Edgar Filing: MARRIOTT INTERNATIONAL INC /MD/

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 29, 2000 Commission File No. 1-13881

MARRIOTT INTERNATIONAL, INC.

Delaware 52-2055918
(State of Incorporation) (I.R.S. Employer Identification Number)

10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
---------------------------------------------------------- ---------------------------------------------

Class A Common Stock, $0.01 par value New York Stock Exchange
(240,980,998 shares outstanding as of November 30, 2001) Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange

The aggregate market value of shares of common stock held by non-affiliates at
October 31, 2001, was $5,892,493,985

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.

Yes [X] No [_]

Indicate by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Documents Incorporated by Reference

Portions of the Proxy Statement prepared for the 2001 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report.

Index to Exhibits is located on pages 62 through 64.

PART I

Throughout this report, we refer to Marriott International, Inc., together
with its subsidiaries, as "we," "us," or "the Company."

FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this document that are based on
the beliefs and assumptions of our management, and on information currently
available to our management. Forward-looking statements include the information
concerning our possible or assumed future results of operations and statements
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates," or similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. We caution you not to put undue reliance on any
forward-looking statements.

You should understand that the following important factors, in addition to
those discussed in Exhibit 99 and elsewhere in this annual report, could cause
results to differ materially from those expressed in such forward-looking
statements.

. competition for each of our business segments;

. business strategies and their intended results;

. the balance between supply of and demand for hotel rooms,
timeshare units, senior living accommodations and corporate
apartments;

. our continued ability to obtain new operating contracts and
franchise agreements;

. our ability to develop and maintain positive relations with
current and potential hotel and senior living community owners;

. the effect of international, national and regional economic
conditions including the duration and severity of the current
economic downturn in the United States and the terrorist attacks
on New York and Washington and their aftermath;

. the availability of capital to allow us and potential hotel owners
to fund investments;

. the effect that internet hotel reservation channels may have on
the rates that we are able to charge for hotel rooms; and

. other risks described from time to time in our filings with the
Securities and Exchange Commission (the SEC).

ITEMS 1 and 2. BUSINESS AND PROPERTIES

We are a worldwide operator and franchisor of hotels and related lodging
facilities, an operator of senior living communities, and a provider of
distribution services. Our operations are grouped into six business segments,
Full Service Lodging, Select Service Lodging, Extended Stay Lodging, Timeshare,
Senior Living Services and Distribution Services, which represented 55, 9, 6, 8,
7, and 15 percent, respectively, of total sales in the fiscal year ended
December 29, 2000.

In our Lodging business, we operate, develop and franchise hotels under 14
separate brand names and we operate, develop and market Marriott timeshare
properties under 3 separate brand names. Our lodging business includes the Full
Service, Select Service, Extended Stay and Timeshare segments.

In our Senior Living Services segment at December 29, 2000, we developed and
operated 153 senior living communities offering independent living, assisted
living and skilled nursing care for seniors in the United States.

Marriott Distribution Services (MDS) supplies food and related products to
external customers and to internal lodging and senior living services operations
throughout the United States.

Financial information by industry segment and geographic area as of December
29, 2000 and for the three fiscal years then ended, appears in the Business
Segments note to our Consolidated Financial Statements included in this annual
report.

Formation of "New" Marriott International - Spinoff in March 1998

We became a public company in March 1998, when we were spun off (the Spinoff)
as a separate entity by the company formerly named "Marriott International,
Inc." (Old Marriott). Our company - the "new" Marriott International - was
formed to conduct the lodging, senior living and distribution services
businesses formerly conducted by Old Marriott.

The Spinoff was effected through a dividend of one share of our common stock
and one share of our Class A Common Stock for each share of Old Marriott Common
Stock outstanding on March 20, 1998. As the result of a shareholders' vote at
our 1998 annual meeting of shareholders, on May 21, 1998 we converted all of our
outstanding shares of common stock into shares of Class A Common Stock on a
one-for-one basis.

At the same time as the Spinoff, Old Marriott merged its remaining businesses
- food service and facilities management - with the similar businesses of
Sodexho Alliance, S.A. (Sodexho Alliance) in the United States and Canada, to
form Sodexho Marriott Services, Inc. (SMS). On June 20, 2001, SMS became a
wholly-owned subsidiary of Sodexho Alliance and changed its name to Sodexho,
Inc. We are providing certain transitional administrative services to SMS, and
MDS provides food distribution services to many of SMS's food service locations.

Lodging

We operate or franchise 2,099 lodging properties worldwide, with 390,469
rooms as of December 29, 2000. In addition, we provide 6,959 furnished corporate
housing units. We believe that our portfolio of lodging brands - from luxury to
economy to extended stay to corporate housing - is the broadest of any company
in the world, and that we are the leader in the quality tier of the vacation
timesharing business. Consistent with our focus on management and franchising,
we own very few of our lodging properties. Our lodging brands include:

Full Service Lodging Extended Stay Lodging
. Marriott Hotels, Resorts and Suites . Residence Inn
. Marriott Conference Centers . TownePlace Suites
. JW Marriott Hotels . Marriott Executive Apartments
. Renaissance Hotels, Resorts and Suites . ExecuStay by Marriott
. Ramada International Hotels, Resorts and Suites
(Europe, Middle East and Asia/Pacific) Timeshare
. Bvlgari Hotels and Resorts/1/ . Marriott Vacation Club International
. The Ritz-Carlton Hotels . Horizons by Marriott Vacation Club
. The Ritz-Carlton Club
Select Service Lodging
. Courtyard
. Fairfield Inn
. SpringHill Suites

/1/As part of our ongoing strategy to expand our reach through partnerships with
preeminent, world-class companies, in early 2001, we announced our plans to
launch a joint venture with Bulgari SpA to introduce a distinctive new luxury
hotel brand - Bvlgari Hotels and Resorts.

Company-Operated Lodging Properties

At December 29, 2000, we operated a total of 931 properties (231,416 rooms)
as owned or under long-term management or lease agreements with property owners
(together, the Operating Agreements).

Terms of our management agreements vary, but typically we earn a management
fee which comprises a base fee, which is a percentage of the revenues of the
hotel, and an incentive management fee, which is based on the profits of the
hotel. Our management agreements also typically include reimbursement of costs
(both direct and indirect) of operations. Such agreements are generally for
initial periods of 20 to 30 years, with options to renew for up to 50 additional
years. Our lease agreements also vary, but typically include fixed annual
rentals plus additional rentals based on a percentage of annual revenues in
excess of a fixed amount. Many of the Operating Agreements are subordinated to
mortgages or other liens securing indebtedness of the owners. Additionally, a
number of the Operating Agreements permit the owners to terminate the agreement
if financial returns fail to meet defined levels and we have not cured such
deficiencies.

For lodging facilities that we manage, we are responsible for hiring,
training and supervising the managers and employees required to operate the
facilities and for purchasing supplies, for which we generally are reimbursed by
the owners. We provide centralized reservation services, and national
advertising, marketing and promotional services, as well as various accounting
and data processing services. For lodging facilities that we manage, we prepare
and implement annual operating budgets that are subject to owner review.

Franchised Lodging Properties

We have franchising programs that permit the use of certain of our brand
names and our lodging systems by other hotel owners and operators. Under these
programs, we generally receive an initial application fee and continuing royalty
fees, which typically range from four percent to six percent of room revenues
for all brands, plus two percent to three percent of food and beverage revenues
for certain full-service hotels. In addition, franchisees contribute to our
national marketing and advertising programs, and pay fees for use of our
centralized reservation systems. At December 29, 2000, we had 1,168 franchised
properties (159,053 rooms).

Summary of Properties by Brand
------------------------------

As of December 29, 2000 we operated or franchised the following properties by
brand (excluding 6,959 corporate housing rental units):

Company-operated Franchised
------------------------- ---------------------------
Brand Properties Rooms Properties Rooms
--------------------------------------------------------- ------------ ---------- ------------ ----------

Marriott Hotels, Resorts and Suites ..................... 238 105,396 155 43,825
Ritz-Carlton ............................................ 38 13,018 - -
Renaissance Hotels, Resorts and Suites .................. 78 30,133 29 9,995
Ramada International .................................... 7 1,325 40 7,870
Residence Inn ........................................... 139 18,052 215 23,298
Courtyard ............................................... 280 43,689 240 30,152
TownePlace Suites ....................................... 31 3,290 53 5,242
Fairfield Inn ........................................... 52 7,526 387 33,886
SpringHill Suites ....................................... 12 1,736 49 4,785
Marriott Vacation Club International .................... 47 5,556 - -
Marriott Executive Apartments and other ................. 9 1,695 - -
------------ ---------- ------------ ----------
Total ................................................... 931 231,416 1,168 159,053
============ ========== ============ ==========

We plan to open over 200 hotels (more than 35,000 rooms) during 2001. We
believe that we have access to sufficient financial resources to finance our
growth, as well as to support our ongoing operations and meet debt service and
other cash requirements. Nonetheless, our ability to sell properties that we
develop, and the ability of hotel developers to build or acquire new Marriott
properties, which are important parts of our growth plans, is partially
dependent on the availability and price of capital.

Marriott Hotels, Resorts and Suites (including JW Marriott Hotels and
Marriott Conference Centers) primarily serve business and leisure travelers and
meeting groups at locations in downtown and suburban areas, near airports and at
resort locations. Most Marriott full-service hotels contain from 300 to 500
rooms. Marriott full-service hotels typically have swimming pools, gift shops,
convention and banquet facilities, a variety of restaurants and lounges and
parking facilities. Marriott resort hotels have additional recreational
facilities, such as tennis courts and golf courses. The 13 Marriott Suites
(approximately 3,400 rooms) are full-service suite hotels that typically contain
approximately 260 suites, each consisting of a living room, bedroom and
bathroom. Marriott Suites have limited meeting space. Unless otherwise
indicated, references throughout this report to Marriott Hotels, Resorts and
Suites include JW Marriott Hotels and Marriott Conference Centers.

JW Marriott Hotels are located in many of the world's major gateway cities in
upscale business and resort locations. These 13 hotels cater to discerning
upscale travelers seeking a lodging experience of high comfort and prestige.
Most JW Marriott Hotels contain 300 to 450 rooms. In addition to the features
found in a typical Marriott full-service hotel, the facilities and amenities in
the JW Marriott Hotels include valet parking, upgraded in-room amenities,
"on-call" housekeeping, upgraded executive business centers and fitness
centers/spas, and 24-hour room service.

We operate 13 conference centers (3,154 rooms), located throughout the United
States. Some of the centers are used exclusively by employees of the sponsoring
organization, while others are marketed to outside meeting groups and
individuals. The centers typically include meeting room space, dining
facilities, guestrooms and recreational facilities.

Room operations contributed the majority of hotel sales for fiscal year 2000
with the remainder coming from food and beverage operations, recreational
facilities and other services. Although business at many resort properties is
seasonal depending on location, overall hotel profits have been relatively
stable and include only moderate seasonal fluctuations.

Marriott Hotels, Resorts and Suites
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------- ------
United States (41 states and the District of Columbia) .. 270 (111,690 rooms)
======
Non-U.S. (50 countries and territories)
Americas (Non-U.S.) .................................. 27
Continental Europe ................................... 26
United Kingdom ....................................... 37
Asia ................................................. 19
Africa and the Middle East ........................... 11
Australia ............................................ 3
------
Total Non-U.S. .......................................... 123 (37,531 rooms)
======

Ritz-Carlton hotels and resorts are renowned for their distinctive
architecture and for the quality of their facilities, dining and guest service.
Most Ritz-Carlton hotels have 250 to 350 guest rooms and typically include
meeting and banquet facilities, a variety of restaurants and lounges, gift
shops, swimming pools and parking facilities. Guests at most of the Ritz-Carlton
resorts have access to additional recreational amenities, such as tennis courts
and golf courses.

Ritz-Carlton Luxury Hotels and Resorts
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------- ------
United States (12 states and the District of Columbia) .. 21 (7,611 rooms)
======
Non-U.S. (15 countries and territories) ................ 17 (5,407 rooms)
======

Renaissance is a global quality-tier brand, which targets business travelers,
group meetings and leisure travelers. Renaissance hotels are generally located
in downtown locations of major cities, in suburban office parks, near major
gateway airports and in destination resorts. Most hotels contain 300 to 500
rooms; however, a few of the convention hotels are larger, and some hotels in
non-gateway markets, particularly in Europe, are smaller. Renaissance hotels
typically include an all-day dining restaurant, a specialty restaurant, club
floors and lounge, boardrooms, and convention and banquet facilities.
Renaissance resorts have additional recreational facilities including golf,
tennis and water sports.

Renaissance Hotels, Resorts and Suites
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------- ------
United States (19 states and the District of Columbia) .. 47 (19,475 rooms)
======
Non-U.S. (26 countries and territories)
Americas (Non-U.S.) .................................. 8
Continental Europe ................................... 16
United Kingdom ....................................... 5
Asia ................................................. 22
Africa and the Middle East ........................... 8
Australia ............................................ 1
------
Total Non-U.S. .......................................... 60 (20,653 rooms)
======

Ramada International is a moderately-priced brand targeted at business and
leisure travelers. Each full-service Ramada International property includes a
restaurant, a cocktail lounge and full-service meeting and banquet facilities.
Ramada International hotels are located primarily in Europe in major and
secondary cities, near major international airports and suburban office park
locations. We also receive a royalty fee from Cendant Corporation and Ramada
Franchise Canada Limited for the use of the Ramada name in the United States and
Canada, respectively. On December 20, 2000 we announced our plans to convert
approximately 80 Treff hotels to Ramada-Treff hotels. We also entered into an
agreement with Treff hotels for them to develop, over the next five years, ten
new Ramada International hotels per year, primarily in Germany and Switzerland.

Ramada International
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------- ------
Americas (Non-U.S.) ..................................... 2
Continental Europe ...................................... 31
Asia .................................................... 10
Africa and the Middle East .............................. 4
------
Total (14 countries and territories) .................... 47 (9,195 rooms)
======

Residence Inn is the U.S. market leader among extended-stay lodging products,
which caters primarily to business, government and family travelers who stay
more than five consecutive nights. Residence Inns generally have 80 to 150
rooms, with a mix of studio, one bedroom and two-bedroom suites. Most inns
feature a series of residential style buildings with landscaped walkways,
courtyards and recreational areas. The inns do not have restaurants but offer
complimentary continental breakfast. Each suite contains a fully equipped
kitchen, and many suites have wood-burning fireplaces.

Residence Inn
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------- ------
United States (46 states and the District of Columbia) .. 345 (40,115 rooms)
======
Canada .................................................. 8 (1,159 rooms)
======
Mexico .................................................. 1 (76 rooms)
======

Courtyard is our moderate-price select-service hotel product. Aimed at
individual business and leisure travelers as well as families, Courtyard hotels
maintain a residential atmosphere and typically have 80 to 150 rooms. Well
landscaped grounds include a courtyard with a pool and social areas. Most hotels
feature meeting rooms, limited restaurant and lounge facilities, and an exercise
room. The operating systems developed for these hotels allow Courtyard to be
price-competitive while providing better value through superior facilities and
guest service.

Courtyard
Geographic Distribution at December 29, 2000 Hotels
--------------------------------------------------------- ------
United States (44 states and the District of Columbia) .. 479 (66,750 rooms)
======
Non-U.S. (9 countries) .................................. 41 (7,091 rooms)
======

TownePlace Suites is a moderately priced, extended-stay hotel product that is
designed to appeal to business and leisure travelers. The typical TownePlace
Suites hotel contains 95 high quality studio and two-bedroom suites. Each suite
has a fully equipped kitchen and separate living area. Each hotel provides
housekeeping services and has on-site exercise facilities, an outdoor pool,
24-hour staffing and laundry facilities. At December 29, 2000, 84 TownePlace
Suites (8,532 rooms) were located in 29 states.

Fairfield Inn is our economy lodging product, which competes directly with
major national economy motel chains. Aimed at cost-conscious individual business
and leisure travelers, a typical Fairfield Inn has 65 to 135 rooms and offers a
swimming pool, complimentary continental breakfast and free local phone calls.
At December 29, 2000, 439 Fairfield Inns (41,412 rooms) were located in 46
states and the District of Columbia.

SpringHill Suites is our all-suite brand in the moderate-price tier of
lodging products. SpringHill Suites feature suites that are 25 percent larger
than a typical hotel guest room and offer a broad range of amenities, including
complimentary continental breakfast and exercise facilities. At December 29,
2000, 61 properties (6,521 rooms) were located in 24 states.

Marriott Vacation Club International develops, sells and operates vacation
timesharing resorts. Revenues are generated from three primary sources: (1)
selling fee simple and other forms of timeshare intervals, (2) operating the
resorts and (3) financing consumer purchases of timesharing intervals.

Many timesharing resorts are located adjacent to Marriott hotels, and
timeshare owners have access to certain hotel facilities during their vacation.
Owners can trade their annual interval for intervals at other Marriott
timesharing resorts or for intervals at certain timesharing resorts not
otherwise sponsored by Marriott through an affiliated exchange company. Owners
also can trade their unused interval for points in the Marriott Rewards frequent
stay program, enabling them to stay at over 2,000 Marriott hotels worldwide.

In 2000, we successfully launched The Ritz-Carlton Club, our luxury vacation
timesharing resort, with two premier locations: St Thomas, U.S. Virgin Islands
and Aspen, Colorado. We also initiated sales at Horizons by Marriott Vacation
Club (Horizons) at a resort in Branson, Missouri and at our flagship resort in
Orlando, Florida. Horizons represents our entrance into the moderate tier
vacation ownership market.

Marriott Vacation Club International's owner base continues to expand, with
182,000 owners at year end 2000, compared to 140,000 in 1999.

Marriott Vacation Club International (all brands)
Geographic Distribution at December 29, 2000 Resorts Units
---------------------------------------------------- --------- ---------
Continental United States .......................... 40 4,586
Hawaii ............................................. 2 386
Caribbean .......................................... 3 285
Europe ............................................. 2 299
--------- ---------
Total .............................................. 47 5,556
========= =========

We provide temporary housing (serviced apartments) for business executives
and others who need quality accommodations outside their home country, usually
for 30 or more days. Some serviced apartments operate under the Marriott
Executive Apartments brand, which is designed specifically for the long-term
international traveler. At December 29, 2000, nine serviced apartment properties
(1,695 units), including four Marriott Executive Apartments, were located in
five countries and territories. All Marriott Executive Apartments are located
outside the United States.

ExecuStay provides furnished corporate apartments for stays of one month or
longer nationwide. ExecuStay owns no residential real estate and provides units
primarily through short-term lease agreements with apartment owners and
managers.

Other Activities

Marriott Golf manages 26 golf course facilities for us and for other golf
course owners.

We operate 19 systemwide hotel reservation centers, 13 of them in the U.S.
and Canada and six internationally, that handle reservation requests for
Marriott lodging brands worldwide, including franchised properties. We own one
of the U.S. facilities and lease the others.

Our Architecture and Construction Division assists in the design,
development, construction and refurbishment of lodging properties and senior
living communities and is paid a fee by the property owners.

Competition

We encounter strong competition both as a lodging operator and as a
franchisor. There are over 650 lodging management companies in the United
States, including several that operate more than 100 properties. These operators
are primarily private management firms, but also include several large national
chains that own and operate their own hotels and also franchise their brands.
Management contracts are typically long-term in nature, but most allow the hotel
owner to replace the management firm if certain financial or performance
criteria are not met.

Affiliation with a national or regional brand is prevalent in the U.S.
lodging industry. In 2000, the majority of U.S. hotel rooms were
brand-affiliated. Most of the branded properties are franchises, under which the
operator pays the franchisor a fee for use of its hotel name and reservation
system. The franchising business is fairly concentrated, with the three largest
franchisors operating multiple brands accounting for a significant proportion of
all U.S. rooms.

