UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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 ~~September 6, 2002~~March 28, 2003

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.

Yesx No¨

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Yesx No¨

Class				Shares outstanding at ~~September 27, 2002~~ April 11, 2003
Class A Common Stock, $0.01 par value		~~237,769,840~~		231,870,872

MARRIOTT INTERNATIONAL, INC.

INDEX

		Page No.

	Forward-Looking Statements	3

Part I.	Financial Information (Unaudited):

Item 1.	Financial Statements

	Condensed Consolidated ~~Statements~~Statement of Income—Twelve ~~and Thirty-Six~~ Weeks Ended ~~September 6,~~March 28, 2003 and March 22, 2002 ~~and September 7, 2001~~	4

	Condensed Consolidated Balance Sheet—as of ~~September 6, 2002~~March 28, 2003 and ~~December 28, 2001~~January 3, 2003	5

	Condensed Consolidated Statement of Cash Flows—~~Thirty-Six~~Twelve Weeks Ended ~~September 6,~~March 28, 2003 and March 22, 2002 ~~and September 7, 2001~~	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21 20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32 29

Item 4.	Controls and Procedures	32 29

Part II.	Other Information ~~Signatures~~ and ~~Certifications:~~Signatures:

Item 1.	Legal Proceedings	34 30

Item 2.	Changes in Securities and Use of Proceeds	34 30

Item 3.	Defaults Upon Senior Securities	34 30

Item 4.	Submission of Matters to a Vote of Security Holders	34 30

Item 5.	Other Information	34 30

Item 6.	Exhibits and Reports on Form 8-K	34 31

	Signatures	36 32

	Certifications	37 33

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 9999-1 and elsewhere in this quarterly report, could cause results to differ materially from those expressed in such forward-looking statements.

•·

competition in 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;

•·

our ability to obtain adequate property and liability insurance to protect against losses or to obtain such insurance at reasonable rates;

•·

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 pace of the lodging industry’s adjustment to the continuing war on terrorism, the unknown pace of recovery from the decrease in travel caused by the ~~aftermath of~~recent military action in Iraq, and the ~~terrorist attacks on September 11, 2001;~~possible further decline in travel if military action is taken elsewhere;

•·

the impact of Severe Acute Respiratory Syndrome or SARS on travel, particularly if cases significantly increase or spread beyond the currently affected areas;

our ability to recover our loan and ~~guaranty~~guarantee advances from hotel operations or from owners through the proceeds of hotel sales, refinancing of debt or otherwise;

•·

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

•·

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

•·

~~the anticipated time-frame for exiting our distribution services business and the terms, conditions and results of the exit; and~~

•

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

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

MARRIOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENT OF INCOME

($ in millions, except per share amounts)

(Unaudited)

Twelve weeks ended

Thirty-six weeks ended


September 6, 2002

September 7, 2001

September 6, 2002

September 7, 2001

SALES
Management and franchise fees    $ 170    $ 187    $ 552      $ 618
Distribution services    351    385    1,102      1,143
Other    557    521    1,588      1,519




   1,078    1,093    3,242      3,280
Other revenues from managed and franchised
properties    1,376    1,280    4,162      4,004




   2,454    2,373    7,404      7,284




OPERATING COSTS AND EXPENSES
Distribution services    385    384    1,144      1,137
Other    582    531    1,688      1,500




   967    915    2,832      2,637
Other costs from managed and franchised
properties    1,376    1,280    4,162      4,004




   2,343    2,195    6,994      6,641




   111    178    410      643
Corporate expenses    (25 )    (13 )    (77 )      (72 )
Interest expense    (19 )    (26 )    (59 )      (75 )
Interest income    28    23    75      59




INCOME BEFORE INCOME TAXES    95    162    349      555
Benefit (provision) for income taxes    8    (61 )    (35 )      (203 )




NET INCOME    $ 103    $ 101    $ 314      $ 352




DIVIDENDS DECLARED PER SHARE    $ .07    $ .065    $ .205      $ .19




EARNINGS PER SHARE
Basic Earnings Per Share    $ .43    $ .41    $ 1.30      $ 1.44




Diluted Earnings Per Share    $ .41    $ .39    $ 1.23      $ 1.36

	Twelve weeks ended
	March 28, 2003			March 22, 2002
SALES
Lodging
Base management fees	$	92		$	85
Incentive management fees		29			32
Franchise fees		52			51
Owned and leased properties		89			93
Cost reimbursements		1,408			1,262
Other revenue		276			280
Synthetic Fuel		68			5

		2,014			1,808

OPERATING COSTS AND EXPENSES
Lodging
Owned and leased – direct		89			91
Other lodging – direct		250			240
Reimbursed costs		1,408			1,262
Administrative and other		52			57
Synthetic Fuel		127			11

		1,926			1,661

		88			147
Corporate expenses		(30	)		(29	)
Interest expense		(26	)		(19	)
Interest income		20			19
Provision for loan losses		(5	)		—


INCOME FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES		47			118
Income tax benefit (provision)		40			(36	)


INCOME FROM CONTINUING OPERATIONS		87			82

Discontinued Operations
Income from Senior Living Services, net of tax		7			4
Gain on disposal of Senior Living Services, net of tax		23			—
Loss from Distribution Services, net of tax		—			(4	)
Exit costs – Distribution Services, net of tax		(1	)		—

NET INCOME	$	116		$	82


EARNINGS PER SHARE – Basic
Earnings from continuing operations	$	.37		$	.34
Earnings from discontinued operations		.13			—

Earnings per share	$	.50		$	.34


EARNINGS PER SHARE – Diluted
Earnings from continuing operations	$	.36		$	.32
Earnings from discontinued operations		.12			—

Earnings per share	$	.48		$	.32

DIVIDENDS DECLARED PER SHARE	$	0.07		$	0.065

See ~~notes~~Notes to ~~condensed consolidated financial statements.~~

Condensed Consolidated Financial Statements

MARRIOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

($ in millions)

September 6,
2002

December 28,
2001


(Unaudited)

ASSETS

Current assets
Cash and equivalents    $ 311    $ 817
Accounts and notes receivable    620    611
Inventory    86    96
Other    477    606


   1,494    2,130
Property and equipment    2,908    2,930
Goodwill    1,092    1,092
Other intangibles    481    672
Investments in affiliates    1,136    823
Notes and other receivables    974    1,038
Other    409    422


   $ 8,494    $ 9,107


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Accounts payable    $ 647    $ 697
Other    1,220    1,105


   1,867    1,802


Long-term debt    1,747    2,408
Other long-term liabilities    1,056    1,012
Convertible debt    61    407


   2,864    3,827


Shareholders’ equity
Class A common stock, 255.6 million shares issued    3    3
Additional paid-in capital    3,174    3,378
Retained earnings    1,184    941
Unearned ESOP shares    —      (291 )
Treasury stock, at cost    (555 )    (503 )
Accumulated other comprehensive loss    (43 )    (50 )


   3,763    3,478


   $ 8,494    $ 9,107

	March 28, 2003 (Unaudited)			January 3, 2003
ASSETS
Current assets
Cash and equivalents	$	525		$	198
Accounts and notes receivable		614			524
Prepaid taxes		295			300
Other		105			89
Assets held for sale		186			633

		1,725			1,744

Property and equipment		2,626			2,589
Goodwill		923			923
Other intangible assets		500			495
Investments in affiliates – equity		486			493
Investments in affiliates – notes receivable		599			584

Notes and other receivables, net
Loans to timeshare owners		199			153
Other notes receivable		231			304
Other long-term receivables		469			473

		899			930

Other		587			538

	$	8,345		$	8,296

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	468		$	529
Current portion of long-term debt		223			242
Liabilities of businesses held for sale		101			366
Other		1,067			1,070

		1,859			2,207

Long-term debt		1,875			1,492
Casualty self insurance reserves		109			106
Other long-term liabilities and deferred income		897			857
Convertible debt		62			61

Shareholders’ equity
Class A common stock		3			3
Additional paid-in capital		3,280			3,224
Retained earnings		1,215			1,126
Deferred compensation		(101	)		(43	)
Treasury stock, at cost		(782	)		(667	)
Accumulated other comprehensive loss		(72	)		(70	)

		3,543			3,573

	$	8,345		$	8,296

See ~~notes~~Notes to ~~condensed consolidated financial statements.~~

Condensed Consolidated Financial Statements

MARRIOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

($ in millions)

(Unaudited)

Thirty-six weeks ended


September 6,
2002

September 7, 2001

OPERATING ACTIVITIES
Net income    $ 314      $ 352
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization    128      147
Income taxes and other    90      151
Timeshare activity, net    (104 )      (218 )
Working capital changes    35      16


Cash provided by operations    463      448


INVESTING ACTIVITIES
Dispositions    513      508
Capital expenditures    (222 )      (360 )
Note advances    (94 )      (147 )
Note collections and sales    61      42
Other    (65 )      (169 )


Cash provided by (used in) investing activities    193      (126 )


FINANCING ACTIVITIES
Commercial paper activity, net    248      (423 )
(Repayment) Issuance of convertible debt    (347 )      405
Issuance of other long-term debt    21      316
Repayment of other long-term debt    (932 )      (13 )
Issuance of Class A common stock    28      69
Dividends paid    (49 )      (45 )
Purchase of treasury stock    (131 )      (91 )


Cash (used in) provided by financing activities    (1,162 )      218


(DECREASE) INCREASE IN CASH AND EQUIVALENTS    (506 )      540
CASH AND EQUIVALENTS, beginning of period    817      334


CASH AND EQUIVALENTS, end of period    $ 311      $ 874

	Twelve weeks ended
	March 28, 2003			March 22, 2002
OPERATING ACTIVITIES
Income from continuing operations	$	87		$	82
Adjustments to reconcile to cash provided by operating activities:
Income from discontinued operations		7			—
Discontinued operations – gain on sale/exit		22			—
Depreciation and amortization		34			39
Income taxes and other		(90	)		52
Timeshare activity, net		(62	)		(29	)
Working capital changes		(100	)		(87	)

Net cash (used in) provided by operating activities		(102	)		57

INVESTING ACTIVITIES
Capital expenditures		(63	)		(87	)
Dispositions		263			99
Loan advances		(42	)		(33	)
Loan collections and sales		86			7
Other		(15	)		(36	)

Net cash provided by (used in) investing activities		229			(50	)

FINANCING ACTIVITIES
Commercial paper, net		388			277
Issuance of long-term debt		—			8
Repayment of long-term debt		(21	)		(918	)
Issuance of Class A common stock		4			17
Dividends paid		(17	)		(16	)
Purchase of treasury stock		(154	)		—

Net cash provided by (used in) financing activities		200			(632	)


INCREASE (DECREASE) IN CASH AND EQUIVALENTS		327			(625	)
CASH AND EQUIVALENTS, beginning of period		198			812

CASH AND EQUIVALENTS, end of period	$	525		$	187

See ~~notes~~Notes to ~~condensed consolidated financial statements.~~

Condensed Consolidated Financial Statements

MARRIOTT INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~1. Basis of Presentation~~

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 for the fiscal year ended ~~December 28, 2001.~~January 3, 2003. Certain 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, the reported amounts of sales and expenses during the reporting period and the ~~possible outcomes~~disclosures of ~~contingencies~~contingent liabilities. Accordingly, ultimate results could differ from those estimates.

Certain prior year amounts have been reclassified to conform to the 2003 presentation.

In our opinion, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of ~~September 6, 2002~~March 28, 2003 and ~~December 28, 2001,~~January 3, 2003 and the results of operations ~~for the twelve and thirty-six weeks ended September 6, 2002 and September 7, 2001~~ and cash flows for the ~~thirty-six~~twelve weeks ended ~~September 6, 2002~~March 28, 2003 and ~~September 7, 2001.~~March 22, 2002. 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.

Revenue Recognition

Our sales include (1) base and incentive management ~~and~~fees, (2) franchise fees, ~~(2) sales from our distribution services business,~~ (3) sales from lodging properties ~~and senior living communities~~ owned or leased by us, (4) cost reimbursements, (5) other lodging revenue, and (6) sales made by our ~~other businesses, and (4) certain other revenues from properties franchised or managed by us.~~Synthetic Fuel business. 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 and franchised properties~~Cost reimbursements include direct and indirect costs that are reimbursed to us by lodging ~~and senior living community owners for~~ properties that we manage or franchise. Other ~~revenues include revenues from hotel properties~~lodging revenue includes sales (excluding base fees, reimbursed costs and ~~senior living communities that we own or lease, along with sales~~franchise fees) from our ~~timeshare,~~Timeshare and ExecuStay ~~and Synthetic Fuel~~ businesses.

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Management Fees:We recognize base fees as revenue when earned in accordance with the contract. In interim periods and at year end 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. ~~For the thirty-six weeks ended September 6, 2002 retention~~As of ~~$109~~March 28, 2003 we have recognized $29 million of ~~the~~ incentive management fees, retention of which is dependent on ~~achieving contractually specified levels~~achievement of hotel profitability for the balance of the ~~year.~~

~~Distribution Services~~~~: We recognize revenue from~~year at levels specified in a number of 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.~~management contracts.

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, we deem ~~the~~ receivables collectible and we have attained certain minimum sales and construction levels. For sales that do not meet these criteria, we defer all revenue using the deposit method.

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

~~Other Revenues from Managed and Franchised Properties:~~Cost Reimbursements: We recognize ~~other revenues~~cost reimbursements, in accordance with operating agreements, from managed and franchised properties when we incur the related reimbursable costs.

Synthetic Fuel:We recognize revenue from ~~our~~the Synthetic Fuel business when the synthetic fuel is produced and sold.

New Accounting Standards

We adopted the disclosure provision FASB Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others,” in the fourth quarter of 2002. We applied the initial recognition and initial measurement provisions for guarantees issued in the first quarter of 2003 and there was no material impact on our financial statements.

