10-QPeriod: Q2 FY2010

MARRIOTT INTERNATIONAL INC /MD/ Quarterly Report for Q2 Ended Jun 18, 2010

Filed July 16, 2010For Securities:MAR

Summary

Marriott International, Inc. reported a significant improvement in financial performance for the first half of 2010 compared to the same period in 2009. Net income attributable to Marriott shareholders surged to $202 million from $14 million, reflecting a strong recovery in the lodging sector as business conditions improved, with higher occupancies and stabilizing room rates. The company experienced growth across most of its segments, particularly in North America and International Lodging, and saw a substantial rebound in its Luxury Lodging segment. The Timeshare segment also showed a significant improvement in segment income, driven by higher financing revenue and services revenue. A key operational highlight was the company's adoption of new accounting standards (ASU Nos. 2009-16 and 2009-17) which led to the consolidation of previously off-balance sheet special purpose entities. This resulted in a one-time non-cash reduction to shareholders' equity but also contributed to increased reported financing revenue in the Timeshare segment. Despite economic headwinds, Marriott maintained rigorous cost controls across its operations, contributing to improved profitability. The company ended the period with a solid liquidity position, supported by its credit facilities and operating cash flow, and maintained its leverage covenant compliance.

Financial Highlights

49 data points
Beta

Revenue

$2.77B

Net Income

$119.00M

4.3% Net Margin

EPS (Diluted)

$0.31

Total Assets

$8.65B

Cash & Equivalents

$100.00M

Free Cash Flow

$323.00M

Financial Statements
Beta
Revenue$2.77B
Operating Expenses$2.54B
Operating Income$226.00M
Interest Expense$44.00M
Net Income$119.00M
EPS (Basic)$0.33
EPS (Diluted)$0.31
Shares Outstanding (Basic)362.10M
Shares Outstanding (Diluted)377.40M

Key Highlights

  • 1Marriott International reported a substantial increase in Net Income Attributable to Marriott shareholders to $202 million for the first half of 2010, up from $14 million in the prior year period, indicating a strong recovery in profitability.
  • 2Revenues increased by 7% to $5.4 billion for the first half of 2010, driven by higher cost reimbursements, Timeshare sales and services revenue, and improvements in base management and franchise fees.
  • 3Operating income more than doubled to $406 million for the first half of 2010, a significant improvement from $139 million in the prior year, reflecting operational efficiencies and revenue growth.
  • 4The company adopted new accounting standards (ASU Nos. 2009-16 and 2009-17), leading to the consolidation of 13 special purpose entities. This resulted in a one-time after-tax reduction to shareholders' equity of $146 million but positively impacted reported financing revenue in the Timeshare segment.
  • 5Systemwide RevPAR (Revenue Per Available Room) for comparable properties showed positive growth, with a 2.3% increase in North America and a 6.5% increase internationally for the first half of 2010, signaling a recovery in lodging demand.
  • 6Marriott maintained strict cost controls across its operations, which, combined with improved demand, led to higher property-level house profit margins and contributed to the overall earnings improvement.

Frequently Asked Questions

The primary driver was the overall improvement in business conditions within the lodging industry. This led to increased occupancies and stabilizing room rates, particularly in North America and international markets. Additionally, the company's rigorous cost control measures and the positive impact of higher financing revenue in the Timeshare segment, partly due to new accounting standards, contributed significantly to the profit rebound.

The adoption of these standards resulted in the consolidation of 13 previously off-balance sheet special purpose entities, primarily related to Timeshare notes receivable securitization. This led to a one-time non-cash after-tax reduction in shareholders' equity of $146 million. On the income statement, it increased reported financing revenue in the Timeshare segment due to the consolidation of notes receivable and associated debt, rather than recognizing gains on securitized notes as sales.

Marriott noted improving demand trends in the first half of 2010, with better demand from corporate transient and association group customers. While booking windows remain short, expected revenue from future group meetings continued to improve. The company believes that special negotiated corporate rates for 2011 will be meaningfully higher, and with strengthening demand, group business booked in 2010 is likely to show stronger price improvement than business booked in 2009.

Marriott believes its credit facility, which provides $2.4 billion in borrowing capacity (with $2.310 billion available at the end of the period) and cash generated from operations, is adequate to meet its short-term and long-term liquidity requirements. The company is in compliance with its credit facility covenants and does not expect them to restrict its ability to fund growth or meet its obligations.