Edgar Filing: MARRIOTT INTERNATIONAL INC /MD/

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

[X] QUARTERLY 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 Quarter Ended March 23, 2001 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

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 [_]

Shares outstanding
Class at November 30, 2001
------------------------------------ --------------------------
Class A Common Stock, 240,980,998
$0.01 par value

MARRIOTT INTERNATIONAL, INC.
INDEX

Page No.
--------

Forward-Looking Statements ................................................. 3

Part I. Financial Information (Unaudited):

Condensed Consolidated Statement of Income -
Twelve Weeks Ended March 23, 2001 and March 24, 2000 ............... 4

Condensed Consolidated Balance Sheet -
as of March 23, 2001 and December 29, 2000 ......................... 5

Condensed Consolidated Statement of Cash Flows -
Twelve Weeks Ended March 23, 2001 and March 24, 2000 ............... 6

Notes to Condensed Consolidated Financial Statements ................... 7

Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 16

Quantitative and Qualitative Disclosures About Market Risk ............. 20

Part II. Other Information and Signatures:

Legal Proceedings ...................................................... 21

Changes in Securities .................................................. 21

Defaults Upon Senior Securities ........................................ 21

Submission of Matters to a Vote of Security Holders .................... 21

Other Information ...................................................... 21

Exhibits and Reports on Form 8-K ....................................... 22

Signatures ............................................................. 23

Forward-Looking Statements

When used throughout this report, the words "believes," "anticipates,"
"expects," "intends," "estimates," "projects," and other similar expressions,
which are predictions of or indicate future events and trends, identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties which could cause actual results to differ materially from those
projected, including: competition within 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 aftermath of the September 11, 2001 terrorist attacks on New York and
Washington; the availability of capital to allow us and potential hotel owners
to fund investments; the effect that internet hotel reservation channels may
have on 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, including those set forth on Exhibit 99 filed herewith. Given these
uncertainties, we caution you not to place undue reliance on such statements. We
also undertake no obligation to publicly update or revise any forward-looking
statement to reflect current or future events or circumstances.

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements
----------------------------

MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ in millions, except per share amounts)
(Unaudited)

Twelve weeks ended
-----------------------------------
March 23, 2001 March 24, 2000
-------------- --------------
(As revised) (As revised)

SALES
Management and franchise fees ....................... $ 204 $ 189
Distribution services ............................... 361 307
Other ............................................... 481 422
-------------- --------------
1,046 918
Other revenues from managed properties .............. 1,415 1,259
-------------- --------------
2,461 2,177
-------------- --------------
OPERATING COSTS AND EXPENSES
Distribution services ............................... 359 319
Other ............................................... 461 406
-------------- --------------
820 725
Other costs from managed properties ................. 1,415 1,259
-------------- --------------
2,235 1,984
-------------- --------------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST .. 226 193
Corporate expenses ....................................... (30) (26)
Interest expense ......................................... (22) (23)
Interest income .......................................... 16 5
-------------- --------------
INCOME BEFORE INCOME TAXES ............................... 190 149
Provision for income taxes ............................... 69 55
-------------- --------------
NET INCOME ............................................... $ 121 $ 94
============== ==============

DIVIDENDS DECLARED PER SHARE ............................. $ .060 $ .055
============== ==============

EARNINGS PER SHARE
Basic Earnings Per Share ............................ $ .50 $ .39
============== ==============
Diluted Earnings Per Share .......................... $ .47 $ .37
============== ==============

See notes to condensed consolidated financial statements.

MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
(Unaudited)

March 23, December 29,
2001 2000
-------------- --------------

ASSETS

Current assets
Cash and equivalents .......................................... $ 370 $ 334
Accounts and notes receivable ................................. 719 728
Inventory ..................................................... 110 97
Other ......................................................... 272 256
-------------- --------------
1,471 1,415
-------------- --------------

Property and equipment ........................................... 3,131 3,241
Intangibles ...................................................... 1,834 1,833
Investments in affiliates ........................................ 793 747
Notes and other receivables ...................................... 699 661
Other ............................................................ 350 340
-------------- --------------
$ 8,278 $ 8,237
============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable .............................................. $ 675 $ 660
Other ......................................................... 1,054 1,257
-------------- --------------
1,729 1,917
-------------- --------------

Long-term debt ................................................... 2,012 2,016
Other long-term liabilities ...................................... 1,078 1,037
Shareholders' equity
ESOP preferred stock ........................................... - -
Class A common stock, 255.6 million shares issued .............. 3 3
Additional paid-in capital ..................................... 3,454 3,590
Retained earnings .............................................. 895 851
Unearned ESOP shares ........................................... (462) (679)
Treasury stock, at cost ........................................ (381) (454)
Accumulated other comprehensive income ......................... (50) (44)
-------------- --------------
3,459 3,267
-------------- --------------
$ 8,278 $ 8,237
============== ==============

See notes to condensed consolidated financial statements.

MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in millions)
(Unaudited)

Twelve weeks ended
--------------------------------
March 23, March 24,
2001 2000
------------- ------------

OPERATING ACTIVITIES
Net income ..................................................... $ 121 $ 94
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization .............................. 46 41
Income taxes and other ..................................... 60 53
Timeshare activity, net .................................... (107) (68)
Working capital changes .................................... (94) (99)
------------- ------------
Cash provided by operations .................................... 26 21
------------- ------------

INVESTING ACTIVITIES
Dispositions ................................................... 241 3
Capital expenditures ........................................... (125) (247)
Note advances .................................................. (35) (25)
Note collections and sales ..................................... 7 4
Other .......................................................... (52) (19)
------------- ------------
Cash provided by (used in) investing activities ................ 36 (284)
------------- ------------

FINANCING ACTIVITIES
Commercial paper activity, net ................................. (298) 394
Issuance of other long-term debt ............................... 299 3
Repayment of other long-term debt .............................. (4) (4)
Issuance of Class A common stock ............................... 31 3
Dividends paid ................................................. (15) (14)
Purchase of treasury stock ..................................... (39) (236)
------------- ------------
Cash (used in) provided by financing activities ................ (26) 146
------------- ------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ....................... 36 (117)
CASH AND EQUIVALENTS, beginning of period ......................... 334 489
------------- ------------
CASH AND EQUIVALENTS, end of period ............................... $ 370 $ 372
============= ============

See notes to condensed consolidated financial statements.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation
---------------------
The accompanying condensed 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).

The accompanying condensed consolidated financial statements have not been
audited. We have condensed or omitted certain information and footnote
disclosures normally included in financial statements presented in
accordance with accounting principles generally accepted in the United
States. We believe the disclosures made are adequate to make the
information presented not misleading. However, you should read the
condensed consolidated financial statements in conjunction with the
consolidated financial statements and notes to those financial statements
included in our Annual Report on Form 10-K (our Annual Report) for the
fiscal year ended December 29, 2000. Capitalized terms not otherwise
defined in this quarterly report have the meanings specified in our Annual
Report.

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.

In our opinion, the accompanying condensed consolidated financial
statements reflect all normal and recurring adjustments necessary to
present fairly our financial position as of March 23, 2001 and December 29,
2000 and the results of operations and cash flows for the twelve weeks
ended March 23, 2001 and March 24, 2000. Interim results may not be
indicative of fiscal year performance because of seasonal and short-term
variations. We have eliminated all material intercompany transactions and
balances between entities included in these financial statements.

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 and by $20 million for the twelve weeks ended March 23,
2001. 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 the twelve weeks ended March 23, 2001
and March 24, 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 Lodging, Select Service Lodging, Extended Stay
Lodging, 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. As of March 23, 2001 we have
recognized $58 million of incentive management fees, retention of which is
dependent on achievement of hotel profitability for the balance of the year
at levels specified in a number of our management contracts.

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 Statement of Financial Accounting Standards (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.

We recognized sales in the twelve weeks ended March 23, 2001 and March 24,
2000 as shown in the following table. Lodging includes our Full Service,
Select Service, Extended Stay and Timeshare business segments.

