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M a r r i ot t I n te r nat i o na l , I n c .
             2001 Annual Report




    O u r 7 5 T H Year of Serv ice
VISION: to be the world’s leading
provider of hospitality services.
                                       Marriott International, Inc. is a worldwide hospitality
       CONTENTS
 [1]   Financial Highlights
                                       leader. We offer the most comprehensive portfolio
 [2]   Brand Overview
                                       of hospitality brands and businesses in the industry,
 [6]   Executive Letter
[10]   Our “Spirit to Serve”
                                       with nearly 2,600 operating units in 65 countries
       Is Stronger Than Ever
                                       and territories.
[11]   Financial Review
[21]   Financial Statements
[25]   Notes to Financial Statements
                                       Today, Marriott operates and franchises approximately
[40]   Selected Historical
       Financial Data                  436,000 rooms across 18 distinct lodging, vacation
[41]   Management’s Report
                                       ownership and corporate housing brands to meet the
[41]   Report of Independent
       Public Accountants              needs and tastes of any traveler. Our senior living brands
[42]   Directors and Officers
                                       serve over 25,000 residents in communities across the
[43]   Corporate Information
                                       United States. Our distribution business provides food
                                       and related products to hotels and some of the largest
                                       restaurant chains in the world.

                                       Our brands are leaders in their respective segments and
                                       enjoy a high level of customer and owner preference.
                                       Marriott’s considerable competitive advantages – a full
                                       range of brands and services, expanding worldwide
                                       distribution and commitment to high-quality growth –
                                       allow us to provide our customers with world-class
                                       service and comfort wherever they go.

                                       Marriott has grown tremendously over the past decade.
                                       Our basic values and principles, however, have remained
                                       the same for 75 years: concern for our associates,
                                       hands-on management, and a tireless commitment
                                       to excellence.

                                       Located in the heart of London, the Renaissance London Chancery
                                       Court Hotel offers both classic style and contemporary amenities in
                                       a meticulously restored Edwardian setting.
FINANCIAL HIGHLIGHTS




                                            $20.0
                                   $19.8




                                                                                                                                                                        $1.89
                                                                                                   $922
                          $17.7




                                                                                                                                                                                 $1.58**
                                                                                         $830
           $16.0




                                                                                                             $772**




                                                                                                                                                                $1.51
                                                                                                                                                        $1.46
                                                                               $736




                                                                                                                       $590*




                                                                                                                                                                                           $.92*
                                            01
           98             99       00                                                                                                                                            01
                                                                                                                                                        98      99      00
                                                                                                             01
                                                                               98        99        00
          SYSTEMWIDE SALES                                                                                                                             EARNINGS PER SHARE
                                                                              OPERATING PROFIT
                          (billions)                                                                                                                            (diluted)
                                                                                         (millions)
                                                                                                                                                            *as reported
                                                                                   *as reported
                                                                                                                                            **excluding restructuring and other charges
                                                                   **excluding restructuring and other charges




                                                         M A R R I O T T I N T E R N AT I O N A L , I N C .

                                                                                                                                   2001                2000                     CHANGE

(dollars in millions, except per share amounts)

Systemwide sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     $20,000             $19,781                           1%
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
                                   1
                                                                                                                               $     772           $       922                  (16%)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
                          1
                                                                                                                               $     408           $       479                  (15%)
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
                                                     1
                                                                                                                               $    1.58           $ 1.89                       (16%)
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
                   1, 2
                                                                                                                               $     972           $ 1,052                         (8%)

    Amounts exclude restructuring and other charges in 2001.
1

    Earnings before interest expense, income taxes, depreciation and amortization.
2
                                                                                                                                                                                 7.9%
                                                                                                                                                                        7.5%
                                                                                                             435,900




                                                                                                                                                                7.1%
                                   $42.25




                                                                                                                                                        6.8 %
                                            $41.15




                                                                                                   390,500
                                                                                         355,900
                                                                               328,300
                          $31.56
           $29.00




                                                                                                             01
                                                                               98        99        00                                                                            01
                                                                                                                                                        98      99      00
                                            01
           98             99       00
                                                                                LODGING ROOMS                                                SHARE OF TOTAL U.S. ROOM SUPPLY
                    STOCK PRICE
                                                                         (excluding ExecuStay apartments)                                  (excluding timeshare and ExecuStay apartments)
                    (as of year end)
with nearly 2,600 distinctive hotels, resorts and
  other hospitality businesses in 65 countries,
 marriott offers customers a world of choices.
Full-Service Lodging




Marriott Hotels, Resorts and Suites is our flagship brand of 424 upscale          JW Marriott Hotels & Resorts is a         Marriott Resorts is our award-
hotels, including 20 JW Marriott Hotels, 35 Marriott Resorts and 13 Marriott      distinctive collection of luxurious       winning portfolio of distinctive
Conference Centers. The Marriott Hotels, Resorts and Suites brand is trusted      hotels providing the attentive personal   properties in the world’s most
by guests the world over to enhance their travel or meeting experience with       service, elegant accommodations and       sought-after destinations. Designed
knowledgeable service, genuine care and gracious attention to detail. Our         extensive array of services required by   for travelers seeking memorable
thoughtfully designed hotels feature spacious and comfortably appointed guest     the world’s most discerning travelers.    and rewarding experiences, Marriott
rooms; pools and fitness centers; superb restaurants and room service; and for    JW Marriott Hotels & Resorts are now      Resorts offers attentive service and
the business traveler looking to enhance productivity, The Room That Works®  ,    located in key business and leisure       exceptional amenities, with many
business centers, and Concierge and Executive Levels.                             destinations throughout the world.        featuring world-class golf and
                                                                                                                            spa facilities.




Full-Service Lodging




Marriott Conference Centers provides     Renaissance Hotels, Resorts and          The Ritz-Carlton Hotel Company is         BVLGARI Hotels & Resorts, developed
the special expertise, environment,      Suites is an upscale, distinctive,       the premier global luxury hotel brand     in partnership with jewelry and luxury
technology and on-site recreation        sophisticated full-service hotel brand   and a worldwide symbol of prestige        goods designer Bulgari SpA, is a new
to ensure creative, effective meetings   designed to enhance the enjoyment        and distinction. Each Ritz-Carlton        luxury hotel brand designed to appeal
for small to mid-size groups.            and productivity of our guests.          hotel offers fine dining, 24-hour         to guests who seek a distinctive,
Positioned close to cities with          Renaissance guests can expect            room service and twice-daily              sophisticated setting in major cities
distraction-free surroundings,           stylish, comfortable environments;       housekeeping, as well as the finest       and exclusive destinations. Each
Marriott Conference Centers sets the     crisp, respectful service; and           fitness facilities, business centers      property will feature Bulgari’s striking
stage for “The Ultimate Meeting          contemporary restaurants that            and concierge service. Ritz-Carlton       Italian contemporary style and offer
Experience.”                             feature well-defined, quality dining     operates 45 hotels and resorts            the finest Italian-influenced cuisine,
                                         experiences. Enjoy the warm, inviting    worldwide.                                progressive wellness centers and many
                                         ambience of Renaissance in more                                                    unique amenities. The first BVLGARI
                                         than 120 properties worldwide.                                                     Hotels & Resorts property will open in
                                                                                                                            2003 in Milan.
Select-Service Lodging




                                                                        ®

                                                                   ®




Ramada International full-service          Courtyard by Marriott is the              Fairfield Inn by Marriott is Marriott’s    SpringHill Suites by Marriott, one of
hotels provide international business      preeminent brand in the upper-            most affordable welcome, offering          the fastest growing all-suite brands,
travelers with a comfortable guest         moderate price sector with more than      superior value for both business and       offers upper-moderate price suites
room at an affordable price. Many          550 hotels in 10 countries. Courtyard’s   leisure travel. In addition to clean and   that are spacious enough for working,
Ramada International hotels feature        customer-focused design provides          comfortable guest rooms, Fairfield Inn     relaxing and even preparing light
restaurants, meeting and banquet           guests with a consistently high-quality   provides free local calls, swimming        meals. SpringHill Suites combines
facilities, a swimming pool and fitness    experience. Business travelers know       pool and complimentary continental         Marriott hospitality with a
center. Marriott primarily franchises      they can expect a great guest             breakfast. Fairfield Inn & Suites          complimentary continental breakfast
133 Ramada hotels in 16 countries          room that combines comfort and            properties also include uniquely           and a suite that is up to 25% larger
and territories outside the United         functionality. Business and leisure       designed suites, an exercise room and      than a traditional hotel room. Suites
States, and licenses the use of the        travelers alike count on Courtyard to     enhanced amenities. There are 480          feature a pantry area with a small
Ramada brand name in North                 put them in control so they can leave     Fairfield Inn and Fairfield Inn & Suites   refrigerator, sink and microwave. To
America to other lodging companies.        feeling restored.                         locations across the United States.        date, there are 84 SpringHill Suites
                                                                                                                                locations across North America.



Extended-Stay and Corporate Lodging




                       ®




Residence Inn by Marriott, North           TownePlace Suites is earning accolades    Marriott Executive Apartments is           Marriott ExecuStay, a leading U.S.
America’s leading extended-stay brand,     from business travel planners as the      the ideal answer for international         corporate apartment provider, offers
allows guests on long-term trips to        #1 moderate-tier extended-stay hotel      business travelers’ growing demand         temporary housing to travelers who
maintain balance between work and          in the United States. With suites         for temporary housing that not only        prefer the spaciousness and privacy of
life while away from home. Spacious        designed for comfort, housekeeping        provides the spaciousness and privacy      an apartment. ExecuStay finds the right
suites with full kitchens and separate     service and 24-hour-a-day staff ready     of apartment living, but also offers       solution for each traveler and delivers a
areas for sleeping, working, relaxing      to assist, this brand successfully        hotel-like services and amenities.         fully furnished, accessorized apartment
and eating offer home-like comfort         addresses the needs of extended-stay      This quality-tier brand offers             with as little as one day’s notice.
with functionality. A friendly staff and   guests seeking exceptional service and    unquestionable value for long-term         Residents enjoy weekly housekeeping
welcome services like complimentary        quality accommodations at a moderate      business assignments or relocation.        and exceptional 24-hour customer
hot breakfast and evening social hours     rate. There are currently 99 TownePlace   There are currently six Marriott           service. ExecuStay apartments are
add to the sense of community. There       Suites hotels across the United States.   Executive Apartment communities            located in most major cities across
are 392 Residence Inn hotels across                                                  operating in key international             the United States.
North America.                                                                       gateway cities.
Ownership Resorts




                  ®




                                                                                                                                                                SM




Marriott Vacation Club International      The Ritz-Carlton Club is a deluxe            Marriott Grand Residence Club            Horizons by Marriott Vacation Club
is a recognized worldwide leader in       vacation product that features private       combines the advantages of second-       offers all the advantages of vacation
the vacation ownership resorts            residences in luxurious locales. It          home ownership with the services and     ownership at an affordable price.
industry. MVCI properties offer a         combines the benefits of second-home         amenities of a fine resort, as well as   Each Horizons resort is thoughtfully
lifetime of memorable vacations,          ownership with the personalized              the benefits of exchange to worldwide    designed as a self-contained
featuring one-, two- and three-           services and amenities that are              destinations. The first resort is in     community, complete with a variety
bedroom villas with spacious living       hallmarks of The Ritz-Carlton Hotel          South Lake Tahoe, California.            of on-property amenities and activities
and dining areas, master bedroom and      Company. Designed as a private club,                                                  for the entire family. Typical resort
bath, private balcony, full kitchen and   members may stay at their home Club                                                   features include miniature golf, a
washer/dryer. There are 48 MVCI           or choose from other Ritz-Carlton                                                     movie theater, and interactive, themed
resorts at exciting locations in the      Clubs in ski, golf or beach destinations.                                             pools. There are two Horizons by
United States, the Caribbean, Europe      There are three Ritz-Carlton Club                                                     Marriott locations: Branson, Missouri,
and Asia.                                 resorts in St. Thomas and Colorado.                                                   and Orlando, Florida.




