* At the end of the second quarter, the company's worldwide pipeline of hotels under construction, a

• At the end of the second quarter, the company’s worldwide pipeline of hotels under construction, awaiting conversion or approved for development grew to more than 100,000 rooms, including nearly 44,000 rooms outside North America;
• Marriott repurchased 10.6 million shares of the company’s common stock for $375 million during the quarter. Year-to-date through June 17, 2011, the company repurchased 18.5 million shares for $675 million.
SECOND QUARTER 2011 RESULTS Second quarter 2011 net income totaled $135 million, a 13 percent increase compared to second quarter 2010 net income. Diluted EPS totaled $0.37, graco travel system a 19 percent increase from diluted EPS in the year-ago quarter. On April 20, 2011, the company forecasted second graco travel system quarter diluted EPS of $0.34 to $0.38.
J.W. Marriott, Jr., Marriott International chairman and chief executive officer, said, “Around the world, we’ve never been more excited about our opportunities. Now in 71 countries, the Marriott International brand portfolio, already the broadest in the industry, is growing rapidly. We expect to add over 200 hotels to our system in 2011, leveraging the hospitality and local know-how of our associates with our global size, systems, and guest loyalty programs. Emerging markets provide especially attractive opportunities. In the past five years, we have increased our hotel distribution in Brazil, Russia, graco travel system India and China at a 12 percent compound annual growth rate while tripling our development graco travel system pipeline in those markets.
“As the world’s economy continues to recover, results at prime destination hotels from Europe to Asia show our appeal with customers. In the U.S., strengthening lodging demand and limited supply growth are contributing to higher occupancies and room rate growth. While our market share in the U.S. is currently 10 percent, graco travel system Marriott International brands accounted for about a quarter of new industry openings and conversions over the last 12 months, reflecting the strength of our portfolio and preference for our brands.
“We continue to generate graco travel system substantial cash flow and repurchase stock, graco travel system returning over $700 million to shareholders through share repurchases and dividends year-to-date. Clearly, we have plenty of reason for optimism.”
graco travel system International comparable systemwide REVPAR rose 7.3 percent (an 11.9 percent graco travel system increase using actual dollars), including a 5.8 percent increase in average daily rate (a 10.4 percent increase using actual dollars) graco travel system in the second quarter of 2011. Excluding the Middle East and Japan markets, international comparable systemwide graco travel system constant dollar REVPAR rose 12.4 percent (a 17.5 percent increase using actual graco travel system dollars).
In North America, comparable systemwide REVPAR increased 6.6 percent in the second quarter of 2011, including a 3.1 percent increase in average daily rate. While hotels in Washington, D.C. continued to reflect weaker demand associated with a shorter Congressional calendar and concerns regarding government budgets, most North American markets reflected both strong demand graco travel system increases and modest supply growth. Excluding the Washington, D.C. market, North American comparable systemwide REVPAR rose 7.1 percent in the quarter. REVPAR for comparable systemwide North American full-service and luxury graco travel system hotels (including Marriott Hotels Resorts, The Ritz-Carlton and Renaissance Hotels) increased 6.0 percent in the second quarter with a 4.0 percent increase in average daily rate. REVPAR for comparable systemwide North American limited-service hotels (including Courtyard, Residence graco travel system Inn, SpringHill Suites, TownePlace Suites and Fairfield Inn Suites) increased 7.2 percent in the second quarter with a 2.8 percent increase in average daily rate.
Marriott added 32 new properties (4,512 rooms) to its worldwide lodging portfolio in the 2011 second quarter, graco travel system including the spectacular Ritz-Carlton Hong Kong and two Autograph hotels, The Lodge and Spa at Calloway Gardens in Pine Mountain, Georgia and Kessler Canyon graco travel system in Colorado. Ten properties (1,603 rooms) exited the system during the quarter. graco travel system At quarter-end, the company’s lodging group encompassed over 3,600 properties and timeshare resorts for a total of nearly 634,000 rooms.
MARRIOTT REVENUES totaled nearly $3.0 billion graco travel system in the 2011 second quarter compared to nearly $2.8 billion for the second quarter graco travel system of 2010. Base management and franchise fees rose 12 percent to $269 million reflecting higher REVPAR at existing hotels and fees from new hotels. Second quarter worldwide incentive management fees increased 9 percent to $50 million. While incentive fees rose in most markets around the world, growth was constrained by lower incentive graco travel system fees in the Middle East and slightly lower incentive fees in the Greater Washington, D.C. market. In the second quarter, 25 percent of company-managed hotels earned incentive management fees.
