent under this Article
Nine that remains unclaimed for two years after the date on which
principal of the Securities becomes due and payable, whether at maturity
or by declaration of acceleration, call for redemption or otherwise, for
which money or U.S Government Obligations have been deposited pursuant
to Section 9.2) shall be paid to RHG Finance, the Company or Marriott
upon demand of RHG Finance, the Company or Marriott, as applicable, or
(if then held by RHG Finance, the Company or Marriott) shall be
discharged from such trust; and the Holder of any Security shall
thereafter, as an unsecured general creditor, look only to RHG Finance,
the Company or Marriott for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all
liability of RHG Finance, the Company or Marriott, as
19
<PAGE>
trustee thereof, shall thereupon cease; provided, however, that the
-------- -------
Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of RHG Finance, the Company or Marriott
cause to be transmitted to the Holders in the manner and to the extent
provided by the second paragraph of Section 10.4, notice that such money
remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification, any
unclaimed balance of such money then remaining will be repaid to RHG
Finance, the Company or Marriott.
Section 9.5 Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any money in
accordance with Section 9.3 by reason of any order or judgment of any
court or government authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of RHG Finance, the
Company or Marriott under this Indenture and the Securities shall be
revived and reinstated as though no deposit had occurred pursuant to
Section 9.2 until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 9.3; provided,
however, that if RHG Finance, the Company or Marriott makes any payment
of interest on or principal (or Additional Amounts, if any) of any of
the Securities following the reinstatement of its obligations, RHG
Finance, the Company or Marriott shall be subrogated to the rights of
the Holders of such Securities to receive such payment from the money
held by the Trustee or Paying Agent.
Section 1.12 Amended Notice Provision. The following Section is hereby
------------------------
amended in its entirety to read as follows:
Section 10.4 Notices and Demands on RHG Finance, Company,
-------------------------------------------
Marriott, Trustee and Securityholders.
-------------------------------------
Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the
Holders of Securities to or on RHG Finance, the Company or Marriott, as
the case may be, may be given or served by being deposited postage
prepaid, first-class mail (except as otherwise specifically provided
herein) addressed (until another address of RHG Finance, the Company or
Marriott is filed by RHG Finance, the Company or Marriott, as the case
may be, with the Trustee) to RHG Finance or the Company c/o Marriott
International, or to Marriott International, Inc. at 10400 Fernwood
Road, Bethesda, Maryland 20817, Attention: Treasurer, with a copy to:
Legal Department. Any notice, direction, request or demand by RHG
Finance, the Company, Marriott or any Securityholder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made at the Corporate Trust Office.
Where this Indenture provides for notice to Holders, such notice
shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder
entitled thereto, at his last address as it appears in the Security
Register. In any case where notice to Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder
20
<PAGE>
shall affect the sufficiency of such notice with respect to other
Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed
with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in
regular mail service, it shall be impracticable to mail notice to RHG
Finance, the Company, Marriott and Securityholders when such notice is
required to be given pursuant to any provision of this Indenture, then
any matter of giving such notice as shall be satisfactory to the Trustee
shall be deemed to be a sufficient giving of such notice.
Section 1.13 Conforming Amendments. Each reference to "the Company"
---------------------
in the following Sections of the Indenture is hereby amended to substitute in
lieu thereof a reference to "the Company or Marriott" or "the Company and
Marriott" as the context requires, and each reference to "the Guarantee" or "the
Guarantees" in such Sections of the Indenture is hereby amended to substitute in
lieu thereof a reference to "the Guarantee or the Additional Guarantee" or "the
Guarantees or the Additional Guarantee," as the case may be: 3.6, 5.2, 5.3, 5.9,
5.10, 6.2, 6.4, 7.5, 9.1, 10.2, 10.3, 10.5, 10.9 and 11.4.
ARTICLE TWO
-----------
MISCELLANEOUS
-------------
Section 2.1. Definitions. Capitalized terms used herein without
-----------
definition shall have the respective meanings specified in the Indenture.
Section 2.2. Governing Law. The laws of the State of New York
-------------
shall govern this Second Supplemental Indenture without regard to the principles
of conflict of laws.