Senior Living                                                                                                                    Other Operations




                                                              ®




Marriott Independent Full-Service         Brighton Gardens is a quality leader in      Marriott MapleRidge has created an       Marriott Distribution Services is one
communities offer gracious,               assisted living, providing superior design   assisted living approach that combines   of the leading limited-line food
apartment-like surroundings that          and service. Each community offers           the simple comforts and security of      service distributors in the United
are ideal for seniors who value their     tasteful, apartment-style accommodations     home with attentive care. Each           States. Thirteen strategically located
independence. They feature the            and a relaxed, home-like environment.        Marriott MapleRidge “neighborhood”       Marriott distribution centers provide
comfortable lifestyle and superb          Featuring Marriott’s innovative “Levels      consists of several residential-style    food and related products to nearly
amenities that have made the name         of Wellness and Care” program, the           cottages and a community center in       7,000 restaurants and other customers.
Marriott synonymous with the              communities provide residents with           a landscaped setting. Cottages feature
highest standards of hospitality and      personalized service and care. There are     a country-style kitchen, living room,
service. There are 48 independent         74 Brighton Gardens communities in           private and semi-private bedrooms,
full-service communities, most            23 states, and most include skilled          and each is attended by a live-in care
offering a number of levels of care,      nursing or Alzheimer’s care centers.         coordinator. There are nine Marriott
including assisted living, Alzheimer’s    Marriott also manages three Rosewood         MapleRidge communities in four states.
and skilled nursing care.                 Estates assisted living communities.
To Our Shareholders
                                                  Over the past 75 years, Marriott has               Our highly diverse, strategically located
                                                  prospered through many economic                 portfolio of brands presented clear advan-
                                                  cycles and political climates. In 2001,         tages this year. While international travel
                                                  the technology sector meltdown and              declined, intra-country demand remained
                                                  belt-tightening by major industries left        strong in most nations. Drive-to markets
                                                  the U.S. economy in its worst slump in          were stronger than fly-to destinations.
                                                  a decade. Following September 11, the           Select-service and extended-stay hotels
                                                  threat of terrorism and a softening             performed better than large convention
                                                  global economy provided the most chal-          properties. Our 71 percent U.S.-operated
                                                  lenging travel environment any of us            hotel occupancy remained significantly
                                                  had ever faced.                                 above the industry average of 60 percent,
                                                      While the entire travel industry was        and we maintained our market share
                                                  hammered by these unprecedented                 premium (measured in revenue per
                                                  events, we watched with pride as Marriott       available room, or “REVPAR”) over
                                                  associates repeatedly rose above the chal-      our competitive set.
[r] J.W. Marriott, Jr.                            lenges. The world may have changed                 Marriott Lodging operating profit
    Chairman and Chief Executive
                                                  forever during 2001, but today we face          totaled $756 million in 2001 (excluding
    Officer
                                                  the future with a renewed sense of pur-         restructuring and other charges), a decline
                                                  pose and conviction.                            of 19 percent from the prior year. While
[l] William J. Shaw
                                                      Marriott’s performance in 2001              disappointing, our performance compared
    President and Chief Operating
                                                  demonstrated that we are well prepared          favorably to the lodging industry’s esti-
    Officer
                                                  for economic difficulty.                        mated 27 percent profit decline in 2001.
                                                      Net income totaled $236 million, and           Over 50 percent of our lodging
                                                  diluted earnings per share were $.92. Our       operating income (excluding the impact
                                                  earnings reflected restructuring and other      of restructuring and other charges) came
                                                  charges totaling $271 million pretax. These     from relatively stable base management
                                                  charges were largely due to the downturn        and franchise fees. Base management and
                                                  in the economy after the terrorist attacks      franchise fees remained flat with 2000
                                                  on September 11 and included severance,         levels, reflecting the 10 percent decline
                                                  hotel development cancellations, charges        in REVPAR during the year, offset by the
Marriott opened nearly                            for loans and guarantees primarily related      12 percent increase in the number of
                                                  to 15 hotels, the closure of administrative     rooms under Marriott flags. Despite the
50,000 lodging rooms in                           facilities, the decision to exit a companion-   decline in REVPAR, we still earned over
                                                  style, moderate-priced assisted living          $200 million in incentive management
2001, and at year-end we                          brand, as well as other charges for both        fee revenue due to strong cost control.
                                                  our lodging and non-lodging businesses.            Marriott Vacation Club International
operated or franchised                                Our balance sheet remained strong. We       contributed 20 percent of Marriott
                                                  completed $663 million in asset sales,          Lodging operating profit in 2001, and
                                                  including $46 million in the fourth quar-       operating profit increased 8 percent over
2,398 lodging properties.
                                                  ter. Earnings before interest expense, taxes,   the prior year (excluding restructuring
                                                  depreciation and amortization (EBITDA)          and other charges). While the business
                                                  coverage of interest was 4.1 times in 2001.     successfully rolled out seven new prop-
                                                      Marriott opened nearly 50,000 lodging       erties and a new brand, profits were
                                                  rooms in 2001, and at year-end, we oper-        constrained by higher marketing costs
                                                  ated or franchised 2,398 lodging properties     in a softer demand environment. One-
                                                  across 18 brands in 65 countries.               third of sales in 2001 came from repeat




Marriott International, Inc. 2001 Annual Report                                                                                              6
[l]
                                                                                         Our associates take pride in
                                                                                         offering the world-class service
                                                                                         customers expect from Marriott
                                                                                         International.

                                                                                         [r]
                                                                                         A sunlit view of the rotunda in
                                                                                         the Bucharest Marriott Grand
                                                                                         Hotel, Marriott's first property
                                                                                         in Romania.


customers or customer referrals,            quickly. Across the company, we reduced
reflecting high customer satisfaction.      staff, adjusted associate hours and
    Marriott Distribution Services          delayed filling vacant positions. We
reported a $1 million loss during the       modified restaurant menus and hours
year (excluding restructuring and other     and deferred new business initiatives.
charges). The business suffered from the        We won accolades from our hotel
soft economy, transportation inefficien-    owners and franchisees for our strong,
cies related to new customers, and the      immediate response to the changing
loss of a major contract in 2001. We are    environment. Through a variety of cost-
undertaking a strategic review of this      containment measures at the property
business in 2002.                           level, our hotels were able to operate
    Marriott Senior Living Services         profitably at lower occupancy rates. By
showed significant operating improve-       taking equally aggressive measures at the
ment in 2001, with results increasing as    corporate level, we were able to provide
the business focused on operating excel-    essential services to properties at a
                                                                                         We won accolades from our
lence. The business also benefited from     reduced cost.
strengthening demand at maturing facili-        Our efforts would have been meaning-
                                                                                         hotel owners and franchisees for
ties and slower industry supply growth.     less, however, unless we also maintained
Profits increased to $17 million in 2001,   customer satisfaction. We increased our
                                                                                         our strong, immediate response
excluding a $60 million charge stemming     usual keen focus on traveler needs and
from our decision to actively pursue the    essential services, and worked hard to
                                                                                         to the changing environment.
sale of our Village Oaks retirement com-    minimize any impact on our customers.
munities and $2 million in other charges.   We also took aggressive steps to build on
    Marriott’s strong overall results are   our existing strengths, increase our visi-
a testimony to our broad distribution,      bility and leverage the power and prefer-
solid business model, powerful brand        ence of Marriott brands.
culture and experienced hotel managers,         We offered a variety of promotions to
as well as our decisive response to the     get Americans traveling again and accel-
year’s unique challenges.                   erated the launch of our nationwide
    As the economy slowed early in the      advertising campaign, “Come Out and
year, we aggressively cut costs and         Play,” which generated $100 million in
improved efficiencies wherever possible.    revenue and 1.25 million room nights
At the same time, we developed contin-      in 2001.
gency plans to be implemented if condi-         Marriott Rewards, our frequent stay
tions warranted.                            program, was an important tool in driv-
    Following September 11, as travel       ing new demand in this environment.
industry conditions worsened, we acted      With a worldwide membership of nearly




7                                                                                              Marriott International, Inc. 2001 Annual Report
[l]
Situated on California’s Gold
Coast near great shopping,
entertainment and leisure
options, Marriott Vacation
Club’s Newport Coast Villas
is the perfect choice for a
relaxing getaway.
[r]
Our “spirit to serve” philosophy
invites our guests to relax and
leave the details to us.
                                                  16 million, Marriott Rewards is the largest   yield $715 million in revenue. Our
                                                  and most preferred loyalty program in the     focus on rational pricing continues to
                                                  lodging industry today. In 2001, Marriott     improve our reaction time to changes
                                                  Rewards was named “Best Hotel Rewards         in market demand, allowing us to maxi-
                                                  Program in the World” by Business Traveler    mize revenue even in a challenging busi-
                                                  magazine for the fifth consecutive year.      ness environment.
                                                     We aggressively marketed to Marriott          Our associates are the best in the
                                                  Rewards members throughout the year.          world. This year they have made us
                                                  We were encouraged to find that our           especially proud. We’ve received mes-
                                                  most frequent travelers not only              sages from around the world – from
                                                  remained loyal to Marriott, they main-        customers, business partners and neigh-
                                                  tained an energetic travel schedule,          bors in our communities – praising
                                                  generating an increasing percentage of        their efforts in the face of extraordinary
                                                  our revenue.                                  events, as well as the exceptional service
                                                     Leisure travel also represented a          and comfort they provide every day. We
Conversions accounted for                         growing proportion of our business dur-       earn our associates’ loyalty with a culture
                                                  ing the year. Marriott encouraged leisure     of fair treatment even in difficult times.
nearly 40 percent of our new                      travel by developing weekend promo-              We remain committed to diversity
                                                  tions and forming new partnerships            throughout our business. Marriott was
room openings in 2001.                            with organizations like the American          selected by Working Mother magazine
                                                  Automobile Association.                       as one of the “100 Best Companies for
                                                     We also introduced several new prod-       Working Mothers” for the eleventh con-
                                                  ucts, including a business-to-business        secutive year, and by Fortune magazine
                                                  Travel Card and a new “stored value”          as one of the “Top 50 Companies for
                                                  Gift Card that replaces our previous          Minorities” for the fourth consecutive
                                                  paper certificates.                           year. We were also recognized by
                                                     State-of-the-art systems, programs         Fortune magazine for the fifth consecu-
                                                  and technology continued to fuel              tive year as one of the “100 Best Com-
                                                  Marriott’s success.                           panies to Work For” in America, ranking
                                                     Our reservations system remained           third among companies with 100,000
                                                  the best in the industry. For the fourth      or more employees. In addition, we
                                                  straight year, Marriott held the industry     received the “Catalyst Award” from a
                                                  “Triple Crown”: the lowest cost per           prestigious non-profit research organiza-
                                                  reservation, the highest contribution to      tion for our innovative approach and
                                                  occupancy, and the highest revenue gener-     success in fostering women’s leadership.
                                                  ated per call. Reservations made through         Minorities and women now represent
                                                  Marriott.com grew by 72 percent to            nearly 25 percent of corporate officers




Marriott International, Inc. 2001 Annual Report                                                                                           8
and 62 percent of managers in our            that Marriott brands accounted for
company. Diverse vendors account for         nearly 20 percent of all new hotel
5 percent of our domestic spending, or       rooms under construction and in per-
$151 million in 2001. The number of          mitting in the U.S.
properties owned and operated by                 International expansion remains a
women and minority franchisees has           key to Marriott’s growth. Three-
increased more than 21 percent over the      quarters of the worldwide lodging
                                                                                            Our company is solid.
past two years.                              industry is outside the U.S. While our
    This may have been our most              international presence has increased
                                                                                            Our business model works.
challenging year ever, but we accom-         eleven-fold over the past decade, we still
plished a great deal. We are cautious        have less than a 1 percent market share
                                                                                            Our brands are strong
about 2002 but remain very optimistic        outside the U.S. This presents a tremen-
about the longer term. While we antici-      dous opportunity. Nearly one-quarter of
                                                                                            and highly preferred by
pate that early 2002 will continue to        the rooms in our development pipeline
reflect challenging business conditions,     are in non-U.S. markets.
we hope to see improvement in demand             Overall, our vision remains                customers and owners.
by the second half of the year.              unchanged: to be the world’s leading
    The good news is that new supply         provider of hospitality services.
growth in the lodging industry should            Our company is solid. Our business
slow dramatically in 2002 and 2003.          model works. Our brands are strong
PricewaterhouseCoopers expects U.S.          and highly preferred by customers and
room supply to grow less than 1 percent      owners. And, of course, Marriott’s
in 2003, the lowest level in a decade.       enduring culture and great people con-
Lower supply growth will position the        tinue to be our two most valued assets.
industry for a rebound in pricing power.         Hospitality remains a major long-term
Combined with the efficiency improve-        growth industry. One-tenth of the global
ments made in 2001, it will also position    workforce is associated with the travel and
Marriott well for increased profit growth    tourism industry. As communications and
in 2003 and 2004.                            technology bring the world closer togeth-
    Our strong relative performance has      er, it has emerged as a critical contributor
encouraged hotel owners, franchisees         to global economic prosperity.
and lenders to favor our brands as they          We continue to work hard – in
consider branding alternatives. They         partnership with our owners, franchisees,
know the strength of the Marriott brand      associates, customers and shareholders –
will improve their business, even when       to build a great tomorrow at Marriott.
                                                                                                    Celebrating Marriott’s
people are traveling less. Conversions           We appreciate your support. As we
                                                                                                         75 Years of the
accounted for nearly 40 percent of our       celebrate our 75th anniversary year, we
new room openings in 2001.                   look forward to a bright and promising                     “Spirit to Serve”
    Our hotel development pipeline           future together.
features over 300 hotels with more than
55,000 rooms, including over 36,000
rooms under construction. Owners or
franchisees are developing over 95 per-      J.W. Marriott, Jr.
cent of the pipeline. Including conver-      Chairman and Chief Executive Officer
sions, we expect 25,000 to 30,000 rooms
will open in each of 2002 and in 2003.
    There is still plenty of room for
                                             William J. Shaw
expansion. Our U.S. market share
                                             President and Chief Operating Officer
of rooms increased from 4.7 percent to
7.9 percent in the last 10 years. At year-
end, Lodging Econometrics reported           March 1, 2002




