10-QPeriod: Q2 FY2005

MARRIOTT INTERNATIONAL INC /MD/ Quarterly Report for Q2 Ended Jun 17, 2005

Filed July 22, 2005For Securities:MAR

Summary

Marriott International, Inc. reported its second-quarter 2005 results, showing a year-over-year decrease in net income from $160 million to $138 million, or $0.67 to $0.59 per diluted share. This decline was primarily driven by a significant increase in general and administrative expenses, including a $94 million pre-tax charge related to the write-off of deferred contract acquisition costs from management agreements, and a $29 million pre-tax expense for a bedding incentive program. Despite these one-time charges, the underlying business demonstrated strength with a 11% increase in total revenues to $2.66 billion, fueled by robust demand across its lodging segments and a notable 9.8% increase in comparable systemwide RevPAR. The timeshare segment also showed strong performance, with revenues up 9% and segment results up 57% year-over-year, driven by increased development revenue and higher margins. Operationally, Marriott continued to expand its footprint, adding 136 properties to its system in the last year, with over 29% of new rooms coming from competitor conversions. The company also successfully navigated significant corporate activity, including the acquisition of 32 properties from CTF Holdings Ltd. for $1.45 billion and the formation of a joint venture with Whitbread to acquire 46 hotels. Despite the reported net income decrease due to charges, the core lodging business showed positive trends in revenue and RevPAR, indicating resilience in demand. The company also strengthened its financial position by entering into a new $2 billion credit facility.

Key Highlights

  • 1Net income decreased by 13.8% to $138 million ($0.59 per diluted share) compared to $160 million ($0.67 per diluted share) in the prior year, primarily due to a substantial increase in general and administrative expenses, including a $94 million pre-tax charge.
  • 2Total revenues increased by 11% to $2.66 billion for the twelve weeks ended June 17, 2005, driven by strong lodging demand and unit expansion.
  • 3Comparable systemwide Revenue per Available Room (RevPAR) increased by 9.8% year-over-year, indicating healthy demand and pricing power across the portfolio.
  • 4The Timeshare segment reported a 57% increase in segment results to $80 million on a 9% revenue increase, highlighting its strong performance.
  • 5Marriott completed a significant acquisition of 32 properties from CTF Holdings Ltd. for $1.45 billion and formed a joint venture with Whitbread for 46 hotels, demonstrating active portfolio management and growth initiatives.
  • 6The company entered into a new $2 billion multicurrency revolving credit facility, enhancing its liquidity and financial flexibility.
  • 7Share repurchases remained a focus, with 12.3 million shares bought back during the first half of 2005 for $753 million.

Frequently Asked Questions

The primary driver for the decrease in net income was a significant increase in general and administrative expenses. This included a substantial $94 million pre-tax charge for the non-cash write-off of deferred contract acquisition costs related to management agreements, as well as $29 million in pre-tax expenses for a new bedding incentive program and other charges.

Excluding the one-time charges, the core lodging operations showed resilience and growth. Total revenues increased by 11% to $2.66 billion, driven by higher fees from strong demand and unit expansion. Comparable systemwide RevPAR increased by 9.8%, indicating healthy performance across the portfolio, particularly in the Full-Service and Select-Service segments.

Marriott was actively engaged in significant corporate transactions, including the acquisition of 32 properties from CTF Holdings Ltd. for $1.45 billion and the formation of a 50/50 joint venture with Whitbread to acquire 46 franchised hotels. These actions demonstrate a strategic focus on portfolio enhancement and growth.

The Synthetic Fuel segment's results were significantly impacted by tax credits. While the segment itself incurred operating losses, these were offset by tax benefits. The company noted that future tax credits could be reduced or eliminated if oil prices exceed certain thresholds, which could negatively impact financial results. The IRS confirmed that the facilities meet the placed-in-service requirement, but future redemption options for the joint venture partner were extended.