Outside the United States branding is much less prevalent, and most markets
are served primarily by independent operators. We believe that chain affiliation
will increase in overseas markets as local economies grow, trade barriers are
reduced, international travel accelerates and hotel owners seek the economies of
centralized reservation systems and marketing programs.

Based on lodging industry data, we have nearly an eight percent share of the
U.S. hotel market (based on number of rooms), less than a one percent share of
the lodging market outside the United States and a nine percent share of annual
worldwide timesharing sales of about $8 billion. We believe that our hotel
brands are attractive to hotel owners seeking a management company or franchise
affiliation, because our hotels typically generate higher occupancies and
Revenue per Available Room (REVPAR) than direct competitors in most market
areas. We attribute this performance premium to our success in achieving and
maintaining strong customer preference. Approximately 30 percent of our
ownership resort sales come from additional purchases by or referrals from
existing owners. We believe that the location and quality of our lodging
facilities, our marketing programs, reservation systems and our emphasis on
guest service and satisfaction are contributing factors across all of our
brands.

Properties that we operate or franchise are regularly upgraded to maintain
their competitiveness. Our management, lease, and franchise agreements provide
for the allocation of funds, generally a fixed percentage of revenue, for
periodic renovation of buildings and replacement of furnishings. We believe that
the ongoing refurbishment program is adequate to preserve the competitive
position and earning power of the hotels. We also strive to update and improve
the products and services we offer. We believe that by operating a number of
hotels in each of our brands, we stay in direct touch with customers and react
to changes in the marketplace more quickly than chains which rely exclusively on
franchising.

Marriott Rewards is a frequent guest program with a total of over 14 million
members, and nine participating Marriott brands. The Marriott Rewards program
yields repeat guest business due to rewarding frequent stays with points toward
free hotel stays and other rewards, or airline miles with any of 20
participating airline programs. We believe that Marriott Rewards generates
substantial repeat business that might otherwise go to competing hotels.

Marriott Senior Living Services

In our Senior Living Services business, we develop and operate both
"independent full-service" and "assisted living" senior living communities and
provide related senior care services. Most are rental communities with monthly
rates that depend on the amenities and services provided. We are one of the
largest U.S. operators of senior living communities in the quality tier.

At December 29, 2000 we operated 153 senior living communities in 30 states.

Communities Units (1)
----------- ----------
Independent full-service
- owned ......................................... 3 1,193
- operated under long-term agreements ........... 42 11,649
------ ------
45 12,842
Assisted living
- owned ......................................... 46 5,010
- operated under long-term agreements ........... 62 8,066
------ ------
108 13,076
------ ------
Total senior living communities ...................... 153 25,918
====== ======

(1) Units represent independent living apartments plus beds in assisted living
and nursing centers.

At December 29, 2000, we operated 45 independent full-service senior living
communities, which offer both independent living apartments and personal
assistance units for seniors. Most of these communities also offer licensed
nursing care.

At December 29, 2000, we also operated 108 assisted living senior living
communities principally under the names "Brighton Gardens by Marriott," "Village
Oaks," and "Marriott MapleRidge." Assisted living communities are for seniors
who benefit from assistance with daily activities such as bathing, dressing or
medication. Brighton Gardens is a quality-tier assisted living concept which
generally has 90 assisted living suites and in certain locations, 30 to 45
nursing beds in a community. In some communities, separate on-site centers also
provide specialized care for residents with Alzheimer's or other memory-related
disorders. Village Oaks is a moderately-priced assisted living concept which
emphasizes companion living and generally has 70 suites in a community. This
concept is geared for the cost conscious senior who benefits from the
companionship of another unrelated individual. Marriott MapleRidge assisted
living communities consist of a cluster of six or seven 14-room cottages which
offer residents a smaller scale, more intimate setting and family-like living at
a moderate price.

The assisted living concepts typically include three meals per day, linen and
housekeeping services, security, transportation, and social and recreational
activities. Additionally, skilled nursing and therapy services are generally
available to Brighton Gardens residents.

Terms of the senior living services management agreements vary but typically
include base management fees, ranging from four to six percent of revenues,
central administrative services reimbursements and incentive management fees.
Such agreements are generally for initial periods of five to 30 years, with
options to renew for up to 25 additional years. Under the leases covering
certain of the communities, we pay the owner fixed annual rent plus additional
rent equal to a percentage of the amount by which annual revenues exceed a fixed
amount.

Our Senior Living Services business competes mostly with local and regional
providers of long-term health care and senior living services, although there
are some national providers in the assisted living market. We compete by
operating well-maintained facilities, and by providing quality health care, food
service and other services at competitive prices. The reputation for service,
quality care and know how associated with the Marriott name is also attractive
to residents and their families. We have focused on developing relationships
with professionals who often refer seniors to senior living communities, such as
hospital discharge planners and physicians.

Marriott Distribution Services

MDS is a United States limited-line distributor of food and related supplies,
carrying an average of 3,000 product items per distribution center. This segment
originally focused on purchasing, warehousing and distributing food and supplies
to other Marriott businesses. However, MDS has increased its third-party
business to about 89 percent of total sales volume for the year ended December
29, 2000.

MDS operated a nationwide network of 13 distribution centers at December 29,
2000. Leased facilities are generally built to our specifications, and utilize a
narrow aisle concept and technology to enhance productivity.

Through MDS, we compete with numerous national, regional and local
distribution companies in the $147 billion U.S. food distribution industry. We
attract clients by adopting competitive pricing policies and by maintaining one
of the highest order fill rates in the industry. In addition, our limited
product lines, operating systems, and other economies provide a favorable cost
structure, which we are able to leverage in pursuing new business.

Employee Relations

At December 29, 2000, we had approximately 153,000 employees. Approximately
6,350 employees were represented by labor unions. We believe relations with our
employees are positive.

Other Properties

In addition to the operating properties discussed above, we lease an 870,000
square foot office building in Bethesda, Maryland, which serves, as our
headquarters.

We believe our properties are in generally good physical condition with need
for only routine repair and maintenance.

ITEM 3. LEGAL PROCEEDINGS

Certain legal proceedings which were settled during our 2000 fiscal year are
described in the "Contingent Liabilities" footnote in the financial statements
set forth in Part II, Item 8, "Financial Statements and Supplementary Data."
Other legal proceedings are incorporated by reference to the "Subsequent Events"
footnote in the financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Part II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The range of prices of our common stock and dividends declared per share for
each quarterly period within the last two years are as follows:

Stock Price Dividends
-------------------------------
Declared Per
High Low Share
------------- --------------- ------------

1999 First Quarter $ 39 15/16 $ 29 $ 0.050
Second Quarter 44 1/2 33 0.055
Third Quarter 38 1/2 33 5/16 0.055
Fourth Quarter 36 1/4 29 9/16 0.055

Stock Price Dividends
-------------------------------
Declared Per
High Low Share
------------- --------------- -------------

2000 First Quarter $ 34 3/4 $ 26 1/8 $ 0.055
Second Quarter 38 29 1/2 0.060
Third Quarter 42 3/8 34 5/8 0.060
Fourth Quarter 43 1/2 34 1/8 0.060

At November 30, 2001, there were 240,980,998 shares of Class A Common Stock
outstanding held by 53,756 shareholders of record. Our Class A Common Stock is
traded on the New York Stock Exchange, Chicago Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange.

ITEM 6. SELECTED HISTORICAL FINANCIAL DATA

The following table presents summary selected historical financial data for
the Company derived from our financial statements as of and for the five fiscal
years ended December 29, 2000.

Since the information in this table is only a summary and does not provide
all of the information contained in our financial statements, including the
related notes, you should read "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our Consolidated Financial
Statements. Per share data and Shareholders' Equity have not been presented for
periods prior to 1998 because we were not a publicly-held company during that
time.

Fiscal Year
-----------------------------------------------------------------------
2000 1999 1998 1997 1996/1/
------------ ----------- ---------- ---------- ----------
(in millions, except per share data)

Income Statement Data:
Sales ................................................... $10,080 $ 8,739 $ 7,968 $ 7,236 $ 5,738
Operating Profit Before
Corporate Expenses and Interest ....................... 922 830 736 609 508
Net Income .............................................. 479 400 390 324 270
Per Share Data:
Diluted Earnings Per Share .............................. 1.89 1.51 1.46
Cash Dividends Declared ................................. .235 .215 .195
Balance Sheet Data (at end of year):
Total Assets ............................................ 8,237 7,324 6,233 5,161 3,756
Long-Term and Convertible Subordinated Debt ............. 2,016 1,676 1,267 422 681
Shareholders' Equity .................................... 3,267 2,908 2,570
Other Data:
Systemwide Sales/2/ ..................................... 19,781 17,684 16,024 13,196 9,899

-----------------------
/1/ Fiscal year 1996 includes 53 weeks, all other years include 52 weeks.
/2/ Systemwide sales comprise revenues generated from guests at managed,
franchised, owned, and leased, hotels and senior living communities,
together with sales generated by our other businesses. We consider
systemwide sales to be a meaningful indicator of our performance because it
measures the growth in revenues of all of the properties that carry one of
the Marriott brand names. Our growth in profitability is in large part
driven by such overall revenue growth. Nevertheless, systemwide sales should
not be considered an alternative to revenues, operating profit, net income,
cash flows from operations, or any other operating measure prescribed by
accounting principles generally accepted in the United States. In addition,
systemwide sales may not be comparable to similarly titled measures, such as
sales and revenues, which do not include gross sales generated by managed
and franchised properties.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

General

The following discussion presents an analysis of results of our operations
for fiscal years ended December 29, 2000, December 31, 1999, and January 1,
1999. Revenue per available rooms (REVPAR) is calculated by dividing room sales
for comparable properties by room nights available to guests for the period. We
consider REVPAR to be a meaningful indicator of our performance because it
measures the period over period growth in room revenues for comparable
properties. REVPAR may not be comparable to similarly titled measures such as
revenues. Comparable REVPAR, room rate and occupancy statistics used throughout
this report are based on U.S. properties operated by us except for Fairfield
Inn, which data also include franchised units. Systemwide sales and statistics
include data from our franchised properties, in addition to our owned, leased
and managed properties. Systemwide statistics are based on comparable worldwide
units and reflect the impact of foreign exchange rates.

In 1998 we changed our accounting policy to no longer include the working
capital and sales of managed hotels and managed senior living communities in our
financial statements. Instead, our sales include fees earned plus costs
recovered from owners of managed properties.

Consolidated Results

2000 Compared to 1999

Net income increased 20 percent to $479 million and diluted earnings per
share advanced 25 percent to $1.89. Profit growth was driven by our strong U.S.
lodging operations, lower system-related costs associated with the year 2000 and
the impact on the 1999 financial results of a $39 million pretax charge to
reflect a litigation settlement. Results were also impacted by a $15 million
one-time write-off of a contract investment in our Distribution Services segment
in the first quarter of 2000.

Sales increased 15 percent to $10 billion in 2000, reflecting strong revenue
resulting from new and established hotels, contributions from established Senior
Living communities, as well as new customers in our Distribution Services
business. Systemwide sales increased by 12 percent to $19.8 billion in 2000.

1999 Compared to 1998

Net income increased three percent to $400 million in 1999 and diluted
earnings per share advanced three percent to $1.51. Overall profit growth in
1999 was curtailed by a $39 million pretax charge to reflect an agreement to
settle litigation, incremental costs of our Year 2000 readiness efforts, and an
operating loss in our Senior Living Services business.

Sales increased 10 percent to $8.7 billion in 1999, reflecting revenue gains
at established hotels, and contributions from new lodging properties and Senior
Living communities. Systemwide sales grew 10 percent to $17.7 billion in 1999.

Marriott Lodging

Annual Change
-----------------------------
(dollars in millions) 2000 1999 1998 00/99 99/98
------------------------------- ------------ ------------- ------------ ------------ --------------

Sales ......................... $7,911 $7,041 $6,311 +12% +12%
Operating profit .............. 936 827 704 +13% +17%

2000 Compared to 1999

Marriott Lodging, which includes our full service, select service, extended
stay, and timeshare segments, reported a 13 percent increase in operating profit
on 12 percent higher sales in 2000. Results reflected solid room rate growth at
U.S. hotels, and contributions from new properties worldwide. Lodging operating
profit in 2000 was attributable to base management fees (28 percent of total),
franchise fees (17 percent), land rent and other income (three percent), resort
timesharing (15 percent), and incentive management fees and other profit
participations (37 percent).

Across our full-service lodging brands (Marriott Hotels, Resorts and Suites,
Renaissance Hotels, Resorts and Suites and Ritz-Carlton), REVPAR for comparable
company-operated U.S. properties grew by an average of 7.2 percent in 2000.
Average room rates for these hotels rose 6.3 percent, while occupancy increased
slightly to 77.4 percent. In 2000, as a result of the termination of two
Ritz-Carlton management agreements, we wrote off our $3 million investment in
these contracts. In addition, due to the bankruptcy of the owner of one hotel,
we reserved $6 million of our investment in that management agreement.

Our domestic select-service and extended-stay brands (Residence Inn,
Courtyard, Fairfield Inn, TownePlace Suites and SpringHill Suites) added a total
of 161 properties (18,870 rooms) and deflagged seven properties (1,500 rooms),
primarily franchises, during the 2000 fiscal year. REVPAR for comparable
properties increased 5.5 percent.

Comparable Comparable
U.S. properties Systemwide
-------------------------------- ---------------------------------
Change vs. Change vs.
2000 1999 2000 1999
------------ --------------- ------------- ----------------

Marriott Hotels, Resorts and Suites
Occupancy .......................... 78.2% +0.4% pts. 75.7% +0.4% pts.
Average daily rate ................. $ 149.50 +6.2% $ 136.37 +4.9%
REVPAR ............................. $ 116.95 +6.8% $ 103.27 +5.5%

Ritz-Carlton
Occupancy .......................... 77.5% +0.1% pts. 77.5% +2.0% pts.
Average daily rate ................. $ 242.26 +9.2% $ 228.01 +8.9%
REVPAR ............................. $ 187.75 +9.4% $ 176.75 +11.9%

Renaissance Hotels, Resorts and Suites
Occupancy .......................... 73.3% +2.0% pts. 70.9% +2.7% pts.
Average daily rate ................. $ 142.27 +4.5% $ 119.95 +3.0%
REVPAR ............................. $ 104.35 +7.5% $ 85.07 +7.0%

Residence Inn
Occupancy .......................... 83.5% +0.7% pts. 82.2% +0.8% pts.
Average daily rate ................. $ 104.88 +5.1% $ 102.25 +4.3%
REVPAR ............................. $ 87.61 +6.1% $ 84.10 +5.3%

Courtyard
Occupancy .......................... 78.9% - pts. 77.0% +0.2% pts.
Average daily rate ................. $ 97.68 +5.7% $ 93.51 +4.9%
REVPAR ............................. $ 77.05 +5.7% $ 71.96 +5.1%

Fairfield Inn
Occupancy .......................... 69.7% -1.0% pts. 69.7% -1.0% pts.
Average daily rate ................. $ 61.32 +3.8% $ 61.32 +3.8%
REVPAR ............................. $ 42.75 +2.4% $ 42.75 +2.4%

Results for international lodging operations were favorable in 2000, despite
a decline in the value of the Euro against the U.S. dollar, reflecting strong
demand in the Middle East, Asia, Europe and the Caribbean region.

Marriott Vacation Club International also posted favorable profit growth in
2000, reporting a 34 percent increase in contract sales. The increase in
contract sales reflects interest in our newest brands, Horizons by Marriott
Vacation Club in Orlando, Florida, and The Ritz-Carlton Club resorts in St.
Thomas, U.S. Virgin Islands, and Aspen, Colorado, as well as continued strong
demand for our timeshare properties in Hawaii, Aruba and California. The profit
growth in 2000 was impacted by a $6 million decline in gains from the sale of
notes receivable arising from lower note sale volume. At the end of the year, 24
resorts were in active sales, 23 resorts were sold out and an additional 13
resorts were under development.

The Marketplace by Marriott (Marketplace), our hospitality procurement
business, prepared for its launch as an independent company. In January 2001,
Marriott and Hyatt Corporation formed a joint venture, Avendra LLC, and

we each merged our respective procurement businesses into it. Avendra LLC, is an
independent professional procurement services company serving the North American
hospitality market and related industries. Bass Hotels & Resorts, Inc., ClubCorp
USA Inc. and Fairmont Hotels & Resorts, Inc. joined Avendra LLC in May 2001.

1999 Compared to 1998

Marriott Lodging reported a 17 percent increase in operating profit and 12
percent higher sales in 1999. Results reflected higher room rates for U.S.
hotels, contributions from new hotels worldwide, and strong interval sales in
resort timesharing. Lodging operating profit in 1999 was attributable to base
management fees (27 percent of total), franchise fees (17 percent) and land rent
(three percent) that are based on fixed dollar amounts or percentages of sales.
The balance was attributable to our timesharing business (15 percent), and to
incentive management fees and other income based on the profits of the
underlying properties (38 percent).

Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 3.7 percent in 1999. Average room rates for
these hotels rose 3.6 percent, while occupancy remained at 77.5 percent.
Occupancy, average daily rate and REVPAR for each of our principal established
brands are shown in the following table.

Comparable Comparable
U.S. properties Systemwide
-------------------------------- -------------------------------
Change vs. Change vs.
1999 1998 1999 1998
------------ --------------- ------------- --------------

Marriott Hotels, Resorts and Suites
Occupancy........................... 77.5% -0.1% pts. 75.6% +0.8% pts.
Average daily rate.................. $ 140.86 +3.9% $ 131.61 +2.3%
REVPAR.............................. $ 109.22 +3.9% $ 99.55 +3.3%

Ritz-Carlton
Occupancy........................... 77.8% +3.4% pts. 76.4% +3.9% pts.
Average daily rate.................. $ 219.37 +5.5% $ 207.28 +4.8%
REVPAR.............................. $ 170.67 +10.3% $ 158.28 +10.4%

Renaissance Hotels, Resorts and Suites
Occupancy........................... 70.8% +0.5% pts. 68.1% +0.8% pts.
Average daily rate.................. $ 132.09 +2.1% $ 115.65 -1.5%
REVPAR.............................. $ 93.54 +2.9% $ 78.75 -0.4%

Residence Inn
Occupancy........................... 83.0% -0.1% pts. 81.9% -0.1% pts.
Average daily rate.................. $ 99.03 +0.9% $ 97.95 +1.7%
REVPAR.............................. $ 82.23 +0.8% $ 80.20 +1.5%

Courtyard
Occupancy........................... 79.3% -0.1% pts. 77.3% +0.3% pts.
Average daily rate.................. $ 91.48 +2.8% $ 88.59 +2.6%
REVPAR.............................. $ 72.53 +2.7% $ 68.48 +3.0%

Fairfield Inn
Occupancy........................... 71.0% -2.2% pts. 71.0% -2.2% pts.
Average daily rate.................. $ 58.87 +3.3% $ 58.76 +3.1%
REVPAR.............................. $ 41.80 +0.1% $ 41.75 -

International hotel operations posted improved results in 1999, reflecting
profit growth for properties in continental Europe, the Middle East, Latin
America and the Caribbean region.

Marriott Vacation Club International achieved a 22 percent increase in
contract sales in 1999, as well as higher income from resort management. Strong
interval sales were generated at timeshare resorts in Florida, South Carolina,
Hawaii and Spain. During 1999, we had 21 resorts in active sales, including the
initial project (Orlando, Florida) for Horizons by Marriott Vacation Club, a new
product line targeting the moderate price tier of the timeshare market.