9                                                                                              Marriott International, Inc. 2001 Annual Report
O U R “S P I R I T TO S E RV E ” I S S T RO N G E R T H A N E V E R


                    a s we ce l e b r ate o u r c o m pa ny ’s a n n iver s a ry i n 2 0 02,
                    we recognize much more than just 75 years of growth and service excellence. We pay tribute
                    to the driving force behind Marriott’s success – our terrific people and our long-standing
                    culture of “spirit to serve.”
                        Marriott’s guiding philosophy has always been to take care of our associates, and they’ll
                    take care of our customers. We are proud to provide a work environment where our associ-
                    ates’ diverse perspectives and backgrounds are highly valued. We apply these same ideals to
                    our communities, where we play an active role in creating better places to live and work
                    around the world.
                        Our spirit to serve culture shined brighter than ever last year in the aftermath of the terrorist
                    attacks on September 11. In New York, while our World Trade Center hotel was destroyed and
                    our Financial Center hotel was severely damaged, we safely evacuated more than 2,000 guests
                    and associates. In Washington, associates throughout the area raced to provide accommoda-
                    tions, supplies and services to the rescue effort at the Pentagon. In both cities, our associates
                    proved their dedication to others again and again with bravery, compassion and self-sacrifice.
                    Tragically, 11 guests remain unaccounted for, and we lost two associates at the New York
                    Marriott World Trade Center hotel.
                        We rallied immediate and decisive support for our affected associates, guests and
                    communities. We established a toll-free information line and opened a support center for
                    our New York City associates. The J. Willard and Alice S. Marriott Foundation provided a
                    $1 million grant to establish the Marriott Associate Assistance Fund. Marriott associates
                    from around the world showed their support by donating supplies, raising funds and volun-
                    teering their services to the Red Cross and other relief organizations. Thousands of associates
                    gave generously of their own leave to help support fellow associates in New York. Until it
                    reopened in early January, the New York Marriott Financial Center hotel served as a Red
                    Cross respite center for workers involved in the recovery effort. And our associates received
                    literally thousands of messages of thanks and support from guests.
                        While we could not foresee the events of September 11, we were able to stand strong and
                    make a difference in the lives of our guests, our communities and each other. Our associates
                    are the best in the world. We are enormously proud of them and very grateful for their
                    tremendous courage and dignity. Throughout our 75th year, we honor their accomplishments
                    and their extraordinary spirit to serve.




Marriott International, Inc. 2001 Annual Report                                                                             10
MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                                                RESULTS OF OPERATIONS
GENERAL                                                              Facilities Exit Costs
The following discussion presents an analysis of results of our      As a result of the workforce reduction and delay in filling vacant
operations for fiscal years ended December 28, 2001, December 29,    positions, we consolidated excess corporate facilities. We recorded
2000, and December 31, 1999. Revenue per available room              a restructuring charge of approximately $15 million for excess
(REVPAR) is calculated by dividing room sales for comparable         corporate facilities, primarily related to lease terminations and
properties by room nights available to guests for the period. We     noncancelable lease costs in excess of estimated sublease income.
consider REVPAR to be a meaningful indicator of our perform-         In addition, we recorded a $5 million charge for lease termina-
ance because it measures the period over period change in room       tions resulting from cancellations of leased units by our corporate
revenues for comparable properties. REVPAR may not be com-           apartment business, primarily in downtown New York City.
parable to similarly titled measures such as revenues. Comparable
                                                                     Development Cancellations and Elimination of Product Line
REVPAR, room rate and occupancy statistics used throughout
                                                                     We incur certain costs associated with the development of
this report are based on U.S. properties operated by us except for
                                                                     properties, including legal costs, the cost of land and planning
Fairfield Inn, which data also include franchised units. System-
                                                                     and design costs. We capitalize these costs as incurred and they
wide sales and statistics include data from our franchised proper-
                                                                     become part of the cost basis of the property once it is devel-
ties, in addition to our owned, leased and managed properties.
                                                                     oped. As a result of the dramatic downturn in the economy in
Systemwide statistics are based on comparable worldwide units
                                                                     the aftermath of the September 11, 2001 attacks, we decided to
and reflect the impact of foreign exchange rates.
                                                                     cancel development projects that were no longer deemed
                                                                     viable. As a result, we expensed $28 million of previously capi-
C O N S O L I D A T E D R E S U LT S
                                                                     talized costs. In addition, management has begun to actively
Restructuring Costs and Other Charges
                                                                     engage in efforts to sell 25 Village Oaks senior living communi-
The Company has experienced a significant decline in demand
                                                                     ties. These communities offer companion living and are signifi-
for hotel rooms in the aftermath of the September 11, 2001
                                                                     cantly different from our other senior living brands. As a result
attacks on New York and Washington and the subsequent dra-
                                                                     of the plan to exit this line of business, the assets associated
matic downturn in the economy. This decline has resulted in
                                                                     with the 25 properties have been reclassified as assets held for
reduced management and franchise fees, cancellation of devel-
                                                                     sale and have accordingly been recorded at their estimated fair
opment projects, and anticipated losses under guarantees and
                                                                     value, resulting in an impairment charge of $60 million.
loans. We have responded by implementing certain company-
wide cost-saving measures, although we do not expect signifi-        Other Charges
cant changes to the scope of our operations. As a result of our      Reserves for Guarantees and Loan Losses
restructuring plan, in the fourth quarter of 2001 we recorded        We issue guarantees to lenders and other third parties in connec-
pretax restructuring costs of $124 million, including (1)            tion with financing transactions and other obligations. We also
$16 million in severance costs; (2) $20 million, primarily associ-   advance loans to some owners of properties that we manage. As a
ated with a loss on a sublease of excess space arising from the      result of the downturn in the economy, certain hotels have expe-
reduction in personnel; (3) $28 million related to the write-off     rienced significant declines in profitability and the owners have
of capitalized costs relating to development projects no longer      not been able to meet debt service obligations to the Company or
deemed viable; and (4) $60 million related to the write-down of      in some cases, to other third-party lending institutions. As a
the Village Oaks brand of companion-style senior living com-         result, based upon cash flow projections, we expect to fund under
munities, which are now classified as held for sale, to their        certain guarantees, which are not deemed recoverable, and we
estimated fair value. Detailed information related to the restruc-   expect that several of the loans made by us will not be repaid
turing costs and other charges, which were recorded in the           according to their original terms. Due to the expected guarantee
fourth quarter of 2001 as a result of the economic downturn          fundings deemed non-recoverable and the expected loan losses,
and the unfavorable lodging environment, is provided below.          we recorded charges of $85 million in the fourth quarter of 2001.
Restructuring Costs                                                  Accounts Receivable – Bad Debts
                                                                     In the fourth quarter of 2001, we reserved $17 million of
Severance
Our restructuring plan resulted in the reduction of approxi-         accounts receivable following an analysis of these accounts
mately 1,700 employees (the majority of which were terminated        which we deemed uncollectible, generally as a result of the
by December 28, 2001) across our operations. We recorded a           unfavorable hotel operating environment.
workforce reduction charge of $16 million related primarily to
                                                                     Asset Impairments
severance and fringe benefits. The charge does not reflect
                                                                     The Company recorded a charge related to the impairment of
amounts billed out separately to owners for property-level sev-
                                                                     an investment in a technology-related joint venture ($22 mil-
erance costs. In addition, we delayed filling vacant positions and
                                                                     lion), losses on the anticipated sale of three lodging properties
reduced staff hours.
                                                                     ($13 million), write-offs of investments in management




11                                                                                             Marriott International, Inc. 2001 Annual Report
contracts and other assets ($8 million), and the write-off of                 A summary of the restructuring costs and other charges
capitalized software costs arising from a decision to change a             recorded in the fourth quarter of 2001 is detailed as follows:
technology platform ($2 million).

                                                                                                                      Cash          Restructuring costs
                                                                                                                  payments in       and other charges
                                                                                          Non-cash               fourth quarter         liability at
                                                                    Total charge           charge                     2001          December 28, 2001
 ($ in millions)
 Severance                                                              $ 16                 $2                       $6                      $8
 Facilities exit costs                                                    20                  —                        2                      18
 Development cancellations and elimination of product line                88                  88                      —                       —
 Total restructuring costs                                               124                    90                     8                      26
 Reserves for guarantees and loan losses                                  85                    52                    —                       33
 Accounts receivable – bad debts                                          17                    17                    —                       —
 Write-down of properties held for sale                                   13                    13                    —                       —
 Impairment of technology-related investments and other                   32                    31                    —                        1
 Total                                                                  $271                 $203                     $8                      $60



   The remaining liability related to the workforce reduction              resulting lease expense due to the consolidation of facilities will
and fundings under guarantees will be substantially paid by the            be paid over the respective lease terms through 2012.
end of 2002. The amounts related to the space reduction and                   Further detail regarding the charges is shown below:


O P E R AT I N G P R O F I T I M PA C T
                                                                                                                    Senior
                                                              Full-         Select-   Extended-                     Living     Distribution
                                                             Service        Service      Stay        Timeshare     Services      Services           Total
 ($ in millions)
 Severance                                                    $7               $1        $1              $2          $—            $1               $ 12
 Facilities exit costs                                        —                —          5              —            —             1                  6
 Development cancellations and elimination of product line    19                4         5              —            60           —                  88
 Total restructuring costs                                     26               5         11              2           60            2                106
 Reserves for guarantees and loan losses                       30               3          3             —            —            —                  36
 Accounts receivable – bad debts                               11               1         —              —             2            3                 17
 Write-down of properties held for sale                         9               4         —              —            —            —                  13
 Impairment of technology-related investments and other         8              —           2             —            —            —                  10
 Total                                                        $84              $13       $16             $2          $62           $5               $182


N O N - O P E R AT I N G I M PA C T
                                                                                                                                            Total
                                                                                                                                          corporate
                                                                       Corporate         Provision for              Interest            expenses and
                                                                       expenses           loan losses               income                 interest
 ($ in millions)
 Severance                                                               $4                    $—                     $—                      $4
 Facilities exit costs                                                   14                     —                      —                      14
 Total restructuring costs                                                18                   —                       —                       18
 Reserves for guarantees and loan losses                                  —                    43                       6                      49
 Impairment of technology-related investments and other                   22                   —                       —                       22
 Total                                                                   $40                   $43                    $6                      $89




Marriott International, Inc. 2001 Annual Report                                                                                                         12
2001 Compared to 2000                                                 12 percent in 2001. Incentive fee revenue declined 36 percent,
Net income and diluted earnings per share decreased 51 per-           base fees revenue declined 3 percent, and franchise fee revenue
cent to $236 million and $.92, respectively. Net income was pri-      increased 6 percent. Lodging operating profit in 2001 (including
marily impacted by pretax restructuring and other charges             overhead but excluding restructuring costs and other charges)
totaling $271 million and lower lodging operating profits due         was attributable to base management fees (33 percent of total),
to the decline in hotel performance.                                  franchise fees (21 percent) and land rent (3 percent) that are
    Sales of $10 billion in 2001 were flat compared to last year,     based on fixed dollar amounts or percentages of sales. The bal-
reflecting a decline in hotel performance, partially offset by rev-   ance was attributable to our timesharing business (20 percent),
enue from new Lodging and Distribution Services business and          and to incentive management fees and other income based on
contributions from established Senior Living communities.             the profits of the underlying properties (23 percent).
Systemwide sales increased slightly to $20 billion.
                                                                                                            Franchise Fees 21%
2000 Compared to 1999
                                                                                                            Land Rent 3%
Net income increased 20 percent to $479 million and diluted                                                 Profit Participations 23%
earnings per share advanced 25 percent to $1.89. Profit growth                                              Timesharing Resorts 20%
was driven by our strong U.S. lodging operations, lower system-                                             Base Management Fees 33%
related costs associated with the year 2000 and the impact on
the 1999 financial results of a $39 million pretax charge to             2001 LODGING OPERATING PROFIT
reflect a litigation settlement. Results were also impacted by a                  ($641 million)

