Marriott 3rd Q Earnings

WASHINGTON, D.C. - October 3, 2002 - Marriott International, Inc. (NYSE:MAR) today reported diluted earnings per share of 41 cents in its 2002 third quarter ended September 6, up 5 percent from the year-ago quarter. Net income for the quarter was $103 million, up $2 million from the year-ago quarter, which ended on September 7, 2001. The quarter’s results included $11 million of pre-tax income related to the sale of Marriott’s Village Oaks senior living portfolio and a $30 million pre-tax charge related to Marriott’s previously announced exit from its distribution business. After adjusting for these items, earnings per share for the quarter was $0.46. Synthetic fuel operations contributed 9 cents per share of after-tax earnings during the quarter. Systemwide sales totaled $4.8 billion, roughly the same as last year.

J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, noted the company’s continued earnings strength despite lower levels of lodging demand. “We are pleased with the relative strength of our lodging profits, despite continued weakness in U.S. industry-wide revenue per available room (REVPAR). As a result of the strong system growth we have achieved over the past several years, base management and franchise fees, which represent over three quarters of our total fees from hotels, declined only slightly, while overall REVPAR declined 6.8 percent. The preference for our brands is unmistakable. During the past 12 months we continued to outpace our competitors in terms of both rooms added and new rooms in the pipeline. In addition, Marriott has increased its overall REVPAR premium this year.

“Room openings for 2002 are on track, with almost 7,100 gross new rooms opened in the third quarter. For 2002 through 2004, we continue to expect to add between 25,000 and 30,000 hotel rooms annually to our worldwide lodging portfolio through management and franchise agreements, both newly constructed and conversions from other brands. At the end of the third quarter, the company`s pipeline of properties either under construction or approved for development exceeded 50,000 rooms.


“During the quarter, we commenced our exit from the distribution business with the announcement of the pending sale of two distribution centers. We are grateful for the many years of dedication from our associates in this segment. We expect to complete the wind-down of the distribution business by year-end 2002.”

MARRIOTT LODGING reported an 8 percent decrease in operating results. Profits reflected weaker lodging demand, partially offset by timeshare results and contributions from new properties worldwide.

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Across Marriott’s lodging brands, REVPAR for comparable U.S. properties declined by an average of 6.8 percent in the 2002 third quarter. Average room rates for these hotels decreased 5.1 percent, while occupancy declined slightly to 72.9 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 7.8 percent in the quarter, driven primarily by a 4.8 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 5.4 percent in the third quarter of 2002, almost entirely driven by a 4.8 percent decline in average daily rate.

Third quarter 2002 results for international lodging operations reflected better trends than the U.S., with stable REVPAR and almost 2 percentage points in higher margins. Lodging demand strengthened in Japan, Korea, and Russia.


Marriott`s timeshare business reported flat contract sales in the quarter, after excluding sales from the year-ago quarter related to the acquisition of the Grand Residence Club in Lake Tahoe. Contract sales were strong at timeshare resorts in Colorado, Hawaii, and California, but remained soft in Orlando. Profits in the timeshare business were up 5 percent compared to the third quarter of 2001, primarily as a result of higher gains on the sale of timeshare mortgage notes. Mortgage note sale gains totaled $18 million in the third quarter of 2002, compared to $13 million in the year-ago quarter.

The company has added 185 hotels and timeshare resorts (32,887 rooms) to its worldwide lodging portfolio over the past 12 months, while 22 properties (4,211 rooms) exited the system. A net total of 42 hotels and resorts (6,583 rooms) were added in the 2002 third quarter, including five Marriott Hotels, Resorts and Suites (1,657 rooms), nine Courtyard hotels (1,275 rooms) and 13 Residence Inns (1,598 rooms). At quarter-end, the company’s lodging group encompassed 2,505 hotels and timeshare resorts (454,587 rooms).

MARRIOTT SENIOR LIVING SERVICES posted 8 percent sales growth in the quarter. The division reported $17 million in profits, including $11 million related to the sale of Village Oaks. After adjusting for Village Oaks, Senior Living’s profits were $6 million versus $3 million a year ago. Occupancy for comparable communities was 84 percent in the quarter, flat with last year’s third quarter. The company operates 153 facilities totaling 26,257 residential units. As announced last quarter, the company continues to explore strategic alternatives for Senior Living Services, including a spin-off or sale, and expects to announce a resolution by year-end 2002.

MARRIOTT DISTRIBUTION SERVICES reported a 9 percent decrease in sales in the 2002 third quarter. The division posted a loss of $34 million, $30 million of which was related to the company’s exit from the distribution business, including the sale of segment assets. We expect to incur additional material charges in connection with exiting the business, but we are currently unable to estimate their magnitude.

CORPORATE EXPENSES were $25 million in the 2002 third quarter, a $12 million increase from the year ago levels. The increase reflects $3 million of foreign exchange losses and the inclusion in last year’s corporate expenses of a $4 million gain on the sale of a tax investment. Interest expense was $19 million in the quarter, a decrease of $7 million, reflecting lower average borrowing levels and rates. Long-term debt, net of cash reserves, at the end of the quarter was $1.6 billion, down from $2.3 billion at year end 2001.


The company repurchased 3.1 million shares of common stock during the third quarter of 2002 at a total cost of $105 million. Subsequent to the third quarter, the company repurchased an additional 2.2 million shares, for total year-to-date purchases of 6.0 million shares. Currently, there are 7.5 million shares remaining under the share repurchase authorization.

During the 2002 third quarter the company sold real estate assets for approximately $233 million. Subsequent to the end of the third quarter, Marriott sold its 11 percent stake in Interval International for $63 million and its Village Oaks portfolio for $62 million, bringing total year-to-date asset sales to $665 million. A $44 million pre-tax gain on the sale of the Interval International investment will be included in the company’s fourth quarter results. Contingent liabilities at the end of the quarter, including guarantees and loan commitments, were essentially flat with year-end 2001 levels.

The company`s synthetic fuel business produced more synthetic fuel and, consequently, higher cash flow and after-tax earnings than anticipated. The segment posted a pre-tax deficit of $32 million for the third quarter of 2002. As a result, taxes were favorably impacted by $54 million, resulting in 9 cents per share of earnings in the quarter. More at www.marriott.com

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