FIN 46, “Consolidation of Variable Interest Entities,” is effective immediately for all enterprises with variable interests in variable interest entities created after January 31, 2003. FIN 46 provisions must be applied to variable interests in variable interest entities created before February 1, 2003 from the beginning of the third quarter of 2003. If an entity is determined to be a variable interest entity, it must be consolidated by the enterprise that absorbs the majority of the entity’s expected losses if they occur, receives a majority of the entity’s expected residual returns if they occur, or both. Where it is reasonably possible that the company will consolidate or disclose information about a variable interest entity, the company must disclose the nature, purpose, size and activity of the variable interest entity and the company’s maximum exposure to loss as a result of its involvement with the variable interest entity in all financial statements issued after January 31, 2003.

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

We do not believe that it is reasonably possible that the adoption of FIN 46 will result in our consolidation of any previously unconsolidated entities. The ~~following tables show~~adoption of FIN 46 may result in additional disclosure about a limited number of investments in variable interest entities. We do not expect such disclosure to be material.

FIN 46 does not apply to qualifying special purpose entities, such as those used by us to sell notes receivable originated by our timeshare business in connection with the ~~sales, operating costs~~sale of timeshare intervals. These qualifying special purpose entities will continue to be accounted for in accordance with FAS No. 140, “Accounting for Transfers and ~~expenses we recognized during the twelve~~Servicing of Financial Assets and ~~thirty-six weeks ended September 6, 2002 and September 7, 2001. Lodging includes our Full-Service, Select-Service, Extended-Stay, and Timeshare business segments.~~

Twelve weeks ended September 6, 2002

Lodging

Senior Living Services

Distribution Services

Synthetic Fuel

Total
($ in millions)
Sales

Management and franchise fees    $ 162    $ 8      $ —      $ —      $ 170
Other    425    77      351    55    908





   587    85      351    55    1,078
Other revenues from managed and franchised properties    1,282    94      —      —      1,376





   1,869    179      351    55    2,454





Operating costs and expenses

Operating costs    427    68      385    87    967
Other costs from managed and franchised properties    1,282    94      —      —      1,376





   1,709    162      385    87    2,343





Segment financial results
   $ 160    $ 17      $ (34 )    $ (32 )    $ 111






Twelve weeks ended September 7, 2001

Lodging

Senior Living Services

Distribution Services

Synthetic Fuel

Total
($ in millions)
Sales

Management and franchise fees    $ 179    $ 8      $ —      $ —      $ 187
Other    447    74      385    —      906





   626    82      385    —      1,093
Other revenues from managed and franchised properties    1,197    83      —      —      1,280





   1,823    165      385    —      2,373





Operating costs and expenses

Operating costs    452    79      384    —      915
Other costs from managed and franchised properties    1,197    83      —      —      1,280





   1,649    162      384    —      2,195





Segment financial results
   $ 174    $ 3      $ 1    $ —      $ 178

Extinguishments of Liabilities – a replacement of FASB Statement No. 125.”

Earnings Per Share

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Thirty-six weeks ended September 6, 2002

Lodging

Senior Living Services

Distribution Services

Synthetic Fuel

Total
($ in millions)
Sales

Management and franchise fees    $ 527    $ 25    $ —      $ —      $ 552
Other    1,239    236    1,102    113    2,690





   1,766    261    1,102    113    3,242
Other revenues from managed and franchised properties    3,887    275    —      —      4,162





   5,653    536    1,102    113    7,404





Operating costs and expenses

Operating costs    1,261    233    1,144    194    2,832
Other costs from managed and franchised properties    3,887    275    —      —      4,162





   5,148    508    1,144    194    6,994





Segment financial results
   $ 505    $ 28    $ (42 )    $ (81 )    $ 410






Thirty-six weeks ended September 7, 2001

Lodging

Senior Living Services

Distribution Services

Synthetic Fuel

Total
($ in millions)
Sales

Management and franchise fees    $ 594    $ 24    $ —      $ —      $ 618
Other    1,294    225    1,143    —      2,662





   1,888    249    1,143    —      3,280
Other revenues from managed and franchised properties    3,759    245    —      —      4,004





   5,647    494    1,143    —      7,284





Operating costs and expenses

Operating costs    1,260    240    1,137    —      2,637
Other costs from managed and franchised properties    3,759    245    —      —      4,004





   5,019    485    1,137    —      6,641





Segment financial results
   $ 628    $ 9    $ 6    $ —      $ 643

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~2. Earnings Per Share~~

The following table ~~reconciles~~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).

Twelve weeks ended

Thirty-six weeks ended

September 6, 2002

September 7, 2001

September 6, 2002

September 7, 2001
Computation of Basic Earnings Per Share

Net income    $ 103    $ 101    $ 314      $ 352
Weighted average shares outstanding    240.9    244.8    241.9      244.1




Basic Earnings Per Share    $ .43    $ .41    $ 1.30      $ 1.44




Computation of Diluted Earnings Per Share

Net income    $ 103    $ 101    $ 314      $ 352
After-tax interest expense on convertible debt    —      2    4      3




Net income for diluted earnings per share    $ 103    $ 103    $ 318      $ 355




Weighted average shares outstanding    240.9    244.8    241.9      244.1
Effect of Dilutive Securities
Employee stock purchase plan    —      —      0.1      0.1
Employee stock option plan    5.3    8.3    7.1      8.5
Deferred stock incentive plan    5.0    5.3    4.9      5.3
Convertible debt    0.9    6.4    3.8      3.1




Shares for diluted earnings per share    252.1    264.8    257.8      261.1




Diluted Earnings Per Share    $ .41    $ .39    $ 1.23      $ 1.36

	Twelve weeks ended
	March 28, 2003		March 22, 2002
Computation of Basic Earnings Per Share

Income from continuing operations	$	87	$	82
Weighted average shares outstanding		233.9		241.9

Basic earnings per share from continuing operations	$	0.37	$	0.34


Computation of Diluted Earnings Per Share

Income from continuing operations	$	87	$	82
After-tax interest expense on convertible debt		—		—

Income from continuing operations for diluted earnings per share	$	87	$	82


Weighted average shares outstanding		233.9		241.9

Effect of dilutive securities
Employee stock purchase plan		—		—
Employee stock option plan		3.9		7.5
Deferred stock incentive plan		4.8		4.9
Restricted stock plan		0.1		—
Convertible debt		0.9		—

Shares for diluted earnings per share		243.6		254.3


Diluted earnings per share from continuing operations	$	0.36	$	0.32

We compute the effect of dilutive securities using the treasury stock method and average market prices during the period. We ~~use the if-converted method for convertible debt.~~ determine dilution based on earnings from continuing operations.

The ~~calculations~~calculation of diluted earnings per share ~~exclude~~does not include the following ~~options~~ because the inclusion would have an antidilutive impact for the applicable period: (a) for the twelve ~~week~~weeks ended March 28, 2003, 20.3 million options and ~~thirty-six week periods~~(b) for the twelve weeks ended ~~September 6,~~March 22, 2002, ~~7.4~~5.9 million options, $2 million of after-tax interest expense on convertible debt and 6.4 million shares issuable upon conversion of convertible debt.

Stock-Based Compensation

We have several stock-based employee compensation plans that we account for using the intrinsic value method under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, we do not reflect stock-based employee compensation cost in net income for our Stock Option Program, the Supplemental Executive Stock Option awards or the Stock Purchase Plan. We recognized stock-based employee compensation cost of $4 million and ~~6.0~~$2 million, ~~options, respectively,~~net of tax, for deferred share grants, restricted share grants and ~~(b) 4.9 million options~~restricted stock units for the ~~thirty-six week period~~twelve weeks ended ~~September 7, 2001.~~

~~3. Marriott Rewards~~

March 28, 2003 and March 22, 2002. Included in 2003 compensation is $1 million net of tax related to the grant of approximately 1.9 million units under the employee restricted stock unit program which was started in the first quarter of 2003. At March 28, 2003 there is approximately $56 million in deferred compensation related to unit grants. Under the unit plan, fixed grants will be awarded annually to certain employees.

The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of FAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. The impact of measured but unrecognized compensation cost and excess tax benefits credited to additional paid-in capital is included in the denominator of the diluted pro forma shares for both periods presented.

	Twelve weeks ended
($ in millions, except per share amounts)	March 28, 2003			March 22, 2002
Net income, as reported	$	116		$	82
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		4			2
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(16	)		(15	)

Pro forma net income	$	104		$	69


Earnings per share:
Basic – as reported	$	.50		$	.34

Basic – pro forma	$	.44		$	.29


Diluted – as reported	$	.48		$	.32

Diluted – pro forma	$	.42		$	.27

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 ~~obligations.~~obligation. We recognize the component of revenue from program partners that corresponds to program maintenance services

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

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 ~~$688~~$705 million at ~~September 6, 2002~~March 28, 2003 and ~~$631~~$683 million at ~~December 28, 2001,~~January 3, 2003 of which ~~$437~~$430 million and ~~$380~~$418 million, respectively, are included in other long-term liabilities and deferred income in the accompanying condensed consolidated balance ~~sheets.~~

~~4. Dispositions~~

In the third quarter of 2002, we sold our interest in a hotel and residential project under development for a total of approximately $190 million. The hotel was sold without continuing operating or branding agreements with Marriott. We recognized approximately $5 million of the pretax gain in the third quarter of 2002 and will recognize the remaining balance of approximately $50 million in future years provided certain contingencies in the sales contract expire.

In the third quarter of 2002, we also sold one property to a third party for $37 million and three parcels of land to other third parties for $6 million, which generated a pretax gain of approximately $1 million. The sale of the property was subject to an operating lease with an entity in which we have a non-controlling equity interest. The sales were accounted for under the full accrual method in accordance with FAS No. 66. The gain related to the property will be recognized in future years, provided certain contingencies in the sales contract expire.

In the second quarter of 2002, we sold two lodging properties and one piece of undeveloped land for $148 million. We will continue to operate the two hotels under long-term management agreements. We accounted for one of these sales under the full accrual method in accordance with FAS No. 66 and for the other under the cost recovery method because the buyer did not make an adequate minimum initial investment. The sale of the property accounted for under the cost recovery method was to a joint venture in which we have a non-controlling equity interest.

In the second quarter of 2002, we sold five senior living communities for $59 million. We continue to operate the communities under long-term management agreements. We account for these sales under the full accrual method in accordance with FAS No. 66. We will recognize pretax gains of approximately $6 million provided certain contingencies in the sales contract expire.

In the first quarter of 2002, we closed on sales of four hotels for cash proceeds of $97 million, resulting in gains of $13 million. We have deferred gains which will be recognized if and when certain contingencies in the sales contracts expire. We continue to operate the hotels under long-term management agreements.

~~5. Comprehensive Income~~

sheet.

Comprehensive Income

Total comprehensive income was ~~$103~~$114 million and $80 million, for ~~both~~ the twelve weeks ended ~~September 6,~~March 28, 2003 and March 22, 2002, ~~and September 7, 2001 and $321 million and $337 million, respectively, for the thirty-six weeks ended September 6, 2002 and September 7, 2001.~~respectively. The principal difference between net income and total comprehensive income for the applicable ~~2002~~2003 and ~~2001~~2002 periods relates to foreign currency translation adjustments.

Business Segments

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~6. New Accounting Standards~~

~~In the first quarter of 2002, we adopted FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This adoption of FAS No. 144 had no impact on the Company.~~

We adopted 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. This adoption resulted in an increase in net income of approximately $7 million for the twelve weeks ended September 6, 2002 and $22 million for the thirty-six weeks ended September 6, 2002. We completed our testing of goodwill for impairment and have determined that no impairment exists upon initial adoption of FAS No. 142.

The following table presents the impact of the adoption of FAS No. 142 on our net income, basic earnings per share, and diluted earnings per share for the twelve and thirty-six weeks ended September 6, 2002 and September 7, 2001, as if the adoption had taken place in the first quarter of 2001 (in millions, except per share amounts):

Twelve weeks ended

Thirty-six weeks ended

September 6, 2002

September 7, 2001

September 6, 2002

September 7, 2001
Reported net income      $ 103      $ 101      $ 314      $ 352
Goodwill amortization      —        7      —        22




Adjusted net income      $ 103      $ 108      $ 314      $ 374




Reported basic earnings per share      $ .43      $ .41      $ 1.30      $ 1.44
Goodwill amortization      —        .03      —        .09




Adjusted basic earnings per share      $ .43      $ .44      $ 1.30      $ 1.53




Reported diluted earnings per share      $ .41      $ .39      $ 1.23      $ 1.36
Goodwill amortization      —        .03      —        .09




Adjusted diluted earnings per share      $ .41      $ .42      $ 1.23      $ 1.45

~~7. Business Segments~~

We are a diversified hospitality company with operations in ~~seven~~five business segments:

•·

Full-Service Lodging, which includes Marriott Hotels ~~Resorts~~ and ~~Suites;~~Resorts; The Ritz-Carlton Hotels; Renaissance Hotels ~~Resorts~~ and ~~Suites;~~Resorts; and Ramada International; ~~and Marriott Executive Apartments;~~

•·

Select-Service Lodging, which includes ~~Courtyard;~~Courtyard, Fairfield Inn and SpringHill Suites;

•·

Extended-Stay Lodging, which includes Residence ~~Inn;~~Inn, TownePlace Suites, Marriott ExecuStay and Marriott ~~ExecuStay;~~Executive Apartments;

•·

Timeshare, which includes the operation, ownership, development and marketing of timeshare properties under the Marriott Vacation Club ~~International;~~International, The Ritz-Carlton ~~Club; Horizons;~~Club, Horizons by Marriott Vacation Club International and Marriott Grand Residence Club brands; and

•·

~~Senior Living Services~~~~, which includes the operation, ownership and development of senior living communities;~~

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

•

~~Distribution Services~~~~, which includes our wholesale food distribution business; and~~

•

Synthetic Fuel, which includes the operation of our coal-based synthetic fuel production facilities. Our Synthetic Fuel business generated a tax benefit of ~~$11~~$21 million and tax credits of ~~$43~~$57 million in the ~~twelve weeks~~quarter ended ~~September 6, 2002~~March 28, 2003, and a tax benefit of ~~$28~~$2 million and tax credits of ~~$91~~$5 million in the ~~thirty-six weeks~~quarter ended ~~September 6,~~March 22, 2002.