$15 million one-time write-off of a contract investment in our
                                                                         Across our Lodging brands, REVPAR for comparable company-
Distribution Services segment in the first quarter of 2000.
                                                                      operated U.S. properties declined by an average of 10.4 percent
    Sales increased 15 percent to $10 billion in 2000, reflecting
                                                                      in 2001. Average room rates for these hotels declined 2 percent
strong revenue resulting from new and established hotels, contri-
                                                                      and occupancy declined 6.7 percentage points. Occupancy, aver-
butions from established Senior Living communities, as well as
                                                                      age daily rate and REVPAR for each of our principal established
new customers in our Distribution Services business. Systemwide
                                                                      brands are shown in the following table.
sales increased by 12 percent to $19.8 billion in 2000.
                                                                                                 Comparable                  Comparable
MARRIOTT LODGING                                                                                U.S. properties              systemwide
                                                   Annual Change                                          Change                        Change
                                                                                              2001        vs. 2000       2001           vs. 2000
                                                    2001/   2000/
                          2001     2000    1999     2000    1999
                                                                       MARRIOTT HOTELS, RESORTS AND SUITES
 ($ in millions)
                                                                         Occupancy            70.4%       –7.1%pts.      68.8%      –5.9%pts.
 Sales                   $7,786 $7,911    $7,041    –2%     +12%
                                                                         Average daily rate $142.96       –2.9%        $132.55      –2.4%
 Operating profit before
                                                                         REVPAR             $100.62      –11.8%        $ 91.19     –10.1%
   restructuring costs
   and other charges        756    936       827   –19%     +13%
                                                                       RITZ-CARLTON
 Restructuring costs        (44)    —         —      nm      —           Occupancy            66.9%      –10.4%pts.      67.6%      –8.1%pts.
 Other charges              (71)    —         —      nm      —           Average daily rate $249.94       +2.3%        $226.58      +4.1%
                                                                         REVPAR             $167.21      –11.5%        $153.25      –7.0%
 Operating profit,
  as reported            $ 641 $ 936 $ 827         –32%     +13%
                                                                       RENAISSANCE HOTELS, RESORTS AND SUITES
                                                                         Occupancy            65.6%       –7.7%pts.      66.2%      –4.4%pts.
2001 Compared to 2000
                                                                         Average daily rate $137.79       –2.9%        $112.51      –4.3%
Marriott Lodging, which includes our Full-Service, Select-Service,
                                                                         REVPAR             $ 90.39      –13.1%        $ 74.43     –10.4%
Extended-Stay, and Timeshare segments, reported a 32 percent
decrease in operating profit and 2 percent lower sales in 2001.        RESIDENCE INN
                                                                         Occupancy            77.8%       –5.1%pts.      77.9%       –3.9%pts.
Results reflected restructuring costs of $44 million and other
                                                                         Average daily rate $105.46       –1.4%        $102.71       –0.3%
charges of $71 million, including a $36 million reserve for third-
                                                                         REVPAR             $ 82.05       –7.5%        $ 80.02       –5.0%
party guarantees we expect to fund and not recover out of future
cash flow, $12 million of reserves for accounts receivable deemed
                                                                       COURTYARD
uncollectible, a write-off of two investments in management              Occupancy            71.6%      –6.4%pts.       71.0%      –4.9%pts.
contracts and other assets of $8 million, $13 million of losses on       Average daily rate $ 99.45      +1.2%         $ 94.68      +1.1%
the anticipated sale of three lodging properties, and a $2 million       REVPAR             $ 71.24      –7.0%         $ 67.21      –5.6%
write-off associated with capitalized software costs arising from
a decision to change a technology platform. Results also reflect       FAIRFIELD INN
                                                                         Occupancy            66.3%      –3.2%pts.       66.3%      –3.2%pts.
lower fees due to the decline in demand for hotel rooms, par-
                                                                         Average daily rate $ 64.70      +2.1%         $ 64.70      +2.1%
tially offset by increased revenue associated with new proper-
                                                                         REVPAR             $ 42.91      –2.6%         $ 42.91      –2.7%
ties. Lodging management and franchise fee revenue declined




13                                                                                               Marriott International, Inc. 2001 Annual Report
2000 Compared to 1999




                                                                   195,000




                                                                                                             $147
                                                         182,000
                                                                                                                    Marriott Lodging reported a 13 percent increase in operating




                                                                                                      $138
                                                                                                                    profit on 12 percent higher sales in 2000. Results reflected solid




                                                                                               $123
                                               140,000
                                                                                                                    room rate growth at U.S. hotels and contributions from new
                                   116,000
                                                                                                                    properties worldwide. Lodging operating profit in 2000 was




                                                                                         $94
                         98,000

                                                                                                                    attributable to base management fees (28 percent of total),
                                                                                                                    franchise fees (17 percent), land rent and other income (3 per-




                                                                                   $61
                                                                                                                    cent), resort timesharing (15 percent), and incentive manage-
                                                                                                                    ment fees and other profit participations (37 percent).
                                                                                                                        Across our full-service lodging brands (Marriott Hotels,
                                                                                                                    Resorts and Suites; Renaissance Hotels, Resorts and Suites; and
                                                                                                                    The Ritz-Carlton Hotels), REVPAR for comparable company-
                                                                                   97 98 99 00 01
                        97 98 99 00 01
                                                                                                                    operated U.S. properties grew by an average of 7.2 percent in 2000.
                                                                             MVCI ANNUAL OPERATING PROFIT
MARRIOTT VACATION CLUB INTERNATIONAL
                                                                                         (millions)
                           (number of owners)
                                                                                                                    Average room rates for these hotels rose 6.3 percent, while occu-
                                                                                                                    pancy increased slightly to 77.4 percent. In 2000, as a result of the
    Marriott Vacation Club International contributed over
                                                                                                                    termination of two Ritz-Carlton management agreements, we
20 percent of lodging operating profit in 2001, after the impact
                                                                                                                    wrote off our $3 million investment in these contracts. In addi-
of restructuring and other charges. Operating profit increased
                                                                                                                    tion, due to the bankruptcy of the owner of one hotel, we reserved
7 percent, reflecting a 22 percent increase in contract sales, the
                                                                                                                    $6 million of our investment in that management agreement.
2001 acquisition of the Grand Residence Club in Lake Tahoe,
                                                                                                                        Our domestic select-service and extended-stay brands
California and note sale gains in 2001 of $40 million compared
                                                                                                                    (Residence Inn, Courtyard, Fairfield Inn, TownePlace Suites and
to $22 million in 2000, partially offset by higher marketing and
                                                                                                                    SpringHill Suites) added a total of 161 properties (18,870 rooms)
selling expenses and severance expenses of nearly $2 million
                                                                                                                    and deflagged seven properties (1,500 rooms), primarily fran-
associated with the Company’s restructuring plan.
                                                                                                                    chises, during the 2000 fiscal year. REVPAR for comparable
    International Lodging reported a decrease in the results of
                                                                                                                    properties increased 5.5 percent.
operations, reflecting the impact of the decline in international
travel and restructuring and other charges, partially offset by
                                                                                                                                               Comparable               Comparable
sales associated with new rooms. Over 35 percent of rooms
                                                                                                                                              U.S. properties           systemwide
added in 2001 were outside the United States.
                                                                                                                                                       Change                  Change
                                                                                                                                            2000       vs. 1999     2000       vs. 1999
LODGING DEVELOPMENT
Marriott Lodging opened 313 properties totaling nearly 50,000                                                        MARRIOTT HOTELS, RESORTS AND SUITES
                                                                                                                       Occupancy            78.2%      +0.4%pts.     75.7%     +0.4%pts.
rooms across its brands in 2001, while 14 hotels (approximately
                                                                                                                       Average daily rate $149.50      +6.2%       $136.37     +4.9%
3,700 rooms) exited the system. Highlights of the year included:
                                                                                                                       REVPAR             $116.95      +6.8%       $103.27     +5.5%
     Over 35 percent of new rooms opened were outside the
●

     United States. These include our first hotels in Belgium,
                                                                                                                     RITZ-CARLTON
     Denmark and Ireland.
                                                                                                                       Occupancy            77.5%      +0.1%pts.     77.5%    +2.0%pts.
     Development of a new Marriott Vacation Club International
●
                                                                                                                       Average daily rate $242.26      +9.2%       $228.01    +8.9%
     resort in Phuket, Thailand, the EuroDisney resort, and the
                                                                                                                       REVPAR             $187.75      +9.4%       $176.75   +11.9%
     acquisition of The Grand Residence Club property in Lake
     Tahoe, California.                                                                                              RENAISSANCE HOTELS, RESORTS AND SUITES
     One hundred and fifty properties (19,100 rooms) were                                                              Occupancy            73.3%      +2.0%pts.     70.9%     +2.7%pts.
●

     added to our select-service and extended-stay brands.                                                             Average daily rate $142.27      +4.5%       $119.95     +3.0%
     One hundred and forty-four properties (19,300 rooms),                                                             REVPAR             $104.35      +7.5%       $ 85.07     +7.0%
●

                                 39 percent of our total room additions
                                             436,000




                                                                                                                     RESIDENCE INN
                                 for the year, were conversions from
                                  390,500




                                                                                                                       Occupancy            83.5%      +0.7%pts.     82.2%     +0.8%pts.
                                 other brands.
                        355,900
              328,300




                                                                                                                       Average daily rate $104.88      +5.1%       $102.25     +4.3%
                                     At year-end 2001, we had over 300
    300,400




                                                                                                                       REVPAR             $ 87.61      +6.1%       $ 84.10     +5.3%
                                 hotel properties and more than 55,000
                                 rooms under construction or approved                                                COURTYARD
                                 for development. We expect to open                                                    Occupancy            78.9%       —%pts.       77.0%     +0.2%pts.
                                 over 150 hotels and timesharing resorts                                               Average daily rate $ 97.68      +5.7%       $ 93.51     +4.9%
                                 (25,000 – 30,000 rooms) in 2002. These                                                REVPAR             $ 77.05      +5.7%       $ 71.96     +5.1%
                                 growth plans are subject to numerous
                                                                                                                     FAIRFIELD INN
                                 risks and uncertainties, many of which
                                                                                                                       Occupancy            69.7%      –1.0%pts.     69.7%     –1.0%pts.
                                 are outside our control. See “Forward-
      97 98 99 00 01
                                                                                                                       Average daily rate $ 61.32      +3.8%       $ 61.32     +3.8%
      LODGING ROOMS
                                 Looking Statements” and “Liquidity and
 (actual room growth, including
                                                                                                                       REVPAR             $ 42.75      +2.4%       $ 42.75     +2.4%
                                 Capital Resources.”
all brands, excluding ExecuStay)




