Marriott International, Inc. reported first quarter 2006 adjusted net income of $167 million, an increase of 31 percent, and adjusted diluted earnings per share (EPS) of $0.76, an increase of 43 percent. Adjusted results exclude the impact of the one-time charge related to the change in timeshare accounting rules and the results of the company's synthetic fuel business. The company's EPS guidance for the first quarter, disclosed on February 9, 2006, totaled $0.67 to $0.73 and similarly excluded the one-time impact of the timeshare accounting rule change and the results of the company's synthetic fuel business.

Reported net income was $65 million and diluted earnings per share was $0.29. Results reflected a $105 million after-tax one-time charge ($0.48 per share) resulting from Marriott's adoption of new accounting rules for the timeshare industry. The company's synthetic fuel business contributed approximately $3 million after-tax ($0.01 per share) to first quarter 2006 earnings and $18 million after-tax ($0.08 per share) to first quarter 2005 earnings.

J.W. Marriott, Jr., Marriott International's chairman and chief executive officer, said, "We are delighted to report excellent results this quarter as we continue to benefit from a strong preference for our brands and favorable economic and industry trends.

"North American business and leisure transient demand remained strong during the quarter, driving REVPAR and house profit margins higher. Company- operated hotel REVPAR grew 15 to 20 percent in major markets such as Atlanta, Dallas, Chicago and San Diego.

"While hotel industry supply in North America is still growing only modestly, particularly in the full-service segment, we are taking a greater share of new hotels being developed around the world, reflecting owners' and franchisees' confidence in our brands, innovative plans and operational strength.

"We acquired the largest conference hotel in Paris, the 782-room Paris Rive Gauche Hotel & Conference Center, with approximately 50,000 square feet of meeting space in the first quarter, and after extensive refurbishment, it will be re-branded as a Marriott Hotel. We currently operate the leading portfolio of large group hotels in the United States; we are becoming a top destination for major conferences in Europe.

"Our luxurious new bedding package -- the largest rollout in the industry -- is now available at 90 percent of our North American properties and 85 percent of our hotels worldwide. Customers love the look and feel of fresh, crisp white linens and guest satisfaction scores are way up. We are continuing to renovate and reinvent our brands and results show our success.

"With North American comparable company-operated REVPAR up 9.6 percent in the first quarter, we look forward to a highly successful year, and we continue to believe REVPAR for North American company-operated properties will grow between 8 and 10 percent in 2006. With the combination of strong room rate improvement and a proactive focus on productivity, we believe house profit margins can improve 150 to 200 basis points. We expect to open 25,000 new rooms this year, and we have a robust pipeline of more than 75,000 rooms."

In the 2006 first quarter (12 week period from December 31, 2005 to March 24, 2006), REVPAR for the company's comparable worldwide systemwide properties increased 10.3 percent (10.8 percent using constant dollars). Systemwide comparable North American REVPAR increased by 10.9 percent in the quarter. With the strength of the Marriott brands, a growing economy, the roll-out of the new bedding program across all brands and renovations at the Courtyard and Residence Inn brands, the company was able to substantially increase rates in the first quarter. REVPAR at the company's comparable systemwide North American full-service hotels (including Marriott Hotels & Resorts, The Ritz- Carlton, and Renaissance Hotels & Resorts) increased by 10.2 percent during the quarter. North American systemwide REVPAR for the company's comparable select-service and extended-stay brands (including Courtyard, Fairfield Inn, Residence Inn, TownePlace Suites, and SpringHill Suites) increased 11.6 percent.

For the calendar quarter ended March 31, 2006, REVPAR for the company's comparable worldwide systemwide properties increased 10.9 percent (11.4 percent using constant dollars). Systemwide comparable North American REVPAR increased by 11.7 percent in the calendar quarter.

In the first quarter, international company-operated comparable REVPAR increased 6.8 percent (9.9 percent using constant dollars) including a 5.3 percent increase in average daily rates and a 1.0 percentage point improvement in occupancy to 69.3 percent. Demand in Asia continues to be outstanding, with company-operated comparable REVPAR up 27.0 percent (26.4 percent using constant dollars) in Hong Kong and 10.7 percent (7.9 percent using constant dollars) in China. Lodging demand was also strong in Central America, South America and the United Kingdom.