Section 2.3. Counterparts. This Second Supplemental Indenture may
------------
be executed in counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
Section 2.4. Survival. This Second Supplemental Indenture and the
--------
Indenture shall henceforth be read together. Except as expressly set forth
herein, the Indenture shall remain unchanged and in full force and effect in
accordance with its terms.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be executed and delivered as of the date first
above written.
RHG FINANCE CORPORATION
By: /s/ C. B. Handlon
--------------------------------
Name: Carolyn B. Handlon
Title: Assistant Treasurer
RENAISSANCE HOTEL GROUP N.V.
By: /s/ Michael A. Stein
--------------------------------
Name: Michael A. Stein
Title: Executive Director
MARRIOTT INTERNATIONAL, INC.
By: /s/ C. B. Handlon
--------------------------------
Name: Carolyn B. Handlon
Title: Vice President and
Assistant Treasurer
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Janice Ott Rotunno
--------------------------------
Name: Janice Ott Rotunno
Title: Assistant Vice President
22
<PAGE>
EXHIBIT 11
PAGE 1 OF 2
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
($ in millions, except per share amounts)
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
-------------------------------- ------------------------------
June 20, 1997 June 14, 1996 June 20, 1997 June 14, 1996
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Computation of Primary Earnings Per Share
- -----------------------------------------
Net Income.......................................... $ 83 $ 75 $ 160 $ 138
=============== ============== ============== ==============
Shares -
Weighted average number of shares outstanding....... 126.7 127.7 126.5 127.1
Assumed distribution of shares reserved under
employee stock purchase plan, less shares assumed
purchased at a greater of average or ending
market price..................................... - - - 0.1
Assumed issuance of shares granted under employee
stock option plan, less shares assumed
purchased at average market price................ 4.1 4.5 4.0 4.3
Assumed distribution of shares granted under
deferred stock incentive plan, less shares assumed
purchased at average market price................ 3.1 3.2 3.1 3.2
--------------- -------------- -------------- --------------
133.9 135.4 133.6 134.7
=============== ============== ============== ==============
Primary Earnings Per Share.......................... $ .62 $ .55 $ 1.20 $ 1.02
=============== ============== ============== ==============
</TABLE>
<PAGE>
EXHIBIT 11
PAGE 2 OF 2
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
($ in millions, except per share amounts)
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
--------------------------------- --------------------------------
June 20, 1997 June 14, 1996 June 20, 1997 June 14, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Computation of Fully Diluted Earnings Per Share
- -----------------------------------------------
Earnings-
Net Income............................................. $ 83 $ 75 $ 160 $ 138
After-tax interest expense on convertible
subordinated debt.............................. 2 2 4 2
-------------- -------------- -------------- --------------
Net income for fully diluted earnings per share........ $ 85 $ 77 $ 164 $ 140
============== ============== ============== ==============
Shares -
Weighted average number of shares outstanding.......... 126.7 127.7 126.5 127.1
Assumed distribution of shares reserved under
employee stock purchase plan, less shares assumed
purchased at a greater of average or ending market
price.............................................. - 0.1 - 0.1
Assumed issuance of shares granted under employee
stock option plan, less shares assumed purchased at
greater of average or ending market price.......... 4.7 4.5 4.7 4.5
Assumed distribution of shares granted under deferred
stock incentive plan, less shares assumed purchased
at greater of average or ending market price....... 3.1 3.2 3.1 3.2
Assumed issuance of common shares upon conversion of
convertible subordinated debt...................... 4.7 4.7 4.7 2.4
-------------- -------------- -------------- --------------
139.2 140.2 139.0 137.3
============== ============== ============== ==============
Fully Diluted Earnings Per Share...................... $ .61 $ .55 $ 1.18 $ 1.02
============== ============== ============== ==============
</TABLE>
<PAGE>
EXHIBIT 12
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in millions)
<TABLE>
<CAPTION>
Twenty-four weeks ended Fiscal Year
------------------------------------ -------------------------------------
JUNE 20, 1997 JUNE 14, 1996 1996 1995 1994 1993 1992