Marriott International, Inc. 2001 Annual Report                                                                                                                                           14
Results for international lodging operations were favorable         sales, profitability was impacted by start-up inefficiencies for
in 2000, despite a decline in the value of the euro against the         new properties, higher administrative expenses, pre-opening
U.S. dollar, reflecting strong demand in the Middle East, Asia,         costs for new communities, costs related to debt associated
Europe and the Caribbean region.                                        with facilities developed by unaffiliated third parties, and
    Marriott Vacation Club International also posted favorable          charges associated with our decision to limit new construction
profit growth in 2000, reporting a 34 percent increase in con-          until the market improves, resulting in a loss of $18 million.
tract sales. The increase in contract sales reflects interest in our
newest brands, Horizons by Marriott Vacation Club in Orlando,           S E N I O R L I V I N G S E RV I C E S D E V E LO P M E N T
Florida, and The Ritz-Carlton Club resorts in St. Thomas, U.S.          Due to oversupply conditions in some senior housing markets,
Virgin Islands, and Aspen, Colorado, as well as continued               we decided in 1999 to dramatically slow development of
strong demand for our timeshare properties in Hawaii, Aruba             planned communities. Consequently, a number of projects in
and California. The profit growth in 2000 was impacted by a             the early stages of development were postponed or canceled.
$6 million decline in gains from the sale of notes receivable           Additional projects were canceled in 2000.
arising from lower note sale volume. At the end of the year,
24 resorts were in active sales, 23 resorts were sold out and an        M A R R I OT T D I S T R I BU T I O N S E RV I C E S
additional 13 resorts were under development.                                                                                    Annual Change
    The Marketplace by Marriott (Marketplace), our hospitality                                                                    2001/    2000/
procurement business, launched as an independent company.                                               2001   2000     1999      2000     1999
In January 2001, Marriott and Hyatt Corporation formed a                 ($ in millions)
joint venture, Avendra LLC, and we each merged our respective            Sales                     $1,637 $1,500       $1,139     +9%     +32%
procurement businesses into it. Avendra LLC is an independent            Operating (loss) profit
                                                                           before restructuring
professional procurement services company serving the North
                                                                           costs and other charges     (1)     4            21     nm     –81%
American hospitality market and related industries. Bass Hotels
                                                                         Restructuring costs           (2)    —             —      nm      —
& Resorts, Inc., ClubCorp USA Inc. and Fairmont Hotels &
                                                                         Other charges                 (3)    —             —      nm      —
Resorts, Inc. joined Avendra LLC in March 2001.
                                                                         Operating (loss) profit,
                                                                          as reported               $      (6) $   4   $    21     nm     –81%
M A R R I OT T S E N I O R L I V I N G S E RV I C E S
                                                        Annual Change
                                                                        2001 Compared to 2000
                                                        2001/   2000/
                                                                        Operating results for Marriott Distribution Services (MDS)
                                2001    2000    1999    2000    1999
                                                                        reflect the impact of an increase in sales related to the com-
 ($ in millions)
                                                                        mencement of new contracts in 2001 and increased sales from
 Sales                          $729    $669    $559    +9%     +20%
                                                                        contracts established in 2000. The impact of higher sales on the
 Operating profit (loss)
                                                                        operating results was more than offset by the decline in business
   before restructuring costs
   and other charges              17     (18)    (18)    nm     —       from one significant customer, transportation inefficiencies and
 Restructuring costs             (60)     —       —      nm     —       restructuring and other charges of $5 million, including sever-
 Other charges                    (2)     —       —      nm     —       ance costs and the write-off of an accounts receivable balance
                                                                        from a customer that filed for bankruptcy in the fourth quarter
 Operating loss, as reported    $ (45) $ (18) $ (18)     nm     —
                                                                        of 2001. The Company commenced a strategic review of this
                                                                        business in January 2002.
2001 Compared to 2000
Marriott Senior Living Services posted a 9 percent increase in          2000 Compared to 1999
sales in 2001, as we added a net total of three new communities         Marriott Distribution Services posted a 32 percent increase in
(369 units) during the year. Occupancy for comparable com-              sales for 2000, reflecting the commencement of service to three
munities increased by nearly 2 percent to 85.3 percent in 2001.         large restaurant chains in the year. Operating profit declined
    The division reported an operating loss of $45 million,             $17 million as a result of start-up inefficiencies associated with
reflecting restructuring and other charges of $62 million, pri-         the new business and a $15 million pretax write-off of an
marily related to the $60 million write-down of 25 senior living        investment in a contract with Boston Chicken, Inc. and its
communities held for sale to their estimated fair value and the         Boston Market-controlled subsidiaries, a major customer that
write-off of a $2 million receivable no longer deemed collectible.      filed for bankruptcy in October 1998. McDonald’s Corporation
These charges were partially offset by the favorable impact of the      (McDonald’s) acquired Boston Market in 2000, and during the
increase in comparable occupancy and the new units.                     first quarter of 2000, MDS entered into an agreement with
                                                                        McDonald’s to continue providing distribution services to
2000 Compared to 1999
                                                                        Boston Market restaurants (refer to the “Intangible Assets”
Marriott Senior Living Services posted a 20 percent increase in
                                                                        footnote in the financial statements set forth in Part II, Item 8,
sales in 2000, reflecting the net addition of nine properties dur-
                                                                        “Financial Statements and Supplementary Data”).
ing the year and a 4 percentage point increase in occupancy for
comparable communities to 88 percent. Despite the increase in



15                                                                                                  Marriott International, Inc. 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
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marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report
marriott international 2001 Annual Report

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marriott international 2001 Annual Report