In addition to solid REVPAR growth, the company enjoyed significant unit growth in the first quarter, adding 33 hotels and timeshare resorts (6,827 rooms) to its worldwide lodging portfolio. Seven properties (1,373 rooms) exited the system. Nearly 60 percent of room openings in the first quarter were conversions from other brands and 52 percent of room openings were high value full-service rooms. At quarter-end, the company's lodging group encompassed 2,767 hotels and timeshare resorts (504,610 rooms).

The company currently has over 75,000 rooms in its worldwide pipeline of hotels under construction, awaiting conversion or approved for development, up from 55,000 rooms in the year ago quarter. The pipeline of Ritz-Carlton hotels soared to 23 hotels (6,400 rooms) in the first quarter, with six properties under development in China including the brand's first China resort in Sanya, Yalong Bay, Hainan Province. In the first quarter, Ritz-Carlton assumed management of its 60th hotel, a 112-room luxury resort, Hotel Villa Padierna, on the Costa del Sol in Marbella, Spain.

The pipeline of Courtyard hotels under construction, awaiting conversion or approved for development increased to 143 hotels (21,000 rooms) including 26 hotels (5,400 rooms) in 18 countries outside the United States. Today, Courtyard has 699 hotels (100,800 rooms) including 72 hotels (12,700 rooms) outside the United States. The company opened seven Courtyard hotels in the first quarter, including hotels in India, Puerto Rico and Mexico.

MARRIOTT REVENUES totaled $2.7 billion in the 2006 first quarter, a 7 percent increase from the same period in 2005. Combined base, franchise and incentive fees rose 16 percent to $268 million as a result of unit growth, strong REVPAR improvement and higher property-level house profit margins. In the 2006 first quarter, the company recognized base fees of $5 million that were calculated based on prior period results, but not earned and due until the first quarter of 2006. In the prior year's quarter, Marriott recognized $8 million in incentive fees that were calculated based on prior period results, but not earned and due until the first quarter of 2005. Excluding the impact of the $5 million of base fees recognized in 2006 and the $8 million of incentive fees recognized in 2005, base and franchise fees increased 13 percent and incentive fees increased 40 percent in the first quarter of 2006. The number of hotels paying incentive fees in the first quarter nearly doubled.

House profit margins for North American comparable company-operated properties increased 210 basis points during the quarter, while house profit margins for worldwide company-operated properties grew 200 basis points. Higher room rates and cost efficiency measures drove strong margins. Property-level EBITDA margins for comparable North American company-operated properties, calculated as if wholly owned, increased 230 basis points.

Demand for Marriott's timeshare projects continues to be strong, particularly at resorts in Las Vegas, Maui, Phuket, and St. Thomas. The company began sales at the Ritz-Carlton resort in Abaco, Bahamas in the first quarter. However, several projects have sold out or are selling out faster than anticipated, including the Ritz-Carlton Club resort in Bachelor Gulch, Colorado as well as the Marriott Vacation Club resorts in Park City, Utah and Palm Beach Shores, Florida. Limited available inventory resulted in a 10 percent decline in contract sales in the first quarter and an 11 percent decrease in timeshare interval, fractional and whole ownership sales and services revenue, net of direct costs.

Looking ahead, the company expects to begin sales at four new resorts offering timeshare, fractional or whole ownership products in the second quarter of 2006, including the Marriott Vacation Club in St. Kitts and the Ritz-Carlton Clubs in Miami Beach, San Francisco and Kapalua, Hawaii. Later in the year, the company plans to begin sales at projects in Kauai, Hawaii and Thailand.

New accounting rules for the timeshare industry took effect at the beginning of 2006. The new rules changed the timing for recognizing timeshare revenues, selling and product costs, and maintenance fees for unsold timeshare inventory. In the first quarter of 2006 the company recorded a one-time non- cash after-tax charge of $105 million ($0.48 per share) as a result of adopting these new rules. The on-going impact of the new timeshare rules is expected to be immaterial.

