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News for the Hospitality Executive |
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Drop 5.7% in 2002 Key Lodging Statistics February 10, 2003 - Marriott International, Inc. today reported diluted earnings per share from continuing operations of $1.74 in 2002, up 66 percent from 2001. Income from continuing operations, net of taxes, for the year was $439 million, up from $269 million a year ago. Systemwide sales, excluding discontinued operations, totaled $19 billion, up six percent from 2001. FULL YEAR RESULTS Earnings per share from continuing operations in 2002 included an $0.11 per share after-tax gain on the sale of the company's investment in Interval International and a $50 million, or $0.19, per share non-cash write-down of acquisition goodwill associated with the ExecuStay corporate housing business. Adjusting for these items in 2002, as well as restructuring and other charges incurred in 2001, earnings per share from continuing operations in 2002 increased 18 percent from 2001, to $1.82 per share. Synthetic fuel operations contributed approximately $0.29 cents per share of after-tax earnings during the year. Compared to prior company guidance for 2002, synthetic fuel operations exceeded expectations by $0.02 per share and a higher than expected tax rate (before synthetic fuel) lowered earnings by $0.03 per share. J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, said, "We are pleased with the relative strength of our lodging profits and cash flow, despite the toughest demand environment our industry has ever seen. Our brands continue to outperform their competitors, reflecting strong customer preference. Our distribution increased during the year as owners and franchisees added Marriott products across all the company's brands and around the world. "Room openings for 2002 were stronger than expected, with over 31,000 gross new rooms opened in the year. Conversions continue to be an important source of new rooms and accounted for 21 percent of room additions during the year. We continue to expect to add between 25,000 and 30,000 hotel rooms annually in both 2003 and 2004 to our worldwide lodging portfolio. At the end of the fourth quarter, the company's pipeline of properties under construction, awaiting conversion, or approved for development exceeded 50,000 rooms." MARRIOTT LODGING reported a 10 percent increase in profits during 2002. Adjusting for the sale of the Interval International investment, the ExecuStay write-down, as well as 2001 restructuring and other charges, lodging profits declined six percent during the year. Lodging profits reflected weak demand for hotels and executive apartments. For the full 2002 fiscal year (December 29, 2001 - January 3, 2003), REVPAR for comparable company-operated North American properties decreased by 5.7 percent. Average room rates for these hotels decreased 4.9 percent, while occupancy was down slightly. The company's full-service brands (including Marriott Hotels, Resorts and Suites, The Ritz-Carlton, and Renaissance Hotels, Resorts and Suites) experienced a REVPAR decrease of 4.8 percent in 2002, driven almost entirely by a 4.7 percent decline in average daily rate. Marriott's select-service and extended-stay brands (including Courtyard, Fairfield Inn, Residence Inn, TownePlace Suites, and SpringHill Suites) posted a REVPAR decrease of 7.8 percent in 2002, again largely a result of lower average daily rates. Marriott's 2002 fiscal year included a 53rd week, adding a second New Year's holiday week to its annual results. Excluding the 53rd week, REVPAR declined by an average of 4.8 percent across Marriott's brands during 2002. Our 2002 profits for international lodging reflected better trends than in the U.S., with REVPAR up two percent on a constant dollar basis and six percent growth in hotel rooms. Lodging demand strengthened in Asia and the United Kingdom. Marriott's timeshare business reported five percent higher contract sales in 2002. Contract sales were strong at timeshare resorts in Aruba, Colorado, Hawaii, and California, but remained soft in Orlando. Profits in the timeshare business were up 24 percent in 2002, as a result of a $44 million pre-tax gain on the sale of the company's investment in Interval International and higher gains on mortgage note sales, partially offset by lower development profits and higher administrative costs related to a new computer system. We recorded a $50 million pre-tax write-down of acquisition goodwill in ExecuStay's corporate apartment business during the fourth quarter of 2002 due to the continued weak operating environment, particularly in New York City, and a consequent delay in its expected recovery. We added 188 hotels and timeshare resorts (31,605 rooms) to our worldwide lodging portfolio over the past 12 months, while 25 properties (4,663 rooms) exited the system. A net total of 52 hotels and resorts (8,842 rooms) opened in the 2002 