Notes to Consolidated
1. Principles of Consolidation and Acquisitions:
The accompanying consolidated financial statements include
accounts of the Company and all majority-owned domestic
and foreign subsidiaries except Marriott Financial Services,
Inc., the condensed balance sheet of which is set forth in
Note 2 and its net income of $210,000 for 1970 and $98,000
for 1969 has been included in the accompanying consolidated
income statement. The accounts of foreign subsidiaries are included in the consolidated financial statements after translation into U.S. dollars. All material intercompany transactions
have been eliminated.
During 1970, the Company acquired several small foreign and
domestic businesses for cash. All of these acquisitions were
accounted for as purchases.
The cost of businesses acquired in excess of the net assets at
the dates of acquisition has, in the opinion of management, a
continuing value and is not being amortized.
2. Unconsolidated Finance Subsidiary:
Marriott Financial Services, Inc. (MFS) was formed in 1969 to
provide leasing and financing for the Company's franchisees.
In addition, MFS is committed to provide construction financing of $20,000,000, of which $6,000,000 has been advanced,
to the landlord of the New Orleans Marriott Hotel, against a
loan commitment from a major insurance company conditioned on completion of the hotel by May 1972. The commitment by MFS has been guaranteed by the Company. Also,
MFS has loaned $22,000,000 until April, 1972 and $3,000,000
until 1989. secured by first and second mortgages respectively, to the landlord of the Essex House in New York City.
Assuming the Company exercises all of its options, it will
continue to lease the Essex House until April 15, 2012, and
will lease the New Orleans Marriott Hotel for a 55 year term.
The Company acquired a 25% non-voting equity interest
(with 50% voting rights) in the landlord of the New Orleans
Marriott Hotel in 1969, and has a right to acquire an additional
24% non-voting equity interest during the three years following the hotel opening by converting $1,000,000 principal
amount of debentures it now owns. The Company has the option until May, 1972 to purchase a 50% interest in the Essex
House at the landlord's cost of approximately $13,500,000 and
a second option running three years later to purchase the remainder at the then appraised value of such remainder but not
less than $16,500,000.
The Company has guaranteed M FS borrowings of $29,920,000
and $27,000,000 as of July 31. 1970 and July 27, 1969, substantially all of which are short-term.
MFS's condensed balance sheet is as follows:
Mortgage Notes Receiv
able^—Landlord of Essex House
Landlord of the New Orleans
Marriott Inn Franchisee,
Land, Buildings and Equip
ment Under Lease to
LIABILITIES AND NET WORTH
Commercial Paper Guaranteed by
Short-term Loans Guaranteed by
Subordinated Note Payable
Guaranteed by Marriott
Long-term advances from
Total Liabilities and
Note: Aggregate rentals from building and equipment leases
in excess of the cost of such property are recognized as revenue at a level rate of return on the unpaid rentals (financing
method). Aggregate rentals from land leases are recognized as
revenue on a straight-line basis over the life of the lease (operating method).
M FS has aggregate bank lines of credit (as a standby for commercial paper) of $25,000,000. which expire May 31, 1971
subject to the expressed intention of the banks to renew for
an additional year provided'there is no material adverse change
in the financial condition of MFS or Marriott Corporation.
Marriott has guaranteed MFS borrowings under these lines of
credit. MFS had borrowed $5,200,000 under these lines as of
July 31, 1970 and $20,200,000 as of October 2, 1970, all of
which was used to retire it's commercial paper.
Since July 31, 1970 Marriott Corporation has advanced an
additional $1,500,000, bringing the Company's total advances
to and investment in MFS to $11,600,000 as of October 2,
3. Federal Income Taxes:
The Company and its subsidiaries file separate income tax returns. Federal income tax returns for fiscal years prior to 1964
have been examined and settled. The Federal income tax returns for fiscal years 1964 through 1967 are currently being
reviewed by the Internal Revenue Service. In the opinion of
management, any adjustment for such years will not have a
material adverse effect on the Company's consolidated financial statements. See Note 8 for tax accounting policies.
4. Long-term Obligations (Excluding Convertible Subordinated Debt):
Maturities of mortgages, notes and lease-purchase obligations
are as follows:
Total long-term obi „"i!& . '-
Summary of Pledging of Assets:
Cost of investment in real estateand equipment,
excluding construction in progress:
Pledged ■ •.'wBEiWli^*§88&l
Not Pledged S^Sst? ™~~~ ' . *
Total.., » ,"T*,...„ * "*". °, %
$43,224,612 $ — 1|e:-$82,750,3[i8
543,224,612 $115,952,198 $82,750,308
Lease-purchase obligations are in substance installment purchases and are recorded as leasehold interest at the discounted amount of future rentals. These leases are made with
corporations owned by the Marriott Foundation and provide
for the recovery of principal and interest and a nominal profit.
In addition to the foregoing leases, the Company has other
leases which are not installment purchases and which have an
average remaining term of 19 years as of July 31. 1970.
Minimum annual rentals, amount to approximately $7,500,000
as of July 31, 1970 of which $2,500,000 is for the Essex
House. Most of these leases have renewal privileges and require additional rentals under percentage clauses relating to
The Company is presently financing construction of certain
projects with short-term financing consisting of $14,850,000
of commercial paper (maturing in not more than 270 days)
and $5,000,000 of bank loans, as of July 31, 1970. Such financing is reflected in the accompanying balance sheet as non-
current liabilities. The Company has long-term mortgage
commitments covering $7,070,000 of this financing, of which
$6,484,275 was converted to a permanent mortgage subsequent to July 31, 1970. In addition, the Company obtained
after July 31, 1 970 a bank loan commitment which is available to pay off $12,780,000 of the Company's commercial
paper and bank loans as they become due. This bank loan
commitment expires on December 31, 1971, requires a
monthly standby fee, provides for interest at the rate of one
percent per annum in excess of the bank's prime rate or its
marginal cost of money, whichever is higher, and requires the