We evaluate the performance of our segments based primarily on ~~the~~ results of the segment without allocating corporate expenses, interest expense, interest income or income ~~taxes.~~

taxes (segment financial results).

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

Thirty-six weeks ended

September 6,
2002

September 7, 2001

September 6,
2002

September 7, 2001

($ in millions)
Sales
Full-Service    $ 1,194    $ 1,170    $ 3,714    $ 3,779
Select-Service    231    209    676    645
Extended-Stay    147    158    416    459
Timeshare    297    286    847    764




Total Lodging    1,869    1,823    5,653    5,647
Senior Living Services    179    165    536    494
Distribution Services    351    385    1,102    1,143
Synthetic Fuel    55    —      113    —




   $ 2,454    $ 2,373    $ 7,404    $ 7,284




Segment Financial Results
Full-Service    $ 76    $ 70    $ 265    $ 314
Select-Service    27    45    95    133
Extended-Stay    17    21    35    61
Timeshare    40    38    110    120




Total Lodging    160    174    505    628
Senior Living Services    17    3    28    9
Distribution Services    (34 )    1    (42 )    6
Synthetic Fuel    (32 )    —      (81 )    —




   $ 111    $ 178    $ 410    $ 643

Sales from Distribution Services exclude sales (made at market terms and conditions) to our other business segments of $24 million and $37 million for the twelve weeks ended September 6, 2002 and September 7, 2001, respectively, and $77 million and $117 million for the thirty-six weeks ended September 6, 2002 and September 7, 2001, respectively.

	Twelve weeks ended
	March 28, 2003			March 22, 2002
Sales
($ in millions)

Full-Service	$	1,321		$	1,221
Select-Service		234			207
Extended-Stay		124			121
Timeshare		267			254

Total Lodging		1,946			1,803
Synthetic Fuel		68			5

	$	2,014		$	1,808


Segment financial results
($ in millions)

Full-Service	$	95		$	86
Select-Service		24			28
Extended-Stay		10			8
Timeshare		18			31

Total Lodging		147			153
Synthetic Fuel		(59	)		(6	)

	$	88		$	147


Equity in income/(loss) of equity method investees
($ in millions)

Full-Service	$	5		$	(2	)
Select-Service		(4	)		(3	)
Timeshare		(1	)		—
Corporate		(1	)		(1	)

	$	(1	)	$	(6	)

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Contingencies

~~Equity Method Investments~~. The majority of our equity method investments are investments in entities that own lodging properties. Results for Full-Service equity method investments included a loss of $11 million in 2001, income of $2 million in 2000 and income of $1 million in 1999. We recognized income of $5 million in 2001 and a loss of $1 million in 2000 from Select-Service equity method investments. We recognized a loss of $1 million in 2001 from Timeshare equity method investments. Losses related to our corporate investments in Avendra LLC, a procurement services affiliate, and our investment in affordable housing were $7 million in 2001. We recognized losses of $7 million in each of 2000 and 1999 for our investment in affordable housing.

For the thirty-six weeks ended September 6, 2002, results for Full-Service equity method investments reflected income of $6 million, including income recognized from our ownership interest in the Marriott and Cendant joint venture. We recognized losses of $5 million from Select-Service equity method investments, losses of $2 million from Timeshare equity method investments, and losses from corporate equity method investments of $1 million in the thirty-six weeks ended September 6, 2002.

The substantial majority of revenues that we recognized from unconsolidated affiliates is from our minority interests in entities which own certain of our hotels. We recognized base and incentive fee revenues from our unconsolidated affiliates of $71 million, $53 million, and $26 million, respectively, in 2001, 2000, and 1999. Revenues related to reimbursable costs for these investments were $849 million, $358 million, and $162 million, respectively, in 2001, 2000, and 1999. Included in these amounts were revenues for management fees and reimbursable costs from Senior Living Services investments of $5 million for each of 2001, 2000, and 1999.

Debt service on our mezzanine loan to the Courtyard Joint Venture is current. The proceeds of the mezzanine loan have not been, and will not be used to pay our management fees, debt service, or land rent income. All management fees relating to the underlying hotels that we recognize in income are paid to us in cash by the Courtyard Joint Venture. In the thirty-six weeks ended September 6, 2002, we recognized $4 million of equity losses arising from our ownership interest in the Courtyard Joint Venture.

~~8. Contingencies~~

We issue guarantees to certain lenders and ~~other third parties~~hotel owners primarily to obtain long-term management contracts. The guarantees have a stated maximum amount of funding and the terms are generally five years or less. The terms of guarantees to lenders generally require us to fund if cash flows from hotel operations are not adequate to cover annual debt service or to repay the loan at the end of the term. The terms of the guarantees to hotel owners generally require us to fund if specified levels of operating profit are not obtained.

We also enter into project completion guarantees with certain lenders in conjunction with hotels and timeshare units that are being built by us.

Additionally, we enter into guarantees in conjunction with the sale of notes receivable originated by our timeshare business. These guarantees have terms of between seven and ten years. The terms of the guarantees require us to repurchase a limited amount of non-performing loans under certain circumstances. When we repurchase non-performing timeshare loans, we will either collect the outstanding loan balance in full or foreclose on the asset and subsequently resell it.

Our guarantees include $410 million related to Senior Living Services lease obligations and lifecare bonds. The lease obligations and lifecare bonds are primary obligations of Sunrise Assisted Living, Inc. (Sunrise) and CNL Retirement Partners, Inc. (CNL). Marriott International, Inc. has been indemnified by Sunrise and CNL with respect to any guarantee fundings in connection with ~~financing transactions~~these lease obligations and ~~other obligations. These~~lifecare bonds. Prior to the sale of the Senior Living Services business these pre-existing guarantees ~~totaled $589~~were guarantees by Marriott International, Inc. of obligations of consolidated Senior Living Services subsidiaries. Also included are $51 million of guarantees associated with the Sunrise sale transaction.

The maximum potential amount of future fundings and the current carrying amount of the liability for expected future fundings at ~~September 6, 2002, including~~March 28, 2003 are as follows ($ in millions):

Guarantee type	Maximum amount of future fundings		Current liability for future fundings at March 28, 2003
Debt service	$	394	$	12
Operating profit		317		9
Project completion		54		—
Timeshare		11		—
Senior Living Services		461		—
Other		30		—

	$	1,267	$	21

Our guarantees ~~involv ing major customers. In addition,~~include $237 million for commitments which will not be in effect until the underlying hotels are open and we ~~have made~~begin to manage the properties. Guarantee fundings to lenders and hotel owners are generally recoverable in the form of a ~~physical completion guarantee relating~~loan and are generally repayable to ~~one~~us out of future hotel ~~property with minimal expected funding.~~ cash flows and/or proceeds from the sale of hotels.

As of ~~September 6, 2002,~~March 28, 2003, we had extended approximately ~~$576~~$194 million of loan commitments to owners of lodging properties and senior living communities under which we expect to fund approximately ~~$80~~$114 million by January ~~3, 2003,~~2, 2004, and ~~$236~~$27 million in ~~total.~~

one to three years.

Letters of credit outstanding on our behalf at ~~September 6, 2002~~March 28, 2003 totaled ~~$94~~$113 million, the majority of which related to our self-insurance programs. ~~At September 6, 2002, we had repurchase obligations of $68 million related to notes receivable from timeshare interval purchasers, which have been sold with limited recourse.~~ Surety bonds issued on our behalf as of ~~September 6, 2002~~March 28, 2003 totaled ~~$487~~$440 million, the majority of which were requested by federal, state,

or local governments related to our timeshare and lodging operations and self-insurance programs.

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~or local governments related to our timeshare and lodging operations and self-insurance programs.~~

Third-parties have severally indemnified us for guarantees by us of leases with minimum annual payments of approximately $57 million.

Litigation and Arbitration

Green Isle litigation. This litigation pertains to The Ritz-Carlton San Juan (Puerto Rico) Hotel, Spa and Casino which we manage under an operating agreement for Green Isle Partners, Ltd., S.E. (Green Isle). On March 30, 2001, Green Isle ~~Partners, Ltd., S.E. (Green Isle)~~ filed a complaint in ~~Federal~~the U.S. District Court in Delaware against us (including several of our subsidiaries) and Avendra ~~LLC. We manage The Ritz-Carlton San Juan Hotel, Spa and Casino (the Hotel) located in San Juan, Puerto Rico~~LLC, asserting claims under ~~an operating agreement with Green Isle dated December 15, 1995 (the Operating Agreement).~~

~~The claim asserted 11 causes of action: three~~the Racketeer Influenced and Corrupt Organizations ~~Act~~ (RICO) and Robinson-Patman Acts, and claims ~~together with claims based on the Robinson-Patman Act,~~of breach of contract, breach of fiduciary ~~duty,~~and other duties, 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. It 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 appropriately to reveal and explain revised cash flow figures.

The complaint sought as damages ~~the~~of $140 million, which Green Isle ~~claims to have invested in the hotel (which includes $85 million in third party debt), which the plaintiffs~~ sought to treble to $420 million under RICO and the Robinson-Patman ~~Act.~~Acts. The complaint did not request termination of ~~the Operating Agreement.~~

~~On May 25, 2001, we moved to dismiss the complaint or, alternatively, to stay or transfer.~~ our operating agreement.

On June 25, 2001, Green Isle filed ~~its~~a Chapter 11 Bankruptcy Petition in the Southern District of ~~Florida. In~~Florida and in that proceeding ~~the bankruptcy court denied Green Isle’s motion~~sought to reject our operating agreement. The claims against us, including the ~~Ritz-Carlton operating~~attempt to eliminate our management agreement ~~without prejudice. On November 11, 2001, the Delaware district court granted defendants’ motion to transfer and~~in bankruptcy, were subsequently ~~did transfer the matter~~transferred to the ~~United States~~U.S. District Court ~~for the district of~~in Puerto ~~Rico. On October 7, 2002, the claims made against us were~~Rico, and dismissed with prejudice, ~~by the United States District Court of Puerto Rico,~~ meaning that the claims may not be refiled or pursued elsewhere. ~~We expect to move~~Green Isle has appealed that decision. A Disclosure Statement and Plan of Reorganization filed in the bankruptcy proceeding on behalf of RECP San Juan Investors LLC and The Ritz-Carlton Hotel Company L.L.C. would operate to ~~dismiss~~discharge the ~~parallel claim based~~Green Isle litigation claims. A bankruptcy court confirmation hearing on ~~the dismissal with prejudice in federal court. The outcome~~that Plan of ~~the bankruptcy proceedings~~Reorganization is ~~unknown at this time.~~

scheduled for May 1 and 2, 2003.

CTF/HPI arbitration and litigation. On April 8, 2002, we initiated an arbitration proceeding against CTF Hotel Holdings, Inc. (CTF) and its affiliate, Hotel Property Investments (B.V.I.) Ltd. (HPI), in connection with a dispute over procurement issues for certain Renaissance hotels and resorts that we manage for CTF and HPI. On April 12, 2002, CTF filed a lawsuit in U.S. District Court in Delaware against us and Avendra LLC, alleging that, in connection with

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

procurement at 20 of those hotels, we engaged in improper acts of self-dealing, and claiming breach of fiduciary, contractual and other duties; fraud; misrepresentation; and violations of the RICO and the Robinson-Patman Acts. CTF ~~also claims that Marriott breached an agreement relating to CTF’s right to conduct an audit of certain aspects relating to the management of these hotels. CTF~~ seeks various remedies, including a stay of the arbitration proceedings against CTF and unspecified actual, treble and punitive damages. ~~We subsequently amended our arbitration demand to incorporate all of the issues in the CTF lawsuit. On May 22, 2002 the~~The district court enjoined the arbitration with respect to CTF, but granted our request to stay the court proceedings pending the resolution of the arbitration with respect to HPI. Both parties have appealed ~~this~~that ruling. The ~~appellate court has directed that the parties engage in mediation on the appeal, which~~arbitration hearing is scheduled ~~for December 6, 2002. No date has been set for the arbitration between Marriott and HPI.~~

to commence in October 2003.

In Town Hotels litigation. On May 23, 2002, In Town Hotels filed suit against us, subsequently amended to include Avendra, LLC in the U.S. District Court infor the Southern District of West Virginia ~~and subsequently filed an amended complaint on August 26, 2002, to include Avendra LLC~~ alleging that, in connection with the management, procurement and rebates related to the Charleston, West Virginia Marriott, we misused confidential information, ~~related to the hotel,~~ improperly allocated corporate overhead to the hotel, engaged in improper self dealing, ~~with regard to procurement and rebates,~~ failed to disclose information related to the above to In Town Hotels, and breached obligations owed to In Town

Hotels by refusing to replace the hotel’s general manager and by opening two additional ~~hotel properties~~hotels in the Charleston ~~area, and claiming~~area. In Town Hotels claims breach of contract, breach of ~~implied~~fiduciary and other duties, ~~of good faith and fair dealing, breach of fiduciary duty,~~ conversion, violation of the West Virginia Unfair Trade Practices Act, fraud, misrepresentation, negligence, violations of the Robinson-Patman Act, and other related causes of ~~action. In Town Hotels~~action, and seeks various remedies, including unspecified compensatory and exemplary damages, return of $18.5 million in management fees, and a declaratory judgment terminating the management agreement.

~~Flatley litigation~~~~. In response to demands by John J. Flatley and Gregory Stoyle, as purported agents~~ Trial is scheduled for The 1993 Flatley Family Trust (collectively, “Flatley”) to convert the management agreement for the Boston Marriott Quincy Hotel between Flatley and us to a franchise agreement and threats by Flatley to sue to terminate the management agreement, on August 1, 2002, we filed a suit against Flatley in the U.S. District Court, District of Maryland, Southern Division, seeking a declaratory judgment that we were not in breach of the management agreement, and claiming breach of contract, breach of the duty of good faith and fair dealing, and violation of the Massachusetts Unfair Business Practices Act by Flatley, and seeking unspecified compensatory and exemplary damages. On August 5, 2002, Flatley and the Crown Hotel Nominee Trust (Crown) filed a countersuit against the above named defendants in the U.S. District Court, District of Massachusetts, alleging that we and Avendra LLC, in connection with the management, procurement and rebates related to the hotel, engaged in improper acts of self dealing and claiming breach of contract, breach of the duty of good faith and fair dealing, violation of the Massachusetts Unfair Business Practices Act, tortious interference with contract, breach of fiduciary duty, misrepresentation, negligence, fraud, violations of the Robinson-Patman Act and other related causes of action. Flatley and Crown seek various remedies, including unspecified compensatory and exemplary damages, and declaratory judgment terminating the management agreement.