Marriott Senior Living Services

Annual Change
-----------------------------
(dollars in millions) 2000 1999 1998 00/99 99/98
------------------------------------ ------------- ------------- ------------- ------------- --------------

Sales............................... $669 $559 $479 +20% +17%
Operating (loss) profit............. (18) (18) 15 - n/m

2000 Compared to 1999

Marriott Senior Living Services posted a 20 percent increase in sales in
2000, reflecting the net addition of nine properties during the year and a four
percentage point increase in occupancy for comparable communities to 88 percent.
Despite the increase in sales, profitability was impacted by start-up
inefficiencies for new properties, higher administrative expenses, pre-opening
costs for new communities, costs related to debt associated with facilities
developed by unaffiliated third parties, and charges associated with our
decision to limit new construction until the market improves, resulting in a
loss of $18 million.

1999 Compared to 1998

Marriott Senior Living Services posted a 17 percent increase in sales in
1999, as we added a net total of 31 new communities (4,216 living units) during
the year. Occupancy for comparable communities increased by nearly one
percentage point to 90 percent in 1999.

The division reported an operating loss in 1999, primarily as a result of $18
million of pre-opening costs for new communities, increased accounts receivable
reserves, and one-time charges associated with our decision to slow new
construction until market conditions improve.

Marriott Distribution Services

Annual Change
-----------------------------
(dollars in millions) 2000 1999 1998 00/99 99/98
------------------------------------- ------------- ------------ -------------- ------------- -----------

Sales $1,500 $1,139 $1,178 +32% -3%
Operating profit 4 21 17 -81% +24%

2000 Compared to 1999

Marriott Distribution Services (MDS) posted a 32 percent increase in sales
for 2000, reflecting the commencement of service to three large restaurant
chains in the year. Operating profit declined $17 million as a result of
start-up inefficiencies associated with the new business and a $15 million
pretax write-off of an investment in a contract with Boston Chicken, Inc. and
its Boston Market-controlled subsidiaries, a major customer that filed for
bankruptcy in October 1998. McDonald's Corporation (McDonald's) acquired Boston
Market in 2000, and during the first quarter of 2000, MDS entered into an
agreement with McDonald's to continue providing distribution services to Boston
Market restaurants (refer to the "Intangible Assets" footnote in the financial
statements set forth in Part II, Item 8, "Financial Statements and Supplementary
Data").

1999 Compared to 1998

Operating profit for Marriott Distribution Services increased 24 percent in
1999 on a modest decline in sales. The division benefited from higher gross
margins per case and reduced inventory losses compared to 1998.

Corporate Expenses, Interest and Taxes

2000 Compared to 1999

Corporate expenses decreased $44 million in 2000 to $120 million primarily
due to a $39 million pretax charge in 1999 associated with a litigation
settlement and systems-related costs associated with Year 2000 that were
incurred in 1999, offset by costs incurred in 2000 associated with new corporate
systems and a $3 million charge due to a change in our vacation accrual policy.
Interest expense increased $39 million as a result of borrowings to finance
growth outlays and share repurchases. Interest income increased $23 million
primarily due to the collection of $14 million of interest associated with an
international loan that was previously reserved for and increased advances and
loan fundings made during 2000. Our effective income tax rate decreased to
approximately 36.8 percent in 2000 from 37.3 percent in 1999 primarily due to
increased income in countries with lower effective tax rates.

1999 Compared to 1998

Corporate expenses increased to $164 million in 1999 primarily due to a $39
million pretax charge associated with an agreement to settle pending litigation,
together with increased systems-related costs, including $22 million of costs
associated with our Year 2000 readiness program, compared to $12 million of Year
2000 readiness program costs in 1998. Interest expense more than doubled to $61
million as a result of borrowings to finance growth outlays and share
repurchases. Our effective income tax rate decreased to approximately 37.3
percent in 1999 from 38.3 percent in 1998, primarily due to the impact of
tax-oriented investments, and increased income in countries with lower effective
tax rates.

Lodging Development

Marriott Lodging opened 238 properties totaling approximately 40,000 rooms
across its brands in 2000, while 19 hotels (approximately 5,400 rooms) exited
the system. Highlights of the year included:

. Twenty-two full-service properties (approximately 5,400 rooms) opened
outside the United States. These include our first hotels in Romania,
Chile and Peru.

. Fifty-five hotels (approximately 11,700 rooms) converted from
independent status or competitor chains, including the 782-room
Renaissance Hotel in Honolulu, Hawaii, the 577-room Renaissance Hotel in
Kissimee, Florida, and the 349-room Renaissance Hotel in Miami Beach,
Florida.

. The addition of 161 properties (approximately 18,900 rooms) to our
select-service and extended-stay brands.

. The launch of The Ritz-Carlton Club resorts in Aspen, Colorado, and St.
Thomas, U.S. Virgin Islands, the development of a Horizons by Marriott
Vacation Club resort in Branson, Missouri, and a new Marriott Vacation
Club International resort in Shadow Ridge, California.

At year-end 2000, we had over 400 hotel properties and more than 70,000 rooms
under construction or approved for development. We expect to open over 200
hotels and timesharing resorts (more than 35,000 rooms) in 2001. Over a
five-year period (1999 to 2003), we plan to add 175,000 rooms to our lodging
system. These growth plans are subject to numerous risks and uncertainties, many
of which are outside our control. See "Forward-Looking Statements" above and
"Liquidity and Capital Resources" below.

Senior Living Services Development

Due to oversupply conditions in some senior housing markets, we decided in
1999 to dramatically slow development of planned communities. Consequently, a
number of projects in the early stages of development were postponed or
cancelled. Additional projects were cancelled in the second and fourth quarters
of 2000.

Liquidity and Capital Resources

We have credit facilities, which support our commercial paper program and
letters of credit. At December 29, 2000, our cash balances combined with our
available borrowing capacity under the credit facilities was $2.3 billion. We
consider these resources, together with cash expected to be generated by
operations, adequate to meet our short-term and long-term liquidity
requirements, to finance our long-term growth plans, and to meet debt service
and other cash requirements. We monitor the status of the capital markets, and
regularly evaluate the effect that changes in capital market conditions may have
on our ability to execute our announced growth plans.

The Company has been adversely affected in the aftermath of the recent
terrorist attacks on New York and Washington. Since the attacks, our hotels have
experienced significant short-term declines in occupancy compared to the prior
year. At present, it is not possible to predict either the severity or duration
of such declines in the medium- or long-term, or the potential impact on the
Company's results of operations, financial condition or cash flows. However, as
a result of the significant short-term declines in occupancy, the Company has
taken steps to reduce costs, including reductions in staff. The Company is
undertaking a comprehensive analysis of its cost structure including, among
other things, overall staffing levels and facilities related costs. Furthermore,
the Company is evaluating hotel financial performance subsequent to September
11, 2001 and its impact on the Company's investments and contingent obligations.
Declines in hotel profitability reduce management and franchise fees and could
give rise to fundings or losses under investments and contingent obligations
that we have made in connection with hotels that we manage or franchise. The
outcome of the Company's analysis may result in charges to operations and
potentially a material adverse impact on our financial position, results of
operations and cashflows.

Cash from Operations

Cash from operations was $850 million in 2000, $711 million in 1999, and $605
million in 1998. Net income is stated after depreciation expense of $123 million
in 2000, $96 million in 1999, and $76 million in 1998, and after amortization
expense of $72 million in 2000, $66 million in 1999 and $64 million in 1998.
While our timesharing business generates strong operating cash flow, annual
amounts are affected by the timing of cash outlays for the acquisition and
development of new resorts, and cash received from purchaser financing. We
include interval sales we finance in cash from operations when we collect cash
payments or the notes are sold for cash.

Earnings before interest expense, income taxes, depreciation and amortization
(EBITDA) increased to $1,052 million in 2000 compared to $860 million in 1999,
and $802 million in 1998, and has grown at a 19 percent compounded annual rate
since 1995.

We consider EBITDA to be an indicator of our operating performance because it
can be used to measure our ability to service debt, fund capital expenditures
and expand our business. Nevertheless, one should not consider EBITDA an
alternative to net income, operating profit, cash flows from operations, or any
other operating or liquidity measure prescribed by accounting principles
generally accepted in the United States.

A substantial portion of our EBITDA is based on fixed dollar amounts or
percentages of sales. These include lodging base management fees, franchise fees
and land rent. With more than 2,000 hotels and senior living communities in the
Marriott system, no single property or region is critical to our financial
results.

Our ratio of current assets to current liabilities was .74 at December 29,
2000, compared to .92 at December 31, 1999. Each of our businesses minimizes
working capital through cash management, strict credit-granting policies,
aggressive collection efforts and high inventory turnover.

Investing Activities Cash Flows

Acquisitions. We continually seek opportunities to enter new markets,
increase market share or broaden service offerings through acquisitions.

Dispositions. Asset sales generated proceeds of $742 million in 2000, $436
million in 1999 and $332 million in 1998. Proceeds in 2000 are net of $79
million of financing and joint venture investments made by us in connection with
the sales transactions. In 2000 we closed on the sales of 23 hotels and 15
senior living communities, which we continue to operate under long-term
operating agreements. Subsequent to year-end, we closed on 16 lodging properties
and one senior living community for cash proceeds of $361 million.

Capital Expenditures and Other Investments. Capital expenditures of $1,095
million in 2000, $929 million in 1999 and $937 million in 1998, included
development and construction of new hotels and senior living communities and
acquisitions of hotel properties. Over time, we expect to sell certain lodging
and senior living properties under development, or to be developed, while
continuing to operate them under long-term agreements.

We also expect to continue to make other investments to grow our businesses,
including loans, minority equity investments and development of new timeshare
resorts in connection with adding units to our lodging business.

On February 23, 2000, we entered into an agreement to resolve litigation
involving certain limited partnerships formed in the mid-to late 1980s. Under
the agreement, we paid $31 million to partners in four limited partnerships and
acquired, through an unconsolidated joint venture (the Courtyard Joint Venture)
with affiliates of Host Marriott Corporation (Host Marriott), substantially all
of the limited partners' interests in two other limited partnerships, Courtyard
by Marriott Limited Partnership (CBM I) and Courtyard by Marriott II Limited
Partnership (CBM II). These partnerships own 120 Courtyard by Marriott hotels.
The Courtyard Joint Venture was financed with equity contributed in equal shares
by us and affiliates of Host Marriott and approximately $200 million in
mezzanine debt provided by us. Our total investment in the joint venture,
including mezzanine debt, is approximately $300 million.

In early 2000, the Company estimated the amount of the planned investment in
the Courtyard Joint Venture based upon (1) estimated post acquisition cash
flows, including anticipated changes in the related hotel management agreements
to be made contemporaneously with the investment; (2) the investee's new capital
structure; and (3) estimates of prevailing discount rates and capitalization
rates reflected in the market at that time. The investment in the Courtyard
Joint Venture was consummated late in the fourth quarter of 2000. For purposes
of purchase accounting, the Courtyard Joint Venture valued its investment in the
partnership units based on (1) pre-acquisition cash flows; (2) the
pre-acquisition capital structure; and (3) prevailing discount rates and
capitalization rates in December 2000.

Due to a number of factors, the equity values used in the purchase accounting
for the Courtyard Joint Venture's investment were different than limited partner
unit estimates included in the CBM I and CBM II Purchase Offer and Consent
Solicitations (the "Solicitations"). At a 20 percent discount rate, the combined
CBM I and CBM II estimates reflected in the Solicitations totaled $254 million.
In the purchase accounting, the corresponding equity value in the Courtyard
Joint Venture totaled $372 million. The principal differences between these two
amounts are attributed to the following: (1) the investment was consummated
almost one year subsequent to the time the original estimates were prepared ($30
million); and (2) a lower discount rate (17 percent) and capitalization rate
reflecting changes in market conditions versus the date at which the estimates
in the solicitations were prepared ($79 million). The Company assessed its
potential investment and any potential loss on settlement based on
post-acquisition cash flows. The purchase accounting was based on
pre-acquisition cash flows and capital structure. As a result, the factors
giving rise to the differences outlined above did not materially impact the
Company's previous assessment of any expense related to litigation. The
post-settlement equity of the Joint Venture is considerably lower then the
pre-acquisition equity due to additional indebtedness post-acquisition and the
impact of changes to the management agreements made contemporaneously with the
transaction.

The overall results of our Lodging businesses are not generally impacted by
fluctuations in the values of hotel real estate because (1) we own less than one
percent of the total number of hotels that we operate or franchise; (2)
management and franchise fees are generally based upon hotel revenues and
profits versus hotel sales values; and (3) our management agreements generally
do not terminate upon hotel sale.

We have made loans to owners of hotels and senior living communities that we
operate or franchise. Loans outstanding under this program totaled $592 million
at December 29, 2000, including the mezzanine debt related to the Courtyard
Joint Venture, $295 million at December 31, 1999, and $213 million at January 1,
1999. Unfunded commitments aggregating $829 million were outstanding at December
29, 2000, of which $332 million are expected to be funded in 2001 and $573
million are expected to be funded in total. These loans typically are secured by
mortgages on the projects. We participate in a program with an unaffiliated
lender in which we may partially guarantee loans made to facilitate third-party
ownership of hotels and senior living services communities that we operate or
franchise.

Cash from Financing Activities

Long-term debt increased by $340 million in 2000 and $409 million in 1999,
primarily to finance our capital expenditure and share repurchase programs.

Our financial objectives include diversifying our financing sources,
optimizing the mix and maturity of our long-term debt and reducing our working
capital. At year-end 2000, our long-term debt (including commercial paper
borrowings of $827 million) had an average interest rate of 6.8 percent and an
average maturity of approximately 4.7 years. The ratio of fixed rate long-term
debt to total long-term debt was .59 as of December 29, 2000.

In April 1999, January 2000 and January 2001, we filed "universal shelf"
registration statements with the Securities and Exchange Commission in the
amounts of $500 million, $300 million and $300 million, respectively. As of
August 3, 2001, we had offered and sold to the public under these registration
statements, $300 million of debt securities at 7 7/8 %, due 2009 and $300
million at 8 1/8 %, due 2005, leaving a balance of $500 million available for
future offerings.

In January 2001, we issued, through a private placement, $300 million of
seven percent senior unsecured notes due 2008, and received net proceeds of $297
million. We have agreed to make and complete a registered exchange offer for
these notes and, if required, to implement a resale shelf registration
statement. If we fail to do so on a timely basis, we will pay additional
interest to the holders of these notes. The registered exchange offer is
expected to be completed in the second half of 2001 and significant additional
interest payments are not anticipated.

We have entered into revolving credit agreements that provide for borrowings
of $1.5 billion expiring in March 2003, and $500 million expiring in February
2004. Loans of $26 million were outstanding at December 29, 2000, under these
facilities, which support our commercial paper program and letters of credit. We
had $1.1 billion of unused revolving credit available under these facilities as
of December 29, 2000. Borrowings under these facilities bear interest at LIBOR
plus a spread, based on our public debt rating.

Cash from Financing Activities

Long-term debt increased by $340 million in 2000 and $409 million in 1999,
primarily to finance our capital expenditure and share repurchase programs.

We have entered into revolving credit agreements that provide for
borrowings of $1.5 billion expiring in March 2003, and $500 million expiring in
February 2004. Loans of $26 million were outstanding at December 29, 2000, under
these facilities, which support our commercial paper program and letters of
credit. We had $1.1 billion of unused revolving credit available under these
facilities as of December 29, 2000. Borrowings under these facilities bear
interest at LIBOR plus a spread, based on our public debt rating.

We called for mandatory redemption of our Liquid Yield Option Notes (LYONs)
in 1999. Approximately 64 percent of LYONs holders elected to convert their
notes to common stock, for which we issued 6.1 million shares. The other 36
percent of LYONs holders received cash totaling $120 million, which reduced by
3.4 million common shares the dilutive impact of these convertible debt
securities issued by a predecessor company in 1996. Nine percent of the cash
redemption price was reimbursed to us by our predecessor company (Sodexho
Marriott Services, Inc.).

On May 8, 2001, we issued zero-coupon convertible senior notes due 2021,
known as LYONs, and received cash proceeds of $405 million. The LYONs are
convertible into approximately 6.4 million shares of our Class A common stock
and carry a yield to maturity of 0.75 percent.

We determine our debt capacity based on the amount and variability of our
cash flows. EBITDA coverage of gross interest cost was 6.9 times in 2000, and
cash flow requirements under our loan agreements were exceeded by a substantial
margin. At December 29, 2000, we had public debt ratings of BBB+ and Baa1 from
Standard and Poor's and Moody's, respectively.

Share Repurchases. We periodically repurchase our common stock to replace
shares needed for employee stock plans and for other corporate purposes. We
purchased 10.8 million of our shares in 2000 at an average price of $31 per
share, and 10.8 million shares in 1999 at an average price of $33 per share. As
of December 29, 2000, we had been authorized by our Board of Directors to
repurchase an additional 19.6 million shares.

Dividends. In August 2000, our Board of Directors increased the quarterly
cash dividend by nine percent to $.06 per share and in August 2001, our Board of
Directors increased the quarterly cash dividend by an additional eight percent
to $.065 per share.

Other Matters

Einstein/Noah Bagel Corporation

In 1996, MDS became the exclusive provider of distribution services to
Einstein/Noah Bagel Corp. (ENBC), which operates over 450 bagel shops in 29
states and the District of Columbia. In March 2000, ENBC disclosed that its
independent auditors had expressed substantial doubt about ENBC's ability to
continue as a going concern, due to its inability to meet certain financial
obligations. On April 27, 2000, ENBC and its majority-owned operating subsidiary
filed voluntary bankruptcy petitions for protection under Chapter 11 of the
Federal Bankruptcy code in the U.S. Bankruptcy Court for the District of Arizona
in Phoenix. On April 28, 2000, the Court approved a $31 million
debtor-in-possession credit facility to allow for operation of the companies
during reorganization, and also approved the payment in the ordinary course of
business of prepetition trade creditor claims, including those of MDS, subject
to recovery by the debtors under certain circumstances. On July 27, 2000, the
Court entered an order approving ENBC's assumption of the MDS contract. MDS
continues to distribute to ENBC and has been receiving full payment in
accordance with the terms of its contractual agreement. On June 19, 2001, ENBC
was acquired by New World Coffee-Manhattan Bagel Inc. and the contract was
assumed by the new owner.

Inflation

Inflation has been moderate in recent years, and has not had a significant
impact on our businesses.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates. We manage our
exposure to this risk by monitoring available financing alternatives and through
development and application of credit granting policies. Our strategy to manage
exposure to changes in interest rates is unchanged from December 31, 1999.
Furthermore, we do not foresee any significant changes in our exposure to
fluctuations in interest rates or in how such exposure is managed in the near
future.

The following sensitivity analysis displays how our earnings and the fair
values of certain instruments we hold are affected by changes in interest rates.

We hold notes receivable that earn interest at variable rates.
Hypothetically, an immediate one percentage point change in interest rates would
change annual interest income by $3 million, based on the balances of these
notes receivable at December 29, 2000 and December 31, 1999.

Changes in interest rates also impact the fair value of our long-term fixed
rate debt and long-term fixed rate notes receivable. Based on the balances
outstanding at December 29, 2000, and December 31, 1999, a hypothetical
immediate one percentage point change in interest rates would change the fair
value of our long-term fixed rate debt by $50 million and $41 million,
respectively, and would change the fair value of long-term fixed rate notes
receivable by $22 million and $5 million, respectively.

