• North American company-operated comparable REVPAR for the quarter ended September 10, 2004 increased 8.3 percent.  Room rates were up over 4 percent, while occupancy increased nearly 3 percentage points to 75 percent;
• Since the 2003 third quarter, 177 managed and franchised hotels (28,000 rooms) were added to the system.  Nearly half of the 6,000 new hotel rooms added to Marriott�s system in the third quarter were conversions from other brands; 
• The company purchased 5 million shares of its stock during the third quarter for $239 million, while debt remained flat with second quarter levels.  Since year-end 1999, the company has repurchased over 48 million shares while debt has declined from $1.7 billion to $1.4 billion;
• Adjusted earnings before interest expense, income taxes, depreciation and amortization (Adjusted EBITDA) increased 22 percent to $239 million;
• The company substantially completed high speed internet access deployment, with installation now in over 2,300 hotels, making Marriott the largest provider of this critical customer service technology in the industry;
• Timeshare contract sales increased 25 percent during the quarter, reflecting strong leisure demand.

�Leisure demand remained solid during the summer while group and transient business showed steady improvement.  REVPAR for our comparable North American company operated hotels increased 8 percent, with over half of the increase driven by rate.   At our full-service Marriott branded hotels, group REVPAR increased 11 percent reflecting higher than expected group meeting attendance and continued short term group bookings. Strong business transient demand increased REVPAR 9 percent at Marriott branded airport hotels.  International business continued to surge, with the number of international guests visiting our U.S. hotels increasing 21 percent during the quarter, particularly with travelers coming from the U.K and China. Our hotels outside the U.S. also attracted travelers, resulting in 16 percent REVPAR growth for our comparable systemwide international hotels (20 percent using actual exchange rates). 

�We added over 6,000 rooms to our system during the third quarter, including the Doral Golf Resort in Miami and the Jia Hual Along Bay Resort in Sanya, China.  We are seeing tremendous interest in all our brands among owners and franchisees and the number of properties converted to our brands continues to climb.  Because of the strong preference of owners and franchisees for our brands, our system has grown by nearly a third since 2000,� said Mr. Marriott.

In the third fiscal quarter (12 week period from June 19, 2004 to September 10, 2004), REVPAR for the company�s 1,869 comparable systemwide North American properties rose 7.7 percent, driven by a 3.9 percent increase in average daily rate and a 2.6 percentage point increase in occupancy to nearly 75 percent.  REVPAR at the company�s 342 comparable systemwide North American full-service hotels (including Marriott Hotels & Resorts, The Ritz-Carlton, and Renaissance Hotels & Resorts) increased 8 percent, including a 4 percent increase in rate and 2.7 percentage points of improved occupancy to 72 percent.  Demand for luxury lodging remained strong in the third quarter.  REVPAR at comparable systemwide North American Ritz-Carlton hotels rose 13.3 percent, with particular strength in New York, Boston and Orlando. REVPAR at comparable systemwide North American select-service and extended-stay brands (including Courtyard, Fairfield Inn, Residence Inn, TownePlace Suites, and SpringHill Suites) increased 7.2 percent, with a 4 percent increase in rate and a 2.5 percentage point improvement in occupancy to 77 percent. 

International constant dollar REVPAR at comparable systemwide properties increased 16 percent (20 percent using actual exchange rates) benefiting from continued strong demand in Mexico, the Caribbean and China.  Despite the weather, systemwide constant dollar comparable REVPAR in the Caribbean and Latin America region rose 21 percent.  REVPAR in the Asia Pacific region increased 29 percent reflecting the impact of Severe Acute Respiratory Syndrome (SARS) in the prior year. 

During the quarter, the company added 36 properties (6,045 rooms), bringing the total number of hotels in the system to 2,806 (505,658 rooms).  Twenty-one properties (2,962 rooms), primarily first generation Fairfield Inns, exited the system during the quarter.  Marriott continues to lead the industry in conversions from competitor brands, converting 13 hotels (2,633 rooms) to Marriott�s brands in the third quarter (excluding one hotel converted to the Ramada International brand).   The company�s pipeline of properties remains robust, with over 50,000 rooms worldwide under construction, awaiting conversion, or approved for development.