LODGING OPERATING INCOME for the first quarter of 2006 was $230 million, up 13 percent over the year ago quarter. Marriott's 2006 first quarter lodging operating income benefited from strong fee growth as well as increased profits from owned and leased properties that the company acquired in 2005. In addition, the company received a $4 million fee for the termination of a hotel management agreement, offset by $4 million of lower lease income as a result of the sale of the Courtyard land at the end of 2005. In the 2005 first quarter, direct costs associated with owned and leased properties included nearly $6 million of severance payments and other costs associated with the temporary closing for renovation of a hotel in Ireland. During the 2006 first quarter, general and administrative expenses were up 21 percent, to $150 million, largely due to the impact of the new accounting rules requiring the expensing of all share-based compensation ($9 million pre-tax) and higher deferred compensation expense.

SYNTHETIC FUEL operations contributed approximately $0.01 per share of after-tax earnings during the 2006 first quarter, compared to $0.08 in the year ago quarter. Lower synthetic fuel earnings reflected lower production levels and an estimated 20 percent phase out of tax credits due to higher oil prices for the 2006 first quarter. Excluding the impact of our synthetic fuel operations, the effective tax rate was approximately 33.9 percent in the first quarter of 2006. The company expects the tax rate for 2006 to approximate 34.5 percent.

GAINS AND OTHER INCOME totaled $34 million (or $38 million excluding the $4 million loss from synthetic fuel) and included $7 million of gains from the sale of real estate, $25 million from the redemption of preferred stock in a joint venture, $5 million of preferred returns and a $1 million gain on the sale of a note. Prior year's first quarter gains included $4 million from the sale of real estate.

INTEREST EXPENSE increased $3 million to $27 million primarily due to higher commercial paper balances and higher interest rates.

INTEREST INCOME totaled $11 million during the quarter, down from $27 million in the year ago quarter, primarily driven by loan repayments in 2005.

At the end of the 2006 first quarter, total debt was $1,877 million and cash balances totaled $172 million, compared to $1,737 million in total debt and $203 million of cash at the end of 2005. The company also repurchased 3.6 million shares of common stock in the first quarter of 2006 at a cost of $247 million. The remaining share repurchase authorization, as of the end of the first quarter, totaled 14.2 million shares.

OUTLOOK

The company continues to expect North American company-operated REVPAR to increase 8 to 10 percent in 2006. Assuming a 150 to 200 basis point improvement in house profit margins, and approximately 25,000 new room openings (gross), the company expects total fee revenue of $1,170 million to $1,190 million, an increase of 14 to 16 percent.

The company expects timeshare interval, fractional and whole ownership sales and services revenues, net of expenses, will decline approximately 2 percent in 2006, reflecting lower contract sales in 2005 resulting from limited inventory. With significant customer interest in the company's new projects, contract sales (including joint venture sales) are expected to increase roughly 40 percent in 2006.

General, administrative and other expenses are expected to decline approximately 11 to 12 percent in 2006 to $660 million to $670 million from $753 million in 2005. The comparison reflects the impact in 2005 of the $94 million charge associated with the CTF transaction and $30 million in bedding incentives. This 2006 guidance includes an approximately $37 million pre-tax impact of the FAS No. 123(R), requiring the expensing of all share-based compensation (including stock options).

Given these above items, the company estimates that lodging operating income will total $915 million to $945 million in 2006, an increase of 31 to 35 percent over 2005.

The company expects lodging gains and other income to total approximately $130 million in 2006 (including approximately $75 million in timeshare mortgage note sale gains).

Net interest expense is expected to total $75 million, an increase of $20 million, primarily driven by loan repayments in 2005 resulting in reduced interest income, as well as higher debt levels and interest rates.

Given the continued high level of oil prices and the uncertainty surrounding the availability of 2006 tax credits, the company suspended production at its four synthetic fuel facilities in April 2006. The company cannot yet predict whether or when the facilities will restart production and, as such, is unable to provide guidance for 2006 earnings from the synthetic fuel business. The net book value of the four facilities at the end of the first quarter 2006 is $17 million.

The company estimates North American company-operated REVPAR will grow 8 to 10 percent in the second quarter of 2006, with house profit margin growth of 150 to 200 basis points.