WASHINGTON, D.C. - July 11, 2002 - Marriott International, Inc. (NYSE:MAR) today reported diluted earnings per share of 50 cents in its 2002 second quarter ended June 14, flat with overall results in the second quarter of 2001. Net income for the quarter was $129 million, compared to $130 million a year ago. Systemwide sales totaled $5.1 billion, an increase of 5 percent compared to the 2001 second quarter.
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, noted the company’s continued earnings strength despite lower levels of business travel. “As we expected, the power of our brands is even clearer in a slow economic environment. With lower business transient demand in 2002, travelers have had many hospitality choices and our brands continue to gain a growing share of consumers’ lodging dollars. Through May of 2002, our flagship brand, Marriott Hotels, Resorts and Suites, achieved a revenue per available room (REVPAR) premium over its competitors of 117 percent, an increase of three percentage points.
“Our results in controlling property costs continue to be excellent. House profit margins at domestic comparable company-operated hotels were down approximately two percent in the second quarter despite the weaker REVPAR environment, which was driven primarily by lower room rates.
“Room openings for 2002 are on track, with 6,662 new rooms opened in the second quarter. Owner interest in converting hotels to one of Marriott’s brands is increasing. For both 2002 and 2003, we continue to expect to add between 25,000 and 30,000 hotel rooms to our worldwide lodging portfolio through new-builds and conversions. At the end of the second quarter, the company`s pipeline of properties either under construction or approved for development remained nearly 55,000 rooms.
“We are also pleased to see the continued improved financial results in our senior living services business. Over time, Marriott Senior Living Services has evolved beyond a lifestyle and hospitality product to one based more on healthcare services. Thanks to the outstanding efforts of our associates, Marriott Senior Living Services has become a recognized leader in the senior living industry. We believe the division may be more successful in building on this position with new growth by operating independently from Marriott`s hospitality businesses. We have begun an evaluation process to examine all the alternatives, including a spin-off to shareholders.”
MARRIOTT LODGING reported a 17 percent decrease in operating results. Profits reflected weaker lodging demand, partially offset by cost savings and contributions from new properties worldwide.
Across Marriott’s lodging brands, REVPAR for comparable U.S. properties declined by an average of 8.0 percent in the 2002 second quarter. Average room rates for these hotels decreased 6.6 percent, while occupancy declined to 73.2 percent. The company’s full-service brands (including Marriott Hotels, Resorts and Suites, The Ritz-Carlton, and Renaissance Hotels, Resorts and Suites) experienced a REVPAR decline of 8.8 percent in the quarter, driven largely by a 6.3 percent decline in rate. Marriott`s select-service and extended-stay brands (including Courtyard, Fairfield Inn, Residence Inn, TownePlace Suites, and SpringHill Suites) posted a REVPAR decline of 6.7 percent in the second quarter of 2002, almost entirely driven by a decline in average daily rate.
Results for international lodging operations reflected better trends than the U.S. in the 2002 second quarter, with REVPAR down only 3 percent and improved margins. Demand was particularly encouraging in China, Korea, Malaysia and Japan.
Marriott`s timeshare business reported a 12 percent increase in contract sales in the quarter. Contract sales were especially robust at timeshare resorts in Colorado, Hawaii, and California, but remained soft in Orlando. Profits in the timeshare business were flat compared to the second quarter of 2001 largely as a result of higher sales and marketing expenses.
The company has added 257 hotels and timeshare resorts (40,677 rooms) to its worldwide lodging portfolio over the past 12 months, while 22 properties (4,660 rooms) exited the system. A net total of 43 hotels and resorts (6,662 rooms) were added in the 2002 second quarter, including seven Marriott Hotels, Resorts and Suites (1,742 rooms) and seven Courtyard hotels (1,090 rooms). At quarter-end, the company’s lodging group encompassed 2,463 hotels and timeshare resorts (448,004 rooms).
MARRIOTT SENIOR LIVING SERVICES posted 8 percent sales growth in the quarter. The division produced $5 million in profits, flat with the 2001 second quarter. Occupancy for comparable communities was 84 percent in the quarter, stable with a year ago. The company operates 156 facilities totaling 26,272 residential units.
MARRIOTT DISTRIBUTION SERVICES reported a 6 percent decrease in sales in the 2002 second quarter. The division posted a loss of $2 million, primarily resulting from lower margins on existing business and reduced levels of Sodexho business. Subsequent to the end of the second quarter, the company completed a previously announced strategic review of the distribution business. The company has decided to exit the distribution services business, with an anticipated completion around the end of 2002. The company expects the exit will take place through a combination of sale or transfer of some facilities, closing of other facilities and other suitable arrangements. The company expects to incur material costs in connection with exiting the business, but is unable to estimate their magnitude until the transactions are fully negotiated.
CORPORATE EXPENSES decreased 21 percent in the 2002 second quarter, benefiting primarily from cost containment plans implemented in 2001. Interest expense was down $6 million, reflecting lower average borrowing levels. Long-term debt at the end of the quarter was $1.9 billion, down from $2.3 billion, net of cash reserves, at year end 2001.
The company repurchased 717,000 shares of common stock during the second quarter of 2002 for a total cost of $28 million. There are 12.8 million shares remaining under the current share repurchase authorization. During the 2002 second quarter, the company sold real estate assets for approximately $207 million and also received $190 million in real estate sales proceeds subsequent to the second quarter, bringing year-to-date asset sales to $494 million. Contingent liabilities at the end of the quarter were essentially flat compared to first quarter 2002 levels.
The company`s synthetic fuel investment continued to produce favorable cash flow and after-tax earnings sooner than anticipated. The segment posted a deficit of $43 million, pre-tax, for the second quarter of 2002. As a result, taxes were favorably impacted by $58 million, resulting in $0.06 per share of earnings in the quarter. The company’s effective income tax rate decreased to approximately 4.7 percent in the second quarter of 2002, compared to 35.9 percent in the 2001 second quarter.