March 2004.

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Strategic Hotel litigation. On August 20, 2002, several direct or indirect subsidiaries of Strategic Hotel Capital, L.L.C. ~~(“Strategic”)~~(Strategic) filed suit against us in the Superior Court of Los Angeles County, California in ~~connection with~~ a dispute related to the management, procurement and rebates related to three California hotels ~~owned by Strategic in California~~ that we manage ~~alleging~~for Strategic. Strategic alleges that we misused confidential information related to the hotels, improperly allocated corporate overhead to the hotels, engaged in improper self dealing with regard to procurement and rebates, and failed to disclose information related to the above to Strategic. Strategic ~~and claiming~~also claims breach of contract, breach of ~~the implied duty of good faith~~fiduciary and ~~fair dealing, breach of fiduciary duty,~~other duties, unfair and deceptive business practices, ~~and~~ unfair competition, and other related causes of action. Strategic seeks various remedies, including unspecified compensatory and exemplary damages, and a declaratory judgment terminating ~~the~~our management agreements. ~~On August 20, 2002, we~~We have filed a cross complaint ~~against Strategic~~ alleging a breach of Strategic’s covenant not to sue, a breach of the covenant of good faith and fair dealing, breach of an agreement to arbitrate, and a breach of ~~the~~The California Unfair Competition Statute. A discovery referee has been appointed, but no trial date has been set.

Senior Housing and Five Star litigation. We and Marriott Senior Living Services, Inc. (SLS) (which on March 28, 2003, became a subsidiary of Sunrise) are party to actions in the Circuit Court for Montgomery County, Maryland and the Superior Court for Middlesex County, Massachusetts both initiated on November 27, 2002. These actions relate to 31 senior living communities that SLS operates for Senior Housing Properties Trust (SNH) and Five Star Quality Care, Inc. (FVE), and SNH/FVE’s attempt to terminate the operating agreements for these communities. In the Massachusetts action, SNH/FVE sought a declaration that the operating agreements between FVE and SLS created a principal-agent relationship, and that SNH/FVE could therefore terminate the agreements at will. The Massachusetts court dismissed that action on March 4, 2003 and entered judgement declaring that (i) the Company could sell the stock of SLS to Sunrise without obtaining SNH/FVE’s consent, (ii) the Company could remove Marriott proprietary marks from the communities and (iii) that the relationship in the operating agreements was not an agency relationship and not terminable other than as set forth in the agreements. SNH/FVE may still appeal this dismissal and declaration.

In the Maryland action, we and SLS are seeking, among other relief, a declaration that SLS is not in default or material breach of the operating agreements and a declaration that SNH/FVE had anticipatorily breached those agreements by violating their termination provisions. Trial in the Maryland action is scheduled to begin in April 2004.

Senior Care Associates litigation. Senior Care Associates LLC (SCA) is the tenant of fourteen Brighton Gardens properties located in a total of ten states. The beneficial owner of the portfolio is one of our wholly-owned subsidiaries which leases the properties to SCA, who in turn has engaged SLS as manager. On March 24, 2003, SCA filed a lawsuit in the United States District Court for the District of Maryland against us and SLS seeking a declaratory judgment and injunctive relief. In the lawsuit SCA states that it presumed that SLS would remove the Marriott trademarks following SLS’s purchase by Sunrise and that SLS would otherwise violate the applicable operating agreements, despite several letters sent from the Company and SLS

assuring SCA that SLS would continue to honor all the terms and conditions of the operating agreements following the sale. SCA seeks a declaration that the sale of SLS to Sunrise breached the operating agreements unless the facilities will continue to operate under the Marriott name and the Marriott standards. On March 24, 2003, the court refused to grant SCA a temporary restraining order against SLS and the Company. We and SLS moved to dismiss this litigation on April 14, 2003.

Whitehouse Hotel litigation. On April 7, 2003, Whitehouse Hotel Limited Partnership and WH Holdings, L.L.C., the owner of the New Orleans Ritz-Carlton Hotel, filed suit against us and the Ritz-Carlton Hotel Company, L.L.C. (“Ritz-Carlton”) in the Civil District Court for the Parish of New Orleans, Louisiana. Ritz-Carlton manages the hotel under contracts that identify it as an independent contractor, and that contain no territorial restrictions either on other Ritz-Carlton hotels or on Marriott hotels. Whitehouse sought a temporary restraining order and injunction to prevent us from managing, under the JW Marriott flag, the former LeMeridien hotel in New Orleans, claiming that the conversion to a JW Marriott would irreparably injure and damage the Ritz-Carlton hotel. The complaint against us and Ritz-Carlton alleges breach of contract, breach of fiduciary and other duties, violation of the Louisiana Unfair Trade Practices Act, breach of implied duty of good faith, civil conspiracy, and detrimental reliance. In addition to unspecified compensatory damages, Whitehouse seeks to enjoin the Company and Ritz-Carlton from both entering into any agreement to operate the former LeMeridien hotel and using or disclosing any confidential information of the New Orleans Ritz-Carlton, Iberville Suites and Maison Orleans hotels. Whitehouse also seeks a declaration of its right to terminate the operating agreements for cause. The court denied both Whitehouse’s motion for a temporary restraining order on April 11, 2003 and its request for expedited discovery on April 15, 2003.

We believe that each of the foregoing ~~lawsuits~~claims against us isand against SLS are without merit and we intend to vigorously defend against ~~the claims being made against us.~~them. However, we cannot assure you as to the outcome ~~of any~~ of these lawsuits nor can we currently estimate the range of potential losses to the Company.

~~Unrelated~~

Shareholders’ derivative action against our directors.

On January 16, 2003, Daniel and Raizel Taubenfeld filed a shareholder’s derivative action in Delaware state court against each member of our Board of Directors and against Avendra LLC. The company is named as a nominal defendant. The individual defendants are accused of exposing the company to accusations and lawsuits which allege wrongdoing on the part of the company. The complaint alleges that, as a result, the company’s reputation has been damaged leading to business losses and the compelled renegotiation of some management contracts. The substantive allegations of the complaint are derived exclusively from prior press reports. No damage claim is made against us and no specific damage number is asserted as to the ~~lawsuits referenced above, in~~individual defendants. Both the ~~second quarter of 2002, we recognized a charge of $7~~directors and the Company have moved to dismiss this action.

Convertible Debt

Approximately $70 million in ~~connection with a lawsuit involving the sale~~face amount of ~~a hotel previously managed by us.~~

~~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.~~

~~9. Convertible Debt~~

~~On May 8, 2001, we received gross proceeds of $405 million from the sale of~~our zero-coupon convertible senior notes due 2021, known as ~~LYONs. On~~LYONS are presently outstanding.

These LYONs which were issued on May ~~9, 2002, we redeemed for cash the approximately 85 percent of the LYONs that were tendered for mandatory repurchase by the holders.~~

~~The remaining LYONs~~8, 2001, are convertible into approximately 0.9 million shares of our Class A Common Stock, ~~have a face value of $70 million~~ and carry a yield to maturity of 0.75 percent. We may not redeem the LYONs prior to May 8, 2004. We may at the option of the holders be required to purchase the LYONs at their accreted value on May 8 of each of 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 amortized the issuance costs of the LYONs into interest expense over the one-year period ended May 8, 2002.~~

We classify LYONs 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.

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

10.

Restructuring Costs and Other Charges

~~10. Marriott and Cendant Corporation Joint Venture~~

In the first quarter of 2002, Marriott and Cendant Corporation (Cendant) completed the formation of a joint venture to further develop and expand the Ramada and Days Inn brands in the United States. We contributed the domestic Ramada license agreements and related intellectual property to the joint venture at their carrying value of approximately $200 million. We also contributed a $205 million note receivable from us and the joint venture assumed a $205 million note payable to us, which eliminate upon consolidation. Cendant contributed the Days Inn license agreement and related intellectual property with a fair value of approximately $205 million. We each own approximately 50 percent of the joint venture, with Cendant having the slightly larger interest. We account for our interest in the joint venture using the equity method.

The joint venture can be dissolved at any time with the consent of both members and is scheduled to terminate in March 2012. In the event of dissolution, the joint venture’s assets will generally be distributed in accordance with each member’s capital account. In addition, during certain periods of time commencing in March 2004, first Cendant and later Marriott will have a brief opportunity to cause a mandatory redemption of Marriott’s joint venture equity.

~~11. Restructuring Costs and Other Charges~~

~~In 2001, we~~Company experienced a significant decline in demand for hotel rooms in the aftermath of the September 11, 2001 attacks on New York and Washington and the subsequent dramatic downturn in the economy. This decline resulted in reduced management and franchise fees, cancellation of development projects, and anticipated losses under guarantees and loans. WeIn 2001, we responded by implementing certain companywide cost-saving ~~measures.~~measures, although we did not significantly change the scope of our operations. As a result of our restructuring plan, in the fourth quarter of 2001 we recorded pretax restructuring costs of ~~$124~~$62 million, including (1) ~~$16~~$15 million in severance costs; (2) ~~$20~~$19 million, primarily associated with a loss on a sublease of excess space arising from the reduction in personnel; (3) $28 million related to the write-off of capitalized costs ~~relating to~~for development projects no longer deemed viable; and (4) $60 million related to the write-down of the Village Oaks brand of companion-style senior living communities, which were classified as held for sale at December 28, 2001, to their estimated fair value. (See Subsequent Events footnote).viable. We also incurred ~~$147~~$142 million of other charges including (1) $85 million related to reserves for guarantees and loan losses; (2) ~~$17~~$12 million related to accounts receivable reserves; (3) $13 million related to the write-down of properties held for sale; and (4) $32 million related to the impairment of technology related investments and other write-offs.

The following table summarizes our remaining restructuring liability ($ in millions):

Restructuring costs
and other charges
liability at
September 6, 2002

Restructuring costs
and other charges
liability at
December 28, 2001
Severance      $ 3      $ 8
Facilities exit costs      13      18


Total restructuring costs      16      26
Reserves for guarantees      23      33
Other      —        1


Total      $ 39      $ 60

	Restructuring costs and other charges liability at January 3, 2003		Cash payments made in 2003		Charges reversed in 2003		Restructuring costs and other charges liability at March 28, 2003
Severance	$	2	$	1	$	—	$	1
Facilities exit costs		11		—		—		11

Total restructuring costs		13		1		—		12
Reserves for guarantees		21		2		—		19

Total	$	34	$	3	$	—	$	31

~~MARRIOTT INTERNATIONAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~12. Assets Held for Sale~~

~~Other current assets at September 6, 2002 and December 28,~~In addition to the above, in 2001, ~~includes $164~~we recorded restructuring charges of $62 million and ~~$324~~other charges of $5 million ~~respectively,~~for our Senior Living Services and Distribution Services businesses. The restructuring liability related to these discontinued operations was $1 million as of ~~assets~~January 3, 2003 and was recorded on the balance sheet as liabilities of businesses held for sale. ~~At September 6,~~There was no restructuring liability related to discontinued operations as of March 28, 2003.

11.

Assets Held for Sale – Discontinued Operations

Senior Living Services

On December 17, 2002, we sold twelve senior living communities to CNL for approximately $89 million in cash. We accounted for the sale under the full accrual method in accordance with FAS No. 66, and we recorded an after-tax loss of approximately $13 million. On December 30, 2002, we entered into definitive agreements to sell our senior living management business to Sunrise and to sell nine senior living communities to CNL. We completed these sales to Sunrise and CNL in addition to the related sale of a parcel of land to Sunrise on March 28, 2003, for $266 million and recognized a gain, net of taxes, of $23 million.

Also, on December 30, 2002, we purchased 14 senior living communities for approximately $15 million in cash, plus the assumption of $227 million in debt, from an unrelated owner. We had previously agreed to provide a form of credit enhancement on the outstanding debt related to these communities. Management has approved and committed to a plan to sell these communities within 12 months. As part of that plan, subsequent to quarter end, on March 31, 2003, we acquired all of the subordinated credit-enhanced mortgage securities relating to the 14 communities in a transaction in which we issued $46 million of unsecured Marriott International, Inc. notes, due April 2004. As a result of the above transactions, at March 28, 2003, the operating results of our Senior Living Services segment are reported in discontinued operations, and the remaining assets are classified as assets held for sale ~~consisted~~on the balance sheet.

Additional information regarding the Senior Living Services business is as follows ($ in millions):

	Twelve weeks ended
	March 28, 2003			March 22, 2002
Income Statement Summary

Sales	$	176		$	180


Pretax income from operations	$	11		$	6
Tax provision		(4	)		(2	)

Income on operations, net of tax	$	7		$	4


Pretax gain on disposal	$	38		$	—
Tax provision		(15	)		—

Gain on disposal, net of tax	$	23		$	—


	March 28, 2003			January 3, 2003
Balance Sheet Summary

Property, plant and equipment	$	170		$	434
Goodwill		—			115
Other assets		2			54
Liabilities		78			317

Distribution Services

As of $156 million of property, plant and equipment and $8 million of other related assets. Other liabilities at September 6, 2002 and December 28, 2001 include $3 million and $8 million, respectively, related to assets held for sale. (See Subsequent Events footnote).

~~13. Distribution Services~~

In the third quarter of 2002, we completed a previously announced strategic review of the distribution services business and decided to exit the business, with an anticipated completion around the end of 2002. We expect the exit will take placeJanuary 3, 2003, through a combination of sale orand transfer of ~~some facilities, abandonment of other~~nine facilities and ~~other suitable arrangements. In~~the termination of all operations at four facilities, we completed our exit of the distribution services business. Accordingly, we present the exit costs and the operating results for our distribution services business as discontinued operations for the twelve weeks ended ~~September 6,~~March 28, 2003 and March 22, 2002, and the remaining assets are classified as held for sale at March 28, 2003 and January 3, 2003. In the first quarter of 2003, we ~~recognized a charge~~incurred exit costs of ~~approximately $30~~$1 million, ~~in connection~~primarily related to ongoing compensation costs associated with the ~~decision to exit~~wind down.

