few key executives under a restricted deferred compensation arrangement. The market value, as of the contract dates, in excess of
cash received was $387,687 and is being expensed over the restriction periods which expire at various dates to 1980.
The Company has a qualified stock purchase plan for eligible
employees to purchase up to 102,500 shares of common stock at
$33.71 per share under a Payroll Deduction Plan. Employees have
signed Payroll Deduction Plan agreements for an aggregate of
31,000 shares which the employees may purchase in February 1970
at the employees' discretion.
(7) Convertible Subordinated Debt:
During 1969, the Company issued $20,000,000 of 5%% convertible
subordinated notes and $8,000,000 of 6%% convertible subordinated
debentures due in 1989. The debt can be converted into common
stock as follows:
Amount Conversion Price Stock Reserved
The $36.80 conversion price for the $5,000,000 in notes can be
reduced to as low as $32.00 per share depending on the market
price of the stock during October 1971. The $8,000,000 debentures
are convertible after December 15, 1969 and the $20,000,000 notes
are convertible at any time. All conversion prices are subject to antidilution provisions. Annual principal payments of $2,000,000 begin
May 1980, on the $20,000,000 notes. Annual principal payments of
$400,000 on the $8,000,000 debentures begin June 1979.
The $20,000,000 note agreements require the Company to limit cash
dividends not to exceed cumulative net income after July 28, 1968,
In June 1969, the $10,000,000 of convertible subordinated notes
issued in 1968 were converted into 383,876 shares of common stock.
(8) Common Stock:
Subject to stockholders' ratification at the annual meeting in
November, the Board of Directors has voted to increase the Company's authorized common stock to 30,000,000 shares and adopted
a restricted stock plan under which a specified number of shares not
to exceed 25,000 shares in any fiscal year will be offered to key employees at a fixed minimum cost, usually $1.00 per share.
Earnings per share are based on the weighted average shares outstanding of 11,716,667 in 1969 and 11,559,690 in 1968.
(9) Changes in Accounting:
In prior years the Company has followed the policy of expensing
pre-opening expenses as incurred for all divisions. However, during
1969 the Company accelerated its hotel expansion, adding 1,810
new rooms, an increase of 61% in number of rooms, and entered the
international hotel market. This is three times greater than any other
year of expansion. Consequently, management believes that the
large pre-opening expenses for hotels in 1969 would cause fluctuations and distortions in reported earnings since the hotels do not
open with the degree of regularity as do the operating units of
other divisions of the Company. Accordingly, the Company adopted,
as of the beginning of 1969, the policy of deferring pre-opening
expenses for new hotels and amortizing such expenses over three
years to more properly match these expenses with the revenue from
the hotels. This policy and similar policies are followed by many other
hotel chains. The Company continues to expense, as incurred, the
pre-opening expenses related to its other divisions.
As of the beginning of 1969, the Company changed its pricing
method for the deferred stock contracts as described in Note 6. The
shares vested (earned) are now valued at the market price on the
date the contracts were awarded, adjusted for subsequent stock
dividends and splits. Previously, the shares vested (earned) were
valued at the market price at the beginning of the year in which the
shares were vested (earned).
If the foregoing changes, which resulted partly from new operating
conditions, had not been made, income before extraordinary items
and net income for 1969 would have been $500,000 less.
To the Shareholders and
Board of Directors of
We have examined the consolidated balance sheet of MARRIOTT
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as
of July 27, 1969, and the related statements of consolidated income,
shareholders' investment and source and application of funds
for the fifty-two weeks then ended. Our examination was made in
accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such
other auditing procedures as we considered necessary in the circumstances. We have previously examined and reported on the financial
statements for the preceding year.
In our opinion, the accompanying consolidated balance sheet and
statements of consolidated income, shareholders' investment and
source and application of funds present fairly the financial position
of Marriott Corporation and Subsidiaries as of July 27, 1969, and
the results of their operations and the source and application of their
funds for the fifty-two weeks then ended, in conformity with generally accepted accounting principles which, except for the changes
in accounting for pre-opening expenses and deferred stock contract
compensation as described in Note 9 to the consolidated financial
statements, were applied on a basis consistent with that of the
ARTHUR ANDERSEN & CO.
September 26, 7969.
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