During the third quarter, CIO magazine named Marriott to its prestigious CIO award list for a fifth time.  The CIO award recognizes organizations around the world that exemplify the highest level of operational and strategic excellence in information technology.  Marriott is the only lodging company on this year�s list.  The company�s leadership in technology has enabled the company not only to win awards, but also to drive revenue, increase customer satisfaction, and reduce costs.  To date in 2004, revenue booked through Marriott.com, the company�s proprietary web site, increased 40 percent over last year to $1.3 billion.  The speed and reliability of Marriott.com are unmatched by other lodging companies. For hotel owners and franchisees, Marriott�s reservation system continues to outperform the industry by providing the lowest cost per transaction, highest contribution to occupancy, and highest revenue generated per call. 

Today, over 2,300 hotels in the company�s system offer high-speed internet access and over 1,800 hotels provide wireless internet access in lobbies, meeting rooms, and/or public spaces, more than any competitor.  High speed internet access has become a demanded hotel amenity, particularly for business travelers. 

MARRIOTT REVENUES for the third quarter totaled $2.3 billion, up 9 percent over the prior year.  Base management fees increased 13 percent over the year ago quarter to $97 million, as a result of growth in company-operated units and an 11 percent increase in comparable company-operated hotel REVPAR worldwide (using actual exchange rates).  Franchise fees increased 21 percent over the year ago quarter to $74 million, reflecting unit expansion, ramping fees at hotels opened in recent years, and an 8 percent increase in worldwide franchised comparable REVPAR (using actual exchange rates).  Incentive management fees increased 17 percent to $21 million as a result of improving house profit margins and REVPAR growth, especially in international regions. 

With stronger North American occupancy the company was able to drive room rates.  In fact, over half of the REVPAR growth during the quarter came from rate increases.  North American company-operated hotel house profit margins increased 70 basis points during the 2004 third quarter.  The combination of rate increases and improved productivity more than offset higher wages and benefits and costs associated with free high-speed internet access at the company�s limited service brands. International house profit margins increased 150 basis points during the quarter.

Contract sales for Marriott�s timeshare business, including results at the company�s three joint ventures, increased 25 percent, reflecting strong demand at resorts in Newport Beach and Maui as well as the new resorts in Hilton Head and Las Vegas.  Strength in these markets was offset somewhat by the impact of third quarter hurricanes on resorts in Florida and the Caribbean.  Reported revenue growth trailed contract sales growth because of a higher proportion of sales in joint venture projects and projects with lower average construction completion levels. Timeshare direct costs declined 6 percent largely due to the mix of units sold and a shift to lower cost sales channels.  Across the Marriott Vacation Club timeshare brand, the average price per interval sold increased 11 percent to approximately $25,000. 

LODGING OPERATING INCOME increased 40 percent in the 2004 third quarter to $130 million, as a result of the 16 percent increase in combined base, franchise and incentive fees and strong timeshare profits, partially offset by higher general and administrative expenses.  Marriott�s general and administrative expenses increased 8 percent, to $126 million, driven primarily by increased overhead costs associated with the company�s expansion outside the U.S. and higher overhead associated with new timeshare joint ventures.

LODGING SEGMENT RESULTS.  Full-service lodging results were $79 million, up 
$2 million over prior year, as a result of base, incentive and franchise fee growth of $13 million or 13 percent, offset by the impact of a year-over-year decline in joint venture earnings from the Two Flags joint venture and an increase in administrative costs.  Select-service and extended-stay lodging results totaled $62 million, up $22 million over prior year, driven by higher fees, improved joint venture results, and a $4 million gain on the sale of 10 land parcels. Results from our timeshare business soared 48 percent, to $34 million, reflecting nearly $300 million of interval sales and services and improved margins, largely due to lower marketing and selling costs as a percentage of sales and a favorable mix of units sold.  Timeshare results also reflected an estimated $2 million to $3 million of lost profits due to the impact of cancelled tours and the temporary closing of call centers when the hurricanes hit Florida and St. Thomas.

SYNTHETIC FUEL. During the quarter, the synthetic fuel joint ventures generated net income for Marriott of $31 million compared to $21 million in the year ago quarter.  Our joint venture partner was temporarily allocated 90 percent of the joint ventures� tax credits in the 2003 quarter compared to a 50 percent allocation in the 2004 quarter.  As a result, Marriott received substantially more tax credits and net income in the 2004 third quarter than in the prior year.  The increase in net income from the synthetic fuel operations also reflected slightly higher production volume. 