Although commercial paper is classified as long-term debt (based on our
ability and intent to refinance it on a long-term basis) all commercial paper
matures within two months of year-end. Based on the balances of commercial paper
outstanding at December 29, 2000, and December 31, 1999, a hypothetical one
percentage point change in interest rates would change interest by $8 million
for both periods, on an annualized basis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial information is included on the pages indicated:

Page
----------
Report of Independent Public Accountants .......................... 24

Consolidated Statement of Income .................................. 25

Consolidated Balance Sheet ........................................ 26

Consolidated Statement of Cash Flows .............................. 27

Consolidated Statement of Comprehensive Income .................... 28

Consolidated Statement of Shareholders' Equity .................... 29

Notes to Consolidated Financial Statements ........................ 30-55

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Marriott International, Inc.:

We have audited the accompanying consolidated balance sheet of Marriott
International, Inc. and subsidiaries as of December 29, 2000 and December 31,
1999, and the related consolidated statements of income as revised - see page
31 of notes to consolidated financial statements, cash flows and comprehensive
income for each of the three fiscal years in the period ended December 29, 2000
and the consolidated statement of shareholders' equity for each of the two
fiscal years ended December 29, 2000 and the period from March 27, 1998 to
January 1, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
an audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As explained on page 31 of the notes to consolidated financial statements,
Marriott International, Inc. has revised its consolidated financial statements
to change the method of accounting for the Marriott Rewards Program in
accordance with Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in
Financial Statements." The effect of adopting SAB No. 101 on January 1, 2000 was
to increase both the revenues and expenses by $63 million. However, there was no
change in financial position, cash flows, net income or basic and diluted
earnings per share. The consolidated statements of income for each of the three
fiscal years in the period ended December 29, 2000 were revised to present
expanded line items related to sales and operating costs and expenses. In
addition, Marriott International, Inc. added additional information regarding
reportable segments under SFAS 131 "Disclosures about Segments of an Enterprise
and Related Information" and certain other disclosures to the notes to
consolidated financial statements.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marriott International, Inc.
and subsidiaries as of December 29, 2000 and December 31, 1999, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 29, 2000 in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Vienna, Virginia
December 4, 2001

MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
Fiscal Years Ended December 29, 2000, December 31, 1999 and January 1, 1999
($ in millions, except per share amounts)

2000 1999 1998
-------------- -------------- --------------
As revised As revised As revised

SALES

Management and franchise fees ...................................... $ 940 $ 823 $ 744
Distribution services .............................................. 1,500 1,139 1,178
Other .............................................................. 2,002 1,593 1,173
-------- -------- --------
4,442 3,555 3,095
Other revenues from managed properties ............................. 5,638 5,184 4,873
-------- -------- --------
10,080 8,739 7,968
-------- -------- --------

OPERATING COSTS AND EXPENSES

Distribution services .............................................. 1,496 1,118 1,161
Other .............................................................. 2,024 1,607 1,198
-------- -------- --------
3,520 2,725 2,359
Other costs from managed properties ................................ 5,638 5,184 4,873
-------- -------- --------
9,158 7,909 7,232
-------- -------- --------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST ...................................................... 922 830 736
Corporate expenses .................................................. (120) (164) (110)
Interest expense .................................................... (100) (61) (30)
Interest income ..................................................... 55 32 36
-------- -------- --------
INCOME BEFORE INCOME TAXES .......................................... 757 637 632
Provision for income taxes .......................................... 278 237 242
-------- -------- --------
NET INCOME .......................................................... $ 479 $ 400 $ 390
======== ======== ========

Basic Earnings Per Share .......................................... $ 1.99 $ 1.62 $ 1.56
======== ======== ========

Diluted Earnings Per Share ........................................ $ 1.89 $ 1.51 $ 1.46
======== ======== ========

See Notes To Consolidated Financial Statements

MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
December 29, 2000 and December 31, 1999
($ in millions)

December 29, December 31,
2000 1999
-------------- ------------

ASSETS

Current assets
Cash and equivalents ........................................ $ 334 $ 489
Accounts and notes receivable ............................... 728 740
Inventories, at lower of average cost or market ............. 97 93
Prepaid taxes ............................................... 197 220
Other ....................................................... 59 58
-------------- -------------
1,415 1,600
-------------- -------------

Property and equipment ......................................... 3,241 2,845
Intangible assets .............................................. 1,833 1,820
Investments in affiliates ...................................... 747 294
Notes and other receivables .................................... 661 473
Other .......................................................... 340 292
-------------- -------------
$ 8,237 $ 7,324
============== =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable ............................................ $ 660 $ 628
Accrued payroll and benefits ................................ 440 399
Self-insurance .............................................. 27 36
Other payables and accruals ................................. 790 680
-------------- -------------
1,917 1,743
-------------- -------------

Long-term debt ................................................. 2,016 1,676
Self-insurance ................................................. 122 142
Other long-term liabilities .................................... 915 855
Shareholders' equity
ESOP preferred stock ........................................ - -
Class A common stock, 255.6 million shares issued ........... 3 3
Additional paid-in capital .................................. 3,590 2,738
Retained earnings ........................................... 851 508
Unearned ESOP shares ........................................ (679) -
Treasury stock, at cost ..................................... (454) (305)
Accumulated other comprehensive income ...................... (44) (36)
-------------- -------------
3,267 2,908
-------------- -------------
$ 8,237 $ 7,324
============== =============

See Notes To Consolidated Financial Statements

MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Years Ended December 29, 2000, December 31, 1999 and January 1, 1999
($ in millions)

2000 1999 1998
---------- ---------- -----------

OPERATING ACTIVITIES
Net income ................................................................ $ 479 $ 400 $ 390
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization ........................................... 195 162 140
Income taxes ............................................................ 133 87 76
Timeshare activity, net ................................................. (195) (102) 28
Other ................................................................... 48 19 (22)
Working capital changes:
Accounts receivable ..................................................... (53) (126) (104)
Inventories ............................................................. (4) (17) 15
Other current assets .................................................... 28 (38) (16)
Accounts payable and accruals ........................................... 219 326 98
------- ------- -------
Cash provided by operations ............................................... 850 711 605
------- ------- -------

INVESTING ACTIVITIES
Capital expenditures ...................................................... (1,095) (929) (937)
Acquisitions .............................................................. - (61) (48)
Dispositions .............................................................. 742 436 332
Loan advances ............................................................. (389) (144) (48)
Loan collections and sales ................................................ 93 54 169
Other ..................................................................... (377) (143) (192)
------- ------- -------
Cash used in investing activities ......................................... (1,026) (787) (724)
------- ------- -------

FINANCING ACTIVITIES
Commercial paper, net ..................................................... 46 355 426
Issuance of long-term debt ................................................ 338 366 868
Repayment of long-term debt ............................................... (26) (63) (473)
Redemption of convertible subordinated debt ............................... - (120) -
Issuance of Class A common stock .......................................... 58 43 15
Dividends paid ............................................................ (55) (52) (37)
Purchase of treasury stock ................................................ (340) (354) (398)
Advances to Old Marriott .................................................. - - (100)
------- ------- -------
Cash provided by financing activities ..................................... 21 175 301
------- ------- -------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS .................................. (155) 99 182
CASH AND EQUIVALENTS, beginning of year ...................................... 489 390 208
------- ------- -------
CASH AND EQUIVALENTS, end of year ............................................ $ 334 $ 489 $ 390
======= ======= =======

See Notes To Consolidated Financial Statements

MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Fiscal Years Ended December 29, 2000, December 31, 1999 and January 1, 1999
($ in millions)

2000 1999 1998
--------- -------- --------

Net income ............................................................. $ 479 $ 400 $ 390

Other comprehensive (loss) income:

Foreign currency translation adjustments ............................. (10) (18) (3)
Other ................................................................ 2 (2) 6
----- ----- -----
Total other comprehensive (loss) income ................................ (8) (20) 3
----- ----- -----
Comprehensive income ................................................... $ 471 $ 380 $ 393
===== ===== =====

See Notes To Consolidated Financial Statements

MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Period from March 27, 1998 to December 29, 2000
(in millions, except per share amounts)

Accumulated
Common Class A Additional other
shares common paid-in Retained Unearned ESOP Treasury comprehensive
outstanding stock capital earnings shares stock, at cost income
------------------------------------------------------------------------------------------------------------------------------------

255.6 Spinoff on March 27, 1998 ......... $ 3 $ 2,711 $ - $ - $ - $ (23)

- Net income, after the Spinoff ..... - - 301 - - -

- Dividends ($.195 per share) ....... - - (49) - - -

1.5 Employee stock plan issuance and
other, after the Spinoff ........ - 2 (34) - 50 7

(13.7) Purchase of treasury stock ........ - - - - (398) -
------------------------------------------------------------------------------------------------------------------------------------
243.4 Balance, January 1, 1999 .......... 3 2,713 218 - (348) (16)

- Net income ........................ - - 400 - - -

- Dividends ($.215 per share) ....... - - (53) - - -

5.5 Employee stock plan issuance
and other ....................... - 29 (87) - 172 (20)

2.1 ExecuStay acquisition ............. - - (4) - 67 -

(10.8) Purchase of treasury stock ........ - - - - (358) -

6.1 Conversion of convertible
subordinated debt .............. - (4) 34 - 162 -
------------------------------------------------------------------------------------------------------------------------------------
246.3 Balance at December 31, 1999 ...... 3 2,738 508 - (305) (36)

- Net income ........................ - - 479 - - -

- Dividends ($.235 per share) ....... - - (56) - - -

5.5 Employee stock plan issuance
and other ...................... - 852 (80) (679) 186 (8)

(10.8) Purchase of treasury stock ........ - - - - (335) -
------------------------------------------------------------------------------------------------------------------------------------
241.0 Balance at December 29, 2000 ...... $ 3 $ 3,590 $ 851 $ (679) $ (454) $ (44)
====================================================================================================================================

See Notes To Consolidated Financial Statements

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements present the results of operations,
financial position and cash flows of Marriott International, Inc. (together with
its subsidiaries, we, us or the Company), formerly New Marriott MI, Inc., as if
we were a separate entity for all periods presented. During periods prior to
March 27, 1998, we were a wholly owned subsidiary of the former Marriott
International, Inc. (Old Marriott).

On March 27, 1998, all of our issued and outstanding common stock was
distributed, on a pro rata basis, as a special dividend (the Spinoff) to holders
of common stock of Old Marriott, and the Company was renamed "Marriott
International, Inc." Old Marriott's historical cost basis in our assets and
liabilities has been carried over. Old Marriott received a private letter ruling
from the Internal Revenue Service that the Spinoff would be tax-free to it and
its shareholders. For each share of common stock in Old Marriott, shareholders
received one share of our Common Stock and one share of our Class A Common
Stock. On May 21, 1998, all outstanding shares of our Common Stock were
converted, on a one-for-one basis, into shares of our Class A Common Stock.

Also on March 27, 1998, Old Marriott was renamed Sodexho Marriott Services,
Inc. (SMS) and its food service and facilities management business was combined
with the North American operations of Sodexho Alliance, S.A. (Sodexho), a
worldwide food and management services organization. On June 20, 2001, SMS
became a wholly-owned subsidiary of Sodexho Alliance and changed its name to
Sodexho, Inc.

For purposes of governing certain of the ongoing relationships between us and
SMS after the Spinoff and to provide for orderly transition, we entered into
various agreements with SMS including the Employee Benefits and Other Employee
Matters Allocation Agreement, Liquid Yield Option Notes (LYONs) Allocation
Agreement, Tax Sharing Agreement, Trademark and Trade Name License Agreement,
Noncompetition Agreement, Employee Benefit Services Agreement, Procurement
Services Agreement, Distribution Services Agreement, and other transitional
services agreements. Effective as of the Spinoff date, pursuant to these
agreements, we assumed sponsorship of certain of Old Marriott's employee benefit
plans and insurance programs and succeeded to Old Marriott's liability to LYONs
holders under the LYONs Indenture, nine percent of which was assumed by SMS.

All material intercompany transactions and balances between entities included
in these consolidated financial statements have been eliminated. Sales by us to
SMS of $350 million in 2000, $435 million in 1999 and $434 million in 1998, have
not been eliminated. Changes in Investments and Net Advances from Old Marriott
represent our net income, the net cash transferred between Old Marriott and us,
and certain non-cash items.

Prior to the Spinoff, we operated as a unit of Old Marriott, utilizing Old
Marriott's centralized systems for cash management, payroll, purchasing and
distribution, employee benefit plans, insurance and administrative services. As
a result, substantially all cash received by us was deposited in and commingled
with Old Marriott's general corporate funds. Similarly, our operating expenses,
capital expenditures and other cash requirements were paid by Old Marriott and
charged directly or allocated to us. Certain assets and liabilities related to
our operations were managed and controlled by Old Marriott on a centralized
basis. Prior to the Spinoff such assets and liabilities were allocated to us
based on our use of, or interest in, those assets and liabilities. In our
opinion, the methods for allocating costs, assets and liabilities prior to the
Spinoff were reasonable. We now perform these functions independently and the
costs incurred have not been materially different from those allocated prior to
the Spin-off.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, and the reported amounts
of sales and expenses during the reporting period. Accordingly, ultimate results
could differ from those estimates. Certain prior year amounts have been
reclassified to conform to the 2000 presentation.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Fiscal Year

Our fiscal year ends on the Friday nearest to December 31. All fiscal years
presented include 52 weeks.

Financial Statement Revision

We have revised the consolidated financial statements to change our method of
accounting for the Marriott Rewards Program in accordance with Staff Accounting
Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements." The effect
of adopting SAB No. 101 on January 1, 2000 was to increase both revenues and
expenses by $63 million for the year ended December 29, 2000. However, there was
no change in financial position, cash flows, net income or basic and diluted
earnings per share. We have also revised the consolidated financial statements
for each of the three fiscal years in the period ended December 29, 2000, to
present expanded line items related to sales and operating costs and expenses
and to expand the number of reportable segments under Statement of Financial
Accounting Standards (FAS) No. 131 "Disclosures about Segments of an Enterprise
and Related Information" to include Full Service, Select Service, Extended Stay,
Timeshare, Senior Living Services and Distribution Services. In addition, we
added disclosures related to revenue recognition and certain other items to the
notes to the consolidated financial statements.

Revenue Recognition

Our sales include (1) management and franchise fees, (2) sales from our
distribution services business, (3) sales from lodging properties and senior
living communities owned or leased by us, and sales made by our other
businesses; and (4) certain other revenues from properties managed by us.
Management fees comprise a base fee, which is a percentage of the revenues of
hotels or senior living communities, and an incentive fee, which is generally
based on unit profitability. Franchise fees comprise initial application fees
and continuing royalties generated from our franchise programs, which permit the
hotel owners and operators to use certain of our brand names. Other revenues
from managed properties include direct and indirect costs that are reimbursed to
us by lodging and senior living community owners for properties that we manage.
Other revenues include revenues from hotel properties and senior living
communities that we own or lease, along with sales from our timeshare and
ExecuStay businesses.

We recognize base fees as revenue when earned in accordance with the
contract. In interim periods we recognize incentive fees that would be due as if
the contract were to terminate at that date, exclusive of any termination fees
payable or receivable by us.

Distribution Services: We recognize revenue from our distribution services
business when goods have been shipped and title passes to the customer in
accordance with the terms of the applicable distribution contract.

Timeshare: We recognize revenue from timeshare interest sales in accordance with
FAS No. 66, "Accounting for Sales of Real Estate." We recognize sales when a
minimum of 10 percent of the purchase price for the timeshare interval has been
received, the period of cancellation with refund has expired, receivables are
deemed collectible and certain minimum sales and construction levels have been
attained.

Owned and Leased Units: We recognize room sales and revenues from guest services
for our owned and leased units, including ExecuStay, when rooms are occupied and
services have been rendered.

Franchise Revenue: We recognize franchise fee revenues in accordance with FAS
No. 45, "Accounting for Franchise Fee Revenue." Franchise fees are recognized as
revenue in each accounting period as fees are earned and become receivable from
the franchisee.

Other Revenues from Managed Properties: We recognize other revenues from managed
properties when we incur the related reimbursable costs.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

We recognized sales in the year ended December 29, 2000, December 31, 1999 and
January 1, 1999 as shown in the following table. Lodging includes our Full
Service, Select Service, Extended Stay, and Timeshare business segments.

2000
----------------------------------------------
Senior
Living Distribution
Lodging Services Services Total
---------- ---------- ------------ -------

Sales
($ in millions)

Management and franchise fees ......................... $ 907 $ 33 $ - $ 940
Other ................................................. 1,702 300 1,500 3,502
------- ------- ------- -------
2,609 333 1,500 4,442
Other revenues from managed properties ................ 5,302 336 - 5,638
------- ------- ------- -------
7,911 669 1,500 10,080
------- ------- ------- -------

Operating costs and expenses

Operating costs ....................................... 1,673 351 1,496 3,520
Other costs from managed properties .................. 5,302 336 - 5,638
------- ------- ------- -------
6,975 687 1,496 9,158
------- ------- ------- -------
Operating profit before corporate expenses and
interest............................................. $ 936 $ (18) $ 4 $ 922
======= ======= ======= =======

1999
--------------------------------------------
Senior
Living Distribution
Lodging Services Services Total
--------- --------- ------------ ------

Sales
($ in millions)

Management and franchise fees ......................... $ 800 $ 23 $ - $ 823
Other ................................................. 1,326 267 1,139 2,732
------- ------- ------- -------
2,126 290 1,139 3,555
Other revenues from managed properties ................ 4,915 269 - 5,184
------- ------- ------- -------
7,041 559 1,139 8,739
------- ------- ------- -------

Operating costs and expenses

Operating costs ....................................... 1,299 308 1,118 2,725
Other costs from managed properties ................... 4,915 269 - 5,184
------- ------- ------- -------
6,214 577 1,118 7,909
------- ------- ------- -------
Operating profit before corporate expenses and
interest ............................................ $ 827 $ (18) $ 21 $ 830
======= ======= ======= =======

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1998
-------------------------------------------
Senior
Living Distribution
Lodging Services Services Total
----------- ---------- ---------- -------

Sales
($ in millions)

Management and franchise fees ......................... $ 721 $ 23 $ - $ 744
Other ................................................. 956 217 1,178 2,351
------ ------ ------ ------
1,677 240 1,178 3,095
Other revenues from managed properties ................ 4,634 239 - 4,873
------ ------ ------ ------
6,311 479 1,178 7,968
------ ------ ------ ------
Operating costs and expenses

Operating costs ....................................... 973 225 1,161 2,359
Other costs from managed properties ................... 4,634 239 - 4,873
------ ------ ------ ------
5,607 464 1,161 7,232
------ ------ ------ ------
Operating profit before corporate expenses and
interest .............................................. $ 704 $ 15 $ 17 $ 736
====== ====== ====== ======

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Ground Leases

We are both the lessor and lessee of land under long-term operating leases,
which include scheduled increases in minimum rents. These scheduled rent
increases are recognized on a straight-line basis over the initial lease terms.

Real Estate Sales

We account for the sales of real estate in accordance with FAS No. 66. Gains
on sales of real estate are reduced by the maximum exposure to loss if we have
continuing involvement with the property and do not transfer substantially all
of the risks and rewards of ownership. We reduced gains on sales of real estate
due to maximum exposure to loss by $18 million in 2000, $8 million in 1999, and
$57 million in 1998.

Profit Sharing Plan

We contribute to a profit sharing plan for the benefit of employees meeting
certain eligibility requirements and electing participation in the plan.
Contributions are determined annually by the Board of Directors. We recognized
compensation cost from profit sharing of $55 million in 2000, $46 million in
1999 and $45 million in 1998.

Self-Insurance Programs

We are self-insured for certain levels of general liability, workers'
compensation, employment practices and employee medical coverage. Estimated
costs of these self-insurance programs are accrued at the present value of
projected settlements for known and incurred but not reported claims. We use a
discount rate of five percent to determine the present value of the projected
settlements, which we consider to be reasonable given our history of settled
claims, including payment patterns and the fixed nature of the individual
settlements.

