A good time to buy? Mariott Internatinal, Inc
Question 2: Does the company keep their debt “reasonable”?
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Question 2: Does the company keep their debt “reasonable”?Disney Corporation has a long-term debt/equity ratio of 0.48. Borrowing money is a part of doing business. This money is used to cause growth in the company. The company must not go to extremes, as cash flows in time of trouble will not service higher debt. Due to the downturn in the world economy since September 2001, Disney had to take extreme measures to stem the outflow of money. They stated in their most recent 10-k: The Company has experienced a significant decline in demand for hotel rooms in the aftermath of the September 11, 2001 attacks on New York and Washington and the subsequent dramatic downturn in the economy. This decline has resulted in reduced management and franchise fees, cancellation of development projects, and anticipated losses under guarantees and loans. We have responded by implementing certain company wide cost-saving measures, although we do not expect significant changes to the scope of our operations. As a result of our restructuring plan, in the fourth quarter of 2001 we recorded pretax restructuring costs of $124 million, including (1) $16 million in severance costs; (2) $20 million, primarily associated with a loss on a sublease of excess space arising from the reduction in personnel; (3) $28 million related to the write-off of capitalized costs relating to development projects no longer deemed viable; and (4) $60 million related to the write-down of the Village Oaks brand of companion-style senior living communities, which are now classified as held for sale, to their estimated fair value. Detailed information related to the restructuring costs and other charges, which were recorded in the fourth quarter of 2001 as a result of the economic downturn and the unfavorable lodging environment is provided below. Restructuring Costs Severance Our restructuring plan resulted in the reduction of approximately 1,700 employees (the majority of which were terminated by December 28, 2001) across our operations. We recorded a workforce reduction charge of $16 million related primarily to severance and fringe benefits. The charge does not reflect amounts billed out separately to owners for property-level severance costs. In addition, we delayed filling vacant positions and reduced staff hours. Facilities Exit Costs As a result of the workforce reduction and delay in filling vacant positions, we consolidated excess corporate facilities. We recorded a restructuring charge of approximately $15 million for excess corporate facilities, primarily related to lease terminations and non-cancelable lease costs in excess of estimated sublease income. In addition, we recorded a $5 million charge for lease terminations resulting from cancellations of leased units by our corporate apartment business, primarily in downtown New York City. Development Cancellations and Elimination of Product Line We incur certain costs associated with the development of properties, including legal costs, the cost of land and planning and design costs. We capitalize these costs as incurred and they become part of the cost basis of the property once it is developed. As a result of the dramatic downturn in the economy in the aftermath of the September 11, 2001 attacks, we decided to cancel development projects that were no longer deemed viable. As a result, we expensed $28 million of previously capitalized costs. In addition, management has begun to actively engage in efforts to sell 25 Village Oaks senior living communities. These communities offer companion living and are significantly different from our other senior living brands. As a result of the plan to exit this line of business, the assets associated with the 25 properties have been reclassified as assets held for sale and have accordingly been recorded at their estimated fair value, resulting in an impairment charge of $60 million. Other Charges Reserves for Guarantees and Loan Losses We issue guarantees to lenders and other third parties in connection with financing transactions and other obligations. We also advance loans to some owners of properties that we manage. As a result of the downturn in the economy, certain hotels have experienced significant declines in profitability and the owners have not been able to meet debt service obligations to the Company or in some cases, to other third-party lending institutions. As a result, based upon cash flow projections, we expect to fund under certain guarantees, which are not deemed recoverable, and we expect that several of the loans made by us will not be repaid according to their original terms. Due to the expected guarantee funding deemed non-recoverable and the expected loan losses, we recorded charges of $85 million in the fourth quarter of 2001. Accounts Receivable - Bad Debts In the fourth quarter of 2001, we reserved $17 million of accounts receivable following an analysis of these accounts which we deemed uncollectible, generally as a result of the unfavorable hotel operating environment. Asset Impairments The Company recorded a charge related to the impairment of an investment in a technology-related joint venture ($22 million), losses on the anticipated sale of three lodging properties ($13 million), write-offs of investments in management contracts and other assets ($8 million), and the write-off of capitalized software costs arising from a decision to change a technology platform ($2 million).32 During the year, the Company repaid approximately $2.8 billion of term debt, which either matured or was called during the year, and reduced its commercial paper borrowings by $186 million. These repayments were funded by proceeds of $3.1 billion consisting of $2.5 billion of Global bonds and $50 million of fixed-rate notes issued under the U.S. shelf registration, and $530 million of fixed-rate notes issued under the Euro Medium-term Note Program. These borrowings have effective interest rates, including the impact of interest rate swaps, ranging from 3.5% to 5.9% and maturities in fiscal 2003 through fiscal 2016. See Note 5 of the Consolidated Financial Statements for more detailed information regarding the Company's borrowings.
which replaced the existing U.S. shelf registration statement. As of September 30, 2001, the Company had the ability to borrow under the U.S. shelf registration statement and a Euro Medium-term Note Program, which collectively permitted the issuance of up to approximately $8.1 billion of additional debt or various other securities.
$754 million, with maturities of up to one year, supported by a $2.25 billion bank facility due in 2002 and a $2.25 billion bank facility due in 2005. These bank facilities allow for borrowings at the LIBOR-based rates plus a spread, depending upon the Company's public debt rating. As of September 30, 2001, the Company had not borrowed against these bank facilities. Risk Management Contracts In the normal course of business, the Company employs a variety of financial instruments to manage its exposure to fluctuations in interest, foreign currency exchange rates and investments in equity and debt securities, including interest rate and cross-currency swap agreements; forward, option and swaption contracts, and interest rate caps. Interest Rate Risk Management
objective is to manage the impact of interest rate changes on earnings and cash flows and on the market value of its investments and borrowings. The Company maintains fixed rate debt as a percentage of its net debt between a minimum and maximum percentage, which is set by policy. 3 Investment in Euro Disney
4,800-acre site near Paris, France. The Company accounts for its 39% ownership interest in Euro Disney using the equity method of accounting. As of September 30, 2001, the Company's recorded investment in Euro Disney, including accounts and notes receivable, was $344 million. In connection with the financial restructuring of Euro Disney in 1994, Euro Disney Associes S.N.C. (Disney SNC), a wholly-owned affiliate of the Company, entered into a lease arrangement with a noncancelable term of 12 years related to substantially all of the Disneyland Paris theme park assets, and then entered into a 12-year sublease agreement with Euro Disney. Remaining lease rentals at September 30, 2001 of approximately $801 million receivable from Euro Disney under the sublease approximate the amounts payable by Disney SNC under the lease. At the conclusion of the sublease term, Euro Disney will have the option to assume Disney SNC's rights and obligations under the lease. If Euro Disney does not exercise its option, Disney SNC may purchase the assets, continue to lease the assets or elect to terminate the lease, in which case Disney SNC would make a termination payment to the lessor equal to 75% of the lessor's then outstanding debt related to the theme park assets, estimated to be $1.1 billion; Disney SNC could then sell or lease the assets on behalf of the lessor to satisfy the remaining debt, with any excess proceeds payable to Disney SNC.
provision of a 10-year unsecured standby credit facility of approximately $152 million, upon request, bearing interest at the Paris Interbank Offered Rate(PIBOR). As of September 30, 2001, there were no amounts outstanding under this facility. However, it is expected that Euro Disney will draw on this line of credit during fiscal 2002. The Company also agreed, as long as any of the restructured debt is outstanding, to maintain ownership of at least 25% of the outstanding common stock of Euro Disney through June 2004 and at least 16.67% for an additional term thereafter. Response to question 2 is NEUTRAL.
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