Twelve weeks ended
------------------------------------------------------------------------------------------------
March 23, 2001 March 24, 2000
-------------------------------------------- ------------------------------------------------
Senior Senior
Living Distribution Living Distribution
Sales Lodging Services Services Total Lodging Services Services Total
------- ---------- ------------ --------- ----------- --------- ------------- --------
($ in millions) (As revised) (As revised) (As revised) (As revised)

Management and franchise
fees ......................... $ 196 $ 8 $ - $ 204 $ 183 $ 6 $ - $ 189

Other ............................ 405 76 361 842 348 74 307 729
------- ---------- ---------- -------- ----------- --------- ----------- -------
601 84 361 1,046 531 80 307 918
Other revenues from managed
properties ................... 1,334 81 - 1,415 1,190 69 - 1,259
------- ---------- ---------- -------- ----------- --------- ----------- -------

1,935 165 361 2,461 1,721 149 307 2,177
------- ---------- ---------- -------- ----------- --------- ----------- -------
Operating costs and expenses

Operating costs .................. 378 83 359 820 328 78 319 725
Other costs from managed
properties ................... 1,334 81 - 1,415 1,190 69 - 1,259
------- ---------- ---------- -------- ----------- --------- ----------- -------
1,712 164 359 2,235 1,518 147 319 1,984
------- ---------- ---------- -------- ----------- --------- ----------- -------
Operating profit before
corporate expenses and
interest ..................... $ 223 $ 1 $ 2 $ 226 $ 203 $ 2 $ (12) $ 193
======= ========== ========== ======== =========== ========= =========== =======

2. Earnings Per Share
------------------
The following table reconciles the earnings and number of shares used in
the basic and diluted earnings per share calculations (in millions, except
per share amounts).

Twelve weeks ended
----------------------------------
March 23, 2001 March 24, 2000
---------------- ----------------

Computation of Basic Earnings Per Share

Net income .......................................... $ 121 $ 94
Weighted average shares outstanding ................. 243.7 244.1
--------------- ----------------

Basic Earnings Per Share ............................ $ .50 $ .39
=============== ================

Computation of Diluted Earnings Per Share

Net income .......................................... $ 121 $ 94
=============== ================

Weighted average shares outstanding ................. 243.7 244.1

Effect of Dilutive Securities
Employee stock option plan ....................... 8.7 6.1
Deferred stock incentive plan .................... 5.2 5.1
--------------- ----------------
Shares for diluted earnings per share ............... 257.6 255.3
=============== ================

Diluted Earnings Per Share .......................... $ .47 $ .37
=============== ================

We compute the effect of dilutive securities using the treasury stock
method and average market prices during the period. The calculation of
diluted earnings per share for 2001 excludes 5.7 million options granted in
2001, the inclusion of which would have an antidilutive impact for the
period.

3. Marriott Rewards
----------------
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 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. The
liability for the Marriott Rewards program was $580 million at March 23,
2001 and $554 million at December 29, 2000, of which $354 million and $310
million, respectively, are included in other long-term liabilities in the
accompanying consolidated balance sheet.

4. 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.

5. Comprehensive Income
--------------------
Total comprehensive income was $115 million and $89 million, for the twelve
weeks ended March 23, 2001 and March 24, 2000, respectively. The difference
between net income and total comprehensive income primarily relates to
foreign currency translation adjustments, and changes in the market value
of investments available for sale.

6. 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.

7. 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.

Twelve weeks ended
------------------------------------
March 23, 2001 March 24, 2000
---------------- ----------------
(As revised) (As revised)

($ in millions)

Sales

Full Service ............................ $ 1,349 $ 1,231
Select Service .......................... 213 192
Extended Stay ........................... 139 125
Timeshare ............................... 234 173
---------------- ----------------
Total Lodging ....................... 1,935 1,721
Senior Living Services .................. 165 149
Distribution Services ................... 361 307
---------------- ----------------
$ 2,461 $ 2,177
================ ================

Operating profit (loss) before corporate
expenses and interest

Full Service ............................ $ 117 $ 117
Select Service .......................... 44 38
Extended Stay ........................... 19 12
Timeshare ............................... 43 36
---------------- ----------------
Total Lodging ...................... 223 203
Senior Living Services .................. 1 2
Distribution Services ................... 2 (12)
---------------- ----------------
$ 226 $ 193
================ ================

Sales from Distribution Services do not include sales (made at market terms
and conditions) to our other business segments of $39 million for each of
the twelve weeks ended March 23, 2001 and March 24, 2000.