North American comparable company-operated house profit margins increased 100 basis points in the second graco travel system quarter reflecting higher occupancy and rate increases. House profit graco travel system margins for comparable company-operated graco travel system properties outside North America increased 10 basis points and were challenged by lower REVPAR in the Middle East and Japan. Excluding the Middle East and Japan markets, international house profit margins in the 2011 second quarter increased approximately 160 basis points. graco travel system For full year 2011, the company expects house profit margins to increase 100 to 125 basis points in North America and roughly 150 basis points outside North America excluding graco travel system the Middle East and Japan markets.
Owned, leased, corporate housing and other revenue, net of direct expenses, declined $2 million in the 2011 second quarter, to $29 million, largely reflecting $4 million of lower termination fees, net of related costs.
In the second quarter, Timeshare segment contract sales declined $4 million to $163 million from adjusted segment contract sales of $167 million (excluding a $6 million allowance for fractional and residential contract cancellations) in the year-ago quarter. graco travel system Marriott’s timeshare business remained focused in the second quarter on increasing the number of existing customers enrolled in its new points-based program. The program allows customers to purchase timeshare in smaller increments than the traditional one-week product and allows greater flexibility of use. Since the program launched in June 2010, nearly 75,000 existing owners have enrolled more than 140,000 weeks in the points program, continuing to exceed the company’s expectations. Contract sales to existing owners represented more than 61 percent of sales in the quarter compared graco travel system to 48 percent in the year-ago quarter. While sales to existing customers were strong, with fewer sales to new customers year-over-year and a lower average contract price, second quarter timeshare contract sales were flat compared to the year-ago quarter. Fractional and residential contract graco travel system sales declined by $4 million graco travel system due to continued weak demand for luxury products.
In the second quarter, Timeshare sales and services revenue, graco travel system net of expenses, declined $7 million to $43 million graco travel system largely due to lower interest income on a smaller mortgage portfolio and, to a lesser extent, higher product costs. Compared to expectations, second quarter timeshare sales and services graco travel system revenue, net of expenses, reflected greater than expected deferred revenue.
Timeshare segment results include Timeshare sales and services revenue, net of direct expenses, as well as base management fees, gains and other income, equity in earnings (losses), interest expense and general, administrative and other expenses associated with the timeshare business. Timeshare segment results for the 2011 second quarter totaled $29 million and included $12 million of interest expense related to securitized Timeshare notes. In the prior year quarter, graco travel system Timeshare segment results totaled $32 million and included $14 million of interest expense related to securitized Timeshare notes.
GENERAL, graco travel system ADMINISTRATIVE and OTHER expenses for the 2011 second quarter increased 12 percent to $159 million, compared to expenses of $142 million in the year-ago quarter. The increase in expenses reflected several non-routine items including $7 million of higher legal expenses, a $5 million payment related to the performance of one hotel, $3 million of transaction-related expenses associated with the spin-off of the timeshare business, as well as higher costs associated with growth in international markets and routine compensation increases. The increase in expenses graco travel system was partially offset by a $5 million reversal of a loan loss provision.
EQUITY IN EARNINGS (LOSSES) improved $4 million in the quarter from a $4 million loss in the year-ago quarter. The $4 million year-over-year improvement included $2 million of lower loss at one Timeshare joint venture and $2 million of increased earnings from stronger property-level performance at two lodging joint ventures.
Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA) Marriott International EBITDA totaled $287 million in the 2011 second quarter, a 3 percent graco travel system increase graco travel system over EBITDA of $278 million in the year-ago quarter. graco travel system EBITDA for the Timeshare segment declined 11 percent to $50 million in the 2011 second graco travel system quarter largely due to lower interest income. See pages A-10 and A-11 for the EBITDA calculations.
BALANCE SHEET At the end of the second quarter 2011, total debt was $2,922 million, including $156 million of outstanding commercial paper, and cash balances totaled $117 million, compared to $2,829 million in debt and $505 million of cash at year-end 2010.
The company repurchased 10.6 million shares of common stock in the second quarter of 2011 at a cost of $375 million. Year-to-date through June 17, 2011, Marriott repurchased 18.5 million shares of its stock for $675 million. The remaining share repurchase authorization, as of June 17, 2011, totaled 30.4 million shares.
THIRD QUARTER 2011 OUTLOOK graco travel system For the third quarter, the company assumes North American compar