Additional information regarding the distribution services business and sale of certain assets. The charge includes: (1) $25 million related to equipment and facilities leases; (2) $3 million related to the adjustment of the depreciable lives of fixed assets to net realizable values over expected useful lives; and (3) $2 million of other associated charges. We expect to incur other material chargesDistribution Services disposal group is as follows ($ in ~~connection with exiting the business, but we currently are unable to estimate their magnitude.~~

~~14. Subsequent Events~~

~~Interval International~~. Subsequent to the end of the quarter, we sold our 11 percent investment in Interval International, a timeshare exchange company, for approximately $63 million. The transaction resulted in a gain of approximately $44 million, which will be recognized in the fourth quarter of 2002.

~~Village Oaks~~. On October 1, 2002, we completed the sale of 24 Village Oaks senior living communities, which we wrote down to their estimated fair value in the fourth quarter of 2001. We adjusted the carrying amount of the assets at September 6, 2002 to reflect the sales price of $62 million. The adjustment increased the prior carrying amount by $11 million, which was reflected in the income statement for the quarter ended September 6, 2002.

millions):

	Twelve weeks ended
	March 28, 2003			March 22, 2002
Income Statement Summary

Sales	$	—		$	376

Pretax loss from operations	$	—		$	(6	)
Tax benefit		—			2

Loss on operations, net of tax	$	—		$	(4	)

Pretax exit costs	$	(1	)	$	—
Tax benefit		—			—

Exit costs, net of tax	$	(1	)	$	—


	March 28, 2003			January 3, 2003
Balance Sheet Summary

Property, plant and equipment	$	9		$	9
Other assets		5			21
Liabilities		23			49

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

CONSOLIDATED RESULTS ~~OF OPERATIONS~~

Continuing Operations

The following discussion presents an analysis of results of our operations for the twelve ~~and thirty-six~~ weeks ended March 28, 2003 and March 22, 2002.

Twelve Weeks Ended March 28, 2003 Compared to Twelve Weeks Ended March 22, 2002

Income from continuing operations, net of taxes increased 6 percent to $87 million and diluted earnings per share from continuing operations advanced 13 percent to $0.36. Sales increased 11 percent to $2 billion. Income from continuing operations reflected $78 million of tax benefits, offset by $59 million of operating losses, associated with our Synthetic Fuel business, and reflecting a 4 percent decline in our lodging business results.

Marriott Lodging, which includes our Full-Service, Select-Service, Extended-Stay, and Timeshare segments, reported a 4 percent decrease in financial results on 8 percent higher sales. The results reflect lower U.S. demand, offset by new unit additions. In addition, there were no timeshare note sale gains in the first quarter of 2003, compared to $14 million in the 2002 first quarter. Lodging sales increased to $1.9 billion and systemwide lodging sales increased to $4.2 billion. The reconciliation of sales to systemwide sales for the first quarter is as follows ($ in millions):

	Twelve weeks ended
	March 28, 2003		March 22, 2002
Lodging sales, as reported	$	1,946	$	1,803
Guest sales revenue generated at franchised properties, excluding revenues which are already included in lodging sales		1,192		1,106
Guest sales revenue generated at managed properties, excluding revenues which are already included in lodging sales		1,107		1,058

Lodging systemwide sales	$	4,245	$	3,967

We consider Lodging 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.

We have presented a claim with an insurance company for lost management fees from the September 6,11, 2001 terrorist attacks. In the fourth quarter of 2002, we recognized $1 million in income from insurance proceeds; we have not recognized any income in the first quarter of 2003. Although we expect to realize further proceeds, we cannot currently estimate the amounts that may be paid to us.

We added a total of 35 lodging properties (8,028 rooms) during the first quarter of 2003, and ~~September 7, 2001.~~deflagged one hotel (104 rooms) and two timeshare resorts (78 rooms), increasing our total properties to 2,589 (471,275 rooms). Properties by brand as of March 28, 2003 (excluding 3,920 rental units relating to Marriott ExecuStay) are as indicated in the following table.

	Company-Operated		Franchised
Brand	Properties	Rooms	Properties	Rooms
Full-Service Lodging
Marriott Hotels and Resorts	265	113,651	193	54,456
The Ritz-Carlton Hotels	52	16,916	—	—
Renaissance Hotels and Resorts	85	33,013	44	13,894
Ramada International	4	727	146	21,147

Select-Service Lodging
Courtyard	289	45,874	304	39,478
Fairfield Inn	2	855	506	47,895
SpringHill Suites	21	3,346	78	8,022

Extended-Stay Lodging
Residence Inn	133	18,204	298	32,949
TownePlace Suites	34	3,665	71	7,141
Marriott Executive Apartments and other	11	2,068	1	99

Timeshare
Marriott Vacation Club International	44	7,211	—	—
Horizons by Marriott Vacation Club International	2	212	—	—
The Ritz-Carlton Club	4	204	—	—
Marriott Grand Residence Club	2	248	—	—

Total	948	246,194	1,641	225,081

We consider Revenue per ~~available room~~Available Room (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 change in room revenues for comparable properties. We calculate REVPAR by dividing room sales for comparable properties by room nights available to guests for the period. REVPAR may not be comparable to similarly titled measures such as revenues. ~~Comparable REVPAR, room rate and occupancy~~We have not presented statistics ~~used throughout this report are based upon U.S. properties operated by us, except that data~~ for Fairfield Inn ~~TownePlace Suites~~ and SpringHill Suites ~~also include comparable franchised units. The inclusion of data for comparable franchised units for these three brands provides more meaningful information as~~company-operated North American properties—since these brands ~~are predominantly franchised.~~

~~Twelve Weeks Ended September 6, 2002 Compared to Twelve Weeks Ended September 7, 2001~~

~~We reported net income of $103 million for~~only have a few properties that we operate, the 2002 third quarter on sales of $2,454 million. This represents a $2 million increase in net income compared to the 2001 third quarter and a 3 percent increase in sales compared to the third quarter of 2001. Diluted earnings per share of $.41 for the quarter increased 5 percent compared to the 2001 amount. Overall, results reflected weaker hotel demand; stronger senior living results, primarily related to $11 million of pretax income associated with the sale of the Village Oaks senior living communities; and losses in our distribution services business associated with management’s decision to exit the distribution services business; largely offset by the lower tax rate associated with our Synthetic Fuel business. Systemwide sales increased to $4.8 billion.

~~Marriott Lodging,~~ which includes our Full-Service, Select-Service, Extended-Stay, and Timeshare segments, reported an 8 percent decrease in financial results on nearly 3 percent higher sales. Systemwide lodging sales were unchanged at $4.2 billion.

We added a total of 46 lodging properties (7,072 units) during the third quarter of 2002, and deflagged 4 properties (489 units), increasing our total properties to 2,505 (454,587 units). Properties by brandinformation would not be meaningful (identified as ~~of September 6, 2002 (excluding 5,200 rental units relating to Marriott ExecuStay) are as indicated~~“nm” in the tables below). Systemwide statistics include data from our franchised properties, in addition to our owned, leased and managed properties. Systemwide international statistics by region are based on comparable worldwide units, excluding North America, and reflect constant foreign exchange rates. The following ~~table.~~

Company-operated

Franchised
Brand

Properties

Rooms

Properties

Rooms
Full-Service Lodging
Marriott Hotels, Resorts and Suites      254    110,331    185    52,199
The Ritz-Carlton Hotels      48    15,904    —      —
Renaissance Hotels, Resorts and Suites      85    32,742    38    12,254
Ramada International      4    727    139    20,167
Marriott Executive Apartments and Other      10    1,909    1    99
Select-Service Lodging
Courtyard      289    45,928    289    36,974
Fairfield Inn      2    890    498    47,081
SpringHill Suites      20    3,187    76    7,840
Extended-Stay Lodging
Residence Inn      134    18,215    277    30,315
TownePlace Suites      34    3,664    69    6,944
Timeshare
Marriott Vacation Club International      45    6,680    —      —
Horizons      2    146    —      —
The Ritz-Carlton Club      4    143    —      —
Marriott Grand Residence Club      2    248    —      —




Total      933    240,714    1,572    213,873

~~Across our Lodging brands, REVPAR for comparable managed U.S. properties declined by an average of 6.8 percent in the third quarter 2002. Average room rates for these hotels declined 5.1 percent and~~tables show occupancy, ~~declined 1.4 percentage points. Management and franchise fees decreased 9.5 percent compared to the third quarter 2001.~~

~~Occupancy,~~ average daily rate and REVPAR for each of our principal established ~~brands are shown in~~brands:

	Comparable Company-Operated North American Properties			Comparable Systemwide North American Properties
	Twelve weeks ended March 28, 2003		Change vs. 2002	Twelve weeks ended March 28, 2003		Change vs. 2002
Marriott Hotels and Resorts
Occupancy		68.3%	-0.3% pts.		66.7%	0.3% pts.
Average daily rate	$	139.32	-1.7%	$	131.70	-2.4%
REVPAR	$	95.11	-2.1%	$	87.90	-1.9%

The Ritz-Carlton Hotels¹
Occupancy		63.5%	-2.0% pts.		63.5%	-2.0% pts.
Average daily rate	$	255.21	2.4%	$	255.21	2.4%
REVPAR	$	161.97	-0.8%	$	161.97	-0.8%

Renaissance Hotels and Resorts
Occupancy		65.1%	1.4% pts.		62.4%	2.0% pts.
Average daily rate	$	133.34	-2.0%	$	124.67	-2.2%
REVPAR	$	86.81	0.1%	$	77.84	1.0%

Courtyard
Occupancy		65.9%	0.7% pts.		66.7%	1.1% pts.
Average daily rate	$	94.23	-1.4%	$	93.42	-1.0%
REVPAR	$	62.08	-0.3%	$	62.27	0.6%

Fairfield Inn
Occupancy		nm	nm		59.9%	0.7% pts.
Average daily rate		nm	nm	$	63.54	0.8%
REVPAR		nm	nm	$	38.03	2.0%

SpringHill Suites
Occupancy		nm	nm		66.3%	2.6% pts.
Average daily rate		nm	nm	$	81.72	1.8%
REVPAR		nm	nm	$	54.22	6.1%

Residence Inn
Occupancy		74.2%	0.1% pts.		73.7%	0.7% pts.
Average daily rate	$	97.13	-2.9%	$	94.99	-2.2%
REVPAR	$	72.10	-2.8%	$	70.04	-1.2%

TownePlace Suites
Occupancy		64.7%	-6.2% pts.		66.5%	-1.6% pts.
Average daily rate	$	62.75	5.6%	$	63.60	1.2%
REVPAR	$	40.59	-3.6%	$	42.30	-1.2%

Statistics for The Ritz-Carlton Hotels are for January and February.

	Comparable Company-Operated International Properties			Comparable Systemwide International Properties
	Two months ended February 28, 2003		Change vs. 2002	Two months ended February 28, 2003		Change vs. 2002
Caribbean & Latin America
Occupancy		69.4%	6.6% pts.		66.1%	6.3% pts.
Average daily rate	$	160.05	3.6%	$	154.45	5.1%
REVPAR	$	111.03	14.5%	$	102.07	16.3%

Continental Europe
Occupancy		57.3%	0.2% pts.		54.6%	-0.3% pts.
Average daily rate	$	120.27	-4.1%	$	119.19	-1.8%
REVPAR	$	68.89	-3.7%	$	65.04	-2.3%

United Kingdom
Occupancy		67.7%	-5.2% pts.		61.2%	-2.8% pts.
Average daily rate	$	145.57	1.9%	$	122.01	-5.0%
REVPAR	$	98.49	-5.3%	$	74.63	-9.2%

Middle East & Africa
Occupancy		67.2%	11.2% pts.		66.5%	11.7% pts.
Average daily rate	$	91.98	11.0%	$	91.10	10.4%
REVPAR	$	61.81	33.3%	$	60.57	34.1%

Asia Pacific
Occupancy		69.0%	4.7% pts.		69.8%	3.9% pts.
Average daily rate	$	94.00	1.3%	$	97.55	1.3%
REVPAR	$	64.87	8.7%	$	68.12	7.2%

For North American properties (except for The Ritz-Carlton Hotels), the ~~following table.~~

Twelve weeks ended
September 6, 2002

Change vs.
Twelve weeks ended
September 7, 2001

Marriott Hotels, Resorts and Suites
Occupancy      72.0 %      -2.4 % pts.
Average daily rate      $ 126.21      -4.7 %
REVPAR      $ 90.82      -7.7 %
The Ritz-Carlton Hotels
Occupancy      65.8 %      -1.5 % pts.
Average daily rate      $ 206.93      -6.7 %
REVPAR      $ 136.10      -8.8 %
Renaissance Hotels, Resorts and Suites
Occupancy      66.1 %      -2.9 % pts.
Average daily rate      $ 120.83      -3.5 %
REVPAR      $ 79.88      -7.5 %
Courtyard
Occupancy      73.3 %      -1.7 % pts.
Average daily rate      $ 91.95      -6.1 %
REVPAR      $ 67.41      -8.2 %
Fairfield Inn
Occupancy      73.4 %      0.1 % pts.
Average daily rate      $ 66.51      -1.0 %
REVPAR      $ 48.83      -0.8 %
SpringHill Suites
Occupancy      69.4 %      -0.8 % pts.
Average daily rate      $ 78.48      -1.6 %
REVPAR      $ 54.49      -2.7 %
Residence Inn
Occupancy      81.9 %      0.6 % pts.
Average daily rate      $ 97.02      -7.6 %
REVPAR      $ 79.46      -6.9 %
TownePlace Suites
Occupancy      79.5 %      1.1 % pts.
Average daily rate      $ 64.72      -3.3 %
REVPAR      $ 51.43      -2.0 %

occupancy, average daily rate and REVPAR statistics used throughout this report for the twelve weeks ended March 28, 2003, include the period from January 4, 2003 through March 28, 2003, while the twelve weeks ended March 22, 2002 statistics include the period from December 29, 2001 through March 22, 2002. The 2003 statistics exclude the impact of the New Year’s holiday, which historically is a slow week.