Marriott Rewards

Marriott Rewards is our frequent guest incentive marketing program. Marriott
Rewards members earn points based on their spending at our lodging operations
and, to a lesser degree, through participation in affiliated partners' programs,
such as those offered by airlines and credit card companies. Points can be
redeemed at most Marriott company operated and franchised properties; however,
points cannot be redeemed for cash.

Points are accumulated and tracked on the members' behalf, and can be
redeemed for hotel stays at most of our lodging operations, airline tickets,
airline frequent flier program miles, rental cars, and a variety of other
awards.

Marriott Rewards is provided as a marketing program to participating hotels.
The cost of operating the program, including the estimated cost of award
redemption, is charged to hotels based on members' qualifying expenditures.

Effective January 1, 2000, we changed our method of accounting for the
Marriott Rewards program in accordance with SAB No. 101. Under the new
accounting method, we defer revenue received from managed, franchised, and
Marriott-owned/leased hotels and program partners equal to the fair value of our
future redemption obligation. We determine the fair value of the future
redemption obligation based on statistical formulas which project timing of
future point redemption based on historical levels, including an estimate of the
"breakage" for points that will never be redeemed, and an estimate of the points
that will eventually be redeemed. These factors determine the required liability
for outstanding points. Our management and franchise agreements require that we
be reimbursed currently for the costs of operating the program, including
marketing, promotion, and communicating with, and performing member services for
the Marriott Rewards members. Due to the requirement that hotels reimburse us
for program operating costs as incurred, we receive and recognize the balance of
the revenue from hotels in connection with the Marriott Rewards program at the
time such costs are incurred and expensed. We recognize the component of revenue
from program partners that corresponds to program maintenance services over the
expected life of the points awarded. Upon the redemption of points, we recognize
as revenue the amounts previously deferred, and recognize the corresponding
expense relating to the cost of the awards redeemed.

Prior to January 1, 2000, the amounts received by us in respect of the
Marriott Rewards Program from managed, owned and leased hotels were recognized
as revenue together with an associated expense at the time the points were

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

awarded. No revenues or expenses were recorded in respect of franchised hotels
or program partners. The effect of the adoption of the change in accounting
policy described above is to increase sales and expenses by $63 million in the
year ended December 29, 2000. There was no impact on net income, and we expect
the ongoing impact to our financial statements to be immaterial.

The liability for the Marriott Rewards program was $554 million at December
29, 2000 and $433 million at December 31, 1999, of which $310 million and $289
million, respectively, are included in other long-term liabilities in the
accompanying consolidated balance sheet.

Cash and Equivalents

We consider all highly liquid investments with a maturity of three months or
less at date of purchase to be cash equivalents.

Valuation of Long-Lived Assets

We review the carrying values of long-lived assets when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If we expect an asset to generate cash flows less than the asset's
carrying value at the lowest level of identifiable cash flows, then a loss is
recognized for the difference between the asset's carrying amount and its fair
value.

Investments

We consolidate entities that we control due to holding a majority voting
interest. We account for investments in joint ventures using the equity method
of accounting when we exercise significant influence over the venture. If we do
not exercise significant influence, we account for the investment using the cost
method of accounting. We account for investments in limited partnerships and
limited liability companies using the equity method of accounting when we own
more than a minimal investment.

New Accounting Standards

We will adopt FAS No. 142, "Goodwill and other Intangible Assets," in the
first quarter of 2002. The new rules require that goodwill is not amortized, but
is reviewed annually for impairment. We estimate that adoption of FAS No. 142
will result in an annual increase in net income of approximately $30 million.

In the first quarter of 2001, we adopted FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which resulted in no material
impact to our financial statements.

In the fourth quarter of 2000, we adopted SAB No. 101, which was effective
January 1, 2000. The implementation of SAB No. 101 did not have a material
impact on annual or quarterly earnings.

In the fourth quarter of 2000, we adopted FAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
The implementation of FAS No. 140 resulted in increased footnote disclosures,
but did not have an effect on our consolidated financial statements.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." We adopted SOP 98-5 in the first quarter of 1999 by expensing
pre-opening costs for Company-owned lodging and senior living communities as
incurred. The adoption of SOP 98-5 resulted in a pretax expense of $22 million
in 1999.

RELATIONSHIPS WITH MAJOR CUSTOMERS

In December 1998, Host Marriott Corporation (Host Marriott) reorganized its
business operations to qualify as a real estate investment trust (REIT). In
conjunction with its conversion to a REIT, Host Marriott spun off, in a taxable
transaction, a new company called Crestline Capital Corporation (Crestline). As
part of the Crestline spinoff, Host Marriott transferred to Crestline all of the
senior living communities previously owned by Host Marriott, and Host Marriott
entered into lease or sublease agreements with subsidiaries of Crestline for
substantially

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

all of Host Marriott's lodging properties. Our lodging and senior living
community management and franchise agreements with Host Marriott were also
assigned to these Crestline subsidiaries. The lodging agreements now provide for
us to manage the Marriott hotels, Ritz-Carlton hotels, Courtyard hotels and
Residence Inn hotels leased by the lessee. Our consent is required for the
lessee to take certain major actions relating to leased properties that we
manage. Effective as of January 1, 2001, a Host Marriott taxable subsidiary
acquired the lessee entities for the full-service hotels in the United States
and took an assignment of the lessee entities' interests in the leases for the
hotels in Canada.

We recognized sales of $2,746 million, $2,553 million and $2,144 million and
operating profit before corporate expenses and interest of $235 million, $221
million and $197 million during 2000, 1999 and 1998, respectively, from lodging
properties owned or leased by Host Marriott. Additionally, Host Marriott is a
general partner in several unconsolidated partnerships that own lodging
properties operated by us under long-term agreements. We recognized sales of
$622 million, $562 million and $712 million and operating profit before
corporate expenses and interest of $72 million, $64 million and $83 million in
2000, 1999 and 1998, respectively, from the lodging properties owned by these
unconsolidated partnerships. We also leased land to certain of these
partnerships and recognized land rent income of $26 million in 2000 and $24
million in both 1999 and 1998.

In December 2000, we acquired, through an unconsolidated joint venture (the
Courtyard Joint Venture) with an affiliate of Host Marriott, 120 Courtyard by
Marriott hotels. Prior to the formation of the Courtyard Joint Venture, Host
Marriott was a general partner in the unconsolidated partnerships that owned the
120 Courtyard by Marriott hotels. Included above in amounts recognized from
lodging properties owned by unconsolidated partnerships are sales of $345
million, $334 million and $295 million, operating profit before corporate
expenses and interest of $53 million, $50 million and $53 million and land rent
income of $19 million in 2000 and $18 million in both 1999 and 1998, related to
the 120 Courtyard by Marriott hotels.

We have provided Host Marriott with financing for a portion of the cost of
acquiring properties to be operated or franchised by us, and may continue to
provide financing to Host Marriott in the future. The outstanding principal
balance of these loans was $9 million and $11 million at December 29, 2000, and
at December 31, 1999, respectively, and we recognized $1 million, $1 million and
$5 million in 2000, 1999 and 1998, respectively, in interest and fee income
under these credit agreements with Host Marriott.

We have guaranteed the performance of Host Marriott and certain of its
affiliates to lenders and other third parties. These guarantees were limited to
$12 million at December 29, 2000. No payments have been made by us pursuant to
these guarantees. We continue to have the right to purchase up to 20 percent of
Host Marriott's outstanding common stock upon the occurrence of certain events
generally involving a change of control of Host Marriott. This right expires
2017, and Host Marriott has granted an exception to the ownership limitations in
its charter to permit full exercise of this right, subject to certain conditions
related to ownership limitations applicable to REITs generally. We lease land to
Host Marriott that had an aggregate book value of $222 million at December 29,
2000. This land has been pledged to secure debt of the lessees. We have agreed
to defer receipt of rentals on this land, if necessary, to permit the lessees to
meet their debt service requirements.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

We are party to agreements which provide for us to manage the senior living
communities owned by Crestline. We recognized sales of $185 million, $177
million and $173 million and operating profit before corporate expenses and
interest of $3 million, $3 million and $5 million under these agreements during
2000, 1999 and 1998, respectively.

We are party to management agreements with entities owned by or affiliated
with another hotel owner which provide for us to manage hotel properties owned
or leased by those entities. We recognized sales of $557 million, $531 million
and $560 million during 2000, 1999, and 1998, respectively, from these
properties.

PROPERTY AND EQUIPMENT

2000 1999
----------------- -----------------
($ in millions)

Land................................................... $ 597 $ 658
Buildings and leasehold improvements................... 1,240 1,075
Furniture and equipment................................ 647 523
Timeshare properties .................................. 914 587
Construction in progress .............................. 349 429
----------------- -----------------
3,747 3,272
Accumulated depreciation and amortization ............. (506) (427)
----------------- -----------------
$ 3,241 $ 2,845
================= =================

We record property and equipment at cost, including interest, rent and real
estate taxes incurred during development and construction. Interest capitalized
as a cost of property and equipment totaled $52 million in 2000, $33 million in
1999 and $21 million in 1998. We capitalize the cost of improvements that extend
the useful life of property and equipment when incurred. These capitalized costs
may include structural costs, equipment, fixtures, floor and wall coverings and
paint. All other repairs and maintenance costs are expensed as incurred. We
compute depreciation using the straight-line method over the estimated useful
lives of the assets (three to 40 years). We amortize leasehold improvements over
the shorter of the asset life or lease term.

ACQUISITIONS AND DISPOSITIONS

ExecuStay

On February 17, 1999, we completed a cash tender offer for approximately 44
percent of the outstanding common stock of ExecuStay Corporation (ExecuStay), a
leading provider of leased corporate apartments in the United States. On
February 24, 1999, substantially all of the remaining common stock of ExecuStay
was converted into nonvoting preferred stock of ExecuStay, which we acquired on
March 26, 1999, for approximately 2.1 million shares of our Class A Common
Stock. Our aggregate purchase price totaled $116 million inclusive of $63
million of our Class A common stock. Unaudited pro forma sales, net income and
diluted earnings per share for 1998, calculated as if ExecuStay had been
acquired at the beginning of that year, were $8,095 million, $390 million and
$1.45, respectively. Unaudited pro forma sales, net income and diluted earnings
per share for 1999, calculated as if ExecuStay had been acquired at the
beginning of that year, were $8,762 million, $399 million and $1.50,
respectively. The unaudited pro forma combined results of operations do not
reflect our expected future results of operations.

We consolidated the operating results of ExecuStay from February 24, 1999,
and have accounted for the acquisition using the purchase method of accounting.
We are amortizing the resulting goodwill on a straight-line basis over 30 years.

The Ritz-Carlton Hotel Company, L.L.C.

In 1995, we acquired a 49 percent beneficial ownership interest in The
Ritz-Carlton Hotel Company, L.L.C., which owns the management agreements on the
Ritz-Carlton hotels and resorts, the licenses for the Ritz-Carlton trademarks
and trade name, as well as miscellaneous assets. The investment was acquired for
a total consideration

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

of approximately $200 million. On March 19, 1998, we increased our ownership
interest in The Ritz-Carlton Hotel Company, L.L.C. to approximately 99 percent
for additional consideration of approximately $90 million. Prior to March 19,
1998, we were entitled to a cumulative preferred return on invested capital
which provided us with economic value significantly in excess of our ownership
interest in The Ritz-Carlton Hotel Company L.L.C. Under that preferred return,
we received substantially all of The Ritz-Carlton Hotel Company L.L.C.'s
operating cash flow from 1995 through our acquisition of the additional 50
percent interest in 1998. We expect to acquire the remaining one percent within
the next several years. We accounted for the acquisition using the purchase
method of accounting. We allocated the purchase cost to the assets acquired and
the liabilities assumed based on estimated fair values. We amortize the
resulting goodwill on a straight-line basis over 40 years. We amortize the
amounts allocated to management agreements on a straight-line basis over the
estimated lives of the agreements. Prior to March 19, 1998, we accounted for our
investment in The Ritz-Carlton Hotel Company, L.L.C. using the equity method of
accounting. The pro forma results for 1998, assuming The Ritz-Carlton Hotel
Company L.L.C. had been acquired at the beginning of that year, would not be
materially different from the reported results.

Dispositions

In the fourth quarter of 2000 we sold land, at book value, for $46 million to
a joint venture in which we hold a minority interest. The joint venture plans to
build a resort hotel, which will be partially funded with up to $92 million of
mezzanine financing to be provided by us. We have also provided the joint
venture with a $45 million senior debt service guarantee.

In 2000, we sold and leased back, under long-term, limited-recourse leases,
three lodging properties and one senior living community for an aggregate
purchase price of $118 million. We agreed to pay a security deposit of $3
million for the lodging properties, which will be refunded at the end of the
leases. The sales price exceeded the net book value by $4 million, which is
being recognized as a reduction of rent expense over the 15-year initial lease
terms.

In 2000, we agreed to sell 23 lodging properties for $519 million in cash. We
will continue to operate the hotels under long-term management agreements. As of
December 29, 2000, sales of 17 of those properties had been completed for $461
million, resulting in pretax gains of $27 million. Fourteen of the seventeen
properties are accounted for under the full accrual method in accordance with
FAS No. 66. The buyers did not make adequate minimum initial investments in the
remaining three properties, which we accounted for under the cost recovery
method. The sale of four of the seventeen properties was to a joint venture in
which we have a minority interest. Where the full accrual method applied, we
recognized profit proportionate to the outside interests in the joint venture at
the date of sale. We recognized $9 million of the net gains in 2000, and will
recognize the remainder in subsequent years provided certain contingencies in
the sales contracts expire. Unaffiliated third-party tenants will lease 13 of
the properties from the buyers. In 2000, one of these tenants replaced us as the
tenant on nine other properties sold and leased back by us in 1997 and 1998. We
now manage these nine previously leased properties under long-term management
agreements, and gains on the sale of these properties of $15 million were
recognized as our leases were cancelled throughout 2000. In connection with the
sale of four of the properties, we provided $39 million of mezzanine funding and
agreed to provide the buyer with up to $161 million of additional loans to
finance future acquisitions of Marriott-branded hotels. We also acquired a
minority interest in the joint venture that purchased the four hotels.

On April 28, 2000, we sold 14 senior living communities for cash proceeds of
$194 million. We simultaneously entered into long-term management agreements for
the communities with a third-party tenant, which leases the communities from the
buyer. In connection with the sale we provided a credit facility to the buyer to
be used, if necessary, to meet its debt service requirements. The buyer's
obligation to repay us under the facility is guaranteed by an unaffiliated third
party. We also extended a limited credit facility to the tenant to cover
operating shortfalls, if any. We accounted for the sale under the cost recovery
method, and will recognize the resulting gain when the credit facilities expire.

In 1999, we sold an 89 percent interest in one hotel, and concurrently signed
a long-term lease on the property. We are accounting for this transaction under
the financing method, and the sales proceeds of $58 million are reflected as
long-term debt in the accompanying consolidated balance sheet.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In 1999, we agreed to sell and leaseback, under long-term, limited-recourse
leases, four hotels for approximately $59 million in cash. At the same time, we
agreed to pay security deposits of $2 million, which will be refunded at the end
of the leases. As of December 29, 2000, all of the properties had been sold,
resulting in a sales price that exceeded the net book value by $4 million, which
we will recognize as a reduction of rent expense over the 15-year initial lease
terms. We can renew the leases on all four hotels at our option.

During 1999, we sold four hotels and three senior living communities for $55
million and $52 million, respectively, resulting in pretax gains of $10 million.
We recognized $2 million of the gain in both 2000 and 1999, and the balance will
be recognized provided certain contingencies in the sales contracts expire. We
operate these hotels under long-term management agreements.

On December 29, 1998, we agreed to sell and leaseback, under long-term,
limited-recourse leases, 17 hotels for approximately $202 million in cash. At
the same time, we agreed to pay security deposits of $21 million, which will be
refunded at the end of the leases. As of December 31, 1999, all of the
properties had been sold, resulting in a sales price that exceeded the net book
value by $19 million, which is being recognized as a reduction of rent expense
over the 15-year initial lease terms.

During 1998, we agreed to sell, subject to long-term management agreements,
eight lodging properties and 11 senior living communities for consideration of
$183 million and $178 million, respectively. As of December 31, 1999, sales of
all of these properties had been completed, resulting in pretax gains of $69
million. We recognized $8 million, $21 million and $12 million of these gains in
2000, 1999 and 1998, respectively. The balance will be recognized provided
certain contingencies in the sales contracts expire.

In connection with the long-term, limited-recourse leases described above,
Marriott International, Inc. has guaranteed the lease obligations of the
tenants, wholly-owned subsidiaries of Marriott International, Inc., for a
limited period of time (generally three to five years). After the guarantees
expire, the lease obligations become non-recourse to Marriott International,
Inc.

In sales transactions where we retain a management contract, the terms and
conditions of the management contract are comparable to the terms and conditions
of the management agreements obtained directly with third party owners in
competitive bid processes.

ASSET SECURITIZATIONS

We periodically sell, with limited recourse, through qualified special
purpose entities ("SPEs"), notes receivable originated by Marriott Vacation Club
International in connection with the sale of timeshare intervals. We continue to
service the notes and transfer all proceeds collected to the SPEs. We retain
servicing assets and beneficial interests in the securitizations in the form of
interest-only strips. The beneficial interests are limited to the present value
of cash available after paying financing expenses, program fees, and absorbing
credit losses. Gains from the sales of notes receivable totaled $22 million in
2000, $29 million in 1999, and $26 million in 1998 and are included in other
sales in the consolidated statement of income.

At the date of securitization and at the end of each reporting period, we
estimate the fair value of the interest-only strips and servicing assets using a
discounted cash flow model. These transactions utilize interest rate swaps to
protect the net interest margin associated with the beneficial interest, and the
interest-only strips are treated as "Available for Sale" securities under the
provisions of FAS No. 115, "Accounting for certain Investments in Debt and
Equity Securities," with changes in fair values reported through other
comprehensive income in the accompanying consolidated balance sheet. The key
assumptions used in measuring the fair value of the interest-only strips at the
time of securitization and at the end of each reporting period during the year
ended December 29, 2000, were as follows: average discount rate of 7.82 percent;
average expected annual prepayments, including defaults, of 12.72 percent; and
expected weighted average life of prepayable notes receivable of 86 months. Our
key assumptions are based on experience. To date, actual results have not
materially affected the carrying value of the beneficial interests.

Cash flows between us and third-party purchasers during the year ended
December 29, 2000, were as follows: net proceeds to us from new securitizations
of $144 million, repurchases by us of delinquent loans (over 150 days

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

overdue) of $12 million, servicing fees received by us of $2 million and cash
flows received on retained interests of $18 million.

On December 12, 2000, we repurchased notes receivable with a principal
balance of $359 million and immediately sold those notes, along with $19 million
of additional notes, in a $378 million securitization to an investor group. Net
proceeds from these transactions of $16 million are included in the net proceeds
from securitizations of $144 million disclosed above. We realized a gain of $3
million, primarily associated with the $19 million of additional notes sold,
which is included in the $22 million gain on the sales of notes receivable for
fiscal year 2000 disclosed above.

At December 29, 2000, $439 million of principal remains outstanding in all
securitizations in which we have a retained interest-only strip. Delinquencies
of more than 90 days at December 29, 2000, amounted to $1 million. Loans
repurchased by the Company, net of obligors subsequently curing delinquencies,
during the year ended December 29, 2000, amounted to $7 million. We have been
able to resell timeshare units underlying repurchased loans without incurring
material losses.

