Marriott Reports EPS from Operations

WASHINGTON, D.C. - July 17, 2003 - Marriott International, Inc. (NYSE:MAR) today reported diluted earnings per share from continuing operations of $0.52 in the second quarter of 2003, up 6 percent from the 2002 second quarter. Income from continuing operations, net of taxes, for the quarter was $126 million, essentially flat with $127 million for the year ago quarter. Synthetic fuel operations contributed approximately $26 million after-tax ($0.11 per share) during the second quarter of 2003 compared to $15 million after-tax ($0.06 per share) a year ago.
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, said, “We are pleased with the strength of our second quarter results and balance sheet, especially in light of lower worldwide lodging demand during the quarter due to the Iraqi war, Severe Acute Respiratory Syndrome (SARS) and the global economic slowdown. We continue to have considerable success in protecting hotel profitability with meaningful productivity improvements and specific action plans for each hotel. Our hotel house profit margins in the second quarter declined less than they did in the first quarter, despite a larger decline in revenue per available room (REVPAR). Also, we completed several product enhancements during the quarter, including the industry-leading rollout of wireless high-speed Internet access at 400 hotels, as well as enhancements to our Marriott Rewards frequent guest program.

“Our global rooms growth continues to be on track. With our partners, we added 7,449 rooms to our system in the second quarter. We often see more conversion activity to our brands during challenging times, as hotel owners and franchisees select the strongest performing brands, and the second quarter was no exception. More than half of the new rooms in the second quarter were conversions of existing hotels to one of our brands and more than one-third of our room additions were outside the U.S. Our pipeline of properties under construction, awaiting conversion, or approved for development totals nearly 50,000 rooms worldwide.”
MARRIOTT LODGING profits totaled $175 million during the second quarter of 2003, down
9 percent from the prior year, primarily reflecting the weaker lodging demand environment in both the U.S. and abroad, offset somewhat by higher timeshare profits. Base management and franchise fees were $144 million, roughly the same as a year ago, as new fees from unit growth offset the effect of lower comparable room revenues. Incentive management fees declined $24 million during the quarter to $28 million as lower REVPAR and house profit margins reduced profitability at the unit level, particularly in the U.S. and Asia.
For the 2003 second quarter (12 weeks ended June 20, 2003), REVPAR for comparable systemwide North American hotels decreased by 5.0 percent, while REVPAR for comparable company-operated North American properties decreased by 6.2 percent, driven by lower occupancy and lower average room rates. REVPAR at full-service hotels (including Marriott Hotels & Resorts, The Ritz-Carlton, and Renaissance Hotels & Resorts) declined 6.1 percent and 6.4 percent in the quarter for systemwide and managed comparable hotels, respectively, while REVPAR for select-service and extended-stay brands (including Courtyard, Fairfield Inn, Residence Inn, TownePlace Suites, and SpringHill Suites) posted a REVPAR decrease of 3.6 percent and 5.5 percent, respectively.

Our second quarter profits for international lodging reflected the dramatic impact of SARS and the war in Iraq, with REVPAR down 13.8 percent on a constant dollar basis, driven entirely by occupancy declines. Asia Pacific occupancy rates declined more than 20 percentage points. The Caribbean and Latin America enjoyed strong leisure demand, resulting in an 8.0 percent increase in REVPAR in that region during the quarter.
Marriott`s timeshare business reported seven percent growth in contract sales in the second quarter. Contract sales were strong at timeshare resorts in Aruba, Hawaii, and St. Thomas, while resorts in Orlando and Lake Tahoe reported lower contract sales than a year ago. Profits in the timeshare business increased to $44 million in the quarter, due to higher timeshare note sale gains. The timeshare note sale gain in the second quarter was $32 million versus $15 million in the year ago quarter. Year-to-date, timeshare note sale gains were $32 million in 2003 compared to $28 million in the first half of 2002.
We added 55 hotels and timeshare resorts (7,449 rooms) to our worldwide lodging portfolio during the second quarter, while four hotels (1,327 rooms) exited the system. Seven Marriott Hotels & Resorts (2,430 rooms) opened during the quarter, including the Seattle Waterfront Marriott and the St. Kitts Marriott. Two Ritz-Carlton hotels (294 rooms), seven Courtyards (856 rooms), five Residence Inns (726 rooms), four SpringHill Suites (634 rooms), and eight Fairfield Inns (616 rooms) also opened during this period. Twenty-one hotels (1,795 rooms) were converted to our Ramada International brand during the second quarter, including 16 hotels (1,092 rooms) in Sweden. At the end of the second quarter, our lodging group encompassed 2,640 hotels and timeshare resorts (477,397 rooms).

CORPORATE EXPENSES were $24 million in the second quarter of 2003 compared to $23 million a year ago. Interest expense in the quarter was $25 million, up $4 million from a year ago, primarily because lower levels of investment spending reduced the amount of capitalized interest.

At the end of the second quarter, total debt (including debt associated with discontinued operations) was $1.7 billion and cash balances totaled $144 million compared to $2.2 billion of debt and $525 million of cash at March 28, 2003. We owned and operated eight hotels at the end of the quarter.


We repurchased 1.1 million shares of common stock during the second quarter at a total cost of $40 million and have repurchased approximately 6.1 million shares year to date in 2003. Currently, our remaining share authorization totals approximately 17 million shares. We continue to expect to spend approximately $400 million buying our common stock in 2003.
We completed the sale of two hotels, subject to long-term operating agreements, for $108 million during the second quarter. Early in the third quarter, we sold another hotel for $39 million, subject to a long-term operating agreement, as well as a 50 percent interest in our synthetic fuel business for $25 million. Also, we will receive additional profits over the life of the synthetic fuel joint venture based on the amount of tax credits produced and allocated to the purchaser.

The sale of the 50 percent interest in our synthetic fuel business had been subject to certain closing conditions, including the receipt of a satisfactory private letter ruling from the Internal Revenue Service regarding the new ownership structure. In April 2003, the IRS instituted a “temporary pause” in issuing private letter rulings and has not provided any guidance as to when such issuances might resume. Marriott and the purchaser decided to close on this transaction prior to receipt of a new private letter ruling. However, in the event that a private letter ruling is not obtained by December 15, 2003, the purchaser will have a onetime right to return its ownership interest to Marriott. We believe that the exercise of this right would have no impact on Marriott’s earnings in 2003. Given the presence of the onetime right, we expect to consolidate the joint venture for accounting purposes until the right expires. Thereafter, if the right is not exercised, we will use equity method accounting.
We closed our distribution services business in 2002 and completed the sale of our senior living business in the 2003 first quarter. Therefore, we show the financial results for those businesses as discontinued operations for 2002 and 2003. Losses per share from discontinued operations were $0.01 in the second quarter of 2003 versus earnings of $0.01 a year ago.

While lodging demand has generally returned to levels experienced prior to the war in Iraq, it continues to be very difficult to forecast future performance. Although there are some signs of an improving economic climate in the United States, we have not yet seen clear indications of a meaningful rebound in REVPAR and profits. We believe the impact of an improving economy on the lodging business is likely to lag by roughly two quarters. Therefore, we believe it is prudent at this point to estimate that REVPAR in the third quarter will decline between three percent and zero percent and average hotel house profit margins will decline between one to three percentage points. We estimate lodging profits will total $135 million to $140 million in the 2003 third quarter, including estimated timeshare profits of $23 million to $27 million. Including approximately $0.09 to $0.10 in after-tax earnings per share from our synthetic fuel operations, we anticipate that earnings per share from continuing operations will total $0.35 to $0.39 per share in the third quarter.