This summer Marriott was informed that IRS field auditors issued a notice of proposed adjustment challenging the placed-in-service date of three of the four synthetic fuel facilities owned by the company�s joint ventures.  One of the conditions to qualify for tax credits under Section 29 of the Internal Revenue Code is that the production facility must have been placed-in-service before July 1, 1998.   Marriott strongly believes that all the facilities meet the placed-in-service requirements.  The company is actively seeking to resolve this issue with the IRS expeditiously.

GAINS AND OTHER INCOME totaled $43 million and includes $19 million in earn-out related to the synthetic fuel joint venture, a $4 million gain on the sale of 10 parcels of land and a $13 million gain on the disposition of Marriott�s interest in the Two Flags joint venture. The prior year included a $9 million gain on the sale of an international joint venture.

INTEREST INCOME increased $2 million, primarily driven by $4 million of interest earned on the note receivable in connection with the disposition of Marriott�s interest in the Two Flags joint venture.  The company received approximately $200 million of proceeds from the related note in September.

EQUITY IN (LOSSES)/EARNINGS reflects Marriott�s share of income or losses from joint venture investments.  The disposition of the Two Flags joint venture in April 2004 reduced Marriott�s equity income by approximately $5 million in the third quarter from year ago levels.  Strong performance at the comparable Courtyard hotels as well as the favorable impact of ongoing property reinventions improved Courtyard joint venture results by approximately $1 million. 

In September, Marriott and Cendant Corporation�s Hotel Group announced the signing of a non-binding letter of intent for Cendant to purchase Ramada International Hotels & Resorts.  The transaction is still pending approval by regulatory authorities and final negotiation of terms.  The company does not believe the financial impact of the transaction will be material.

Marriott�s adjusted earnings before interest expense, taxes, depreciation and amortization totaled $239 million during the third quarter, an increase of 22 percent over the prior year�s quarter.  Results reflected strong REVPAR, incentive fee improvement, unit expansion, and timeshare profits.

With the outstanding results the company has experienced this year, Marriott has generated significant cash flows and the balance sheet remains strong.  At the end of the third quarter total debt was $1.4 billion and cash balances totaled $202 million compared to $1.4 billion in debt and $164 million of cash at June 18, 2004. The company also repurchased 5 million shares of common stock in the third quarter at a cost of $239 million and 13 million shares through September 10, 2004 at a cost of $588 million.  The remaining share repurchase authorization totals approximately 20 million shares.

OUTLOOK 

The company expects lodging demand to remain strong and estimates fourth quarter 2004 systemwide comparable North American REVPAR growth of 7 to 9 percent with approximately one percentage point improvement in house profit margins.  The company also expects to complete a timeshare mortgage note sale transaction in the fourth quarter.  Under these assumptions the company expects total fee revenue for the fourth quarter of 2004 to range from $270 million to $280 million and earnings per share of $0.72 to $0.75, including $0.12 to $0.14 from the company�s synthetic fuel operations. 

Despite the three preceding years of tough economic times, the company has been able to significantly increase hotel distribution and drive revenue, while reducing its investment spending.  Marriott now expects total investment spending to approximate $400 million in 2004, a reduction of $100 million from earlier guidance. For the full year 2004, the company expects to open approximately 25,000 rooms.

On October 6, 2004, Marriott entered into an agreement with its synthetic fuel partner that shifts the ratio of tax credit allocations during the next six months.  If pending issues with the IRS regarding three of the four synthetic fuel facilities are resolved positively between now and March 31, 2005, the tax credit allocation ratio will return to approximately 50 percent for each partner on all four facilities.  If the matter is not decided favorably by March 31, 2005, our joint venture partner is expected to relinquish its share of the tax credits to be generated in the three facilities under review.  Assuming resolution of the IRS issues prior to March 31, we would expect 2005 EPS for synthetic fuel to range from $0.41 to $0.45. 

In 2005, the company expects North American systemwide comparable REVPAR to increase 5 to 7 percent.  Assuming a 1 to 1.5 percentage point improvement in house profit margins, the completion of timeshare mortgage note sale transactions in the second and fourth quarters, 25,000 to 30,000 new room openings, total fee revenue is expected to total $950 million to $1 billion, and 2005 diluted earnings per share from continuing operations is estimated to range from $2.74 to $2.84.