fourth quarter, including the 950 room JW Marriott Desert Ridge Resort and Spa in Scottsdale, Arizona. Twelve other Marriott Hotels, Resorts and Suites (2,881 rooms), ten Courtyard hotels (1,591 rooms) and 17 Residence Inns (2,043 rooms) also opened during the fourth quarter of 2002. At year end, the company's lodging group encompassed 2,557 hotels and timeshare resorts (463,429 rooms). CORPORATE EXPENSES were $126 million in 2002, an increase of eight percent adjusted for restructuring and other charges in 2001. The increase reflected several non-comparable items in 2001, higher litigation expenses, and the impact of a 53rd week in the company's 2002 fiscal year. Interest expense in 2002 was $86 million, a $23 million decline from 2001 levels, resulting from substantially lower debt outstanding, as well as lower interest rates. At year end 2002, total debt (including debt associated with discontinued operations) was $1.9 billion, net of cash reserves, down from $2.3 billion at year end 2001. Interest income totaled $122 million in 2002, reflecting higher loans outstanding. Provisions for loan losses in 2002 were $12 million, related to the write-down of four hotel loans. During 2002, we closed the distribution services business and announced our plan to exit the senior living business. Therefore, the financial results for those businesses are shown in discontinued operations for 2002 and 2001. Losses per share from discontinued operations were $0.64 in 2002 compared to losses of $0.13 a year ago. During 2002, we sold 10 hotels, 41 senior living communities (including the Village Oaks portfolio) and other real estate for a total of $763 million. We also sold our 11 percent stake in Interval International for $63 million. We owned only eight hotels at year-end 2002. Total net cash flow in 2002 before share repurchases and debt reduction was approximately $800 million, more than $3.00 per share. We repurchased 7.8 million shares of common stock during 2002 at a total cost of $255 million. To date in 2003, an additional 3.1 million shares of common stock have been repurchased for a total cost of $99 million. We expect to invest the proceeds derived from the exit of the senior living services business (approximately $410 million) in additional share repurchases during 2003. The company's board of directors increased the current share repurchase authorization to 20 million shares at its February 2003 meeting. FOURTH QUARTER RESULTS The company's fourth quarter diluted earnings per share from continuing operations was $0.47, compared to a loss of $0.31 per share reported a year ago. Adjusting for the Interval International gain and the ExecuStay goodwill charge, as well as restructuring and other charges incurred in 2001, earnings per share from continuing operations was $0.55 compared to $0.22 in the year ago quarter, up over 150 percent. Systemwide sales, excluding discontinued operations, totaled $5.9 billion in the fourth quarter, up 20 percent from the 2001 quarter. Synthetic fuel operations provided approximately $0.14 per share of after-tax earnings during the quarter. Compared to prior company guidance for the fourth quarter, synthetic fuel operations exceeded expectations by $0.02 per share and a higher than forecasted tax rate (before synthetic fuel) lowered earnings by $0.03 per share. Adjusted for these two items, as well as the Interval International gain and the ExecuStay charge, fourth quarter earnings per share was two cents above the consensus EPS estimate. MARRIOTT LODGING profits totaled $202 million in the fourth quarter. Excluding the Interval International gain, the ExecuStay goodwill charge and restructuring and other charges incurred in 2001, lodging profits totaled $208 million, up 63 percent from the year ago quarter. Base fees and franchise fees increased 18 percent during the quarter and incentive management fees increased 43 percent, reflecting more difficult operating conditions in the prior year following September 11. Profits at full-service hotels showed considerable improvement from the depressed levels experienced in the 2001 quarter. REVPAR for comparable company-operated North American properties during the fiscal quarter (September 7, 2002 to January 3, 2003) increased 7.4 percent primarily due to higher occupancy. Outside North America, REVPAR increased 13.9 percent in constant dollars over the 2001 quarter. Marriott's 2002 fourth quarter included 17 weeks of operations versus 16 weeks in the 2001 fourth quarter. Excluding the additional New Year's week, fourth quarter REVPAR for comparable company-operated North American properties increased 10.5 percent. The timeshare business reported 33 percent higher contract sales during the fourth quarter. Timeshare profits for the quarter of $73 million included a $44 million gain on the sale of an investment in Interval International and a $13 million gain on the sale of timeshare mortgage notes. CORPORATE EXPENSES were $49 