8. Contingencies
-------------
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 $240 million at March 23, 2001, 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 three
hotel properties with minimal expected funding. As of March 23, 2001, we
had extended approximately $862 million of loan commitments to owners of
lodging properties and senior living communities under which we expected to
fund approximately $305 million by December 28, 2001, and $474 million in
total. Letters of credit

outstanding on our behalf at March 23, 2001, totaled $52 million, the majority
of which related to our self-insurance programs. At March 23, 2001, we had
repurchase obligations of $47 million related to notes receivable from timeshare
interval purchasers, which have been sold with limited recourse.

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

In addition to the foregoing, we are from time to time involved in legal
proceedings which could, if adversely decided, result in losses to the Company.
Although we believe that the lawsuit described below 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.

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 (xii) failing appropriately to 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.

9. Subsequent Events
-----------------

Dispositions

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 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.

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.

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.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------

RESULTS OF OPERATIONS

The following discussion presents an analysis of results of our operations for
the twelve weeks ended March 23, 2001 and March 24, 2000. 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 upon
U.S. properties operated by us, except that data for Fairfield Inn also include
comparable franchised units.

Twelve Weeks Ended March 23, 2001 Compared to Twelve Weeks Ended March 24, 2000
-------------------------------------------------------------------------------

We reported net income of $121 million for the 2001 first quarter on sales of
$2,461 million. This represents a 29 percent increase in net income and a 13
percent increase in sales over the first quarter of 2000. Diluted earnings per
share of $.47 for the quarter increased 27 percent as compared to the 2000
amount. Overall profit growth in 2001 was favorably impacted by a $15 million
pretax charge, recorded in the first quarter of 2000, related to the write-off
of a contract investment by our distribution services business. Systemwide sales
increased 11 percent for the quarter, to $4.7 billion.

Marriott Lodging, which includes our Full Service, Select Service, Extended
Stay, and Timeshare segments, reported a 10 percent increase in operating profit
on 12 percent higher sales. Systemwide lodging sales increased to $4.2 billion.

We added a total of 66 lodging properties (11,500 units) during the first
quarter of 2001, and deflagged two properties (500 rooms), increasing our total
properties to 2,163 (401,472 rooms). Properties by brand (excluding 7,000 rental
units relating to ExecuStay) are as indicated in the following table.

Properties as of March 23, 2001
----------------------------------------------------------
Company-operated Franchised
---------------------------- -----------------------------
Properties Rooms Properties Rooms
------------- ------------- ------------ -------------

Marriott Hotels, Resorts and Suites .............. 241 107,280 160 45,002
Ritz-Carlton ..................................... 39 13,246 - -
Renaissance Hotels, Resorts and Suites ........... 81 30,856 32 10,636
Ramada International ............................. 5 1,068 57 10,289
Residence Inn .................................... 130 17,241 232 25,065
Courtyard ........................................ 284 44,290 245 30,759
TownePlace Suites ................................ 34 3,612 55 5,462
Fairfield Inn .................................... 52 7,526 395 34,834
SpringHill Suites ................................ 13 1,872 52 5,084
Marriott Vacation Club International ............. 47 5,617 - -
Marriott Executive Apartments and other .......... 9 1,733 - -
------------- ------------- ------------ -------------
Total ......................................... 935 234,341 1,228 167,131
============= ============= ============ =============

Across our Lodging brands, REVPAR for comparable company-operated U.S.
properties grew by an average of 2.5 percent in the first quarter of 2001.
Average room rates for these hotels rose 5.5 percent, while occupancy decreased
to 72.9 percent. Management and franchise fees grew 7.1 percent over first
quarter 2000. The operating results reflect the impact of a weaker economy,
weather conditions in the Northeast, relatively flat group business and
increases in labor and energy costs. Occupancy, average daily rate and REVPAR
for each of our principal established brands are shown in the following table.