Across ~~Marriott’s domestic full-service lodging~~our Lodging brands, REVPAR for comparable company-operated ~~U.S.~~North American properties declined ~~7.2~~by an average of 1.5 percent in the first quarter of 2003. Average room rates for these hotels declined 1.5 percent and occupancy remained unchanged from the prior year.

Across Marriott’s North American Full-Service lodging brands (Marriott Hotels and Resorts; RenaissanceHotels andResorts;and The Ritz-Carlton Hotels), REVPAR for comparable company-operated North American properties declined 1.7 percent. Average room rates for these hotels declined ~~4.6~~1.4 percent and occupancy decreased ~~1.9~~0.2 percentage points to ~~69.6~~67.5 percent.

Our ~~domestic select-service~~North American Select-Service and ~~extended-stay~~Extended-Stay brands (Fairfield Inn; Courtyard; Residence Inn; SpringHill Suites;and TownePlace Suites) had, for comparable company-operated North American properties, average REVPAR declines of ~~5.0~~1.0 percent ~~reflecting occupancy declines of 0.3 percentage points~~ and average room rate declines of ~~4.6 percent.~~

~~Results for international~~1.3 percent, while occupancy increased 0.2 percentage points.

International lodging reported an increase in the results of operations, ~~declined~~reflecting the impact of stronger demand in the Caribbean, Asia, and the Middle East, partially offset by a decline in travel to Europe.

For our Timeshare brands (Marriott Vacation Club International; The Ritz-Carlton Club; Horizons by Marriott Vacation Club International; and Marriott Grand Residence Club) financial results decreased 42 percent, to $18 million. The decline is primarily ~~due~~attributable to the ~~decrease~~fact that there were no timeshare notes sold in ~~international travel. While demand remains soft in Europe, demand strengthened in Japan, Korea and Russia.~~

~~Timeshare~~~~. Our~~the first quarter of 2003, while our timeshare business ~~reported a 5 percent increase in results, reflecting a 4 percent increase in sales and~~generated note sale gains of ~~approximately $18~~$14 million in ~~2002~~the first quarter of 2002. First quarter 2003 results, compared to ~~$13 million in 2001. The~~first quarter 2002 results, also reflect ~~higher marketing and selling costs due to reduced closing efficiencies. At September 6, 2002, 32 resorts were in active sales and 21 resorts were sold out.~~

~~Senior Living Services~~ ~~(SLS) posted~~ an ~~8 percent~~ increase in sales and a $14 million increase in operating profit. The favorable results reflect an $11 million adjustment to the fair market value of the assets held for sale associated with the Village Oaks communities. In the fourth quarter of 2001, as a result of management’s plan to exit the companion living business, we reclassified the assets associated with the Village Oaks communities as assets held for sale and recorded an impairment charge of $60 million. On October 1, 2002, we sold these Village Oaks communities for $62 million. Occupancy for comparable communities was 84 percent in the quarter, stable with a year ago. As of September 6, 2002, we operated 153 facilities (26,257) units. In July 2002, we commenced a strategic review of SLS, which includes an evaluation of all alternatives, including the sale of the business or spin-off to shareholders.

~~Distribution Services~~ ~~(MDS) posted a 9 percent decline in~~contract sales in ~~the third quarter~~excess of 2002, reflecting lower volume, partially offset by the commencement of new contracts since the third quarter of 2001, which include the distribution of higher priced, but lower margin items. The volume decline is largely attributable to the loss of one significant customer. The $34 million operating loss included a $30 million charge recorded in connection with the decision to exit the distribution services business15 percent and an overall decline in the number of cases shipped. The charge includes: (1) $25 million related to equipment and facilities leases; (2) $3 million related to the adjustment of the depreciable lives of fixed assets to net realizable values over expected useful lives; and (3) $2 million of other associated charges.favorable development margins.

In the 2002 third quarter, we completed a previously announced strategic review of the distribution services business. We have decided to exit the distribution services business, with an anticipated completion around the end of 2002. We expect the exit will take place through a combination of sale or transfer of some facilities, abandonment of other facilities and other suitable arrangements. In addition to the $30 million charge recognized in the third quarter we expect to incur other material costs in connection with exiting the business, but we currently are unable to estimate their magnitude.

Corporate Expenses, Interest and ~~Taxes~~Taxes. . Interest expense ~~decreased~~increased $7 million, reflecting ~~lower average outstanding~~the impact of the mortgage debt ~~balances~~assumed in the fourth quarter of 2002 associated with the acquisition of 14 senior living communities, as well as additional share repurchases and lower capitalized interest ~~rates.~~resulting from fewer projects under construction, primarily related to our timeshare business. Interest income increased slightly to $20 million, before reflecting reserves of $5 million for loans deemed uncollectible at two hotels. Corporate expenses increased ~~$12 million primarily due to the $4 million gain recorded in 2001 on the sale of tax investments, and foreign exchange losses incurred in 2002. Our effective income tax rate decreased from 37.5~~3 percent to $30 million reflecting higher litigation expenses.

The income from continuing operations generated a ~~positive~~tax benefit of ~~8.4 percent due~~$40 million in the first quarter of 2003 compared to a tax provision of $36 million in the ~~impact~~first quarter of ~~the~~2002. The difference was primarily attributable to our Synthetic Fuel business which generated a tax benefit and tax credits ~~arising from our Synthetic Fuel business and~~totaling $78 million in the ~~elimination~~first quarter of ~~nondeductible goodwill amortization, partially offset by~~2003 compared to $7 million in the ~~2001 sale of the affordable housing investments.~~

year ago quarter.

Synthetic Fuel.In October 2001, we acquired four coal-based synthetic fuel production facilities (the Facilities) for $46 million in cash. The ~~Synthetic Fuel~~synthetic fuel produced at the Facilities qualifies for tax credits based on Section 29 of the Internal Revenue Code. Under Section 29, tax credits are not available for ~~Synthetic Fuel~~synthetic fuel produced after 2007. We began operating these Facilities in the first quarter of 2002. ~~We anticipate that the~~The operation of the Facilities, together with the benefit arising from the tax credits, has been, and we expect will continue to be significantly accretive to our net income. Although ~~we expect that~~ the Facilities ~~will~~ produce significant ~~operating~~ losses, ~~we anticipate that~~ these ~~will be~~are more than offset by the tax credits generated under Section 29, which ~~we expect to~~ reduce our income tax expense. In the ~~third~~first quarter of ~~2002,~~2003, our Synthetic Fuel business reflected sales of ~~$55~~$68 million and ~~an operating~~a loss of ~~$32~~$59 million, resulting in a tax benefit of ~~$11~~$21 million and tax credits of ~~$43~~$57 million.

~~Thirty-Six Weeks Ended September 6, 2002 Compared~~

In January 2003, we entered into a contract with an unrelated third party to ~~Thirty-Six Weeks Ended September 7, 2001~~

~~We reported net income~~sell approximately a 50 percent interest in the Synthetic Fuel business. The transaction is subject to certain closing conditions, including the receipt of ~~$314~~a satisfactory private letter ruling from the Internal Revenue Service regarding the new ownership structure. Contracts related to the potential sale are being held in escrow until closing

conditions are met. If the conditions are not met by August 31, 2003, neither party will have an obligation to perform under the agreements. If the transaction is consummated, we expect to receive $25 million in promissory notes and cash as well as an earnout based on the amount of synthetic fuel produced. If the transaction is consummated, we expect to account for the ~~first three quarters of 2002 on sales of $7,404 million. This represents an 11 percent decrease~~remaining interest in ~~net income and a 2 percent increase in sales over~~ the same period in 2001. Diluted earnings per share of $1.23 for the first three quarters of the year decreased 10 percent compared to 2001. The overall profit decline in 2002 is primarily due to weaker hotel results and losses in our distribution services business associated with management’s decision to exit the distribution services business, partially offset by the lower tax rate associated with our Synthetic Fuel business under the equity method of accounting.

Discontinued Operations

Senior Living Services.

On December 17, 2002, we sold twelve senior living communities to CNL for approximately $89 million in cash. We accounted for the sale under the full accrual method in accordance with FAS No. 66, and ~~stronger~~we recorded an after-tax loss of approximately $13 million. On December 30, 2002, we entered into definitive agreements to sell our senior living management business to Sunrise and to sell nine senior living communities to CNL. We completed the sales to Sunrise and CNL in addition to the related sale of a parcel of land to Sunrise on March 28, 2003, for $266 million and recognized a gain, net of taxes, of $23 million.

Also, on December 30, 2002, we purchased 14 senior living communities for approximately $15 million in cash, plus the assumption of $227 million in debt, from an unrelated owner. We had previously agreed to provide a form of credit enhancement on the outstanding debt related to these communities. Management has approved and committed to a plan to sell these communities within 12 months. As part of the plan, subsequent to quarter end, on March 31, 2003, we acquired all of the subordinated credit-enhanced mortgage securities relating to the 14 communities in a transaction in which we issued $46 million of unsecured Marriott International, Inc. notes, due April 2004. As a result of the above transactions, at March 28, 2003, the operating results ~~associated with~~of our Senior Living Services ~~business segment. Senior Living Services profits included $11~~segment are reported in discontinued operations, and the remaining assets are classified as assets held for sale on the balance sheet.

Income from discontinued operations, net of taxes and excluding the gain on disposal of $23 million, was $7 million, an increase of ~~pretax~~$3 million over first quarter 2002 results. The results reflect income ~~associated with~~from the ~~sale of~~14 properties purchased in the ~~Village Oaks communities. Systemwide sales increased to $14.4 billion.~~

~~Marriott Lodging~~ ~~reported a 20 percent decrease in operating profit to $505 million, on sales of $5.7 billion, which was flat with last year. Systemwide lodging sales were unchanged at $12.6 billion.~~

~~We added a total of 123 lodging properties (20,734 units) during the first thirty-six weeks~~fourth quarter of 2002 and ~~deflagged 16 properties (2,130 units).~~

Across our Lodging brands, REVPAR for comparable managed U.S. properties decreased by an average of 9.2 percent in the first three quarters of 2002. Average room rates for these hotels declined 6.5 percent and occupancy declined 2.1 percentage points. Management and franchise fees decreased 11.3 percent comparedlower depreciation due to the ~~first three quarters~~classification of ~~2001. Our operating results reflect~~assets as held for sale. The comparison to 2002 includes the impact of a ~~weaker economy, offset by the $19 million reduction in amortization expense resulting from our adoption of FAS No. 142~~one-time payment received in the first quarter of ~~2002. The following table shows the occupancy, average daily rate and REVPAR for each of our principal established brands.~~

Thirty-six weeks ended
September 6, 2002

Change vs.
Thirty-six weeks ended
September 7, 2001

Marriott Hotels, Resorts and Suites
Occupancy      71.6 %                  -2.6 % pts.
Average daily rate      $ 136.77      -6.6 %
REVPAR      $ 97.99      -9.9 %
The Ritz-Carlton Hotels
Occupancy      68.4 %      -1.5 % pts.
Average daily rate      $ 235.09      -8.4 %
REVPAR      $ 160.75      -10.4 %
Renaissance Hotels, Resorts and Suites
Occupancy      66.7 %      -4.0 % pts.
Average daily rate      $ 131.53      -4.7 %
REVPAR      $ 87.68      -10.1 %
Courtyard
Occupancy      70.8 %      -3.8 % pts.
Average daily rate      $ 95.17      -6.3 %
REVPAR      $ 67.42      -11.1 %
Fairfield Inn
Occupancy      68.1 %      -0.6 % pts.
Average daily rate      $ 65.16      -1.3 %
REVPAR      $ 44.38      -2.2 %
SpringHill Suites
Occupancy      70.1 %      1.5 % pts.
Average daily rate      $ 78.88      -3.7 %
REVPAR      $ 55.32      -1.6 %
Residence Inn
Occupancy      78.9 %      -1.2 % pts.
Average daily rate      $ 98.27      -9.0 %
REVPAR      $ 77.51      -10.4 %
TownePlace Suites
Occupancy      74.8 %      2.3 % pts.
Average daily rate      $ 63.40      -7.3 %
REVPAR      $ 47.42      -4.3 %

~~Across Marriott’s domestic full-service lodging brands (~~~~Marriott Hotels, Resorts and Suites; Renaissance~~ ~~Hotels,~~ ~~Resorts and Suites; and The Ritz-Carlton Hotels~~), REVPAR for comparable company-operated U.S. properties declined 9.3 percent during the first three quarters of 2002. Average room rates for these hotels declined 6.3 percent and occupancy decreased 2.3 percentage points to 69.0 percent.

~~Our domestic select-service and extended-stay brands (~~~~Fairfield Inn, Courtyard, Residence Inn,~~~~SpringHill Suites and TownePlace Suites~~~~) had average REVPAR declines of 7.0 percent, reflecting occupancy declines of 2.8 percentage points and average room rate declines of 7.3 percent.~~

~~Results for international lodging operations declined due to the impact of the decrease in international travel, partially offset by higher margins.~~

~~Our timeshare business reported a 4 percent decrease in contract sales in the first three quarters of~~ 2002 due to the impact of the prior year acquisition of the Grand Residence Club at Lake Tahoe. Sales growth was strong at timeshare resorts in Hawaii, California and Colorado, but remained soft in Florida. Profits for the first three quarters of 2002 declined 8 percent largely due to higher product costs as a result of the acquisition of The Grand Residence Club at Lake Tahoe. Note sale gains were approximately $47 million compared to $40 million in the prior year. We sold $252 million in notes in the first three quarters of 2002 compared to $199 million in the prior year period.