million during the fourth quarter of 2002. Excluding the impact of restructuring and other charges, corporate expenses increased nine percent in the fourth quarter, reflecting higher litigation expenses and the impact of the 53rd week. Interest expense was $27 million during the quarter compared to $34 million in the prior year. Interest rates and debt balances declined during the quarter. Interest income increased $12 million during the quarter largely due to amounts that were received that had previously been deemed uncollectible. In addition, the 2001 fourth quarter included $6 million in restructuring reserves. In December, the company announced agreements to sell its senior living services business and related real estate for $259 million. The company expects to complete these transactions early in 2003. In the fourth quarter of 2002, the company completed its exit from the distribution services business, which resulted in a $21 million after-tax loss in discontinued operations. OUTLOOK Based on continued soft demand trends, but without factoring in the impact of any possible conflict in Iraq, we currently estimate REVPAR in 2003 to be roughly flat compared to 2002 levels. With flat REVPAR, the company expects hotel house profit margins to decline approximately one to two points as a result of continued pressure on casualty insurance and medical benefits cost increases. Factoring in new unit growth, but not including the effects of a possible war, lodging profits are expected to total $710 to $740 million in 2003. The company has just signed an agreement to sell an approximately 50 percent ownership interest in its synthetic fuel operations to a major U.S. investment bank. We expect to receive approximately $25 million at closing and additional substantial payments over time, the size of which depend on the amount of future synthetic fuel production. We expect the sale to close later in 2003, subject to certain contingencies, including the receipt of a satisfactory private letter ruling from the Internal Revenue Service regarding the new ownership structure. As a result of this transaction, earnings per share from the company's synthetic fuel investment are expected to approximate $0.30 - $0.32, after-tax, in 2003. If the transaction does not close, we anticipate earnings from the company's synthetic fuel investment to approximate $0.20 per share, as we would expect to limit fuel production in the latter half of 2003 since we may not be in a position to use all of the tax credits that would be generated at full production. Excluding the impact of the synthetic fuel investment, we anticipate a tax rate from continuing operations of roughly 36 percent in 2003. Overall, the company estimates earnings per share from continuing operations to total around $1.85 to $1.95 for 2003, including the earnings from synthetic fuel operations. First quarter 2003 REVPAR on a comparable basis is expected to decline roughly three percent from 2002 levels. Due to the shift in our calendar, we anticipate that reported REVPAR for the first quarter 2003 will be approximately flat to 2002. Assuming a deferral of a timeshare mortgage note sale until the second quarter, we estimate lodging profits will be $150 million to $160 million in the 2003 first quarter. Including $0.05 in earnings per share from synthetic fuel, we anticipate that earnings per share from continuing operations will total $0.36 to $0.40 per share in the first quarter 2003. We expect investment spending in 2003 to include approximately $40 million
for maintenance spending and approximately $100 million for new company-developed
hotels. We anticipate timeshare spending to total approximately $150 -
$200 million. We also expect to invest $200 million in equity slivers,
mezzanine financing and mortgage loans for hotels developed by our partners.
We expect that total investment spending in 2003 will be roughly $500 -
$550 million. We anticipate cash flow after maintenance capital expenditures
and before asset dispositions, capital expenditures, and share repurchases,
of approximately $700 million, or almost $3.00 per share of free cash flow.
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| This press release contains "forward-looking statements" within the
meaning of federal securities laws, including REVPAR, profit margin and
earning trends; statements concerning the number of lodging properties
expected to be added in future years; expected investment spending; anticipated
results from synthetic fuel operations; the completion of the sale of the
senior living business and an interest in our synthetic fuel business;
and similar statements concerning anticipated future events and expectations
that are not historical facts.
MARRIOTT INTERNATIONAL, INC. is a leading worldwide hospitality company with nearly 2,600 lodging properties in the United States and 66 other countries and territories. Contact:
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