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 MD&A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 >  Investing Activities Cash Flows Capital Expenditures and Other Investments. Capital expenditures of $671 million in 2007, $529 million in 2006, and $780 million in 2005 included expenditures related to the development and construction of new hotels and acquisitions of hotel properties, as well as improvements to existing properties and systems initiatives. Timeshare segment development expenditures, which are included in "Cash from Operations," as noted in that section's narrative, are not reflected in these numbers. Over time, we have sold lodging properties under development subject to long-term management agreements. The ability of third-party purchasers to raise the necessary debt and equity capital depends in part on the perceived risks inherent in the lodging industry and other constraints inherent in the capital markets as a whole. Although we expect to continue to consummate such real estate sales, if we were unable to do so, our liquidity could decrease and we could have increased exposure to the operating risks of owning real estate. We monitor the status of the capital markets and regularly evaluate the potential impact on our business operations of changes in capital market conditions. We also expect to continue to make other investments in connection with adding units to our lodging business. These investments include loans and minority equity investments. Fluctuations in the values of hotel real estate generally have little impact on the overall results of our Lodging segments because: (1) we own less than 1 percent of the total number of hotels that we operate or franchise; (2) management and franchise fees are generally based upon hotel revenues and profits rather than current hotel property values; and (3) our management agreements generally do not terminate upon hotel sale. At the end of 2007, we were party to a venture that developed and marketed fractional ownership and residential interests. Subsequent to year-end 2007, we purchased our partner's interest in the joint venture. Concurrent with this transaction, we purchased additional land from our partner as well. Cash consideration for this transaction totaled $37 million and we acquired assets and liabilities totaling $74 million and $37 million, respectively, on the date of purchase. Dispositions. Property and asset sales generated cash proceeds of $745 million in 2007, $798 million in 2006, and $298 million in 2005. In 2007, we closed on the sales of 13 properties and five joint venture investments. Cash proceeds of $90 million for a parcel of land sold in 2007 are not reflected in the $745 million as the proceeds were initially recorded as a deposit because of a contingency. Accordingly, these proceeds impacted the "Other investing activities" section of our Consolidated Statements of Cash Flows rather than "Dispositions." Loan Activity. We have made loans to owners of hotels that we operate or franchise, typically to facilitate the development of a new hotel. Based on historical experience, over time we expect these owners to repay the loans in accordance with the loan agreements, or earlier as the hotels mature and capital markets permit. Loan collections and sales, net of advances during 2007, amounted to $75 million. Lodging senior loans outstanding totaled $7 million (which included a current portion of $4 million) at year-end 2007 and $9 million (which included a current portion of $1 million) at year-end 2006. Lodging mezzanine and other loans totaled $206 million (which included a current portion of $18 million) at year-end 2007 and $268 million (which included a current portion of $32 million) at year-end 2006. In 2007 our notes receivable balance associated with Lodging senior loans and Lodging mezzanine and other loans, declined by $64 million and primarily reflects the repayment or sale of several loans and the reserve against an underperforming loan. Equity and Cost Method Investments. Cash outflows of $40 million in 2007 associated with equity and cost method investments primarily reflects our investments in two joint ventures. Cash outflows of $95 million in 2006 associated with equity and cost method investments primarily reflects our investments in three joint ventures. Cash outflows of $216 million in 2005 associated with equity and cost method investments primarily reflects our establishment in 2005 of a 50/50 joint venture with Whitbread PLC ("Whitbread"). For additional information regarding Whitbread see Footnote No. 10, "Marriott and Whitbread Joint Venture" in our 2006 Form 10-K. Cash from Financing Activities In 2007, we issued $350 million of aggregate principal amount of 6.375 percent Series I Senior Notes due 2017. The offering of the notes closed on June 25, 2007. We received net proceeds before expenses of approximately $346 million from this offering, after deducting the underwriting discount and estimated expenses of the offering. We used these proceeds for general corporate purposes, including the repayment of commercial paper borrowings. Interest on these notes will be paid on June 15 and December 15 of each year, and commenced on December 15, 2007. The notes will mature on June 15, 2017, and are redeemable, in whole or in part, at any time and from time to time under the terms provided in the form of note. Also in 2007, we issued $400 million of aggregate principal amount of 5.625 percent Series J Senior Notes due 2013. The offering of the notes closed on October 19, 2007. We received net proceeds before expenses of approximately $396 million from this offering, after deducting the underwriting discount and estimated expenses of the offering. We used these proceeds for general corporate purposes, including working capital, acquisitions, stock repurchases and the repayment of commercial paper borrowings. Interest on these notes will be paid on February 15 and August 15 of each year, and commenced on February 15, 2008. The notes will mature on February 15, 2013, and are redeemable, in whole or in part, at any time and from time to time under the terms provided in the form of note. Both the Series I Senior Notes and the Series J Senior Notes were issued under an indenture with The Bank of New York, successor to JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan Bank), as trustee, dated as of November 16, 1998. Our financial objectives include diversifying our financing sources, optimizing the mix and maturity of our long-term debt and reducing our working capital. At year-end 2007, our long-term debt had an average interest rate of 6.0 percent and an average maturity of approximately 5.9 years. The ratio of fixed-rate long-term debt to total long-term debt was 0.8 to 1.0 at year-end 2007. At the end of 2007, we had long-term public debt ratings of BBB from Standard and Poor's and Baa2 from Moody's. Subsequent to year-end 2007, on January 15, 2008, we made a $94 million cash payment of principal and interest to retire, at maturity, all of our outstanding Series E Senior Notes. Share Repurchases. We purchased 41.0 million shares of our Class A Common Stock in 2007 at an average price of $43.32 per share, 41.5 million shares of our Class A Common Stock in 2006 at an average price of $38.13 per share, and 51.4 million shares of our Class A Common Stock in 2005 at an average price of $32.12 per share. We purchase shares in the open market and in privately negotiated transactions. As of year-end 2007, 33.2 million shares remained available for repurchase under authorizations from our Board of Directors. The adjacent graph shows our diluted weighted average shares count at year-end for each of the last five fiscal years.
Dividends. In April 2007, our Board of Directors increased the quarterly cash dividend by 2 percent to $0.0750 per share. > Back to top of page |
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