  • 1. M a r r i ot t I n te r nat i o na l , I n c . 2001 Annual Report O u r 7 5 T H Year of Serv ice
  • 2. VISION: to be the world’s leading provider of hospitality services. Marriott International, Inc. is a worldwide hospitality CONTENTS [1] Financial Highlights leader. We offer the most comprehensive portfolio [2] Brand Overview of hospitality brands and businesses in the industry, [6] Executive Letter [10] Our “Spirit to Serve” with nearly 2,600 operating units in 65 countries Is Stronger Than Ever and territories. [11] Financial Review [21] Financial Statements [25] Notes to Financial Statements Today, Marriott operates and franchises approximately [40] Selected Historical Financial Data 436,000 rooms across 18 distinct lodging, vacation [41] Management’s Report ownership and corporate housing brands to meet the [41] Report of Independent Public Accountants needs and tastes of any traveler. Our senior living brands [42] Directors and Officers serve over 25,000 residents in communities across the [43] Corporate Information United States. Our distribution business provides food and related products to hotels and some of the largest restaurant chains in the world. Our brands are leaders in their respective segments and enjoy a high level of customer and owner preference. Marriott’s considerable competitive advantages – a full range of brands and services, expanding worldwide distribution and commitment to high-quality growth – allow us to provide our customers with world-class service and comfort wherever they go. Marriott has grown tremendously over the past decade. Our basic values and principles, however, have remained the same for 75 years: concern for our associates, hands-on management, and a tireless commitment to excellence. Located in the heart of London, the Renaissance London Chancery Court Hotel offers both classic style and contemporary amenities in a meticulously restored Edwardian setting.
  • 3. FINANCIAL HIGHLIGHTS $20.0 $19.8 $1.89 $922 $17.7 $1.58** $830 $16.0 $772** $1.51 $1.46 $736 $590* $.92* 01 98 99 00 01 98 99 00 01 98 99 00 SYSTEMWIDE SALES EARNINGS PER SHARE OPERATING PROFIT (billions) (diluted) (millions) *as reported *as reported **excluding restructuring and other charges **excluding restructuring and other charges M A R R I O T T I N T E R N AT I O N A L , I N C . 2001 2000 CHANGE (dollars in millions, except per share amounts) Systemwide sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 $19,781 1% Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 $ 772 $ 922 (16%) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 $ 408 $ 479 (15%) Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 $ 1.58 $ 1.89 (16%) EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2 $ 972 $ 1,052 (8%) Amounts exclude restructuring and other charges in 2001. 1 Earnings before interest expense, income taxes, depreciation and amortization. 2 7.9% 7.5% 435,900 7.1% $42.25 6.8 % $41.15 390,500 355,900 328,300 $31.56 $29.00 01 98 99 00 01 98 99 00 01 98 99 00 LODGING ROOMS SHARE OF TOTAL U.S. ROOM SUPPLY STOCK PRICE (excluding ExecuStay apartments) (excluding timeshare and ExecuStay apartments) (as of year end)
  • 4. with nearly 2,600 distinctive hotels, resorts and other hospitality businesses in 65 countries, marriott offers customers a world of choices.
  • 5. Full-Service Lodging Marriott Hotels, Resorts and Suites is our flagship brand of 424 upscale JW Marriott Hotels & Resorts is a Marriott Resorts is our award- hotels, including 20 JW Marriott Hotels, 35 Marriott Resorts and 13 Marriott distinctive collection of luxurious winning portfolio of distinctive Conference Centers. The Marriott Hotels, Resorts and Suites brand is trusted hotels providing the attentive personal properties in the world’s most by guests the world over to enhance their travel or meeting experience with service, elegant accommodations and sought-after destinations. Designed knowledgeable service, genuine care and gracious attention to detail. Our extensive array of services required by for travelers seeking memorable thoughtfully designed hotels feature spacious and comfortably appointed guest the world’s most discerning travelers. and rewarding experiences, Marriott rooms; pools and fitness centers; superb restaurants and room service; and for JW Marriott Hotels & Resorts are now Resorts offers attentive service and the business traveler looking to enhance productivity, The Room That Works® , located in key business and leisure exceptional amenities, with many business centers, and Concierge and Executive Levels. destinations throughout the world. featuring world-class golf and spa facilities. Full-Service Lodging Marriott Conference Centers provides Renaissance Hotels, Resorts and The Ritz-Carlton Hotel Company is BVLGARI Hotels & Resorts, developed the special expertise, environment, Suites is an upscale, distinctive, the premier global luxury hotel brand in partnership with jewelry and luxury technology and on-site recreation sophisticated full-service hotel brand and a worldwide symbol of prestige goods designer Bulgari SpA, is a new to ensure creative, effective meetings designed to enhance the enjoyment and distinction. Each Ritz-Carlton luxury hotel brand designed to appeal for small to mid-size groups. and productivity of our guests. hotel offers fine dining, 24-hour to guests who seek a distinctive, Positioned close to cities with Renaissance guests can expect room service and twice-daily sophisticated setting in major cities distraction-free surroundings, stylish, comfortable environments; housekeeping, as well as the finest and exclusive destinations. Each Marriott Conference Centers sets the crisp, respectful service; and fitness facilities, business centers property will feature Bulgari’s striking stage for “The Ultimate Meeting contemporary restaurants that and concierge service. Ritz-Carlton Italian contemporary style and offer Experience.” feature well-defined, quality dining operates 45 hotels and resorts the finest Italian-influenced cuisine, experiences. Enjoy the warm, inviting worldwide. progressive wellness centers and many ambience of Renaissance in more unique amenities. The first BVLGARI than 120 properties worldwide. Hotels & Resorts property will open in 2003 in Milan.
  • 6. Select-Service Lodging ® ® Ramada International full-service Courtyard by Marriott is the Fairfield Inn by Marriott is Marriott’s SpringHill Suites by Marriott, one of hotels provide international business preeminent brand in the upper- most affordable welcome, offering the fastest growing all-suite brands, travelers with a comfortable guest moderate price sector with more than superior value for both business and offers upper-moderate price suites room at an affordable price. Many 550 hotels in 10 countries. Courtyard’s leisure travel. In addition to clean and that are spacious enough for working, Ramada International hotels feature customer-focused design provides comfortable guest rooms, Fairfield Inn relaxing and even preparing light restaurants, meeting and banquet guests with a consistently high-quality provides free local calls, swimming meals. SpringHill Suites combines facilities, a swimming pool and fitness experience. Business travelers know pool and complimentary continental Marriott hospitality with a center. Marriott primarily franchises they can expect a great guest breakfast. Fairfield Inn & Suites complimentary continental breakfast 133 Ramada hotels in 16 countries room that combines comfort and properties also include uniquely and a suite that is up to 25% larger and territories outside the United functionality. Business and leisure designed suites, an exercise room and than a traditional hotel room. Suites States, and licenses the use of the travelers alike count on Courtyard to enhanced amenities. There are 480 feature a pantry area with a small Ramada brand name in North put them in control so they can leave Fairfield Inn and Fairfield Inn & Suites refrigerator, sink and microwave. To America to other lodging companies. feeling restored. locations across the United States. date, there are 84 SpringHill Suites locations across North America. Extended-Stay and Corporate Lodging ® Residence Inn by Marriott, North TownePlace Suites is earning accolades Marriott Executive Apartments is Marriott ExecuStay, a leading U.S. America’s leading extended-stay brand, from business travel planners as the the ideal answer for international corporate apartment provider, offers allows guests on long-term trips to #1 moderate-tier extended-stay hotel business travelers’ growing demand temporary housing to travelers who maintain balance between work and in the United States. With suites for temporary housing that not only prefer the spaciousness and privacy of life while away from home. Spacious designed for comfort, housekeeping provides the spaciousness and privacy an apartment. ExecuStay finds the right suites with full kitchens and separate service and 24-hour-a-day staff ready of apartment living, but also offers solution for each traveler and delivers a areas for sleeping, working, relaxing to assist, this brand successfully hotel-like services and amenities. fully furnished, accessorized apartment and eating offer home-like comfort addresses the needs of extended-stay This quality-tier brand offers with as little as one day’s notice. with functionality. A friendly staff and guests seeking exceptional service and unquestionable value for long-term Residents enjoy weekly housekeeping welcome services like complimentary quality accommodations at a moderate business assignments or relocation. and exceptional 24-hour customer hot breakfast and evening social hours rate. There are currently 99 TownePlace There are currently six Marriott service. ExecuStay apartments are add to the sense of community. There Suites hotels across the United States. Executive Apartment communities located in most major cities across are 392 Residence Inn hotels across operating in key international the United States. North America. gateway cities.
  • 7. Ownership Resorts ® SM Marriott Vacation Club International The Ritz-Carlton Club is a deluxe Marriott Grand Residence Club Horizons by Marriott Vacation Club is a recognized worldwide leader in vacation product that features private combines the advantages of second- offers all the advantages of vacation the vacation ownership resorts residences in luxurious locales. It home ownership with the services and ownership at an affordable price. industry. MVCI properties offer a combines the benefits of second-home amenities of a fine resort, as well as Each Horizons resort is thoughtfully lifetime of memorable vacations, ownership with the personalized the benefits of exchange to worldwide designed as a self-contained featuring one-, two- and three- services and amenities that are destinations. The first resort is in community, complete with a variety bedroom villas with spacious living hallmarks of The Ritz-Carlton Hotel South Lake Tahoe, California. of on-property amenities and activities and dining areas, master bedroom and Company. Designed as a private club, for the entire family. Typical resort bath, private balcony, full kitchen and members may stay at their home Club features include miniature golf, a washer/dryer. There are 48 MVCI or choose from other Ritz-Carlton movie theater, and interactive, themed resorts at exciting locations in the Clubs in ski, golf or beach destinations. pools. There are two Horizons by United States, the Caribbean, Europe There are three Ritz-Carlton Club Marriott locations: Branson, Missouri, and Asia. resorts in St. Thomas and Colorado. and Orlando, Florida. Senior Living Other Operations ® Marriott Independent Full-Service Brighton Gardens is a quality leader in Marriott MapleRidge has created an Marriott Distribution Services is one communities offer gracious, assisted living, providing superior design assisted living approach that combines of the leading limited-line food apartment-like surroundings that and service. Each community offers the simple comforts and security of service distributors in the United are ideal for seniors who value their tasteful, apartment-style accommodations home with attentive care. Each States. Thirteen strategically located independence. They feature the and a relaxed, home-like environment. Marriott MapleRidge “neighborhood” Marriott distribution centers provide comfortable lifestyle and superb Featuring Marriott’s innovative “Levels consists of several residential-style food and related products to nearly amenities that have made the name of Wellness and Care” program, the cottages and a community center in 7,000 restaurants and other customers. Marriott synonymous with the communities provide residents with a landscaped setting. Cottages feature highest standards of hospitality and personalized service and care. There are a country-style kitchen, living room, service. There are 48 independent 74 Brighton Gardens communities in private and semi-private bedrooms, full-service communities, most 23 states, and most include skilled and each is attended by a live-in care offering a number of levels of care, nursing or Alzheimer’s care centers. coordinator. There are nine Marriott including assisted living, Alzheimer’s Marriott also manages three Rosewood MapleRidge communities in four states. and skilled nursing care. Estates assisted living communities.
  • 8. To Our Shareholders Over the past 75 years, Marriott has Our highly diverse, strategically located prospered through many economic portfolio of brands presented clear advan- cycles and political climates. In 2001, tages this year. While international travel the technology sector meltdown and declined, intra-country demand remained belt-tightening by major industries left strong in most nations. Drive-to markets the U.S. economy in its worst slump in were stronger than fly-to destinations. a decade. Following September 11, the Select-service and extended-stay hotels threat of terrorism and a softening performed better than large convention global economy provided the most chal- properties. Our 71 percent U.S.-operated lenging travel environment any of us hotel occupancy remained significantly had ever faced. above the industry average of 60 percent, While the entire travel industry was and we maintained our market share hammered by these unprecedented premium (measured in revenue per events, we watched with pride as Marriott available room, or “REVPAR”) over associates repeatedly rose above the chal- our competitive set. [r] J.W. Marriott, Jr. lenges. The world may have changed Marriott Lodging operating profit Chairman and Chief Executive forever during 2001, but today we face totaled $756 million in 2001 (excluding Officer the future with a renewed sense of pur- restructuring and other charges), a decline pose and conviction. of 19 percent from the prior year. While [l] William J. Shaw Marriott’s performance in 2001 disappointing, our performance compared President and Chief Operating demonstrated that we are well prepared favorably to the lodging industry’s esti- Officer for economic difficulty. mated 27 percent profit decline in 2001. Net income totaled $236 million, and Over 50 percent of our lodging diluted earnings per share were $.92. Our operating income (excluding the impact earnings reflected restructuring and other of restructuring and other charges) came charges totaling $271 million pretax. These from relatively stable base management charges were largely due to the downturn and franchise fees. Base management and in the economy after the terrorist attacks franchise fees remained flat with 2000 on September 11 and included severance, levels, reflecting the 10 percent decline hotel development cancellations, charges in REVPAR during the year, offset by the Marriott opened nearly for loans and guarantees primarily related 12 percent increase in the number of to 15 hotels, the closure of administrative rooms under Marriott flags. Despite the 50,000 lodging rooms in facilities, the decision to exit a companion- decline in REVPAR, we still earned over style, moderate-priced assisted living $200 million in incentive management 2001, and at year-end we brand, as well as other charges for both fee revenue due to strong cost control. our lodging and non-lodging businesses. Marriott Vacation Club International operated or franchised Our balance sheet remained strong. We contributed 20 percent of Marriott completed $663 million in asset sales, Lodging operating profit in 2001, and including $46 million in the fourth quar- operating profit increased 8 percent over 2,398 lodging properties. ter. Earnings before interest expense, taxes, the prior year (excluding restructuring depreciation and amortization (EBITDA) and other charges). While the business coverage of interest was 4.1 times in 2001. successfully rolled out seven new prop- Marriott opened nearly 50,000 lodging erties and a new brand, profits were rooms in 2001, and at year-end, we oper- constrained by higher marketing costs ated or franchised 2,398 lodging properties in a softer demand environment. One- across 18 brands in 65 countries. third of sales in 2001 came from repeat Marriott International, Inc. 2001 Annual Report 6