~~Senior Living Services~~ posted a 9 percent increase in sales and a $19 million increase in operating profit in the first three quarters of 2002. The increase in operating profit reflects $11 million in pretax income associated with the sale of the Village Oaks communities, higher per diems, recognition of a $2 million one-time payment associated with the sale of the Crestline Senior Living ~~communities to an unaffiliated third-party, implementation~~Communities.

Distribution Services.

As of ~~cost containment initiatives, lower depreciation expense due to~~January 3, 2003, through a combination of sale and transfer of nine facilities and the ~~classification~~termination of all operations at four facilities, we completed our exit of the ~~Village Oaks communities~~distribution services business. Accordingly, we present the exit costs and the operating results for our distribution services business as discontinued operations for the twelve weeks ended March 28, 2003 and March 22, 2002, and the remaining assets are classified as held for sale at March 28, 2003 and ~~$3 million of lower amortization expense associated with our adoption of FAS No. 142 in~~January 3, 2003. In the first quarter of ~~2002. These were partially offset by higher casualty insurance costs. Occupancy for comparable communities was 83.5 percent in~~2003, we incurred exit costs of $1 million, primarily related to ongoing compensation costs associated with the ~~first three quarters of 2002, relatively stable with a year ago.~~

~~Distribution Services~~ posted a 4 percent decrease in sales in the first three quarters of 2002, reflecting lower sales volume, partially offset by the commencement of new contracts since the comparable 2001 period, which include the distribution of higher priced, but lower margin items. Although we obtained a number of new contracts over the past year, the number of cases we shipped was down 9 percent. This volume decline is largely attributable to our loss of one significant customer. MDS reported a $42 million loss for the three quarters ended September 6, 2002, primarily as a result of the $30 million chargewind down. Additional costs associated with the wind down ~~of the distribution business. The increased proportion of lower margin business, the volume decline, and a $2 million write-off~~are expected to be incurred in the ~~first~~second quarter of ~~2002 of an investment in a customer contract also contributed~~2003. Although we are unable to estimate the ~~loss.~~

~~Corporate Expenses, Interest and Taxes~~. Interest expense decreased $16 million, reflecting lower borrowings and lower interest rates, partially offset by less capitalized interest. Corporate expenses increased $5 million, reflectingcosts, we do not expect the ~~following: (i) 2002 items, including~~costs to be material since the continued favorable impact of our cost containment initiatives, and a $7 million reserve in connection with a lawsuit involving the sale of a hotel previously managed by us, and higher foreign exchange losses; and (ii) 2001 items, including the $13 million write-off of two investments in technology partnerships, $4 million of expenses associated with the start-up of Avendra LLC, the reversal of a $10 million insurance reserve related to a lawsuit at one of our hotels, and the $11 million gain from the sale of four affordable housing investments. Our effective income tax rate decreased from 36.5 percent to 9.9 percent primarily due to the impact of the tax benefit and tax credits arising from our Synthetic Fuel business and the elimination of nondeductible goodwill amortization, partially offset by the 2001 sale of the affordable housing investments.

wind down is substantially complete.

~~Synthetic Fuel.~~ In the first three quarters of 2002, our Synthetic Fuel business reflected sales of $113 million and an operating loss of $81 million, resulting in a tax benefit of $28 million and tax credits of $91 million.

LIQUIDITY AND CAPITAL RESOURCES

We have credit facilities which support our commercial paper program and letters of credit. At ~~September 6, 2002,~~March 28, 2003, our cash balances combined with our available borrowing capacity under the credit facilities amounted to nearly $2 billion. We consider these resources, together with cash we expect to generate from operations, adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, meet debt service and fulfill other cash ~~requirements.~~ requirements, including the repayment of $200 million of senior notes due in November 2003.

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. We expect that part of our financing and liquidity needs will continue to be met through commercial paper borrowings and access to long-term committed credit facilities. If conditions in the lodging industry deteriorate, we may be unable to place some or all of our commercial paper, and may have to rely more on bank borrowings which may carry a higher cost than commercial paper.

We are in the process of preparing and presenting a claim with an insurance company for lost management fees from the September 11, 2001 terrorist attacks. At this stage of the claims process, the amounts that may be paid to us are not currently estimable.

Cash and equivalents totaled ~~$311~~$525 million at ~~September 6, 2002, a decrease~~March 28, 2003, an increase of ~~$506~~$327 million from ~~year-end 2001, primarily resulting from~~year end 2002. We increased our cash position as a result of the ~~repayment of debt. Net income is stated after recording depreciation expense of $96 million and $93 million for~~uncertainty associated with the ~~thirty-six weeks ended September 6, 2002 and September 7, 2001, respectively, and after amortization expense of $32 million and $54 million, respectively, for the same time periods.~~ war in Iraq.

Earnings before interest expense, income taxes, depreciation and amortization (EBITDA) ~~for the thirty-six weeks ended September 6, 2002 decreased by $241 million, or 36 percent, to $536 million. Excluding the impact of our~~from continuing operations and EBITDA from continuing operations, excluding Synthetic Fuel ~~business,~~are financial measures that are not presented in accordance with accounting principles generally accepted in the United States. We consider EBITDA ~~would have decreased by $165 million, or 21 percent,~~from continuing operations to ~~$612 million. EBITDA is~~be an indicator of operating performance, which can be used to measure our ability to service debt, fund capital expenditures and expand our business. We also consider the presentation of EBITDA ~~however~~from continuing operations, excluding our Synthetic Fuel business to provide a useful supplemental measure to investors because the significant losses produced by our Synthetic Fuel Facilities are more than offset by the tax credits generated, which reduce our income tax expense. However, EBITDA is not an alternative to net income, ~~operating profit,~~financial results, cash flows from operations, or any other operating or liquidity measure prescribed by accounting principles generally accepted in the United States.

EBITDA (from continuing operations) for the twelve weeks ended March 28, 2003 decreased by $61 million, or 36 percent, to $107 million. Excluding the impact of the $57 million EBITDA decrease from our Synthetic Fuel business, EBITDA would have decreased by $9 million, or 5 percent to $164 million.

The reconciliation of income from continuing operations, before income taxes to EBITDA and to EBITDA, excluding Synthetic Fuel is as follows:

	Twelve weeks ended
($ in millions)	March 28, 2003			March 22, 2002
Income from continuing operations, before taxes	$	47		$	118
Interest expense		26			19
Depreciation		29			22
Amortization		5			9

EBITDA from continuing operations	$	107		$	168
Synthetic Fuel loss, before taxes		59			6
Depreciation – Synthetic Fuel		(2	)		(1	)

EBITDA from continuing operations, excluding Synthetic Fuel	$	164		$	173

Net cash provided by investing activities totaled ~~$193~~$229 million for the ~~thirty-six~~twelve weeks ended ~~September 6, 2002,~~March 28, 2003, and consisted primarily of proceeds from the ~~disposition~~sale of ~~seven lodging properties,~~ our ~~interest in a hotel~~senior living management business to Sunrise and ~~residential project under development, five~~the sale of nine senior living communities and a parcel of land ~~parcels, partially offset by~~to CNL, and proceeds from a loan sale, net of capital expenditures and ~~notes receivable advances and equity investments.~~

loan advances.

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 ~~September 6, 2002,~~March 28, 2003, 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~~

Approximately $70 million in face amount of ~~7 percent senior unsecured notes, due 2008, and received net proceeds of $297 million. We completed a registered exchange offer for these notes on January 15, 2002.~~

~~On May 8, 2001, we issued~~our zero-coupon convertible senior notes due 2021, known as LYONs ~~and received cash proceeds of $405 million. On~~are presently outstanding. These LYONs which were issued on May ~~9, 2002, we redeemed for cash the approximately~~

~~85 percent of the LYONs that were tendered for mandatory repurchase by the holders. The remaining LYONs~~8, 2001, are convertible into approximately .90.9 million shares of our Class A Common Stock, and carry a yield to maturity of 0.75 percent. We may not redeem the LYONs prior to May 8, 2004. We may at the option of the holders be required to purchase the LYONs at their accreted value on May 8 of each of 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 classify LYONs 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.

The following ~~tables summarize~~table summarizes our contractual ~~obligations~~obligations:

			Payments Due by Period
Contractual Obligations	Total		Before January 2, 2004		1-3 years		4-5 years		After 5 years
($ in millions)
Debt	$	2,160	$	222	$	546	$	505	$	887
Operating Leases
Recourse		970		83		176		122		589
Non-recourse		544		13		69		96		366

Total Contractual Cash Obligations	$	3,674	$	318	$	791	$	723	$	1,842

The totals above exclude recourse minimum lease payments of $2 million associated with the discontinued Distribution Services business, due as follows: less than one year $1 million; and ~~commitments:~~

Payments Due by Period
Contractual Obligations

Total

Before
January 3,
2003

1–3 years

4–5 years

After 5 years
($ in millions)
Debt    $ 1,793      $ 1    $ 814    $ 284    $ 694
Operating Leases
Recourse    1,353      53    262    198    840
Non-recourse    689      3    78    116    492





Total Contractual Cash Obligations    $ 3,835      $ 57    $ 1,154    $ 598    $ 2,026

~~We have recorded $1,793 million of~~one to three years $1 million. Excluded from the debt ~~in our condensed consolidated balance sheet as $1,747 million of long-term debt and~~obligation above is $46 million associated with the discontinued Senior Living Services business which, subsequent to quarter end, on March 31, 2003, was refinanced. At the end of the quarter the obligation was included in ~~current~~ liabilities of businesses held for sale. Subsequent to quarter end, the refinanced obligation will be classified as long-term debt.

The following table summarizes our commitments:

			Amount of Commitment Expiration Per Period
Other Commercial Commitments	Total Amounts Committed		Before January 2, 2004		1-3 years		4-5 years		After 5 years
($ in millions)
Guarantees	$	1,256	$	76	$	248	$	349	$	583
Timeshare note repurchase obligations		11		—		2		—		9

Total	$	1,267	$	76	$	250	$	349	$	592

Our guarantees include $237 million for commitments which ~~reflects~~will not be in effect until the ~~portion of debt becoming due by September 12, 2003.~~

Amount of Commitment Expiration Per Period
Other Commercial Commitments

Total Amounts Committed

Before
January 3,
2003

1–3 years

4 – 5 years

After 5 years
($ in millions)
Guarantees    $ 589    $ 71    $ 109    $ 264    $ 145
Timeshare note repurchase
obligations    68    —      —      —      68





Total    $ 657    $ 71    $ 109    $ 264    $ 213

underlying hotels are open and we begin to manage the properties. Our total unfunded loan commitments amounted to ~~$576~~$194 million at ~~September 6, 2002.~~March 28, 2003. We expect to fund ~~$80~~$114 million by January ~~3, 2003, $154~~2, 2004 and $27 million in one to three ~~years, and $2 million in four to five~~ years. We do not expect to fund the remaining ~~$340~~$53 million of commitments, which expire as follows: ~~$55~~$48 million ~~by January 3, 2003; $23~~within one year; $2 million in one to three years; ~~$4 million~~none in four to five years; and ~~$258~~$3 million after five years.

Included in guarantees above are $410 million related to Senior Living Services lease obligations and lifecare bonds. The lease obligations and lifecare bonds are primary obligations of Sunrise and CNL. Marriott International, Inc. has been indemnified by Sunrise and CNL with respect to any guarantee fundings in connection with these lease obligations and lifecare bonds. Prior to the sale of the Senior Living Services business these pre-existing guarantees were guarantees by Marriott International, Inc. of obligations of consolidated Senior Living Services subsidiaries. Also included in the table above are $51 million of guarantees associated with the Sunrise sale transaction.

~~Share Repurchases~~CRITICAL ACCOUNTING POLICIES

Our accounting policies, which are in compliance with principles generally accepted in the United States, require us to apply methodologies, estimates and judgments that have a significant impact on the results we report in our financial statements. In our annual report on Form 10-K we have discussed those policies that we believe are critical and require the use of complex judgment in their application. Since the date of that Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions applied under them.

SHARE REPURCHASES

We purchased ~~3.8~~4.9 million shares of our Class A Common Stock during the ~~thirty-six~~twelve weeks ended ~~September 6, 2002.~~March 28, 2003 at an average price of $31.28 per share. As of ~~September 6, 2002,~~March 28, 2003, we were authorized by our Board of Directors to repurchase ~~9.7~~18.1 million shares.

~~Avendra~~AVENDRA

In January 2001, Marriott and Hyatt Corporation formed a joint venture, Avendra LLC (Avendra), to be an independent professional procurement services company serving the North American hospitality market and related industries. Six Continents Hotels, Inc., ClubCorp USA Inc., and Fairmont Hotels & Resorts, Inc., joined Avendra in March 2001. We and the other four members contributed our respective procurement businesses to Avendra. Currently, our interest in Avendra is slightly less than 50 percent.

Avendra generally does not purchase and resell goods and services; instead, its customers purchase goods and services directly from Avendra’s vendors on terms negotiated by Avendra. Avendra earns revenue through agreements with its vendors which provide that the vendors pay Avendra an unrestricted allowance for purchases by its customers. Our hotel management agreements treat vendor-generated

unrestricted allowances in three separate ways, and the requirements of those agreements are reflected in our Procurement Services Agreement with Avendra (PSA).

