10-QPeriod: Q1 FY2006

MARRIOTT INTERNATIONAL INC /MD/ Quarterly Report for Q1 Ended Mar 24, 2006

Filed April 26, 2006For Securities:MAR

Summary

Marriott International, Inc. reported its first-quarter 2006 results, showing a notable increase in revenue and operating income driven by strong performance across its lodging segments. The company experienced robust RevPAR growth, with comparable company-operated properties worldwide seeing an 9.7% increase, primarily fueled by rate improvements. A significant factor affecting net income was the adoption of a new accounting standard for timeshare transactions, which resulted in a one-time, non-cash after-tax charge of $105 million. Despite this, the underlying operational performance of the lodging business remained strong, with Full-Service Lodging and Select-Service/Extended-Stay segments showing substantial increases in segment results. The company also provided an update on its Synthetic Fuel segment, noting production suspensions due to high oil prices and potential impacts on tax credits. Marriott continued its share repurchase program and maintained a strong liquidity position with a substantial revolving credit facility, indicating confidence in its ability to meet financial obligations and fund future growth. Investors should note the positive operational trends in the core lodging business, balanced against the impact of the accounting change and the volatility of the Synthetic Fuel segment.

Key Highlights

  • 1Total revenues increased by 7% to $2,705 million compared to the prior year's first quarter, primarily driven by strong demand in the lodging sector.
  • 2Operating income rose by $45 million to $203 million, largely due to increased fees from strong RevPAR growth, unit expansion, and improved property-level margins.
  • 3The adoption of Statement of Position 04-2 for timeshare transactions resulted in a $105 million after-tax charge, impacting net income significantly.
  • 4Comparable company-operated worldwide RevPAR increased by 9.7%, with a particular strength in rate increases driving performance across most lodging segments.
  • 5The company's Full-Service Lodging segment saw a 63% increase in segment results, driven by higher fees and gains from investments.
  • 6Marriott's Synthetic Fuel segment experienced reduced revenue and income due to production suspensions linked to high oil prices and a partial phase-out of tax credits.
  • 7The company repurchased approximately 3.7 million shares of Class A Common Stock during the quarter as part of its ongoing share repurchase program.

Frequently Asked Questions

The primary reason for the substantial decrease in net income was the adoption of Statement of Position 04-2, 'Accounting for Real Estate Time-sharing Transactions.' This resulted in a one-time, non-cash charge of $105 million, which included an inventory write-down and the establishment of a notes receivable reserve.

The core lodging business demonstrated strong performance. Revenues increased by 7%, and operating income rose by $45 million. This was driven by a 9.7% increase in worldwide RevPAR, primarily due to strong rate growth, and growth in new units. The Full-Service Lodging segment, in particular, showed a significant 63% increase in segment results.

The Synthetic Fuel segment's performance is heavily influenced by federal tax credits tied to oil prices. Due to high oil prices in early 2006, the company suspended production to mitigate operating losses associated with the phase-out of these tax credits. This suspension and the partial phase-out of tax credits negatively impacted the segment's revenue and profitability for the quarter.

Marriott maintains a strong liquidity position with a $2 billion revolving credit facility. Cash and equivalents stood at $172 million at quarter-end. The company continued its share repurchase program, buying back approximately 3.7 million shares, and indicated its resources are adequate for liquidity needs and growth plans.