Twelve weeks ended Change vs.
March 23, 2001 2000
------------------ -----------

Marriott Hotels, Resorts and Suites
Occupancy........................... 73.2% -2.6% pts.
Average daily rate ................. $ 155.47 +5.2%
REVPAR ............................. $ 113.76 +1.5%

Ritz-Carlton
Occupancy .......................... 71.2% -6.6% pts.
Average daily rate ................. $ 289.25 +11.0%
REVPAR ............................. $ 205.95 +1.6%

Renaissance Hotels, Resorts and Suites
Occupancy .......................... 70.5% -2.0% pts.
Average daily rate ................. $ 150.23 +4.5%
REVPAR ............................. $ 105.89 +1.6%

Residence Inn
Occupancy .......................... 79.5% -1.0% pts.
Average daily rate ................. $ 110.42 +6.1%
REVPAR ............................. $ 87.77 +4.7%

Courtyard
Occupancy .......................... 73.5% -1.1% pts.
Average daily rate ................. $ 102.60 +6.5%
REVPAR ............................. $ 75.44 +4.9%

Fairfield Inn
Occupancy .......................... 62.7% -2.0% pts.
Average daily rate ................. $ 62.76 +4.9%
REVPAR ............................. $ 39.32 +1.6%

Across Marriott's full-service lodging brands (Marriott Hotels, Resorts and
Suites, Ritz-Carlton and Renaissance Hotels, Resorts and Suites), REVPAR for
comparable company-operated U.S. properties grew by an average of 1.6 percent in
the 2001 first quarter. Average room rates for these hotels rose nearly 5.5
percent, while occupancy declined 2.8 percentage points to 72.7 percent.

Our domestic select-service and extended-stay brands (Fairfield Inn, Courtyard,
Residence Inn, SpringHill Suites and TownePlace Suites) have added a net of 154
properties, primarily franchises, since the first quarter of 2000. REVPAR for
comparable properties increased 4.9 percent while occupancy decreased 1.2
percentage points and average room rates increased 6.6 percent.

Results for international lodging operations were favorable as a result of
profit growth in Asia, Europe, and the Middle East. In addition, 26 percent of
our worldwide rooms opened in the 2001 first quarter were outside of the U.S.

Marriott Vacation Club International posted substantial profit growth in the
2001 first quarter on a 19 percent increase in contract sales. Results reflected
strong demand at resorts in California, Hawaii, Utah, Florida and Aruba. Note
sale gains of $13 million compared to $7 million in the prior year also
contributed to stronger comparisons. We sold $62 million in notes compared to
$52 million in the year ago quarter, and we benefited from wider financing
spreads.

The overall lodging profit margin, before other revenues and other costs from
managed properties, declined versus the year earlier quarter. Margins were
impacted by higher sales and marketing costs in the timeshare brands, as well as
newly leased properties that have not yet reached stabilized occupancy levels.

Marriott Senior Living Services (SLS) posted 11 percent sales growth in the 2001
first quarter, reflecting a four-percentage point increase in occupancy for
comparable communities to 85 percent. The Company operates 152 facilities
(25,800 units).

Marriott Distribution Services (MDS) posted an 18 percent increase in sales in
the 2001 first quarter reflecting the commencement of new contracts in 2001 and
increased sales from contracts established in 2000. Operating profit of $2
million compared favorably to an operating loss of $12 million in the first
quarter 2000, due to the prior year write-off of the $15 million investment in a
contract with Boston Market, Inc., offset by operating inefficiencies due to the
commencement of new contracts.