For purchases of goods and services by the majority of Marriott’s managed hotels, Avendra is permitted to retain unrestricted allowances, in an amount sufficient only to recover Avendra’s properly allocated costs of providing procurement services. Other management contracts allow Avendra to retain vendor allowances and earn a return which is competitive in the industry. This amount is capped by the PSA. Lastly, for purchases of goods and services by hotels owned by one of Marriott’s hotel owners, Avendra is not permitted to retain any of such unrestricted allowances; instead, Avendra charges a negotiated fee to Marriott, and Marriott in turn charges a negotiated fee to that owner. ~~In 2001, we returned to hotels that we manage approximately $8 million in cash rebates from Avendra, and its predecessor Marketplace by Marriott.~~ If Marriott franchised hotels (not managed by Marriott) elect to purchase through Avendra, they negotiate separately with Avendra and are not bound by the terms of the PSA for our managed hotels. We account for our interest in Avendra under the equity method and recognized ~~a loss~~income of $1$0.1 million in ~~2001.~~

~~Relationship with Host Marriott~~

~~In recognition~~the first quarter of ~~the evolving changes~~2003. After we have recovered our investment in ~~the lodging industry over the last ten years~~Avendra and the age of our agreements with Host Marriott, many provisions of which predated our 1993 Spinoff, and the need to provide clarity on a number of points and consistency on contractual terms over the large portfolio of Host Marriott owned hotels, we and Host Marriott concluded that we could mutually enhance the long term strength and growth of both companies by updating our existing relationship. Accordingly, we recently negotiated certain changes to our management agreements for Host Marriott-owned hotels. The modifications which were completed during the third quarter are effective as of the beginning of our 2002 fiscal year. These changes, among other things,

~~Provided Host Marriott with additional approval rights over budgets and capital expenditures;~~

~~Extended the term of management agreements for five hotels that were subject to termination in the short term, and two core system hotels that provide additional years at the end of the current term;~~

Changed the pool of hotels that Host Marriott could sell with franchise agreements to one of our approved franchisees and revised the method of determining the number of hotels that may be sold without a management agreementassociated expenses through distributions from Avendra or ~~franchise agreement;~~

~~Lowered the incentive management fees payable to us by amounts that will depend in part on underlying hotel profitability-- we expect the reduction to be approximately $2.5 million in 2002;~~

~~Reduced certain expenses to the properties and lowered Host Marriott’s working capital requirements;~~

Confirmed that we and our affiliates may earn a profit (in addition to what we earn through management fees) on certain transactions relating to Host Marriott-owned properties, and established the specific conditions under which we may profit on future transactions; and

Terminated our prior right to make significant purchases of Host Marriott’s outstanding common stock upon certain changes of control and clarified our rights in each of our management agreements to prevent either a sale of ~~the hotel~~all or any portion of our equity interest in Avendra, we will apply any further benefits to ~~our major competitors or specified changes in control of Host~~offset costs otherwise allocable to Marriott ~~involving our major competitors.~~

~~The monetary effect of the changes will depend on future events such as the operating results of the~~branded hotels. ~~We do not expect these modifications to have a material financial impact on us.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our exposures to market risk since ~~December 28, 2001.~~

January 3, 2003.

Item 4. Controls and Procedures

In ~~September and October 2002~~April 2003, we carried out an evaluation, under the supervision and with the participation of the ~~company’s~~Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 and 15d-14. Management necessarily applied its judgement in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management’s control objectives. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective to timely alert them to any material information relating to the ~~company~~Company (including its consolidated subsidiaries) that must be included in our periodic SEC filings.

In addition, there have been no significant changes in the ~~company’s~~Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

~~Incorporated by reference to the description of~~

The legal proceedings and claims described under the heading captioned “Contingencies” in Note 8 of the ~~“Contingencies” footnote in the financial statements~~Notes to Condensed Consolidated Financial Statements set forth in Part I, ~~“Financial Information”.~~

Item 1 of this Quarterly Report are hereby incorporated by reference. From time to time, we are also subject to certain legal proceedings and claims in the ordinary course of business. We currently are not aware of any such legal proceedings or claims that we believe will have, individually or in aggregate, a material adverse effect on our business, financial condition, or operating results.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

~~Our Audit Committee approved all of~~

Securities Authorized for Issuance under Equity Compensation Plans.

The following table sets forth information about the ~~non-audit services performed by our independent auditors during the period covered by this report.~~

Company’s compensation plans at January 3, 2003.

Equity Compensation Plan Information

	(a)		(b)		(c)
Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plans approved by shareholders	$	39,412,991	$	29.13	$	22,680,223¹
Equity compensation plans not approved by shareholders²		—				—

Total	$	39,412,991			$	22,680,223

Consists of 21,200,455 securities in the 2002 Comprehensive Stock and Cash Incentive Plan and 1,479,768 securities in the Employee Stock Purchase Plan.

All of the Company’s equity compensation plans have been approved by shareholders.

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

Exhibit No.		Description
~~10.1~~ 10-1		~~Amendment No. 1 dated as of July 23, 2002 to the $1,500,000,000 Credit~~ Stock Purchase Agreement dated as of ~~July 31, 2001, with Citibank, N.A.~~December 30, 2002 by and among Marriott International, Inc., ~~as Administrative Agent,~~Marriott Senior Holding Co., Marriott Magenta Holding Company, Inc. and ~~certain banks.~~Sunrise Assisted Living, Inc.

~~10.2~~ 10-2		Amendment ~~No. 1 dated as of July 23, 2002~~No.1 to ~~the $500,000,000 5-year Credit~~Stock Purchase Agreement, dated as of ~~February 2, 1999, with Citibank, N.A.~~March 28, 2003 by and among Marriott International, Inc., ~~as Administrative Agent,~~Marriott Senior Holding Co., Marriott Magenta Holding Company, Inc. and ~~certain banks.~~Sunrise Assisted Living, Inc.

12		Statement of Computation of Ratio of Earnings to Fixed Charges.

99 99-1		Forward-Looking Statements.

99-2		Sarbanes-Oxley Act – Section 906 Certifications.

We note that with the termination of our right to purchase up to 20% of Host Marriott upon certain changes in control, we no longer deem our 1993 Distribution Agreement with Host Marriott, as amended, to be a material contract.

(b)

Reports on Form 8-K

On August 12, 2002, we filed a report on Form 8-K containing Statements Under Oath of our Chief Executive Officer and our Chief Financial Officer regarding facts and circumstances relating to Exchange Act Filings.

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 October, 2002~~

~~/s/ Arne M. Sorenson~~

~~Arne M. Sorenson~~

~~Executive Vice President and~~

~~Chief Financial Officer~~

~~/s/ Michael J. Green~~

~~Michael J. Green~~

~~Vice President, Finance and~~

MARRIOTT INTERNATIONAL, INC.

2^ndday of May, 2003

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

/s/ Michael J. Green
Michael J. Green
Vice President Finance and Principal Accounting Officer

CERTIFICATIONS

I, J.W. Marriott, Jr., certify that:

I have reviewed this quarterly report on Form 10-Q of Marriott International, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being ~~prepared.~~prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

May 2, 2003


~~October 10, 2002~~		/s/ J.W. M~~ARRIOTT, J~~R. Marriott, Jr.
		J.W. Marriott, Jr.
		Chairman of the Board and Chief Executive Officer

I, Arne M. Sorenson, certify that:

I have reviewed this quarterly report on Form 10-Q of Marriott International, Inc.;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

May 2, 2003


~~October 10, 2002~~		/s/ A~~RNE~~Arne M. S~~ORENSON~~ Sorenson
		Arne M. Sorenson
		Executive Vice President and Chief Financial Officer

I, J.W. Marriott, Jr., certify that the Form 10-Q for the period ended September 6, 2002 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the Form 10-Q for the period ended September 6, 2002 fairly presents, in all material respects, the financial condition and results of operations of the issuer.


~~October 10, 2002~~		~~/s/ J.W. MARRIOTT, J~~R.
		~~J.W. Marriott, Jr.~~
		~~Chairman of the Board and~~ ~~Chief Executive Officer~~

I, Arne M. Sorenson, certify that the Form 10-Q for the period ended September 6, 2002 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the Form 10-Q for the period ended September 6, 2002 fairly presents, in all material respects, the financial condition and results of operations of the issuer.


~~October 10, 2002~~		~~/s/ ARNE~~ ~~M. SORENSON~~
		~~Arne M. Sorenson~~
		~~Chief Financial Officer~~

	Twelve weeks ended						Thirty-six weeks ended
	September 6, 2002			September 7, 2001			September 6, 2002			September 7, 2001
SALES
Management and franchise fees	$	170		$	187		$	552		$	618
Distribution services		351			385			1,102			1,143
Other		557			521			1,588			1,519

		1,078			1,093			3,242			3,280
Other revenues from managed and franchised properties		1,376			1,280			4,162			4,004

		2,454			2,373			7,404			7,284


OPERATING COSTS AND EXPENSES
Distribution services		385			384			1,144			1,137
Other		582			531			1,688			1,500

		967			915			2,832			2,637
Other costs from managed and franchised properties		1,376			1,280			4,162			4,004

		2,343			2,195			6,994			6,641

		111			178			410			643
Corporate expenses		(25	)		(13	)		(77	)		(72	)
Interest expense		(19	)		(26	)		(59	)		(75	)
Interest income		28			23			75			59

INCOME BEFORE INCOME TAXES		95			162			349			555
Benefit (provision) for income taxes		8			(61	)		(35	)		(203	)

NET INCOME	$	103		$	101		$	314		$	352


DIVIDENDS DECLARED PER SHARE	$	.07		$	.065		$	.205		$	.19


EARNINGS PER SHARE
Basic Earnings Per Share	$	.43		$	.41		$	1.30		$	1.44

Diluted Earnings Per Share	$	.41		$	.39		$	1.23		$	1.36

	September 6, 2002			December 28, 2001
	(Unaudited)
ASSETS
Current assets
Cash and equivalents	$	311		$	817
Accounts and notes receivable		620			611
Inventory		86			96
Other		477			606

		1,494			2,130
Property and equipment		2,908			2,930
Goodwill		1,092			1,092
Other intangibles		481			672
Investments in affiliates		1,136			823
Notes and other receivables		974			1,038
Other		409			422

	$	8,494		$	9,107

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	647		$	697
Other		1,220			1,105

		1,867			1,802

Long-term debt		1,747			2,408
Other long-term liabilities		1,056			1,012
Convertible debt		61			407

		2,864			3,827

Shareholders’ equity
Class A common stock, 255.6 million shares issued		3			3
Additional paid-in capital		3,174			3,378
Retained earnings		1,184			941
Unearned ESOP shares		—			(291	)
Treasury stock, at cost		(555	)		(503	)
Accumulated other comprehensive loss		(43	)		(50	)

		3,763			3,478

	$	8,494		$	9,107

	Twelve weeks ended September 6, 2002
	Lodging		Senior Living Services		Distribution Services			Synthetic Fuel			Total
($ in millions)
Sales
Management and franchise fees	$	162	$	8	$	—		$	—		$	170
Other		425		77		351			55			908

		587		85		351			55			1,078
Other revenues from managed and franchised properties		1,282		94		—			—			1,376

		1,869		179		351			55			2,454

Operating costs and expenses
Operating costs		427		68		385			87			967
Other costs from managed and franchised properties		1,282		94		—			—			1,376

		1,709		162		385			87			2,343

Segment financial results	$	160	$	17	$	(34	)	$	(32	)	$	111


	Twelve weeks ended September 7, 2001
	Lodging		Senior Living Services		Distribution Services			Synthetic Fuel			Total
($ in millions)
Sales
Management and franchise fees	$	179	$	8	$	—		$	—		$	187
Other		447		74		385			—			906

		626		82		385			—			1,093
Other revenues from managed and franchised properties		1,197		83		—			—			1,280

		1,823		165		385			—			2,373

Operating costs and expenses
Operating costs		452		79		384			—			915
Other costs from managed and franchised properties		1,197		83		—			—			1,280

		1,649		162		384			—			2,195

Segment financial results	$	174	$	3	$	1		$	—		$	178

	Twelve weeks ended September 6, 2002			Change vs. Twelve weeks ended September 7, 2001
Marriott Hotels, Resorts and Suites
Occupancy		72.0	%	-2.4	% pts.
Average daily rate	$	126.21		-4.7	%
REVPAR	$	90.82		-7.7	%

The Ritz-Carlton Hotels
Occupancy		65.8	%	-1.5	% pts.
Average daily rate	$	206.93		-6.7	%
REVPAR	$	136.10		-8.8	%

Renaissance Hotels, Resorts and Suites
Occupancy		66.1	%	-2.9	% pts.
Average daily rate	$	120.83		-3.5	%
REVPAR	$	79.88		-7.5	%

Courtyard
Occupancy		73.3	%	-1.7	% pts.
Average daily rate	$	91.95		-6.1	%
REVPAR	$	67.41		-8.2	%

Fairfield Inn
Occupancy		73.4	%	0.1	% pts.
Average daily rate	$	66.51		-1.0	%
REVPAR	$	48.83		-0.8	%

SpringHill Suites
Occupancy		69.4	%	-0.8	% pts.
Average daily rate	$	78.48		-1.6	%
REVPAR	$	54.49		-2.7	%

Residence Inn
Occupancy		81.9	%	0.6	% pts.
Average daily rate	$	97.02		-7.6	%
REVPAR	$	79.46		-6.9	%

TownePlace Suites
Occupancy		79.5	%	1.1	% pts.
Average daily rate	$	64.72		-3.3	%
REVPAR	$	51.43		-2.0	%

	Thirty-six weeks ended September 6, 2002			Change vs. Thirty-six weeks ended September 7, 2001
Marriott Hotels, Resorts and Suites
Occupancy		71.6	%	-2.6	% pts.
Average daily rate	$	136.77		-6.6	%
REVPAR	$	97.99		-9.9	%

The Ritz-Carlton Hotels
Occupancy		68.4	%	-1.5	% pts.
Average daily rate	$	235.09		-8.4	%
REVPAR	$	160.75		-10.4	%

Renaissance Hotels, Resorts and Suites
Occupancy		66.7	%	-4.0	% pts.
Average daily rate	$	131.53		-4.7	%
REVPAR	$	87.68		-10.1	%

Courtyard
Occupancy		70.8	%	-3.8	% pts.
Average daily rate	$	95.17		-6.3	%
REVPAR	$	67.42		-11.1	%

Fairfield Inn
Occupancy		68.1	%	-0.6	% pts.
Average daily rate	$	65.16		-1.3	%
REVPAR	$	44.38		-2.2	%

SpringHill Suites
Occupancy		70.1	%	1.5	% pts.
Average daily rate	$	78.88		-3.7	%
REVPAR	$	55.32		-1.6	%

Residence Inn
Occupancy		78.9	%	-1.2	% pts.
Average daily rate	$	98.27		-9.0	%
REVPAR	$	77.51		-10.4	%

TownePlace Suites
Occupancy		74.8	%	2.3	% pts.
Average daily rate	$	63.40		-7.3	%
REVPAR	$	47.42		-4.3	%