We have completed a stress test on the net present value of the interest-only
strips and the servicing assets with the objective of measuring the change in
value associated with independent changes in individual key variables. The
methodology used applied unfavorable changes that would be considered
statistically significant for the key variables of prepayment rate, discount
rate, and weighted average remaining term. The net present value of the
interest-only strips and servicing assets was $72 million at December 29, 2000,
before any stress test changes were applied. An increase of 100 basis points in
the prepayment rate would decrease the year-end valuation by $2 million, or two
percent, and an increase of 200 basis points in the prepayment rate would
decrease the year-end valuation by $3 million, or four percent. An increase of
100 basis points in the discount rate would decrease the year-end valuation by
$1 million, or two percent, and an increase of 200 basis points in the discount
rate would decrease the year-end valuation by $3 million, or four percent. A
decline of two months in the weighted average remaining term would decrease the
year-end valuation by $1 million, or two percent, and a decline of four months
in the weighted average remaining term would decrease the year-end valuation by
$2 million, or four percent.

INTANGIBLE ASSETS

2000 1999
------------- --------------
($ in millions)

Management, franchise and license agreements............ $ 861 $ 771
Goodwill................................................ 1,245 1,246
Other................................................... 7 23
------------- --------------
2,113 2,040
Accumulated amortization................................ (280) (220)
------------- --------------
$ 1,833 $ 1,820
============= ==============

We amortize intangible assets on a straight-line basis over periods of three
to 40 years. Intangible amortization expense totaled $64 million in 2000, $62
million in 1999 and $54 million in 1998.

In 1996, MDS became the exclusive provider of distribution services to Boston
Chicken, Inc. (BCI). On October 5, 1998, BCI and its Boston Market-controlled
subsidiaries filed voluntary bankruptcy petitions for protection under Chapter
11 of the Federal Bankruptcy Code in the U.S. Bankruptcy Court in Phoenix (the
Court). In December 1999, McDonald's Corporation (McDonald's) announced that it
had reached a definitive agreement to purchase the majority of the assets of BCI
subject to confirmation of the pending BCI plan of reorganization, including
Court approval. In March 2000, MDS entered into an agreement with McDonald's
providing for continuation of distribution services to Boston Market
restaurants. Because the existing distribution contract was terminated upon
confirmation of the pending reorganization, MDS wrote off the unamortized
balance of the existing investment, resulting in a $15 million pretax charge in
the first quarter of 2000. In June 2000, McDonald's completed its acquisition of
Boston Market. MDS is now providing distribution services under the new contract
with McDonald's.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SHAREHOLDERS' EQUITY

Eight hundred million shares of our Class A Common Stock with a par value of
$.01 per share are authorized. Ten million shares of preferred stock, without
par value, are authorized, with none issued.

On March 27, 1998, our Board of Directors adopted a shareholder rights plan
under which one preferred stock purchase right was distributed for each share of
our Class A Common Stock. Each right entitles the holder to buy 1/1000th of a
share of a newly issued series of junior participating preferred stock of the
Company at an exercise price of $175. The rights will be exercisable 10 days
after a person or group acquires beneficial ownership of 20 percent or more of
our Class A Common Stock, or begins a tender or exchange for 30 percent or more
of our Class A Common Stock. Shares owned by a person or group on March 27,
1998, and held continuously thereafter are exempt for purposes of determining
beneficial ownership under the rights plan. The rights are nonvoting and will
expire on the tenth anniversary of the adoption of the shareholder rights plan,
unless exercised or previously redeemed by us for $.01 each. If we are involved
in a merger or certain other business combinations not approved by the Board of
Directors, each right entitles its holder, other than the acquiring person or
group, to purchase common stock of either the Company or the acquirer having a
value of twice the exercise price of the right.

As of December 29, 2000, we had been authorized by our Board of Directors to
repurchase an additional 19.6 million shares of our Class A Common Stock.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

During the second quarter of 2000 we established an employee stock ownership
plan (the ESOP) solely to fund employer contributions to the profit sharing
plan. The ESOP acquired 100,000 shares of special-purpose Company convertible
preferred stock (ESOP Preferred Stock) for $1 billion. The ESOP Preferred Stock
has a stated value and liquidation preference of $10,000 per share, pays a
quarterly dividend of one percent of the stated value, and is convertible into
our Class A Common Stock at any time based on the amount of our contributions to
the ESOP and the market price of the common stock on the conversion date,
subject to certain caps and a floor price. We hold a note from the ESOP, which
is eliminated upon consolidation, for the purchase price of the ESOP Preferred
Stock. The shares of ESOP Preferred Stock are pledged as collateral for the
repayment of the ESOP's note, and those shares are released from the pledge as
principal on the note is repaid. Shares of ESOP Preferred Stock released from
the pledge may be redeemed for cash based on the value of the common stock into
which those shares may be converted. Principal and interest payments on the
ESOP's debt are expected to be forgiven periodically to fund contributions to
the ESOP and release shares of ESOP Preferred Stock. Unearned ESOP shares are
reflected within shareholders' equity and are amortized as shares of ESOP
Preferred Stock are released and cash is allocated to employees' accounts.

INCOME TAXES

Total deferred tax assets and liabilities as of December 29, 2000, and
December 31, 1999, were as follows:

2000 1999
--------------- ----------------
($ in millions)

Deferred tax assets................... $ 471 $ 424
Deferred tax liabilities.............. (399) (340)
--------------- ----------------
Net deferred taxes.................... $ 72 $ 84
=============== ================

The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as of
December 29, 2000, and December 31, 1999, were as follows:

2000 1999
------------- -------------
($ in millions)

Self-insurance............................... $ 65 $ 74
Employee benefits............................ 169 151
Deferred income.............................. 45 51
Other reserves............................... 13 32
Frequent guest program....................... 65 44
Timeshare operations......................... (21) (10)
Property, equipment and intangible assets.... (213) (231)
Other, net................................... (51) (27)
------------- -------------
Net deferred taxes........................... $ 72 $ 84
============= =============

At December 29, 2000, we had approximately $26 million of tax credits that
expire through 2020.

We have made no provision for U.S. income taxes, or additional foreign taxes,
on the cumulative unremitted earnings of non-U.S. subsidiaries ($186 million as
of December 29, 2000) because we consider these earnings to be permanently
invested. These earnings could become subject to additional taxes if remitted as
dividends, loaned to us or a U.S. affiliate, or if we sell our interests in the
affiliates. We cannot practically estimate the amount of additional taxes that
might be payable on the unremitted earnings.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The provision for income taxes consists of:

2000 1999 1998
---------------- ---------------- ---------------
($ in millions)

Current - Federal ...................................... $ 216 $ 117 $ 164
- State ........................................ 28 26 35
- Foreign ...................................... 26 24 18
---------------- ---------------- ---------------
270 167 217
---------------- ---------------- ---------------
Deferred - Federal ...................................... (2) 58 25
- State ........................................ 10 12 1
- Foreign ...................................... - - (1)
---------------- ---------------- ---------------
8 70 25
---------------- ---------------- ---------------
$ 278 $ 237 $ 242
================ ================ ===============

The current tax provision does not reflect the benefits attributable to us
relating to our ESOP of $109 million in 2000 or the exercise of employee stock
options of $42 million in 2000, $44 million in 1999 and $39 million in 1998. The
taxes applicable to other comprehensive income are not material.

A reconciliation of the U.S. statutory tax rate to our effective income tax
rate follows:

2000 1999 1998
---------------- ---------------- ----------------

U.S. statutory tax rate .................................... 35.0 % 35.0 % 35.0 %
State income taxes, net of U.S. tax benefit ................ 3.6 3.9 4.1
Foreign income ............................................. (1.4) (0.3) 0.7
Corporate-owned life insurance ............................. - - (0.3)
Tax credits ................................................ (3.1) (5.4) (4.2)
Goodwill amortization ...................................... 1.6 1.8 1.6
Other, net ................................................. 1.1 2.3 1.4
---------------- ---------------- ----------------
Effective rate ............................................. 36.8 % 37.3 % 38.3 %
================ ================ ================

Cash paid for income taxes, net of refunds, was $145 million in 2000, $150
million in 1999 and $164 million in 1998.

As part of the Spinoff, we entered into a tax sharing agreement with SMS,
which reflects each party's rights and obligations with respect to deficiencies
and refunds, if any, of federal, state or other taxes relating to the business
of Old Marriott and the Company prior to the Spinoff.

During periods prior to the Spinoff, we were included in the consolidated
federal income tax return of Old Marriott. The income tax provision reflects the
portion of Old Marriott's historical income tax provision attributable to our
operations. We believe that the income tax provision, as reflected, is
comparable to what the income tax provision would have been if we had filed a
separate return during the periods presented.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

LEASES

Our future obligations under operating leases at December 29, 2000, are
summarized below:

Fiscal Year ($ in millions)
----------- ---------------

2001 ................................................ $ 176
2002 ................................................ 174
2003 ................................................ 168
2004 ................................................ 165
2005 ................................................ 163
Thereafter .......................................... 1,914
-------------
Total minimum lease payments ........................ $ 2,760
=============

Most leases have initial terms of up to 20 years, and contain one or more
renewal options, generally for five- or 10-year periods. The leases provide for
minimum rentals, and additional rentals based on our operations of the leased
property. The total minimum lease payments above include $1,399 million
representing obligations of consolidated subsidiaries that are non-recourse to
Marriott International, Inc.

Rent expense consists of:

2000 1999 1998
----------- ------------ -----------
($ in millions)

Minimum rentals .......................... $ 149 $ 158 $ 138
Additional rentals ....................... 97 102 101
----------- ------------ -----------
$ 246 $ 260 $ 239
=========== ============ ===========

LONG-TERM DEBT

Our long-term debt at December 29, 2000, and December 31, 1999, consisted of
the following:

2000 1999
-------------- ---------------
($ in millions)

Senior notes, average interest rate of 7.5% at December 29, 2000,
maturing through 2009 ............................................... $ 1,001 $ 701
Commercial paper, interest rate of 7.3% at December 29, 2000 .......... 827 781
Endowment deposits (non-interest bearing) ............................. 108 111
Other ................................................................. 122 101
-------------- --------------
2,058 1,694
Less current portion ..................................................... (42) (18)
-------------- --------------
$ 2,016 $ 1,676
============== ==============

The debt is unsecured with the exception of $15 million, which is secured by
real estate.

In April 1999, January 2000 and January 2001, we filed "universal shelf"
registration statements with the Securities and Exchange Commission in the
amount of $500 million, $300 million and $300 million, respectively. As of
January 30, 2001, we had offered and sold to the public $600 million of debt
securities under these registration statements, leaving a balance of $500
million available for future offerings.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

In January 2001, we issued, through a private placement, $300 million of
seven percent Series E Notes due 2008, and received net proceeds of $297
million. We have agreed to promptly make and complete a registered exchange
offer for these notes and, if required, to implement a resale shelf registration
statement. If we fail to do so on a timely basis, we will pay additional
interest to the holders of these notes.

In March 2000, we sold $300 million principal amount of 8-1/8 percent Series
D Notes, which mature in 2005, in a public offering made under our shelf
registration statements. We received net proceeds of approximately $298 million
from the offering, after paying underwriting discounts, commissions and offering
expenses.

In September 1999, we sold $300 million principal amount of 7-7/8 percent
Series C Notes, which mature in 2009, in a public offering made under our shelf
registration statement. We received net proceeds of approximately $296 million
from this offering, after paying underwriting discounts, commissions and
offering expenses.

In November 1998, we sold, through a private placement, $400 million of
unsecured senior notes (Series A and B Notes). Proceeds net of discounts totaled
$396 million. On April 23, 1999, we commenced a registered exchange offer to
exchange the privately placed Series A and B Notes for publicly registered new
notes on substantially identical terms. All of the privately placed Series A and
B Notes were tendered for exchange, and new notes were issued to the holders on
May 31, 1999.

In March 1998 and February 1999, respectively, we entered into $1.5 billion
and $500 million multicurrency revolving credit facilities (the Facilities) each
with terms of five years. Borrowings bear interest at the London Interbank
Offered Rate (LIBOR) plus a spread, based on our public debt rating.
Additionally, annual fees are paid on the Facilities at a rate also based on our
public debt rating. Commercial paper, supported by the Facilities, is classified
as long-term debt based on our ability and intent to refinance it on a long-term
basis.

We are in compliance with covenants in our loan agreements, which require the
maintenance of certain financial ratios and minimum shareholders' equity, and
also include, among other things, limitations on additional indebtedness and the
pledging of assets.

The 2000 statement of cash flows excludes $79 million of financing and joint
venture investments made by us in connection with asset sales. The 1999
statement of cash flows excludes $215 million of convertible subordinated debt
that was converted to equity in November 1999, $54 million of debt that we
assumed during 1999, and $15 million of notes receivable we received in a 1999
asset sale that we subsequently sold for cash. The 1998 statement of cash flows
excludes $31 million of notes receivable forgiven as part consideration for the
1998 acquisition of The Ritz-Carlton Hotel Company, L.L.C., and $12 million of
long-term debt assumed in 1998.

Aggregate debt maturities are: 2001 - $42 million; 2002 - $14 million; 2003 -
$834 million; 2004 - $220 million; 2005 - $515 million; and $433 million
thereafter.

Cash paid for interest was $125 million in 2000, $63 million in 1999 and $23
million in 1998.

CONVERTIBLE SUBORDINATED DEBT

On March 25, 1996, Old Marriott issued $540 million (principal amount at
maturity) of zero coupon convertible subordinated debt in the form of LYONs due
2011. The LYONs were issued and recorded at a discount representing a yield to
maturity of 4.25 percent. Accretion was recorded as interest expense and an
increase to the carrying value. Gross proceeds from the LYONs issuance were $288
million. Upon consummation of the Spinoff, we assumed the LYONs, and SMS assumed
a nine percent share of the LYONs obligation based on the relative equity values
of SMS and the Company at the Spinoff.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The LYONs were redeemable by us at any time on or after March 25, 1999, for
cash equal to the issue price plus accrued original issue discount. On October
7, 1999, we delivered a mandatory redemption notice to the holders of the LYONs
indicating our plan to redeem them on November 8, 1999, for $619.65 in cash per
LYON. Holders of 347,000 LYONs elected to convert each LYON into 17.52 shares of
our Class A Common Stock and 2.19 shares of SMS common stock prior to the close
of business on November 8, 1999. The aggregate redemption payment for the
remaining 193,000 LYONs totaled $120 million. Pursuant to the LYONs Allocation
Agreement entered into with SMS as part of the Spinoff, SMS funded nine percent
of the aggregate LYONs redemption payment. We funded the redemption payment with
proceeds from commercial paper borrowings. Unamortized deferred financing costs
of $2 million relating to the LYONs that were redeemed were recognized as
interest expense in 1999.

EARNINGS PER SHARE

For periods prior to the Spinoff, the earnings per share calculations are pro
forma, and the number of weighted average shares outstanding and the effect of
dilutive securities are based upon the weighted average number of Old Marriott
shares outstanding, and the Old Marriott effect of dilutive securities for the
applicable period, adjusted (1) for the distribution ratio in the Spinoff of one
share of our Common Stock and one share of our Class A Common Stock for every
share of Old Marriott common stock and (2) to reflect the conversion of our
Common Stock into our Class A Common Stock on May 21, 1998.

The following table illustrates the reconciliation of the earnings and number
of shares used in the basic and diluted earnings per share calculations (in
millions, except per share amounts).

2000 1999 1998
---------- ---------- ----------

Computation of Basic Earnings Per Share

Net income .................................... $ 479 $ 400 $ 390
Weighted average shares outstanding ........... 241.0 247.5 249.8
---------- ---------- ----------

Basic Earnings Per Share ...................... $ 1.99 $ 1.62 $ 1.56
========== ========== ==========

Computation of Diluted Earnings Per Share

Net income .................................... $ 479 $ 400 $ 390
After-tax interest expense on convertible
subordinated debt ........................... - 7 8
---------- ---------- ----------

Net income for diluted earnings per share ..... $ 479 $ 407 $ 398
========== ========== ==========
Weighted average shares outstanding ........... 241.0 247.5 249.8

Effect of Dilutive Securities
Employee stock purchase plan ................ 0.1 0.2 -
Employee stock option plan .................. 7.5 8.7 8.1
Deferred stock incentive plan ............... 5.4 5.4 5.7
Convertible subordinated debt ................. - 8.0 9.5
---------- ---------- ----------

Shares for diluted earnings per share ......... 254.0 269.8 273.1
========== ========== ==========

Diluted Earnings Per Share .................... $ 1.89 $ 1.51 $ 1.46
========== ========== ==========

We compute the effect of dilutive securities using the treasury stock method
and average market prices during the period. For periods prior to November 8,
1999, when all of our convertible subordinated debt was redeemed or converted,
we used the if-converted method for purposes of calculating diluted earnings per
share.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

INVESTMENTS AND NET ADVANCES FROM OLD MARRIOTT

The following is an analysis of Old Marriott's investment in the Company:

1998
---------------
($ in millions)
Balance at beginning of year ................. $ 2,586
Net income ................................... 89
Advances to Old Marriott ..................... (100)
Employee stock plan issuance and other ....... 116
Spinoff on March 27, 1998 .................... (2,691)
---------------
Balance at end of year ....................... $ -
===============

EMPLOYEE STOCK PLANS

In connection with the Spinoff, we issued stock options, deferred shares and
restricted shares with the same value as the respective Old Marriott awards as
of the Spinoff under our 1998 Comprehensive Stock and Cash Incentive Plan
(Comprehensive Plan). Under the Comprehensive Plan, we may award to
participating employees (1) options to purchase our Class A Common Stock (Stock
Option Program and Supplemental Executive Stock Option awards), (2) deferred
shares of our Class A Common Stock and (3) restricted shares of our Class A
Common Stock. In addition we have an employee stock purchase plan (Stock
Purchase Plan). In accordance with the provisions of Opinion No. 25 of the
Accounting Principles Board, we recognize no compensation cost for the Stock
Option Program, the Supplemental Executive Stock Option awards or the Stock
Purchase Plan.

Deferred shares granted to officers and key employees under the Comprehensive
Plan generally vest over 10 years in annual installments commencing one year
after the date of grant. Certain employees may elect to defer receipt of shares
until termination or retirement. We accrue compensation expense for the fair
market value of the shares on the date of grant, less estimated forfeitures. We
granted 0.9 million deferred shares during 2000. Compensation cost recognized
during 2000, 1999 and 1998 was $18 million, $15 million and $12 million,
respectively.

Restricted shares under the Comprehensive Plan are issued to officers and key
employees and distributed over a number of years in annual installments, subject
to certain prescribed conditions including continued employment. We recognize
compensation expense for the restricted shares over the restriction period equal
to the fair market value of the shares on the date of issuance. We awarded 0.1
million restricted shares under this plan during 2000. We recognized
compensation cost of $4 million, $4 million and $3 million in 2000, 1999 and
1998, respectively.

Under the Stock Purchase Plan, eligible employees may purchase our Class A
Common Stock through payroll deductions at the lower of the market value at the
beginning or end of each plan year.