  • 9. [l] Our associates take pride in offering the world-class service customers expect from Marriott International. [r] A sunlit view of the rotunda in the Bucharest Marriott Grand Hotel, Marriott's first property in Romania. customers or customer referrals, quickly. Across the company, we reduced reflecting high customer satisfaction. staff, adjusted associate hours and Marriott Distribution Services delayed filling vacant positions. We reported a $1 million loss during the modified restaurant menus and hours year (excluding restructuring and other and deferred new business initiatives. charges). The business suffered from the We won accolades from our hotel soft economy, transportation inefficien- owners and franchisees for our strong, cies related to new customers, and the immediate response to the changing loss of a major contract in 2001. We are environment. Through a variety of cost- undertaking a strategic review of this containment measures at the property business in 2002. level, our hotels were able to operate Marriott Senior Living Services profitably at lower occupancy rates. By showed significant operating improve- taking equally aggressive measures at the ment in 2001, with results increasing as corporate level, we were able to provide the business focused on operating excel- essential services to properties at a We won accolades from our lence. The business also benefited from reduced cost. strengthening demand at maturing facili- Our efforts would have been meaning- hotel owners and franchisees for ties and slower industry supply growth. less, however, unless we also maintained Profits increased to $17 million in 2001, customer satisfaction. We increased our our strong, immediate response excluding a $60 million charge stemming usual keen focus on traveler needs and from our decision to actively pursue the essential services, and worked hard to to the changing environment. sale of our Village Oaks retirement com- minimize any impact on our customers. munities and $2 million in other charges. We also took aggressive steps to build on Marriott’s strong overall results are our existing strengths, increase our visi- a testimony to our broad distribution, bility and leverage the power and prefer- solid business model, powerful brand ence of Marriott brands. culture and experienced hotel managers, We offered a variety of promotions to as well as our decisive response to the get Americans traveling again and accel- year’s unique challenges. erated the launch of our nationwide As the economy slowed early in the advertising campaign, “Come Out and year, we aggressively cut costs and Play,” which generated $100 million in improved efficiencies wherever possible. revenue and 1.25 million room nights At the same time, we developed contin- in 2001. gency plans to be implemented if condi- Marriott Rewards, our frequent stay tions warranted. program, was an important tool in driv- Following September 11, as travel ing new demand in this environment. industry conditions worsened, we acted With a worldwide membership of nearly 7 Marriott International, Inc. 2001 Annual Report
  • 10. [l] Situated on California’s Gold Coast near great shopping, entertainment and leisure options, Marriott Vacation Club’s Newport Coast Villas is the perfect choice for a relaxing getaway. [r] Our “spirit to serve” philosophy invites our guests to relax and leave the details to us. 16 million, Marriott Rewards is the largest yield $715 million in revenue. Our and most preferred loyalty program in the focus on rational pricing continues to lodging industry today. In 2001, Marriott improve our reaction time to changes Rewards was named “Best Hotel Rewards in market demand, allowing us to maxi- Program in the World” by Business Traveler mize revenue even in a challenging busi- magazine for the fifth consecutive year. ness environment. We aggressively marketed to Marriott Our associates are the best in the Rewards members throughout the year. world. This year they have made us We were encouraged to find that our especially proud. We’ve received mes- most frequent travelers not only sages from around the world – from remained loyal to Marriott, they main- customers, business partners and neigh- tained an energetic travel schedule, bors in our communities – praising generating an increasing percentage of their efforts in the face of extraordinary our revenue. events, as well as the exceptional service Leisure travel also represented a and comfort they provide every day. We Conversions accounted for growing proportion of our business dur- earn our associates’ loyalty with a culture ing the year. Marriott encouraged leisure of fair treatment even in difficult times. nearly 40 percent of our new travel by developing weekend promo- We remain committed to diversity tions and forming new partnerships throughout our business. Marriott was room openings in 2001. with organizations like the American selected by Working Mother magazine Automobile Association. as one of the “100 Best Companies for We also introduced several new prod- Working Mothers” for the eleventh con- ucts, including a business-to-business secutive year, and by Fortune magazine Travel Card and a new “stored value” as one of the “Top 50 Companies for Gift Card that replaces our previous Minorities” for the fourth consecutive paper certificates. year. We were also recognized by State-of-the-art systems, programs Fortune magazine for the fifth consecu- and technology continued to fuel tive year as one of the “100 Best Com- Marriott’s success. panies to Work For” in America, ranking Our reservations system remained third among companies with 100,000 the best in the industry. For the fourth or more employees. In addition, we straight year, Marriott held the industry received the “Catalyst Award” from a “Triple Crown”: the lowest cost per prestigious non-profit research organiza- reservation, the highest contribution to tion for our innovative approach and occupancy, and the highest revenue gener- success in fostering women’s leadership. ated per call. Reservations made through Minorities and women now represent Marriott.com grew by 72 percent to nearly 25 percent of corporate officers Marriott International, Inc. 2001 Annual Report 8
  • 11. and 62 percent of managers in our that Marriott brands accounted for company. Diverse vendors account for nearly 20 percent of all new hotel 5 percent of our domestic spending, or rooms under construction and in per- $151 million in 2001. The number of mitting in the U.S. properties owned and operated by International expansion remains a women and minority franchisees has key to Marriott’s growth. Three- increased more than 21 percent over the quarters of the worldwide lodging Our company is solid. past two years. industry is outside the U.S. While our This may have been our most international presence has increased Our business model works. challenging year ever, but we accom- eleven-fold over the past decade, we still plished a great deal. We are cautious have less than a 1 percent market share Our brands are strong about 2002 but remain very optimistic outside the U.S. This presents a tremen- about the longer term. While we antici- dous opportunity. Nearly one-quarter of and highly preferred by pate that early 2002 will continue to the rooms in our development pipeline reflect challenging business conditions, are in non-U.S. markets. we hope to see improvement in demand Overall, our vision remains customers and owners. by the second half of the year. unchanged: to be the world’s leading The good news is that new supply provider of hospitality services. growth in the lodging industry should Our company is solid. Our business slow dramatically in 2002 and 2003. model works. Our brands are strong PricewaterhouseCoopers expects U.S. and highly preferred by customers and room supply to grow less than 1 percent owners. And, of course, Marriott’s in 2003, the lowest level in a decade. enduring culture and great people con- Lower supply growth will position the tinue to be our two most valued assets. industry for a rebound in pricing power. Hospitality remains a major long-term Combined with the efficiency improve- growth industry. One-tenth of the global ments made in 2001, it will also position workforce is associated with the travel and Marriott well for increased profit growth tourism industry. As communications and in 2003 and 2004. technology bring the world closer togeth- Our strong relative performance has er, it has emerged as a critical contributor encouraged hotel owners, franchisees to global economic prosperity. and lenders to favor our brands as they We continue to work hard – in consider branding alternatives. They partnership with our owners, franchisees, know the strength of the Marriott brand associates, customers and shareholders – will improve their business, even when to build a great tomorrow at Marriott. Celebrating Marriott’s people are traveling less. Conversions We appreciate your support. As we 75 Years of the accounted for nearly 40 percent of our celebrate our 75th anniversary year, we new room openings in 2001. look forward to a bright and promising “Spirit to Serve” Our hotel development pipeline future together. features over 300 hotels with more than 55,000 rooms, including over 36,000 rooms under construction. Owners or franchisees are developing over 95 per- J.W. Marriott, Jr. cent of the pipeline. Including conver- Chairman and Chief Executive Officer sions, we expect 25,000 to 30,000 rooms will open in each of 2002 and in 2003. There is still plenty of room for William J. Shaw expansion. Our U.S. market share President and Chief Operating Officer of rooms increased from 4.7 percent to 7.9 percent in the last 10 years. At year- end, Lodging Econometrics reported March 1, 2002 9 Marriott International, Inc. 2001 Annual Report
  • 12. O U R “S P I R I T TO S E RV E ” I S S T RO N G E R T H A N E V E R a s we ce l e b r ate o u r c o m pa ny ’s a n n iver s a ry i n 2 0 02, we recognize much more than just 75 years of growth and service excellence. We pay tribute to the driving force behind Marriott’s success – our terrific people and our long-standing culture of “spirit to serve.” Marriott’s guiding philosophy has always been to take care of our associates, and they’ll take care of our customers. We are proud to provide a work environment where our associ- ates’ diverse perspectives and backgrounds are highly valued. We apply these same ideals to our communities, where we play an active role in creating better places to live and work around the world. Our spirit to serve culture shined brighter than ever last year in the aftermath of the terrorist attacks on September 11. In New York, while our World Trade Center hotel was destroyed and our Financial Center hotel was severely damaged, we safely evacuated more than 2,000 guests and associates. In Washington, associates throughout the area raced to provide accommoda- tions, supplies and services to the rescue effort at the Pentagon. In both cities, our associates proved their dedication to others again and again with bravery, compassion and self-sacrifice. Tragically, 11 guests remain unaccounted for, and we lost two associates at the New York Marriott World Trade Center hotel. We rallied immediate and decisive support for our affected associates, guests and communities. We established a toll-free information line and opened a support center for our New York City associates. The J. Willard and Alice S. Marriott Foundation provided a $1 million grant to establish the Marriott Associate Assistance Fund. Marriott associates from around the world showed their support by donating supplies, raising funds and volun- teering their services to the Red Cross and other relief organizations. Thousands of associates gave generously of their own leave to help support fellow associates in New York. Until it reopened in early January, the New York Marriott Financial Center hotel served as a Red Cross respite center for workers involved in the recovery effort. And our associates received literally thousands of messages of thanks and support from guests. While we could not foresee the events of September 11, we were able to stand strong and make a difference in the lives of our guests, our communities and each other. Our associates are the best in the world. We are enormously proud of them and very grateful for their tremendous courage and dignity. Throughout our 75th year, we honor their accomplishments and their extraordinary spirit to serve. Marriott International, Inc. 2001 Annual Report 10
  • 13. MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Facilities Exit Costs The following discussion presents an analysis of results of our As a result of the workforce reduction and delay in filling vacant operations for fiscal years ended December 28, 2001, December 29, positions, we consolidated excess corporate facilities. We recorded 2000, and December 31, 1999. Revenue per available room a restructuring charge of approximately $15 million for excess (REVPAR) is calculated by dividing room sales for comparable corporate facilities, primarily related to lease terminations and properties by room nights available to guests for the period. We noncancelable lease costs in excess of estimated sublease income. consider REVPAR to be a meaningful indicator of our perform- In addition, we recorded a $5 million charge for lease termina- ance because it measures the period over period change in room tions resulting from cancellations of leased units by our corporate revenues for comparable properties. REVPAR may not be com- apartment business, primarily in downtown New York City. parable to similarly titled measures such as revenues. Comparable Development Cancellations and Elimination of Product Line REVPAR, room rate and occupancy statistics used throughout We incur certain costs associated with the development of this report are based on U.S. properties operated by us except for properties, including legal costs, the cost of land and planning Fairfield Inn, which data also include franchised units. System- and design costs. We capitalize these costs as incurred and they wide sales and statistics include data from our franchised proper- become part of the cost basis of the property once it is devel- ties, in addition to our owned, leased and managed properties. oped. As a result of the dramatic downturn in the economy in Systemwide statistics are based on comparable worldwide units the aftermath of the September 11, 2001 attacks, we decided to and reflect the impact of foreign exchange rates. cancel development projects that were no longer deemed viable. As a result, we expensed $28 million of previously capi- C O N S O L I D A T E D R E S U LT S talized costs. In addition, management has begun to actively Restructuring Costs and Other Charges engage in efforts to sell 25 Village Oaks senior living communi- The Company has experienced a significant decline in demand ties. These communities offer companion living and are signifi- for hotel rooms in the aftermath of the September 11, 2001 cantly different from our other senior living brands. As a result attacks on New York and Washington and the subsequent dra- of the plan to exit this line of business, the assets associated matic downturn in the economy. This decline has resulted in with the 25 properties have been reclassified as assets held for reduced management and franchise fees, cancellation of devel- sale and have accordingly been recorded at their estimated fair opment projects, and anticipated losses under guarantees and value, resulting in an impairment charge of $60 million. loans. We have responded by implementing certain company- wide cost-saving measures, although we do not expect signifi- Other Charges cant changes to the scope of our operations. As a result of our Reserves for Guarantees and Loan Losses restructuring plan, in the fourth quarter of 2001 we recorded We issue guarantees to lenders and other third parties in connec- pretax restructuring costs of $124 million, including (1) tion with financing transactions and other obligations. We also $16 million in severance costs; (2) $20 million, primarily associ- advance loans to some owners of properties that we manage. As a ated with a loss on a sublease of excess space arising from the result of the downturn in the economy, certain hotels have expe- reduction in personnel; (3) $28 million related to the write-off rienced significant declines in profitability and the owners have of capitalized costs relating to development projects no longer not been able to meet debt service obligations to the Company or deemed viable; and (4) $60 million related to the write-down of in some cases, to other third-party lending institutions. As a the Village Oaks brand of companion-style senior living com- result, based upon cash flow projections, we expect to fund under munities, which are now classified as held for sale, to their certain guarantees, which are not deemed recoverable, and we estimated fair value. Detailed information related to the restruc- expect that several of the loans made by us will not be repaid turing costs and other charges, which were recorded in the according to their original terms. Due to the expected guarantee fourth quarter of 2001 as a result of the economic downturn fundings deemed non-recoverable and the expected loan losses, and the unfavorable lodging environment, is provided below. we recorded charges of $85 million in the fourth quarter of 2001. Restructuring Costs Accounts Receivable – Bad Debts In the fourth quarter of 2001, we reserved $17 million of Severance Our restructuring plan resulted in the reduction of approxi- accounts receivable following an analysis of these accounts mately 1,700 employees (the majority of which were terminated which we deemed uncollectible, generally as a result of the by December 28, 2001) across our operations. We recorded a unfavorable hotel operating environment. workforce reduction charge of $16 million related primarily to Asset Impairments severance and fringe benefits. The charge does not reflect The Company recorded a charge related to the impairment of amounts billed out separately to owners for property-level sev- an investment in a technology-related joint venture ($22 mil- erance costs. In addition, we delayed filling vacant positions and lion), losses on the anticipated sale of three lodging properties reduced staff hours. ($13 million), write-offs of investments in management 11 Marriott International, Inc. 2001 Annual Report
