2006 Annual Report

To Our Shareholders
J.W. MARRIOTT, JR.
Chairman and
Chief Executive Officer
WILLIAM J. SHAW
President and
Chief Operating Officer
MARRIOTT INTERNATIONAL ENJOYED AN EXCEPTIONAL
year in 2006, and we are celebrating 80 years in business and 50
years of hotel industry leadership in 2007. As we look to the future,
our continued growth will be defined by our premium brands and
a commitment to innovation and service.
The lodging demand environment has rarely been stronger.
Modest hotel industry construction in urban locations in the United
States in recent years ushered in improved pricing power in 2006.
North American company-operated comparable Revenue Per
Available Room (RevPAR) increased nearly 9 percent in 2006,
largely driven by pricing. Including the impact of foreign exchange,
international company-operated comparable RevPAR was stellar for
the year, growing over 12 percent as the strong global economy
drove international travel.
In 2006, our owners and franchisees added more than 23,000
rooms to our system, demonstrating confidence in our brands. Over
the next several years, we expect owners and franchisees will invest
nearly $20 billion to expand the Marriott International system,
attracted by guest preference for our products and strong room
rates, occupancies and property-level profits.
We also delivered impressive financial results in 2006. With
both unit expansion and RevPAR growth, management and franchise
fee revenue increased 19 percent to a record $1.2 billion.
Diluted earnings per share from continuing operations reached
$1.66. Net cash provided by operating activities totaled $970 million
and share repurchases and dividends returned nearly $1.7 billion
to shareholders. Pre-tax return on invested capital (ROIC)
reached 22 percent, exceeding our 20 percent goal well ahead
of schedule. Adjusting our historical share prices to reflect the
2006 two-for-one stock split, our share price also reached a record
high in 2006.
LEADING THE WAY
This success is due to multiple factors. Our business model, broad
brand portfolio, and innovative programs and initiatives give us a
competitive advantage not easily matched.
By managing and franchising rather than owning hotels, we can
grow much faster, leveraging our management and brand-building
capability. Faster unit growth, in turn, drives greater market share
and brand equity, which encourages owners and franchisees to
develop yet more hotels flying our flags.
With 18 brands, Marriott has the broadest lodging and timeshare
portfolio in the world. Our lodging brands operate with significant
RevPAR premiums over competitors. Despite our industry leadership,
we continue to innovate to make our products even better.
Guests have enthusiastically embraced changes we’re making
in our guest rooms — featuring luxurious bedding, the latest technology,
including our new “plug and play” connectivity panel, and,
now, a completely smoke-free environment in the United States
and Canada. This year, we’ll introduce the “great room” — a revolutionary
transformation of public space in select Marriott and
Renaissance hotels, designed for today’s travelers, who smoothly
transition between work and play. Besides enhancing the guest
experience, we expect the “great room” to generate new incremental
property-level revenue from food and beverage sales.
At Renaissance Hotels & Resorts, our owners and franchisees
are revitalizing the brand with nearly $2 billion of investment
expected in new construction, property conversions and renovation
projects worldwide over three years. The Renaissance Schaumburg
Hotel & Convention Center, a signature property outside of Chicago,
opened in 2006 and features the latest technological, architectural
and “savvy service” innovations coming soon to other properties.
The Renaissance New York Hotel Times Square is being dramatically
renovated and will be the prototype for a cool, new urban look, and
Eden Roc, a renowned Renaissance Resort and Spa in Miami
Beach, will become one of the finest hotels in Florida.
Our preeminent luxury brand, the Ritz-Carlton, is capitalizing on
the demand for luxury goods. In Los Angeles, both a Ritz-Carlton
and a JW Marriott hotel will be part of “LA Live,” a unique complex
that will combine sports, retail, residential and convention center
space opening in 2010. In Asia we have new Ritz-Carlton hotels
planned for Tokyo, Shanghai and Beijing.
Our Ritz-Carlton Club fractional and residential properties are
increasingly popular with new projects in sales in the Bahamas,
South Beach Miami, Hawaii and San Francisco. Some of our vacation
ownership projects are structured as joint ventures enabling
Marriott to apply its branding and hospitality expertise with relatively
modest capital investment. We expect roughly one-third of our timeshare,
fractional and residential contract sales to come from joint
ventures by 2009, increasing profits while also increasing our ROIC.
We continue to renovate and reinvent our limited-service brands.
More than 500 Courtyard and Residence Inn hotels feature our newest
generation of style and design, including new properties that have
opened in the last few years as well as the nearly 250 Courtyard and
Residence Inn properties that have completed renovations. An additional
150 Residence Inn hotels are scheduled for renovation in
2007. These renovated and reinvented hotels yield much higher
guest satisfaction measurements and profits.
MARRIOTT INTERNATIONAL, INC. 2006 | 9