Employee stock options may be granted to officers and key employees at
exercise prices equal to the market price of our Class A Common Stock on the
date of grant. Nonqualified options expire 10 years after the date of grant,
except those issued from 1990 through 2000, which expire 15 years after the date
of the grant. Most options under the Stock Option Program are exercisable in
cumulative installments of one quarter at the end of each of the first four
years following the date of grant. In February 1997, 2.1 million Supplemental
Executive Stock Option awards were awarded to certain of our officers. The
options vest after eight years but could vest earlier if our stock price meets
certain performance criteria. These options have an exercise price of $25 and
0.2 million of them were forfeited during 1998. None of them were exercised
during 2000, 1999 or 1998 and 1.9 million remained outstanding at December 29,
2000. The annual grant of options under the Comprehensive Plan, which occurred
in November 1999 and previous years, was moved to February, commencing in 2001.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

For the purposes of the following disclosures required by FAS No. 123,
"Accounting for Stock-Based Compensation," the fair value of each option granted
during 2000, 1999 and 1998 was $15, $14 and $11, respectively. We estimated the
fair value of each option granted on the date of grant using the Black-Scholes
option-pricing model, using the assumptions noted in the following table:

2000 1999 1998
---------- ---------- ----------
Annual dividends ........................ $ 24 $ 22 $ 20
Expected volatility ..................... 30 % 29 % 28 %
Risk-free interest rate ................. 5.8 % 6.7 % 5.8 %
Expected life (in years) ................ 7 7 7

Pro forma compensation cost for the Stock Option Program, the Supplemental
Executive Stock Option awards and employee purchases pursuant to the Stock
Purchase Plan subsequent to December 30, 1994, recognized in accordance with FAS
No. 123, would reduce our net income as follows (in millions, except per share
amounts):

2000 1999 1998
---------- ---------- ----------
Net income as reported .................. $ 479 $ 400 $ 390
Pro forma net income .................... $ 435 $ 364 $ 366

Diluted earnings per share as reported .. $ 1.89 $ 1.51 $ 1.46
Pro forma diluted earnings per share .... $ 1.71 $ 1.38 $ 1.38

A summary of our Stock Option Program activity during 2000, 1999 and 1998 is
presented below:

Number of Weighted
options average exercise
(in millions) price
------------- ----------------
Outstanding at March 27, 1998 ......... - $ -
New awards at the Spinoff ........ 27.3 16
Granted during the year .......... 6.4 28
Exercised during the year ........ (1.5) 11
Forfeited during the year ........ (0.7) 20
-------------
Outstanding at January 1, 1999 ........ 31.5 19
------------- ----------------
Granted during the year .......... 6.9 33
Exercised during the year ........ (4.2) 12
Forfeited during the year ........ (0.4) 30
-------------
Outstanding at December 31, 1999 ...... 33.8 22
------------- ----------------
Granted during the year .......... 0.6 36
Exercised during the year ........ (3.9) 16
Forfeited during the year ........ (0.5) 32
-------------
Outstanding at December 29, 2000 ...... 30.0 $ 23
============= ================

There were 20.5 million, 19.3 million and 19.1 million exercisable options
under the Stock Option Program at December 29, 2000, December 31, 1999, and
January 1, 1999, respectively, with weighted average exercise prices of $19, $16
and $13, respectively.

At December 29, 2000, 59.4 million shares were reserved under the
Comprehensive Plan (including 30.0 million shares under the Stock Option Program
and 1.9 million shares of the Supplemental Executive Stock Option awards) and
3.0 million shares were reserved under the Stock Purchase Plan.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Stock options issued under the Stock Option Program outstanding at December
29, 2000, were as follows:

Outstanding Exercisable
------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of Number of average average Number of average
exercise Options remaining life exercise options exercise
prices (in millions) (in years) price (in millions) price
-------------- ------------- -------------- ------------ ------------- ------------

$ 3 to 5 2.7 6 $ 5 2.7 $ 5
6 to 9 1.8 7 7 1.8 7
10 to 15 3.8 9 13 3.9 13
16 to 24 3.7 10 20 3.7 20
25 to 37 17.8 13 31 8.4 30
38 to 43 0.2 15 41 - 42
------------- -------------
$ 3 to 43 30.0 11 $ 23 20.5 $ 19
============== ============= ============== ============ ============= ============

FAIR VALUE OF FINANCIAL INSTRUMENTS

We assume that the fair values of current assets and current liabilities are
equal to their reported carrying amounts. The fair values of noncurrent
financial assets and liabilities are shown below.

2000 1999
--------------------- ---------------------
Carrying Fair Carrying Fair
amount value amount value
---------- --------- ---------- ---------
($ in millions) ($ in millions)

Notes and other receivables ......... $ 1,180 $ 1,206 $ 708 $ 720
Long-term debt and other long-term
liabilities ....................... 1,998 1,974 1,646 1,568

We value notes and other receivables based on the expected future cash flows
discounted at risk adjusted rates. We determine valuations for long-term debt
and other long-term liabilities based on quoted market prices or expected future
payments discounted at risk adjusted rates.

CONTINGENT LIABILITIES

We issue guarantees to lenders and other third parties in connection with
financing transactions and other obligations. These guarantees were limited, in
the aggregate, to $256 million at December 29, 2000, including guarantees
involving major customers. We are currently unable to estimate the impact that
the recent terrorist attacks on New York and Washington could have on the extent
to which we may fund under these guarantees. In addition, we have made physical
completion guarantees relating to two hotel properties with minimal expected
funding. As of December 29, 2000, we had extended approximately $829 million of
loan commitments to owners of lodging properties and senior living communities
under which we expect to fund approximately $332 million by December 28, 2001,
and $573 million in total. Letters of credit outstanding on our behalf at
December 29, 2000, totaled $73 million, the majority of which related to our
self-insurance programs. At December 29, 2000, we had repurchase obligations of
$41 million related to notes receivable from timeshare interval purchasers,
which have been sold with limited recourse.

New World Development and another affiliate of Dr. Henry Cheng Kar-Shun, a
director of the Company, have severally indemnified us for guarantees by us of
leases with minimum annual payments of approximately $59 million.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

On February 23, 2000, we entered into an agreement, which was subsequently
embodied in a definitive agreement executed on March 9, 2000, to resolve the
litigation described below involving certain limited partnerships formed in the
mid- to late 1980s. The agreement was reached with lead counsel to the
plaintiffs in the lawsuits described below, and with the special litigation
committee appointed by the general partner of two of the partnerships, Courtyard
by Marriott Limited Partnership (CBM I) and Courtyard by Marriott II Limited
Partnership (CBM II). The agreement was amended on September 23, 2000, to
increase the amount that CBM I settlement class members were to receive after
deduction of court-awarded attorneys' fees and expenses and to provide that the
defendants, including the Company, would pay a portion of the attorneys' fees
and expenses of the CBM I settlement class.

Under the agreement, we acquired, through an unconsolidated joint venture
with affiliates of Host Marriott Corporation (Host Marriott), substantially all
of the limited partners' interests in CBM I and CBM II. These partnerships own
120 Courtyard by Marriott hotels. We continue to manage the 120 hotels under
long-term agreements. The joint venture was financed with equity contributed in
equal shares by us and an affiliate of Host Marriott and approximately $200
million in mezzanine debt provided by us. Our total investment in the joint
venture, including the mezzanine debt, is approximately $300 million. Final
court approval of the CBM I and CBM II settlements was granted on October 24,
2000, and became effective on December 8, 2000.

The agreement also provided for the resolution of litigation with respect to
four other limited partnerships. On September 28, 2000, the court entered a
final order with respect to those partnerships, and on that same date, we and
Host Marriott each paid into escrow approximately $31 million for payment to the
plaintiffs in the Texas Multi-Partnership lawsuit described below in exchange
for dismissal of the complaints and full releases.

We recorded a pretax charge of $39 million, which was included in corporate
expenses in the fourth quarter of 1999, to reflect the settlement transactions.

Courtyard by Marriott II Limited Partnership Litigation
On June 7, 1996, a group of partners in CBM II filed a lawsuit against Host
Marriott, the Company and others, Whitey Ford, et al. v. Host Marriott
Corporation, et al., in the 285/th/ Judicial District Court of Bexar County,
Texas, alleging breach of fiduciary duty, breach of contract, fraud, negligent
misrepresentation, tortious interference, violation of the Texas Free Enterprise
and Antitrust Act of 1983 and conspiracy in connection with the formation,
operation and management of CBM II and its hotels. The plaintiffs sought
unspecified damages. On January 29, 1998, two other limited partners, A.R.
Milkes and D.R. Burklew, filed a petition in intervention seeking to convert the
lawsuit into a class action, and a class was certified. In March 1999, Palm
Investors, L.L.C., the assignee of a number of limited partnership units
acquired through various tender offers, and Equity Resource, an assignee of a
number of limited partnership units, through various of its funds, filed pleas
in intervention, which among other things added additional claims relating to
the 1993 split of Marriott Corporation and to the 1995 refinancing of CBM

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

II's indebtedness. On August 17, 1999, the general partner of CBM II appointed
an independent special litigation committee to investigate the derivative claims
described above and to recommend to the general partner whether it was in the
best interests of CBM II for the derivative litigation to proceed. The general
partner agreed to adopt the recommendation of the committee. Under Delaware law,
the recommendation of a duly appointed independent litigation committee is
binding on the general partner and the limited partners. Following certain
adjustments to the underlying complaints, including the assertion as derivative
claims some of the claims previously filed as individual claims, a final amended
class action complaint was filed on January 6, 2000. The lawsuit was dismissed
as part of the settlement described above.

Texas Multi-Partnership Lawsuits
On March 16, 1998, limited partners in several limited partnerships sponsored
by Host Marriott or its subsidiaries filed a lawsuit, Robert M. Haas, Sr. and
-----------------------
Irwin Randolph Joint Tenants, et al. v. Marriott International, Inc., et al.,
----------------------------------------------------------------------------
Case No. 98-CI-04092, in the 57/th/ Judicial District Court of Bexar County,
Texas, alleging that the defendants conspired to sell hotels to the partnerships
for inflated prices and that they charged the partnerships excessive management
fees to operate the partnerships' hotels. The plaintiffs further alleged that
the defendants committed fraud, breached fiduciary duties and violated the
provisions of various contracts. A Marriott International subsidiary manages
each of the hotels involved and, as to some properties, the Company is the
ground lessor and collects rent. The Company, several Marriott subsidiaries and
J.W. Marriott, Jr. were among the several named defendants. This lawsuit was
resolved as part of the settlement described above.

BUSINESS SEGMENTS

We are a diversified hospitality company with operations in six business
segments: Full Service Lodging, which includes Marriott Hotels, Resorts and
Suites, The Ritz-Carlton Hotels, Renaissance Hotels, Resorts and Suites, Ramada
International and the fees we receive for the use of the Ramada name in the
United States and Canada; Select Service Lodging, which includes Courtyard,
Fairfield Inn and SpringHill Suites; Extended Stay Lodging, which includes
Residence Inn, TownePlace Suites, ExecuStay and Marriott Executive Apartments;
Timeshare, which includes the operation, ownership, development and marketing of
Marriott's timeshare properties under the Marriott, Ritz-Carlton Club and
Horizons brands; Senior Living Services, which includes the operation, ownership
and development of senior living communities; and Distribution Services, which
includes our wholesale food distribution business. We evaluate the performance
of our segments based primarily on operating profit before corporate expenses
and interest. We do not allocate income taxes at the segment level.

We have aggregated the brands and businesses presented within each of our
segments considering their similar economic characteristics, types of customers,
distribution channels, and the regulatory business environment of the brands and
operations within each segment.

2000 1999 1998
----------- ----------- -----------
As revised As revised As revised
($ in millions)

Sales
Full Service ................. $ 5,520 $ 5,091 $ 4,784
Select Service ............... 901 788 700
Extended Stay ................ 668 537 319
Timeshare .................... 822 625 508
----------- ----------- -----------
Total Lodging ............. 7,911 7,041 6,311
Senior Living Services ....... 669 559 479
Distribution Services ........ 1,500 1,139 1,178
----------- ----------- -----------
$ 10,080 $ 8,739 $ 7,968
=========== =========== ===========

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

2000 1999 1998
----------- ----------- -----------
As revised As revised As revised
($ in millions)

Operating profit (loss) before corporate
expenses and interest
Full Service ........................ $ 510 $ 469 $ 412
Select Service ...................... 192 167 150
Extended Stay ....................... 96 68 48
Timeshare ........................... 138 123 94
----------- ----------- -----------
Total Lodging .................. 936 827 704
Senior Living Services .............. (18) (18) 15
Distribution Services ............... 4 21 17
----------- ----------- -----------
$ 922 $ 830 $ 736
=========== =========== ===========

Depreciation and amortization
Full Service ........................ $ 86 $ 74 $ 72
Select Service ...................... 8 4 3
Extended Stay ....................... 15 11 5
Timeshare ........................... 22 19 19
----------- ----------- -----------
Total Lodging ................... 131 108 99
Senior Living Services .............. 28 21 19
Distribution Services ............... 6 6 6
Corporate ........................... 30 27 16
----------- ----------- -----------
$ 195 $ 162 $ 140
=========== =========== ===========

Assets
Full Service ........................ $ 3,453 $ 2,861 $ 2,494
Select Service ...................... 995 620 451
Extended Stay ....................... 399 395 256
Timeshare ........................... 1,634 1,283 1,084
----------- ----------- -----------
Total Lodging ................... 6,481 5,159 4,285
Senior Living Services ............ 784 980 905
Distribution Services ............. 194 187 179
Corporate ......................... 778 998 864
----------- ----------- -----------
$ 8,237 $ 7,324 $ 6,233
=========== =========== ===========

Capital expenditures
Full Service ........................ $ 554 $ 180 $ 141
Select Service ...................... 262 182 123
Extended Stay ....................... 83 121 133
Timeshare ........................... 66 36 165
----------- ----------- -----------
Total Lodging ................... 965 519 562
Senior Living Services .............. 76 301 329
Distribution Services ............... 6 3 2
Corporate ........................... 48 106 44
----------- ----------- -----------
$ 1,095 $ 929 $ 937
=========== =========== ===========

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Sales from Distribution Services exclude sales (made at market terms and
conditions) to other business segments of $176 million, $166 million and $155
million in 2000, 1999 and 1998, respectively.

Segment operating expenses include selling, general and administrative
expenses directly related to the operations of the businesses, aggregating $682
million in 2000, $592 million in 1999 and $496 million in 1998.

The consolidated financial statements include the following related to
international operations: sales of $455 million in 2000, $392 million in 1999
and $323 million in 1998; operating profit before corporate expenses and
interest of $73 million in 2000, $66 million in 1999 and $49 million in 1998;
and fixed assets of $241 million in 2000, $137 million in 1999 and $102 million
in 1998.

SUBSEQUENT EVENTS

Contingent Liabilities

On March 30, 2001, Green Isle Partners, Ltd., S.E. (Green Isle) filed a 63-
page complaint in Federal district court in Delaware against The Ritz-Carlton
Hotel Company, L.L.C., The Ritz-Carlton Hotel Company of Puerto Rico, Inc.
(Ritz-Carlton Puerto Rico), Marriott International, Inc., Marriott Distribution
Services, Inc., Marriott International Capital Corp. and Avendra L.L.C. (Green
-----
Isle Partners, Ltd. S.E., v. The Ritz-Carlton Hotel Company, L.L.C., et al,
--------------------------------------------------------------------------
civil action no. 01-202). Ritz-Carlton Puerto Rico manages The Ritz-Carlton
San Juan Hotel, Spa and Casino located in San Juan, Puerto Rico under an
operating agreement with Green Isle dated December 15, 1995 (the Operating
Agreement).

The claim asserts 11 causes of action: three Racketeer Influenced and
Corrupt Organizations Act (RICO) claims, together with claims based on the
Robinson-Patman Act, breach of contract, breach of fiduciary duty, aiding and
abetting a breach of fiduciary duty, breach of implied duties of good faith and
fair dealing, common law fraud and intentional misrepresentation, negligent
misrepresentation, and fiduciary accounting. The complaint does not request
termination of the Operating Agreement.

The claim includes allegations of: (i) national, non-competitive contracts
and attendant kick-back schemes; (ii) concealing transactions with affiliates;
(iii) false entries in the books and manipulation of accounts payable and
receivable; (iv) excessive compensation schemes and fraudulent expense accounts;
(v) charges of prohibited overhead costs to the project; (vi) charges of
prohibited procurement costs; (vii) inflation of Group Service Expense; (viii)
the use of prohibited or falsified revenues; (ix) attempts to oust Green Isle
from ownership; (x) creating a financial crisis and then attempting to exploit
it by seeking an economically oppressive contract in connection with a loan;
(xi) providing incorrect cash flow figures and failing to appropriately reveal
and explain revised cash flow figures.

The complaint seeks as damages the $140 million, which Green Isle claims to
have invested in the hotel (which includes $85 million in third party debt),
which the plaintiffs seek to treble to $420 million under RICO and the
Robinson-Patman Act.

On May 25, 2001, defendants moved to dismiss the complaint or,
alternatively, to stay or transfer. Briefing of the motion is complete but oral
argument has not yet been scheduled. On June 25, 2001, Green Isle filed its
Chapter 11 Bankruptcy Petition in the Southern District of Florida.

Although we believe that the lawsuit described above is without merit, and
we intend to vigorously defend against the claims being made against us, we
cannot assure you as to the outcome of this lawsuit nor can we currently
estimate the range of any potential loss to the Company.

Convertible Debt

On May 8, 2001 we received cash proceeds of $405 million from the sale of
zero-coupon convertible senior notes due 2021, known as LYONs.

The LYONs are convertible into approximately 6.4 million shares of our Class
A common stock and will carry a yield to maturity of 0.75 percent. We may not
redeem the LYONs prior to May 8, 2004, but may at the option of the holders be
required to purchase the LYONs at their accreted value on May 8 of each of 2002,
2004, 2011 and 2016. We may choose to pay the purchase price for redemptions or
repurchases in cash and/or shares of our Class A Common Stock.

We are amortizing the issuance costs of the LYONs into interest expense over
the one-year period ending May 8, 2002. The LYONs are classified as long-term
based on our ability and intent to refinance the obligation with long-term debt
if we are required to repurchase the LYONs.

Dispositions

In the first quarter of 2001, we closed on sales of eight lodging properties
and one senior living community for cash proceeds of $241 million, resulting in
gains of $5 million. We recognized $4 million of the gain and the balance will
be recognized as certain contingencies in the sales contracts expire. We will
continue to operate seven of these hotels under long-term management agreements.

In the second quarter of 2001, we sold four lodging properties for $102
million. We will continue to operate the hotels under long-term management
agreements. In the second quarter of 2001, in connection with the sale, the
buyer terminated lease agreements for three properties sold and leased back to
us in 1997 and 1998. In the third quarter of 2001, an additional six lease
agreements were terminated. We now manage these nine previously leased
properties under long-term management agreements, and gains on the sale of these
properties of $5 million were recognized in both the second quarter and third
quarter as a result of the lease cancellations.

In the second quarter of 2001 we sold land, at book value, for $31 million
to a joint venture which plans to build two resort hotels in Orlando, Florida,
for $547 million. We will provide development services and have guaranteed
completion of the project. The initial owners of the venture have the right to
sell 20 percent of the venture's equity to us upon the opening of the hotels. At
opening we also expect to hold approximately $120 million in mezzanine loans
that we have agreed to advance to the joint venture. We have provided the
venture with additional credit facilities for certain amounts due under the
first mortgage loan and to provide for limited minimum returns to the equity
investors in the early years of the project, although we expect fundings under
such support to be less than $5 million.

In the third quarter of 2001, we sold two lodging properties, and some
undeveloped land, for cash proceeds of $146 million, resulting in gains of $7
million. We recognized $1 million of the gain and the balance will be recognized
as certain contingencies in the sales contracts expire. We will continue to
operate the two hotels under long-term management agreements.