------------- ------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income Before Cumulative
Effect of a Change in
Accounting Principle $ 160 $ 138 $ 306 $ 247 $ 200 $ 159 $ 134
Add/(Deduct):
Tax on Income Before
Cumulative Effect of a Change
in Accounting Principle 105 88 196 165 142 116 103
Fixed Charges 81 60 142 107 84 73 72
Interest Capitalized as Property
and Equipment (6) (2) (9) (8) (4) (3) (2)
(Income)/Loss Related to Certain
50%-or-Less-Owned-Affiliates - - 1 - (2) (1) 2
----- ----- ----- ----- ----- ----- -----
EARNINGS AVAILABLE FOR FIXED CHARGES 340 284 636 511 420 344 309
===== ===== ===== ===== ===== ===== =====
Fixed Charges:
Interest Including Amounts
Capitalized as Property and
Equipment $ 59 $ 39 $ 94 $ 61 $ 36 $ 30 $ 27
Portion of Rental Expense
Representative of Interest 22 21 48 45 45 40 44
Share of Interest Expense of
Certain 50%-or-Less-Owned-Affiliates - - - 1 3 3 1
----- ----- ----- ----- ----- ----- -----
TOTAL FIXED CHARGES $ 81 $ 60 $ 142 $ 107 $ 84 $ 73 $ 72
===== ===== ===== ===== ===== ===== =====
RATIO OF EARNINGS TO FIXED CHARGES 4.2 4.7 4.48 4.78 5 4.71 4.29
===== ===== ===== ===== ===== ===== =====
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges as
prescribed by the rules and regulations of the Commission, earnings represents
income before cumulative effect of a change in accounting principle, plus, when
applicable, (a) taxes on such income, (b) fixed charges, and (c) the Company's
equity interest in losses of certain 50%-or-less-owned-affiliates; less (x)
undistributed earnings of 50%-or-less-owned-affiliates, and (y) interest
capitalized. Fixed charges represent interest (including amounts capitalized),
amortization of deferred financing costs, the portion of rental expense deemed
representative of interest and, when applicable, the Company's share of the
interest expense of certain 50%-or-less-owned-affiliates.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> JAN-04-1997
<PERIOD-END> JUN-20-1997
<CASH> 351
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,729
<PP&E> 2,359
<DEPRECIATION> 421
<TOTAL-ASSETS> 6,627
<CURRENT-LIABILITIES> 1,962
<BONDS> 2,235
0
0
<COMMON> 129
<OTHER-SE> 1,288
<TOTAL-LIABILITY-AND-EQUITY> 6,627
<SALES> 2,878
<TOTAL-REVENUES> 2,878
<CGS> 0
<TOTAL-COSTS> 2,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> 138
<INCOME-TAX> 55
<INCOME-CONTINUING> 83
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</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: The Company's 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 and New World Development Company Limited.
There can be no assurance that any of the Company's current strategic
arrangements will be continued, or that the Company 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 the
Company's lodging facilities, retirement communities, and contract service units
are influenced by contract terms offered by the Company's competitors at the
time such agreements are entered into. Accordingly, there can be no assurance
that contracts entered into or renewed in the future will be on terms that are
as favorable to the Company as those under existing agreements.
Competition: The profitability of hotels, vacation timeshare resorts,
retirement communities, food service and facilities management accounts and
distribution centers operated by the Company 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, food services, facilities management and
distribution services, and other factors. The Company generally operates in
markets that contain numerous competitors and the continued success of the
Company will be dependent, in large part, upon the 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: During the 1980s, construction of lodging facilities
in the United States resulted in an excess supply of available rooms, and the
oversupply had an adverse effect on occupancy levels and room rates in the
industry. Although industry conditions have improved, the lodging industry may
be adversely affected in the future by (i) international, national and regional
economic conditions, (ii) changes in travel patterns, (iii) taxes and government
regulations which influence or determine wages, prices, interest rates,
construction procedures and costs, and (iv) the availability of capital. The
Company's timeshare and senior living services businesses are also subject to
the same or similar uncertainties and, accordingly, there can be no assurance
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 the Company is able
to sell or rent units.
Effect of Acquisitions: The benefit to the Company of acquisitions such as RHG
depends, in part, on the Company's ability to integrate the acquired businesses
into existing operations. Such integration may be more difficult, costly and
time consuming than anticipated.