Corporate activity. Interest expense in first quarter 2001 decreased by $1
million reflecting slightly lower average borrowings. Interest income increased
substantially to $16 million for the quarter, due to income associated with
higher loan balances, including the loans made to the Courtyard joint venture in
the fourth quarter of 2000. Corporate expenses increased $4 million reflecting
the $6 million write-off of an investment in a technology partner and $3 million
associated with the start-up of Avendra, LLC, offset by the reversal of a
long-standing $10 million insurance reserve related to a lawsuit at one of our
hotels. The reversal of the reserve was as a result of us being approached,
during the quarter by the plaintiffs' counsel, who indicated that a settlement
could be reached in an amount that would be covered by insurance. We determined
that it was no longer probable that the loss contingency would result in a
material outlay by us and accordingly, we reversed the reserve during the
quarter. The effective income tax rate decreased from 37.0 percent to 36.5
percent primarily due to the increased proportion of operations in countries
with lower effective tax rates and the impact of the tax advantaged investments
we have made in recent years.

Avendra LLC. In January 2001 we contributed our hospitality procurement business
into a newly formed joint venture, together with the procurement business of
Hyatt Hotels Corporation. The joint venture, Avendra LLC, is an independent
professional procurement services company serving the North American hospitality
market and selected industries. Bass Hotels and Resorts, Inc., ClubCorp USA
Inc., and Fairmont Hotels and Resorts, Inc. joined Avendra LLC in May 2001.

LIQUIDITY AND CAPITAL RESOURCES

We have credit facilities, which support our commercial paper program and
letters of credit. At March 23, 2001, our cash balances combined with our
available borrowing capacity under the credit facilities was nearly $2.4
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 and equivalents totaled $370 million at March 23, 2001, an increase of $36
million from year end 2000. Net income is stated after recording depreciation
expense of $29 million and $26 million for the twelve weeks ended March 23, 2001
and March 24, 2000, respectively, and after amortization expense of $17 million
and $15 million, respectively, for the same time periods. Earnings before
interest expense, income taxes, depreciation and amortization (EBITDA) for the
twelve weeks ended March 23, 2001 increased by $45 million, or 21 percent, to
$258 million. The increase reflects growth in lodging operations and the impact
of the prior year $15 million write-off of our investment contract in our
Distribution Services business. EBITDA is an indicator of operating performance,
which can be used to measure the Company's ability to service debt, fund capital
expenditures and expand its business. However, EBITDA is not an alternative to
net income, operating profit, cash from operations, or any other operating or
liquidity measure prescribed by accounting principles generally accepted in the
United States.

Net cash provided by investing activities totaled $36 million for the twelve
weeks ended March 23, 2001, and consisted primarily of the disposition of eight
lodging properties, offset by capital expenditures for lodging properties and
notes receivable advances.

We purchased 1.2 million shares of our Class A Common Stock in the twelve weeks
ended March 23, 2001, at a cost of $48 million. As of March 23, 2001, we were
authorized by our Board of Directors to repurchase an additional 18.4 million
shares.

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
March 23, 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 fourth quarter of
2001 and while we will make additional interest payments, we do not expect those
payments to be significant.

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.

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
------------------------------------------------------------------

There have been no material changes to our exposures to market risk since
December 29, 2000.

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings
--------------------------

Incorporated by reference to the description of legal proceedings in the
"Contingencies" footnote in the financial statements set forth in Part I,
"Financial Information."

Item 2. Changes in Securities
------------------------------

None.

Item 3. Defaults Upon Senior Securities
----------------------------------------

None.

Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

None.

Item 5. Other Information
--------------------------

None.

Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------

(a) Exhibits

Exhibit No. Description
----------- -----------

12 Statement of Computation of Ratio of Earnings to
Fixed Charges (incorporated by reference to
Exhibit 12 to our Form 10-Q for the fiscal
quarter ended March 23, 2001).

99 Forward-Looking Statements.

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

MARRIOTT INTERNATIONAL, INC.

10th day of December, 2001

/s/ Arne M. Sorenson
-------------------------------
Arne M. Sorenson
Executive Vice President and
Chief Financial Officer

/s/ Linda A. Bartlett
-------------------------------
Linda A. Bartlett
Vice President and Controller
(Principal Accounting Officer)