  • 14. contracts and other assets ($8 million), and the write-off of A summary of the restructuring costs and other charges capitalized software costs arising from a decision to change a recorded in the fourth quarter of 2001 is detailed as follows: technology platform ($2 million). Cash Restructuring costs payments in and other charges Non-cash fourth quarter liability at Total charge charge 2001 December 28, 2001 ($ in millions) Severance $ 16 $2 $6 $8 Facilities exit costs 20 — 2 18 Development cancellations and elimination of product line 88 88 — — Total restructuring costs 124 90 8 26 Reserves for guarantees and loan losses 85 52 — 33 Accounts receivable – bad debts 17 17 — — Write-down of properties held for sale 13 13 — — Impairment of technology-related investments and other 32 31 — 1 Total $271 $203 $8 $60 The remaining liability related to the workforce reduction resulting lease expense due to the consolidation of facilities will and fundings under guarantees will be substantially paid by the be paid over the respective lease terms through 2012. end of 2002. The amounts related to the space reduction and Further detail regarding the charges is shown below: O P E R AT I N G P R O F I T I M PA C T Senior Full- Select- Extended- Living Distribution Service Service Stay Timeshare Services Services Total ($ in millions) Severance $7 $1 $1 $2 $— $1 $ 12 Facilities exit costs — — 5 — — 1 6 Development cancellations and elimination of product line 19 4 5 — 60 — 88 Total restructuring costs 26 5 11 2 60 2 106 Reserves for guarantees and loan losses 30 3 3 — — — 36 Accounts receivable – bad debts 11 1 — — 2 3 17 Write-down of properties held for sale 9 4 — — — — 13 Impairment of technology-related investments and other 8 — 2 — — — 10 Total $84 $13 $16 $2 $62 $5 $182 N O N - O P E R AT I N G I M PA C T Total corporate Corporate Provision for Interest expenses and expenses loan losses income interest ($ in millions) Severance $4 $— $— $4 Facilities exit costs 14 — — 14 Total restructuring costs 18 — — 18 Reserves for guarantees and loan losses — 43 6 49 Impairment of technology-related investments and other 22 — — 22 Total $40 $43 $6 $89 Marriott International, Inc. 2001 Annual Report 12
  • 15. 2001 Compared to 2000 12 percent in 2001. Incentive fee revenue declined 36 percent, Net income and diluted earnings per share decreased 51 per- base fees revenue declined 3 percent, and franchise fee revenue cent to $236 million and $.92, respectively. Net income was pri- increased 6 percent. Lodging operating profit in 2001 (including marily impacted by pretax restructuring and other charges overhead but excluding restructuring costs and other charges) totaling $271 million and lower lodging operating profits due was attributable to base management fees (33 percent of total), to the decline in hotel performance. franchise fees (21 percent) and land rent (3 percent) that are Sales of $10 billion in 2001 were flat compared to last year, based on fixed dollar amounts or percentages of sales. The bal- reflecting a decline in hotel performance, partially offset by rev- ance was attributable to our timesharing business (20 percent), enue from new Lodging and Distribution Services business and and to incentive management fees and other income based on contributions from established Senior Living communities. the profits of the underlying properties (23 percent). Systemwide sales increased slightly to $20 billion. Franchise Fees 21% 2000 Compared to 1999 Land Rent 3% Net income increased 20 percent to $479 million and diluted Profit Participations 23% earnings per share advanced 25 percent to $1.89. Profit growth Timesharing Resorts 20% was driven by our strong U.S. lodging operations, lower system- Base Management Fees 33% related costs associated with the year 2000 and the impact on the 1999 financial results of a $39 million pretax charge to 2001 LODGING OPERATING PROFIT reflect a litigation settlement. Results were also impacted by a ($641 million) $15 million one-time write-off of a contract investment in our Across our Lodging brands, REVPAR for comparable company- Distribution Services segment in the first quarter of 2000. operated U.S. properties declined by an average of 10.4 percent Sales increased 15 percent to $10 billion in 2000, reflecting in 2001. Average room rates for these hotels declined 2 percent strong revenue resulting from new and established hotels, contri- and occupancy declined 6.7 percentage points. Occupancy, aver- butions from established Senior Living communities, as well as age daily rate and REVPAR for each of our principal established new customers in our Distribution Services business. Systemwide brands are shown in the following table. sales increased by 12 percent to $19.8 billion in 2000. Comparable Comparable MARRIOTT LODGING U.S. properties systemwide Annual Change Change Change 2001 vs. 2000 2001 vs. 2000 2001/ 2000/ 2001 2000 1999 2000 1999 MARRIOTT HOTELS, RESORTS AND SUITES ($ in millions) Occupancy 70.4% –7.1%pts. 68.8% –5.9%pts. Sales $7,786 $7,911 $7,041 –2% +12% Average daily rate $142.96 –2.9% $132.55 –2.4% Operating profit before REVPAR $100.62 –11.8% $ 91.19 –10.1% restructuring costs and other charges 756 936 827 –19% +13% RITZ-CARLTON Restructuring costs (44) — — nm — Occupancy 66.9% –10.4%pts. 67.6% –8.1%pts. Other charges (71) — — nm — Average daily rate $249.94 +2.3% $226.58 +4.1% REVPAR $167.21 –11.5% $153.25 –7.0% Operating profit, as reported $ 641 $ 936 $ 827 –32% +13% RENAISSANCE HOTELS, RESORTS AND SUITES Occupancy 65.6% –7.7%pts. 66.2% –4.4%pts. 2001 Compared to 2000 Average daily rate $137.79 –2.9% $112.51 –4.3% Marriott Lodging, which includes our Full-Service, Select-Service, REVPAR $ 90.39 –13.1% $ 74.43 –10.4% Extended-Stay, and Timeshare segments, reported a 32 percent decrease in operating profit and 2 percent lower sales in 2001. RESIDENCE INN Occupancy 77.8% –5.1%pts. 77.9% –3.9%pts. Results reflected restructuring costs of $44 million and other Average daily rate $105.46 –1.4% $102.71 –0.3% charges of $71 million, including a $36 million reserve for third- REVPAR $ 82.05 –7.5% $ 80.02 –5.0% party guarantees we expect to fund and not recover out of future cash flow, $12 million of reserves for accounts receivable deemed COURTYARD uncollectible, a write-off of two investments in management Occupancy 71.6% –6.4%pts. 71.0% –4.9%pts. contracts and other assets of $8 million, $13 million of losses on Average daily rate $ 99.45 +1.2% $ 94.68 +1.1% the anticipated sale of three lodging properties, and a $2 million REVPAR $ 71.24 –7.0% $ 67.21 –5.6% write-off associated with capitalized software costs arising from a decision to change a technology platform. Results also reflect FAIRFIELD INN Occupancy 66.3% –3.2%pts. 66.3% –3.2%pts. lower fees due to the decline in demand for hotel rooms, par- Average daily rate $ 64.70 +2.1% $ 64.70 +2.1% tially offset by increased revenue associated with new proper- REVPAR $ 42.91 –2.6% $ 42.91 –2.7% ties. Lodging management and franchise fee revenue declined 13 Marriott International, Inc. 2001 Annual Report
  • 16. 2000 Compared to 1999 195,000 $147 182,000 Marriott Lodging reported a 13 percent increase in operating $138 profit on 12 percent higher sales in 2000. Results reflected solid $123 140,000 room rate growth at U.S. hotels and contributions from new 116,000 properties worldwide. Lodging operating profit in 2000 was $94 98,000 attributable to base management fees (28 percent of total), franchise fees (17 percent), land rent and other income (3 per- $61 cent), resort timesharing (15 percent), and incentive manage- ment fees and other profit participations (37 percent). Across our full-service lodging brands (Marriott Hotels, Resorts and Suites; Renaissance Hotels, Resorts and Suites; and The Ritz-Carlton Hotels), REVPAR for comparable company- 97 98 99 00 01 97 98 99 00 01 operated U.S. properties grew by an average of 7.2 percent in 2000. MVCI ANNUAL OPERATING PROFIT MARRIOTT VACATION CLUB INTERNATIONAL (millions) (number of owners) Average room rates for these hotels rose 6.3 percent, while occu- pancy increased slightly to 77.4 percent. In 2000, as a result of the Marriott Vacation Club International contributed over termination of two Ritz-Carlton management agreements, we 20 percent of lodging operating profit in 2001, after the impact wrote off our $3 million investment in these contracts. In addi- of restructuring and other charges. Operating profit increased tion, due to the bankruptcy of the owner of one hotel, we reserved 7 percent, reflecting a 22 percent increase in contract sales, the $6 million of our investment in that management agreement. 2001 acquisition of the Grand Residence Club in Lake Tahoe, Our domestic select-service and extended-stay brands California and note sale gains in 2001 of $40 million compared (Residence Inn, Courtyard, Fairfield Inn, TownePlace Suites and to $22 million in 2000, partially offset by higher marketing and SpringHill Suites) added a total of 161 properties (18,870 rooms) selling expenses and severance expenses of nearly $2 million and deflagged seven properties (1,500 rooms), primarily fran- associated with the Company’s restructuring plan. chises, during the 2000 fiscal year. REVPAR for comparable International Lodging reported a decrease in the results of properties increased 5.5 percent. operations, reflecting the impact of the decline in international travel and restructuring and other charges, partially offset by Comparable Comparable sales associated with new rooms. Over 35 percent of rooms U.S. properties systemwide added in 2001 were outside the United States. Change Change 2000 vs. 1999 2000 vs. 1999 LODGING DEVELOPMENT Marriott Lodging opened 313 properties totaling nearly 50,000 MARRIOTT HOTELS, RESORTS AND SUITES Occupancy 78.2% +0.4%pts. 75.7% +0.4%pts. rooms across its brands in 2001, while 14 hotels (approximately Average daily rate $149.50 +6.2% $136.37 +4.9% 3,700 rooms) exited the system. Highlights of the year included: REVPAR $116.95 +6.8% $103.27 +5.5% Over 35 percent of new rooms opened were outside the ● United States. These include our first hotels in Belgium, RITZ-CARLTON Denmark and Ireland. Occupancy 77.5% +0.1%pts. 77.5% +2.0%pts. Development of a new Marriott Vacation Club International ● Average daily rate $242.26 +9.2% $228.01 +8.9% resort in Phuket, Thailand, the EuroDisney resort, and the REVPAR $187.75 +9.4% $176.75 +11.9% acquisition of The Grand Residence Club property in Lake Tahoe, California. RENAISSANCE HOTELS, RESORTS AND SUITES One hundred and fifty properties (19,100 rooms) were Occupancy 73.3% +2.0%pts. 70.9% +2.7%pts. ● added to our select-service and extended-stay brands. Average daily rate $142.27 +4.5% $119.95 +3.0% One hundred and forty-four properties (19,300 rooms), REVPAR $104.35 +7.5% $ 85.07 +7.0% ● 39 percent of our total room additions 436,000 RESIDENCE INN for the year, were conversions from 390,500 Occupancy 83.5% +0.7%pts. 82.2% +0.8%pts. other brands. 355,900 328,300 Average daily rate $104.88 +5.1% $102.25 +4.3% At year-end 2001, we had over 300 300,400 REVPAR $ 87.61 +6.1% $ 84.10 +5.3% hotel properties and more than 55,000 rooms under construction or approved COURTYARD for development. We expect to open Occupancy 78.9% —%pts. 77.0% +0.2%pts. over 150 hotels and timesharing resorts Average daily rate $ 97.68 +5.7% $ 93.51 +4.9% (25,000 – 30,000 rooms) in 2002. These REVPAR $ 77.05 +5.7% $ 71.96 +5.1% growth plans are subject to numerous FAIRFIELD INN risks and uncertainties, many of which Occupancy 69.7% –1.0%pts. 69.7% –1.0%pts. are outside our control. See “Forward- 97 98 99 00 01 Average daily rate $ 61.32 +3.8% $ 61.32 +3.8% LODGING ROOMS Looking Statements” and “Liquidity and (actual room growth, including REVPAR $ 42.75 +2.4% $ 42.75 +2.4% Capital Resources.” all brands, excluding ExecuStay) Marriott International, Inc. 2001 Annual Report 14
  • 17. Results for international lodging operations were favorable sales, profitability was impacted by start-up inefficiencies for in 2000, despite a decline in the value of the euro against the new properties, higher administrative expenses, pre-opening U.S. dollar, reflecting strong demand in the Middle East, Asia, costs for new communities, costs related to debt associated Europe and the Caribbean region. with facilities developed by unaffiliated third parties, and Marriott Vacation Club International also posted favorable charges associated with our decision to limit new construction profit growth in 2000, reporting a 34 percent increase in con- until the market improves, resulting in a loss of $18 million. tract sales. The increase in contract sales reflects interest in our newest brands, Horizons by Marriott Vacation Club in Orlando, S E N I O R L I V I N G S E RV I C E S D E V E LO P M E N T Florida, and The Ritz-Carlton Club resorts in St. Thomas, U.S. Due to oversupply conditions in some senior housing markets, Virgin Islands, and Aspen, Colorado, as well as continued we decided in 1999 to dramatically slow development of strong demand for our timeshare properties in Hawaii, Aruba planned communities. Consequently, a number of projects in and California. The profit growth in 2000 was impacted by a the early stages of development were postponed or canceled. $6 million decline in gains from the sale of notes receivable Additional projects were canceled in 2000. arising from lower note sale volume. At the end of the year, 24 resorts were in active sales, 23 resorts were sold out and an M A R R I OT T D I S T R I BU T I O N S E RV I C E S additional 13 resorts were under development. Annual Change The Marketplace by Marriott (Marketplace), our hospitality 2001/ 2000/ procurement business, launched as an independent company. 2001 2000 1999 2000 1999 In January 2001, Marriott and Hyatt Corporation formed a ($ in millions) joint venture, Avendra LLC, and we each merged our respective Sales $1,637 $1,500 $1,139 +9% +32% procurement businesses into it. Avendra LLC is an independent Operating (loss) profit before restructuring professional procurement services company serving the North costs and other charges (1) 4 21 nm –81% American hospitality market and related industries. Bass Hotels Restructuring costs (2) — — nm — & Resorts, Inc., ClubCorp USA Inc. and Fairmont Hotels & Other charges (3) — — nm — Resorts, Inc. joined Avendra LLC in March 2001. Operating (loss) profit, as reported $ (6) $ 4 $ 21 nm –81% M A R R I OT T S E N I O R L I V I N G S E RV I C E S Annual Change 2001 Compared to 2000 2001/ 2000/ Operating results for Marriott Distribution Services (MDS) 2001 2000 1999 2000 1999 reflect the impact of an increase in sales related to the com- ($ in millions) mencement of new contracts in 2001 and increased sales from Sales $729 $669 $559 +9% +20% contracts established in 2000. The impact of higher sales on the Operating profit (loss) operating results was more than offset by the decline in business before restructuring costs and other charges 17 (18) (18) nm — from one significant customer, transportation inefficiencies and Restructuring costs (60) — — nm — restructuring and other charges of $5 million, including sever- Other charges (2) — — nm — ance costs and the write-off of an accounts receivable balance from a customer that filed for bankruptcy in the fourth quarter Operating loss, as reported $ (45) $ (18) $ (18) nm — of 2001. The Company commenced a strategic review of this business in January 2002. 2001 Compared to 2000 Marriott Senior Living Services posted a 9 percent increase in 2000 Compared to 1999 sales in 2001, as we added a net total of three new communities Marriott Distribution Services posted a 32 percent increase in (369 units) during the year. Occupancy for comparable com- sales for 2000, reflecting the commencement of service to three munities increased by nearly 2 percent to 85.3 percent in 2001. large restaurant chains in the year. Operating profit declined The division reported an operating loss of $45 million, $17 million as a result of start-up inefficiencies associated with reflecting restructuring and other charges of $62 million, pri- the new business and a $15 million pretax write-off of an marily related to the $60 million write-down of 25 senior living investment in a contract with Boston Chicken, Inc. and its communities held for sale to their estimated fair value and the Boston Market-controlled subsidiaries, a major customer that write-off of a $2 million receivable no longer deemed collectible. filed for bankruptcy in October 1998. McDonald’s Corporation These charges were partially offset by the favorable impact of the (McDonald’s) acquired Boston Market in 2000, and during the increase in comparable occupancy and the new units. first quarter of 2000, MDS entered into an agreement with McDonald’s to continue providing distribution services to 2000 Compared to 1999 Boston Market restaurants (refer to the “Intangible Assets” Marriott Senior Living Services posted a 20 percent increase in footnote in the financial statements set forth in Part II, Item 8, sales in 2000, reflecting the net addition of nine properties dur- “Financial Statements and Supplementary Data”). ing the year and a 4 percentage point increase in occupancy for comparable communities to 88 percent. Despite the increase in 15 Marriott International, Inc. 2001 Annual Report