September 11, 2001 Terrorist Attacks

The Company has been adversely affected in the aftermath of the recent terrorist
attacks on New York and Washington. Since the attacks, our hotels have
experienced significant short-term declines in occupancy compared to the prior
year. At present, it is not possible to predict either the severity or duration
of such declines in the medium- or long-term, or the potential impact on the
Company's results of operations, financial condition or cash flows. However, as
a result of the significant short-term declines in occupancy, the Company has
taken steps to reduce costs, including reductions in staff. The Company is
undertaking a comprehensive analysis of its cost structure including, among
other things, overall staffing levels and facilities related costs. Furthermore,
the Company is evaluating hotel financial performance subsequent to September
11, 2001 and its impact on the Company's investments and contingent obligations.
Declines in hotel profitability reduce management and franchise fees and could
give rise to fundings or losses under investments and contingent obligations
that we have made in connection with hotels that we manage or franchise. The
outcome of the Company's analysis may result in charges to operations and
potentially a material adverse impact on our financial position, results of
operations and cashflows.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

QUARTERLY FINANCIAL DATA - UNAUDITED

($ in millions, except per share data)

2000/1/ (As revised)
---------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
------------ ------------ ------------ ------------ -------------

Sales ........................................ $ 2,177 $ 2,409 $ 2,315 $ 3,179 $ 10,080
Operating profit before corporate expenses
and interest .............................. $ 193 $ 247 $ 216 $ 266 $ 922
Net income ................................... $ 94 $ 126 $ 110 $ 149 $ 479
Diluted earnings per share ................... $ 0.37 $ 0.50 $ 0.43 $ 0.59 $ 1.89

1999/1/
--------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
------------ ------------ ------------ ------------ ------------

Sales ........................................ $ 1,895 $ 2,042 $ 1,995 $ 2,807 $ 8,739
Operating profit before corporate expenses
and interest .............................. $ 193 $ 216 $ 188 $ 233 $ 830
Net income ................................... $ 100 $ 114 $ 96 $ 90 $ 400
Diluted earnings per share/2/ ................ $ 0.38 $ 0.42 $ 0.36 $ 0.34 $ 1.51

/1/ The quarters consist of 12 weeks, except the fourth quarter, which consists
of 16 weeks.
/2/ In 1999 the sum of the earnings per share for the four quarters differs
from annual earnings per share due to the required method of computing the
weighted average number of shares in interim periods.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEMS 10, 11, 12 and 13.

As described below, certain information appearing in our Proxy Statement
which was furnished to shareholders in connection with the 2001 Annual Meeting
of Shareholders, is incorporated by reference in this Form 10-K Annual Report.

ITEM 10. This information is incorporated by reference to the
"Directors Standing For Election," "Directors Continuing
In Office" and "Section 16(a) Beneficial Ownership
Reporting Compliance" sections of our Proxy Statement
which was furnished to shareholders in connection with
the 2001 Annual Meeting. Information regarding
executive officers is included below.

ITEM 11. This information is incorporated by reference to the
"Executive Compensation" section of our Proxy Statement,
which was furnished to shareholders in connection with
the 2001 Annual Meeting.

ITEM 12. This information is incorporated by reference to the
"Stock Ownership" section of our Proxy Statement, which
was furnished to shareholders in connection with the 2001
Annual Meeting.

ITEM 13. This information is incorporated by reference to the
"Certain Transactions" section of our Proxy Statement,
which was furnished to shareholders in connection with
the 2001 Annual Meeting.

EXECUTIVE OFFICERS

Set forth below is certain information with respect to our executive
officers.

Name and Title Age Business Experience
--------------------------------------------- -------- ------------------------------------------------------------

J. W. Marriott, Jr. 69 Mr. Marriott is Chairman of the Board and Chief Executive
Chairman of the Marriott International, Officer of the Company. He joined Marriott Corporation
Inc. Board and Chief Executive Officer (now known as Host Marriott Corporation) in 1956, became
President and a director in 1964, Chief Executive Officer
in 1972 and Chairman of the Board in 1985. Mr. Marriott
also is a director of Host Marriott Corporation, General
Motors Corporation and the Naval Academy Endowment Trust.
He serves on the Board of Trustees of the National
Geographic Society and The J. Willard & Alice S. Marriott
Foundation, and the Board of Directors of Georgetown
University, and is a member of the Executive Committee of
the World Travel & Tourism Council and the Business Council.
Mr. Marriott has served as Chief Executive Officer of the
Company since its inception in 1997, and served as Chairman
and Chief Executive Officer of Old Marriott from October
1993 to March 1998. Mr. Marriott has served as a director of
the Company since March 1998.

Simon Cooper 56 Simon Cooper joined Marriott International in 1998 as
Vice President; President of Marriott Lodging Canada and Senior Vice
President and Chief Operating Officer, President of Marriott Lodging International. In 2000, the
The Ritz-Carlton Hotel Company, L.L.C. New England Region was added to his Canadian
responsibilities. Prior to joining Marriott, Mr. Cooper
was President and Chief Operating Officer of Delta Hotels
and Resorts. Mr. Cooper is the Chairman of the Board of
Governors for University of Guelph. He is a fellow of the
Board of Trustees for the Educational Institute of the
American Hotel and Motel Association and is a member of
the Board for the Canadian Tourism Commission. In
February 2001, Mr. Cooper was appointed to his current
position.

Edwin D. Fuller 56 Edwin D. Fuller joined Marriott in 1972 and held several
Vice President; sales positions before being appointed Vice President of
President and Managing Director - Marketing in 1979. He became Regional Vice President in
Marriott Lodging International the Midwest Region in 1985, Regional Vice President of the
Western Region in 1988, and in 1990 was promoted to Senior
Vice President & Managing Director of International Lodging,
with a focus on developing the international group of hotels.
He was named Executive Vice President and Managing Director
of International Lodging in 1994, and was promoted to his
current position of President and Managing Director of
International Lodging in 1997.

Name and Title Age Business Experience
--------------------------------------------- -------- ------------------------------------------------------------

Brendan M. Keegan 58 Brendan M. Keegan joined Marriott Corporation in 1971, in
Vice President; the Corporate Organization Development Department and
Executive Vice President - subsequently held several human resources positions,
Human Resources including Vice President of Organization Development and
Executive Succession Planning. In 1986, Mr. Keegan was
named Senior Vice President, Human Resources, Marriott
Service Group. In April 1997, Mr. Keegan was appointed
Senior Vice President of Human Resources for our worldwide
human resources functions, including compensation,
benefits, labor and employee relations, employment and
human resources planning and development. In February
1998, he was appointed to his current position.

William W. McCarten 53 William W. McCarten was named as President of Marriott
Vice President; Services Group (Marriott Senior Living Services and
President - Marriott Services Group Marriott Distribution Services) in January 2001. Most
recently, Mr. McCarten served a President and Chief
Executive Officer of HMS Host Corporation(formerly Host
Marriott Services Corporation) from 1995 to December
2000. He joined Marriott Corporation in 1979, was elected
Vice President, Corporate Controller and Chief Accounting
Officer in 1985 and Senior Vice President in 1986. He was
named Executive Vice President, Host and Travel Plazas in
1991 and President, Host and Travel Plazas in 1992. In
1993 he became President of Host Marriott Corporation's
Operating Group and in 1995 was elected President and Chief
Executive Officer and a director of HMS Host Corporation. Mr.
McCarten is a past chairman on the Advisory Board of the
McIntire School at the University of Virginia.

Terry Petty 52 Terry Petty joined Marriott Corporation in 1984 as Vice
Executive Vice President; President of Marketing and Planning for the newly
North American Lodging Operations acquired Host International business and subsequently
held the following positions: Vice President of Consumer
Marketing, Marriott Hotels; General Manager, Atlanta
Perimeter Marriott Hotel; Vice President of Operations
for Marriott Vacation Club International, and Senior
Vice President of Hotels for the Western Region. In
March 2000, Mr. Petty was appointed to his current
position.

Joseph Ryan 59 Joseph Ryan joined Old Marriott in December 1994 as
Executive Vice President and General Counsel Executive Vice President and General Counsel. Prior to
that time, he was a partner in the law firm of O'Melveny &
Myers, serving as the Managing Partner from 1993 until his
departure. He joined O'Melveny & Myers in 1967 and was
admitted as a partner in 1976.

Name and Title Age Business Experience
------------------------------------------ ----------- ------------------------------------------------------------

William J. Shaw 56 Mr. Shaw has served as President and Chief Operating
Director, President and Officer of the Company since March 1997 (including
Chief Operating Officer service in the same capacity with Old Marriott until
March 1998). Mr. Shaw joined Marriott Corporation in
1974, was elected Corporate Controller in 1979 and a Vice
President in 1982. In 1986, Mr. Shaw was elected Senior
Vice President--Finance and Treasurer of Marriott
Corporation. He was elected Chief Financial Officer and
Executive Vice President of Marriott Corporation in April
1988. In February 1992, he was elected President of the
Marriott Service Group. Mr. Shaw is also Chairman of the
Board of Directors of Sodexho Marriott Services, Inc. He
also serves on the Board of Trustees of the University of
Notre Dame and the Suburban Hospital Foundation. Mr. Shaw
has served as a director of Old Marriott (now named
Sodexho Marriott Services, Inc.) since May 1997, and as a
director of the Company since March 1998.

Arne M. Sorenson 43 Arne M. Sorenson joined Old Marriott in 1996 as Senior
Executive Vice President and Vice President of Business Development. He was
Chief Financial Officer instrumental in our acquisition of the Renaissance Hotel
Group in 1997. Prior to joining Marriott, he was a
partner in the law firm of Latham & Watkins in
Washington, D.C., where he played a key role in 1992 and
1993 in the distribution of Old Marriott by Marriott
Corporation. Effective October 1, 1998, Mr. Sorenson was
appointed Executive Vice President and Chief Financial
Officer.

James M. Sullivan 58 James M. Sullivan joined Marriott Corporation in 1980,
Executive Vice President - departed in 1983 to acquire, manage, expand and
Lodging Development subsequently sell a successful restaurant chain, and
returned to Marriott Corporation in 1986 as Vice President
of Mergers and Acquisitions. Mr. Sullivan became Senior Vice
President, Finance - Lodging in 1989, Senior Vice President
- Lodging Development in 1990 and was appointed to his current
position in December 1995.

William R. Tiefel 67 William R. Tiefel joined Marriott Corporation in 1961 and
Vice Chairman; was named President of Marriott Hotels, Resorts and
Chairman - The Ritz-Carlton Hotel Suites in 1988. He had previously served as Resident
Company, L.L.C. Manager and General Manager at several Marriott hotels
prior to being appointed Regional Vice President and
later Executive Vice President of Marriott Hotels,
Resorts and Suites and Marriott Ownership Resorts. Mr.
Tiefel was elected Executive Vice President of Marriott
Corporation in November 1989. In March 1992, he was
elected President - Marriott Lodging Group and assumed
responsibility for all of Marriott's lodging brands. In
May 1998, he was appointed to his current position.

Name and Title Age Business Experience
------------------------------------------ ---------- -----------------------------------------------------------

Stephen P. Weisz 51 Stephen P. Weisz joined Marriott Corporation in 1972 and
Vice President; was named Regional Vice President of the Mid-Atlantic
President - Marriott Vacation Club Region in 1991. Mr. Weisz had previously served as
International Senior Vice President of Rooms Operations before being
appointed as Vice President of the Revenue Management
Group. Mr. Weisz became Senior Vice President of Sales
and Marketing for Marriott Hotels, Resorts and Suites in
August 1992 and Executive Vice President - Lodging Brands
in August 1994. In December 1996, Mr. Weisz was
appointed President - Marriott Vacation Club
International.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

(1) FINANCIAL STATEMENTS

The response to this portion of Item 14 is submitted under Item 8
of this Report on Form 10-K.

(2) FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.

(3) EXHIBITS

Any shareholder who wants a copy of the following Exhibits may
obtain one from us upon request at a charge that reflects the
reproduction cost of such Exhibits. Requests should be made to the
Secretary, Marriott International, Inc., Marriott Drive,
Department 52/862, Washington, D.C. 20058.

Incorporation by Reference
(where a report or registration statement is
indicated below, that document has been
previously filed with the SEC and the applicable
Exhibit No. Description exhibit is incorporated by reference thereto)
----------------------------------------------------------------------------------------------------------------------

2.1 Distribution Agreement dated as of September Appendix A in our Form 10 filed on February 13,
30, 1997 with Sodexho Marriott Services, Inc. 1998.

2.2 Agreement and Plan of Merger dated as of Appendix B in our Form 10 filed on February 13,
September 30, 1997 with Sodexho Marriott 1998.
Services, Inc., Marriott-ICC Merger Corp.,
Sodexho Alliance, S.A. and International
Catering Corporation.

2.3 Omnibus Restructuring Agreement dated as of Appendix C in our Form 10 filed on February 13,
September 30, 1997 with Sodexho Marriott 1998.
Services, Inc., Marriott-ICC Merger Corp.,
Sodexho Alliance, S.A. and International
Catering Corporation.

2.4 Amendment Agreement dated as of January 28, Appendix D in our Form 10 filed on February 13,
1998 among Sodexho Marriott Services, Inc., 1998.
Marriott-ICC Merger Corp., the Company, Sodexho
Alliance, S.A. and International Catering
Corporation.

3.1 Third Amended and Restated Certificate of Exhibit No. 3 to our Form 10-Q for the fiscal
Incorporation of the Company. quarter ended June 18, 1999.

3.2 Amended and Restated Bylaws. Exhibit No. 3.3 to our Form 10-K for the fiscal
year ended January 1, 1999.

3.3 Amended and Restated Rights Agreement dated as Exhibit No. 4.1 to our Form 10-Q for the fiscal
of August 9, 1999 with The Bank of New York, as quarter ended September 10, 1999.
Rights Agent.

3.4 Certificate of Designation, Preferences and Exhibit No. 3.1 to our Form 10-Q for the fiscal
Rights of the Marriott International, Inc. ESOP quarter ended June 16, 2000.
Convertible Preferred Stock.

3.5 Certificate of Designation, Preferences and Exhibit No. 3.2 to our Form 10-Q for the fiscal
Rights of the Marriott International, Inc. quarter ended June 16, 2000.
Capped Convertible Preferred Stock.

4.1 Indenture dated November 16, 1998 with The Exhibit No. 4.1 to our Form 10-K for the fiscal
Chase Manhattan Bank, as Trustee. year ended January 1, 1999.

4.2 Form of 6.625% Series A Note due 2003. Exhibit No. 4.2 to our Form 10-K for the fiscal
year ended January 1, 1999.

4.3 Form of 6.875% Series B Note due 2005. Exhibit No. 4.3 to our Form 10-K for the fiscal
year ended January 1, 1999.

4.4 Form of 7.875% Series C Note due 2009. Exhibit No. 4.1 to our Form 8-K dated September 20,
1999.

4.5 Form of 8.125% Series D Note due 2005. Exhibit No. 4.1 to our Form 8-K dated March 28,
2000.

4.6 Form of 7.0% Series E Note due 2008. Exhibit No. 4.1 (f) to our Form S-3 filed on
January 17, 2001.

4.7 Indenture, dated as of May 8, 2001, relating to Exhibit No. 4.2 to our Form S-3 filed on May 25,
the Liquid Yield Option Notes due 2021, with 2001
Bank of New York, as trustee.

10.1 Employee Benefits and Other Employment Matters Exhibit No. 10.1 to our Form 10 filed on February
Allocation Agreement dated as of September 30, 13, 1998.
1997 with Sodexho Marriott Services, Inc.

10.2 1998 Comprehensive Stock and Cash Incentive Appendix L in our Form 10 filed on February 13,
Plan. 1998.

10.3 Noncompetition Agreement between Sodexho Exhibit No. 10.1 to our Form 10-Q for the fiscal
Marriott Services, Inc. and the Company. quarter ended March 27, 1998.

10.4 Tax Sharing Agreement with Sodexho Marriott Exhibit No. 10.2 to our Form 10-Q for the fiscal
Services, Inc. and Sodexho Alliance, S.A. quarter ended March 27, 1998.

10.5 Distribution Agreement with Host Marriott Exhibit No. 10.3 to Form 8-K of Old Marriott dated
Corporation, as amended. October 25, 1993; Exhibit No. 10.2 to Form 10-K of
Old Marriott for the fiscal year ended December 29,
1995 (First Amendment); Exhibit Nos. 10.4 and 10.5 to
our Form 10-Q for the fiscal quarter ended March 27,
1998 (Second and Third Amendments); and Exhibit nos.
10.5 (a) and 10.5 (b) to our Form 10-K for the fiscal
year ended December 31, 1999 (Fourth and Fifth
Amendments); Exhibit No. 10.5 to our Form 10-K for
the fiscal year ended December 29, 2000 (Sixth
Amendment).

10.6 Restated Noncompetition Agreement with Host Exhibit No. 10.6 to our Form 10-Q for the fiscal
Marriott Corporation. quarter ended March 27, 1998.

10.7 $1.5 billion Credit Agreement dated February Exhibit No. 10.10 to our Form 10-K for the fiscal
19, 1998 with Citibank, N.A., as Administrative year ended January 2, 1998.
Agent, and certain banks.

10.8 $500 million Credit Agreement dated February 2, Exhibit No. 4.8 to our Form 10-K for the fiscal
1999 with Citibank, N.A. as Administrative year ended January 1, 1999.
Agent, and certain banks.

10.9 Settlement Agreement dated as of March 9, 2000 Exhibit No. 10.1 to our Form 10-Q/A for the fiscal
among A. R. Milkes, Robert M. Haas, Sr., and quarter ended March 24, 2000.
other plaintiffs and intervenors identified
therein and the Company, Host Marriott
Corporation, and other identified defendants,
each by and through their respective counsel
of record.

10.10 Amended and restated Marriott International, Attachment A to the Company's definitive proxy
Inc. 1998 Comprehensive Stock and Cash statement filed on March 23, 2000.
Incentive Plan.

10.11 First Amendment to the Settlement Agreement Exhibit No. 10 to our Form 10-Q for the fiscal
dated as of September 23, 2000 among A.R. quarter ended September 8, 2000.
Milkes, Robert M. Haas, Sr., and other
plaintiffs and intervenors identified therein
and the Company, Host Marriott Corporation, and
other identified defendants, each by and
through their respective counsels of record.

12 Statement of Computation of Ratio of Earnings Filed with this report.
to Fixed Charges.

21 Subsidiaries of Marriott International, Inc. Filed with this report.

23 Consent of Arthur Andersen LLP. Filed with this report.

99 Forward-Looking Statements. Filed with this report.

------------------

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 we have duly caused this Form 10-K to be signed on our
behalf by the undersigned, thereunto duly authorized, on this 10th day of
December, 2001.

MARRIOTT INTERNATIONAL, INC.

By /s/ J.W. Marriott, Jr.
-------------------------------------------------------
J.W. Marriott, Jr.
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed by the following persons on our behalf in their
capacities and on the date indicated above.

PRINCIPAL EXECUTIVE OFFICER:

/s/ J.W. Marriott, Jr.
---------------------------------------------------------------
J.W. Marriott, Jr. Chairman of the Board, Chief Executive Officer
and Director

PRINCIPAL FINANCIAL OFFICER:

/s/ Arne M. Sorenson
---------------------------------------------------------------
Arne M. Sorenson Executive Vice President,
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:

/s/ Linda A Bartlett
---------------------------------------------------------------
Linda A. Bartlett Vice President, Controller

DIRECTORS:

/s/ Henry Cheng Kar-Shun /s/ W. Mitt Romney
--------------------------------------------------------------- --------------------------------------------------
Henry Cheng Kar-Shun, Director W. Mitt Romney, Director

/s/ Gilbert M. Grosvenor /s/ Roger W. Sant
--------------------------------------------------------------- --------------------------------------------------
Gilbert M. Grosvenor, Director Roger W. Sant, Director

/s/ Richard E. Marriott /s/ William J. Shaw
--------------------------------------------------------------- --------------------------------------------------
Richard E. Marriott, Director William J. Shaw, Director

/s/ Floretta Dukes McKenzie /s/ Lawrence M. Small
--------------------------------------------------------------- --------------------------------------------------
Floretta Dukes McKenzie, Director Lawrence M. Small, Director

/s/ Harry J. Pearce
---------------------------------------------------------------
Harry J. Pearce, Director

S-1